RNS Number : 0931S
HSBC Holdings PLC
06 March 2019
 

Notes on the financial statements


Hedges of net investments in foreign operations

The Group applies hedge accounting in respect of certain consolidated net investments. Hedging is undertaken using forward foreign exchange contracts or by financing with foreign currency borrowings. At 31 December 2018, the fair values of outstanding financial instruments designated as hedges of net investments in foreign operations were assets of $163m (2017: $4m), liabilities of nil (2017: $71m) and notional contract values of $5,000m (2017: $5,000m). Ineffectiveness recognised in 'Net income from financial instruments held for trading or managed on a fair value basis' in the year ended 31 December 2018 was nil (2017: nil).

16     Financial investments

Carrying amount of financial investments

 

Financial investments measured at fair value through other comprehensive income

344,767

N/A

- treasury and other eligible bills

96,642 246,371 1,657 97

N/A N/A N/A N/A

- debt securities

- equity securities

- other instruments                                                                                                                                                                                                                        1

Debt instruments measured at amortised cost                                                                                                                                                                      2

62,666

N/A

- treasury and other eligible bills

679

61,987

N/A N/A

- debt securities

Available-for-sale securities at fair value

N/A

336,157

- treasury and other eligible bills

N/A N/A N/A

78,851

253,389

3,917

- debt securities

- equity securities

Held to maturity securities at amortised cost

N/A

52,919

- debt securities                                                                                                                                                                                                                               2

N/A

52,919

At 31 Dec                                                                                                                                                                                                                                         3, 4

407,433

389,076

 

1       'Other instruments' comprises of loans and advances.

2       Fair value $62.1bn (2017: $54.1bn).

3       Categories of financial instruments are disclosed under IFRS 9 at 31 December 2018. These are not directly comparable with 31 December 2017, where the instruments were categorised in accordance with IAS 39.

4       Information regarding the effects of adoption of IFRS 9 can be found in Note 37.

Equity instruments measured at fair value through other comprehensive income

Financial investments at amortised cost and fair value

 


1       Included within 'fair value' figures are debt securities issued by banks and other financial institutions of $56bn (2017: $67bn), of which $8bn (2017: $15bn) are guaranteed by various governments.

2       Includes securities that are supported by an explicit guarantee issued by the US Government.

3       Excludes asset-backed securities included under US Government agencies and sponsored entities.

263              HSBC Holdings plc Annual Report and Accounts 2018


 


Notes on the financial statements


Financial assets pledged as collateral which the counterparty has the right to sell or repledge

The fair value of assets accepted as collateral, relating primarily to standard securities lending, reverse repurchase agreements, swaps of securities and derivative margining, that HSBC is permitted to sell or repledge in the absence of default was $482,818m (2017: $387,678m). The fair value of any such collateral sold or repledged was $350,848m (2017: $243,531m).

HSBC is obliged to return equivalent securities. These transactions are conducted under terms that are usual and customary to standard securities lending, reverse repurchase agreements and derivative margining.

Assets transferred

The assets pledged include transfers to third parties that do not qualify for derecognition, notably secured borrowings such as debt securities held by counterparties as collateral under repurchase agreements and equity securities lent under securities lending agreements, as well as swaps of equity and debt securities. For secured borrowings, the transferred asset collateral continues to be recognised in full and a related liability, reflecting the Group's obligation to repurchase the assets for a fixed price at a future date, is also recognised on the balance sheet. Where securities are swapped, the transferred asset continues to be recognised in full. There is no associated liability as the non-cash collateral received is not recognised on the balance sheet. The Group is unable to use, sell or pledge the transferred assets for the duration of the transaction, and remains exposed to interest rate risk and credit risk on these pledged assets. With the exception of 'Other sales' in the table below, the counterparty's recourse is not limited to the transferred assets.

Transferred financial assets not qualifying for full derecognition and associated financial liabilities

Repurchase agreements                                                                                                                                         55,510                       52,093

Securities lending agreements                                                                                                                              33,878                         3,324

Other sales (recourse to transferred assets only)                                                                                              2,387                         2,388                         2,377                           2,378                                (1)

18     Interests in associates and joint ventures

Associates

At 31 December 2018, the carrying amount of HSBC's interests in associates was $22,244m (2017: $22,577m).

Principal associates of HSBC


Bank of Communications Co., Limited

The Saudi British Bank


2018

Carrying
amount

Fair value1

$m                                   $m

17,754                        10,991

3,557                          5,222


$m                                 $m

18,057                     10,491

3,618                        4,320


1     Principal associates are listed on recognised stock exchanges. The fair values are based on the quoted market prices of the shares held (Level 1 in the fair value hierarchy).


Footnotes


At 31 Dec 2018


Country of incorporation and principal place of business

Principal
activity

HSBC's interest

%

Bank of Communications Co., Limited


People's Republic of

China

Banking services

19.03

The Saudi British Bank

1

Saudi Arabia

Banking services

40.00

 

1 In 2018, The Saudi British Bank announced a merger agreement with Alawwal Bank in Saudi Arabia. The merger, subject to shareholder and regulatory approval, is expected to be completed

in 2019 and would dilute HSBC's shareholding in the merged bank from 40% to 29.2%.

265          HSBC Holdings plc Annual Report and Accounts 2018


A list of all associates and joint ventures is set out on page 302.

Bank of Communications Co., Limited ('BoCom')

The Group's investment in BoCom is classified as an associate. Significant influence in BoCom was established via representation on BoCom's Board of Directors and participation in a technical cooperation and exchange programme ('TCEP'). Under the TCEP, a number of HSBC staff have been seconded to assist in the maintenance of BoCom's financial and operating policies. Investments in associates are recognised using the equity method of accounting in accordance with IAS 28, whereby the investment is initially recognised at cost and adjusted thereafter for the post-acquisition change in the Group's share of BoCom's net assets. An impairment test is required if there is any indication of impairment.

Impairment testing

At 31 December 2018, the fair value of HSBC's investment in BoCom had been below the carrying amount for approximately 80 months. As a result, the Group performed an impairment test on the carrying amount of the investment in BoCom, which confirmed there was no impairment at 31 December 2018 as the recoverable amount as determined by a value-in-use ('VIU') calculation was higher than the carrying value.

 


At 31 Dec 2018



At 31 Dec 2017




Fair



Fair

VIU

Carrying value

value

VIU

Carrying value

value

$bn

$bn

$bn

$bn

$bn

$bn


Bank of Communications Co., Limited


18.0                            17.8                             11.0


18.3                            18.1                             10.5


In future periods, the VIU may increase or decrease depending on the effect of changes to model inputs. The main model inputs are described below and are based on factors observed at the period-end. The factors that could result in a change in the VIU and an impairment include a short-term underperformance by BoCom, a change in regulatory capital requirements, or an increase in uncertainty regarding the future performance of BoCom resulting in a downgrade of the future asset growth or profitability. An increase in the discount rate as a result of an increase in the risk premium or risk-free rates could also result in a reduction of VIU and an impairment. At the point where the carrying value exceeds the VIU, impairment would be recognised.

If the Group did not have significant influence in BoCom, the investment would be carried at fair value rather than the current carrying value. Basis of recoverable amount

The impairment test was performed by comparing the recoverable amount of BoCom, determined by a VIU calculation, with its carrying amount. The VIU calculation uses discounted cash flow projections based on management's estimates of future earnings available to ordinary shareholders prepared in accordance with IAS 36. Significant management judgement is required in arriving at the best estimate. There are two main components to the VIU calculation. The first component is management's best estimate of BoCom's earnings which is based on management's explicit forecasts over the short to medium term. This results in forecast earnings growth that is lower than recent historical actual growth and also reflects the uncertainty arising from the current economic outlook. Earnings beyond the short to medium term are then extrapolated in perpetuity using a long-term growth rate to derive a terminal value, which comprises the majority of the VIU. The second component is the capital maintenance charge ('CMC') which is management's forecast of the earnings that need to be withheld in order for BoCom to meet regulatory capital requirements over the forecast period (i.e. CMC is deducted when arriving at management's estimate of future earnings available to ordinary shareholders). The principal inputs to the CMC calculation include estimates of asset growth, the ratio of risk-weighted assets to total assets, and the expected minimum regulatory capital requirements. An increase in the CMC as a result of a change to these principal inputs would reduce VIU. Additionally, management considers other factors (including qualitative factors) to ensure that the inputs to the VIU calculation remain appropriate.

Key assumptions in value-in-use calculation

We used a number of assumptions in our VIU calculation, in accordance with the requirements of IAS 36:

·   Long-term profit growth rate: 3% (2017: 3%) for periods after 2022, which does not exceed forecast GDP growth in mainland China and is consistent with forecasts by external analysts.

·   Long-term asset growth rate: 3% (2017: 3%) for periods after 2022, which is the rate that assets are expected to grow to achieve long-term profit growth of 3%.

·   Discount rate: 11.82% (2017: 11.85%), which is based on a capital asset pricing model ('CAPM') calculation for BoCom, using market data. Management also compares rates derived from the CAPM with discount rates from external sources. The discount rate used was within the range of 10.4% to 15.0% (2017: 10.2% to 13.4%) indicated by external sources.

·   Loan impairment charge as a percentage of customer advances: an increased range from 0.73% to 0.79% (2017: 0.66% to 0.82%) in the short to medium term reflect US-China trade tensions. For periods after 2022, the ratio is 0.70% (2017: 0.70%), which is slightly higher than the historical average.

·   Risk-weighted assets as a percentage of total assets: 62% (2017: 62%) for all forecast periods. This is slightly higher than BoCom's actual results and slightly lower than the forecasts disclosed by external analysts.

·   Cost-income ratio: ranges from 38.7% to 39.0% (2017: 37.1% to 38.0%) in the short to medium term. This is consistent with the forecasts disclosed by external analysts.

·   Effective tax rate: ranges from 13.8% to 22.3% (2017: 18.2% to 22.5%) in the short to medium term, reflecting an expected increase towards the long-term assumption. For periods after 2022, the rate is 22.5% (2017: 22.5%), which is slightly higher than the historical average.

·   Regulatory capital requirements: capital adequacy ratio of 11.5% (2017:11.5%) and tier 1 capital adequacy ratio of 9.5% (2017: 9.5%), based on the minimum regulatory requirements.

HSBC Holdings plc Annual Report and Accounts 2018  266


Notes on the financial statements

The following table shows the change to each key assumption in the VIU calculation that on its own would reduce the headroom to nil.

Key assumption                                                                                                                                            Changes to key assumption to reduce headroom to nil

·     Long-term profit growth rate                                                                                                               • decreases by 13 basis points

·     Long-term asset growth rate                                                                                                                • increases by 12 basis points

·     Discount rate                                                                                                                                          • increases by 16 basis points

·     Loan impairment charge as a percentage of customer advances                                                 • increases by 2 basis points

·     Risk-weighted assets as a percentage of total assets                                                                     • increases by 77 basis points

·     Cost-income ratio                                                                                                                                  • increases by 50 basis points

·     Long-term effective tax rate                                                                                                                 • increases by 123 basis points

·     Regulatory capital requirements - capital adequacy ratio                                                             • increases by 14 basis points

·     Regulatory capital requirements - tier 1 capital adequacy ratio                                                   • increases by 75 basis points

The following table further illustrates the impact on VIU of reasonably possible changes to key assumptions. This reflects the sensitivity of the VIU to each key assumption on its own and it is possible that more than one favourable and/or unfavourable change will occur at the same time. The selected rates of reasonably possible changes to key assumptions are largely based on external analysts' forecasts, which can change from period to period.

Sensitivity of VIU to reasonably possible changes in key assumptions

Favourable change                                                                 Unfavourable change


Increase                                                                                      Decrease

  in VIU               VIU                                                                      in VIU                VIU

bps                  $bn               $bn                                                 bps                    $bn                $bn


At 31 Dec 2018


 

 


Loan impairment charge as a percentage of customer advances

Risk-weighted assets as a percentage of total assets

Cost-income ratio

Long term effective tax rate

Earnings in short to medium term - compound annual growth rate1 

Regulatory capital requirements - capital adequacy ratio

Regulatory capital requirements - tier 1 capital adequacy ratio


At 31 Dec 2017


 


Considering the interrelationship of the changes set out in the table above, management estimates that the reasonably possible range of VIU is $15.5bn to $19.6bn (2017: $14.7bn to $21.1bn). In 2018, the range is based on the favourable/unfavourable change in the earnings in the short to medium-term and long-term LICs set out in the table above. All other long-term assumptions, the discount rate and the basis of the CMC have been kept unchanged when determining the reasonably possible range of the VIU.

Selected financial information of BoCom

The statutory accounting reference date of BoCom is 31 December. For the year ended 31 December 2018, HSBC included the associate's results on the basis of the financial statements for the 12 months ended 30 September 2018, taking into account changes in the subsequent period from 1 October 2018 to 31 December 2018 that would have materially affected the results.


267          HSBC Holdings plc Annual Report and Accounts 2018


Selected balance sheet information of BoCom

At 30 Sep

1     Due to the adoption of IFRS9, the opening equity of BoCom at 1 January 2018 was reduced by $4,053m.

Reconciliation of BoCom's total shareholders' equity to the carrying amount in HSBC's consolidated financial statements

At 30 Sep

Selected income statement information of BoCom

For the 12 months ended 30 Sep

HSBC Holdings plc Annual Report and Accounts 2018    268


 


Subsidiaries with significant non-controlling interests

Hang Seng Bank Limited

Proportion of ownership interests and voting rights held by non-controlling interests

Place of business

Profit attributable to non-controlling interests

Accumulated non-controlling interests of the subsidiary

Dividends paid to non-controlling interests

Summarised financial information:

- total assets

- total liabilities

- net operating income before changes in expected credit losses and other credit impairment charges

- profit for the year

- total comprehensive income for the year


20   Structured entities

HSBC is mainly involved with both consolidated and unconsolidated structured entities through the securitisation of financial assets, conduits and investment funds, established either by HSBC or a third party.

Consolidated structured entities

Total assets of HSBC's consolidated structured entities, split by entity type


Conduits

$bn

Securitisations

$bn

HSBC

managed funds

$bn

Other
$bn

Total $bn

At 31 Dec 2018

9.2

5.7

6.5

4.4

25.8

At 31 Dec 2017                                                                                                                                                       12.9

4.8

7.0

3.2

27.9

Conduits

HSBC has established and manages two types of conduits: securities investment conduits ('SICs') and multi-seller conduits.

Securities investment conduits

The SICs purchase highly rated ABSs to facilitate tailored investment opportunities.

·   At 31 December 2018, Solitaire, HSBC's principal SIC, held $2.3bn of ABSs (2017: $3.2bn). These are included within the disclosures of ABSs on page 122. It is currently funded entirely by commercial paper ('CP') issued to HSBC. Although HSBC continues to provide a liquidity facility, Solitaire has no need to draw on it as long as HSBC purchases its issued CP, which HSBC intends to do for the foreseeable future. At 31 December 2018, HSBC held $3.4bn of CP (2017: $4.6bn).

·   Mazarin is funded by medium-term notes, and is no longer funded by repurchase agreements. HSBC's primary exposure to Mazarin is represented by the amortised cost of the debt required to support the non-cash assets of the vehicles. At 31 December 2018, this amounted to $0.5bn (2017: $0.9bn). The first loss protection is provided through the capital notes issued by the vehicle, which are held substantially by third parties.

·   Barion and Malachite's clean-up redemption conditions were triggered in March 2018 and August 2018 respectively, resulting in the full redemption of these vehicles.

Multi-seller conduit

HSBC's multi-seller conduit was established to provide access to flexible market-based sources of finance for its clients. Currently, HSBC bears risk equal to the transaction-specific facility offered to the multi-seller conduit, amounting to $16.1bn at 31 December 2018 (2017: $15.7bn). First loss protection is provided by the originator of the assets, and not by HSBC, through transaction-specific credit enhancements. A layer of secondary loss protection is provided by HSBC in the form of programme-wide enhancement facilities.

Securitisations

HSBC uses structured entities to securitise customer loans and advances it originates in order to diversify its sources of funding for asset origination and capital efficiency purposes. The loans and advances are transferred by HSBC to the structured entities for cash or synthetically through credit default swaps, and the structured entities issue debt securities to investors.

HSBC managed funds

HSBC has established a number of money market and non-money market funds. Where it is deemed to be acting as principal rather than agent in its role as investment manager, HSBC controls these funds.

HSBC Holdings plc Annual Report and Accounts 2018    270


Notes on the financial statements

Other

HSBC has entered into a number of transactions in the normal course of business, which include asset and structured finance transactions where it has control of the structured entity. In addition, HSBC is deemed to control a number of third-party managed funds through its involvement as a principal in the funds.

Unconsolidated structured entities

The term 'unconsolidated structured entities' refers to all structured entities not controlled by HSBC. The Group enters into transactions with unconsolidated structured entities in the normal course of business to facilitate customer transactions and for specific investment opportunities.

Nature and risks associated with HSBC interests in unconsolidated structured entities

 

    

 

Total assets in relation to HSBC's interests in the unconsolidated structured entities                              3.8                              8.3                                8.9                              4.7                                25.7

 

 

- trading assets

-

-

3.8

-

-

0.1

7.3

-

0.9

-

0.3

7.9

0.3

0.4

-

1.3

-

2.7

0.3

0.4

1.7

15.2

6.8

1.6

0.4

 

 

- financial assets designated and otherwise mandatorily measured at fair value


 

- loans and advances to customers


 

- financial investments


 

- other assets


 

Total liabilities in relation to HSBC's interests in the unconsolidated structured

entities                                                                                                                                                                         -                                  -                                -                                0.2                                  0.2

 

 

- other liabilities                                                                                                                                                          -

-

-

0.2

0.2

 

 

Other off-balance sheet commitments                                                                                                                 0.8                              0.1                                3.3                              1.0                                  5.2

 

HSBC's maximum exposure at 31 Dec 2018

4.6

8.4

12.2

5.5

30.7

 

Total asset values of the entities ($m)






 

0-500

78

321

930

210

1,539

 

500-2,000

6

56

578

3

643

 

2,000-5,000

-

17

235

-

252

 

5,000-25,000

2

10

104

1

117

 

25,000+

-

2

11

-

13

 

Number of entities at 31 Dec 2017

86

406

1,858

214

2,564

 


$bn

$bn

$bn

$bn

$bn

 

Total assets in relation to HSBC's interests in the unconsolidated structured entities

4.0

9.1

9.3

4.1

26.5

 

- trading assets

-

0.2

0.2

2.4

2.8

 

- financial assets designated at fair value

-

8.0

8.3

-

16.3

 

- loans and advances to banks

-

-

-

0.1

0.1

 

- loans and advances to customers

4.0

-

-

1.1

5.1

 

- financial investments

-

0.9

0.8

0.1

1.8

 

- other assets

-

-

-

0.4

0.4

 

Total liabilities in relation to HSBC's interests in the unconsolidated structured entities

-

-

-

0.3

0.3

- other liabilities

-

-

-

0.3

0.3

Other off-balance sheet commitments

-

0.1

2.2

0.3

2.6

HSBC's maximum exposure at 31 Dec 2017

4.0

9.2

11.5

4.4

29.1

 

The maximum exposure to loss from HSBC's interests in unconsolidated structured entities represents the maximum loss it could incur as a result of its involvement with these entities regardless of the probability of the loss being incurred.

·   For commitments, guarantees and written credit default swaps, the maximum exposure to loss is the notional amount of potential future losses.

·   For retained and purchased investments in and loans to unconsolidated structured entities, the maximum exposure to loss is the carrying value of these interests at the balance sheet reporting date.

The maximum exposure to loss is stated gross of the effects of hedging and collateral arrangements that HSBC has entered into in order to mitigate the Group's exposure to loss.

Securitisations

HSBC has interests in unconsolidated securitisation vehicles through holding notes issued by these entities. In addition, HSBC has investments in ABSs issued by third-party structured entities, as set out on page 121.

HSBC managed funds

HSBC establishes and manages money market funds and non-money market investment funds to provide customers with investment opportunities. Further information on funds under management is provided on page 65.

271          HSBC Holdings plc Annual Report and Accounts 2018


Impairment testing

The Group's impairment test in respect of goodwill allocated to each cash-generating unit ('CGU') is performed as at 1 July each year. A review for indicators of impairment is undertaken at each subsequent quarter-end and as at 31 December 2018. No indicators of impairment were identified as part of these reviews.

Basis of the recoverable amount

The recoverable amount of all CGUs to which goodwill has been allocated was equal to its value in use ('VIU') at each respective testing date for 2017 and 2018. For each CGU, the VIU is calculated by discounting management's cash flow projections for the CGU. The key assumptions used in the VIU calculation for each significant CGU are discussed below.

Key assumptions in VIU calculation


Notes on the financial statements

At 1 July 2018, aggregate goodwill of $3,061m (1 July 2017: $3,059m) had been allocated to CGUs that were not considered individually significant. The Group's CGUs do not carry on their balance sheets any significant intangible assets with indefinite useful lives, other than goodwill.

Management's judgement in estimating the cash flows of a CGU

The cash flow projections for each CGU are based on plans approved by the GMB. For the goodwill impairment test conducted at 1 July 2018, management's cash flow projections until the end of 2022 were used.

Discount rate

The rate used to discount the cash flows is based on the cost of capital assigned to each CGU, which is derived using a capital asset pricing model ('CAPM'). CAPM depends on a number of inputs reflecting financial and economic variables, including the risk-free rate and a premium to reflect the inherent risk of the business being evaluated. These variables are based on the market's assessment of the economic variables and management's judgement. The discount rates for each CGU are refined to reflect the rates of inflation for the countries within which the CGU operate. In addition, for the purposes of testing goodwill for impairment, management supplements this process by comparing the discount rates derived using the internally generated CAPM, with the cost of capital rates produced by external sources for businesses operating in similar markets.

Nominal long-term growth rate

The long-term growth rate is used to extrapolate the cash flows in perpetuity because of the long-term perspective within the Group of business units making up the CGUs. These growth rates reflect GDP and inflation for the countries within which the CGU operates or from which it derives revenue.

Sensitivities of key assumptions in calculating VIU

At 1 July 2018, none of the CGUs were sensitive to reasonably possible adverse changes in key assumptions supporting the recoverable amount. In making an estimate of reasonably possible changes to assumptions, management considers the available evidence in respect of each input to the model, such as the external range of discount rates observable, historical performance against forecast and risks attaching to the key assumptions underlying cash flow projections.

Present value of in-force long-term insurance business

When calculating the present value of in-force long-term ('PVIF') insurance business, expected cash flows are projected after adjusting for a variety of assumptions made by each insurance operation to reflect local market conditions and management's judgement of future trends, and uncertainty in the underlying assumptions is reflected by applying margins (as opposed to a cost of capital methodology). Variations in actual experience and changes to assumptions can contribute to volatility in the results of the insurance business.

Actuarial Control Committees of each key insurance entity meet on a quarterly basis to review and approve PVIF assumptions. All changes to non-economic assumptions, economic assumptions that are not observable and model methodologies must be approved by the Actuarial Control Committee.

Movements in PVIF


 


Change in PVIF of long-term insurance business

- value of new business written during the year

- expected return                                                                                                                                                                                                                       1

- assumption changes and experience variances (see below)

- other adjustments


 


1     'Expected return' represents the unwinding of the discount rate and reversal of expected cash flows for the period.

Assumption changes and experience variances
Included within this line item are:

·   $(56)m (2017: $(98)m), directly offsetting regulatory-driven changes to the valuation of liabilities under insurance contracts.

·   $455m (2017: $(141)m), reflecting the future expected sharing of returns with policyholders on contracts with discretionary participation features ('DPF'), to the extent this sharing is not already included in liabilities under insurance contracts.

·   $(107)m (2017: $(41)m), driven by other assumptions changes and experience variances.
Key assumptions used in the computation of PVIF for main life insurance operations

Economic assumptions are set in a way that is consistent with observable market values. The valuation of PVIF is sensitive to observed market movements and the impact of such changes is included in the sensitivities presented below.


2018


2017


Hong Kong

%

France1

%

Hong Kong

%

France1

%

Weighted average risk-free rate

2.29

1.52

2.02

1.50

Weighted average risk discount rate

5.90

2.35

6.20

2.20

Expense inflation

3.00

1.70

3.00

1.48

 

1     For 2018, the calculation of France's PVIF assumes a risk discount rate of 2.35% (2017: 2.20%) plus a risk margin of $109m (2017: $80m).

273          HSBC Holdings plc Annual Report and Accounts 2018


1       'Deposits by banks' and 'Customer accounts' include repos, stock lending and other amounts.

2       Settlement accounts, cash collateral and margin payables included within 'Deposits by banks' and 'Customer accounts' were reclassified from 'Trading liabilities' to 'Other liabilities' on 1 January 2018. This reclassification is to better reflect the nature of these balances and ensure consistency of presentation. Structured liabilities have moved from 'Trading liabilities' to 'Financial liabilities designated at fair value'. Comparative data was not restated as the reclassification is not significant in the context of other changes to the balance sheet resulting from the adoption of IFRS 9. See Note 37 for further details.

3       Structured deposits placed at HSBC Bank USA and HSBC Trust Company (Delaware) National Association are insured by the Federal Deposit Insurance Corporation, a US government agency, up to $250,000 per depositor.

4       'Other debt securities in issue' comprises structured notes issued by HSBC for which market risks are actively managed as part of trading portfolios.

24     Financial liabilities designated at fair value

HSBC

1  Structured liabilities have moved from 'Trading liabilities' to 'Financial liabilities designated at fair value'. Comparatives have not been restated. See Note 37 for further detail.

HSBC Holdings plc Annual Report and Accounts 2018    274


Notes on the financial statements


The carrying amount of financial liabilities designated at fair value was $11,496m less than the contractual amount at maturity (2017: $5,343m more). The cumulative amount of change in fair value attributable to changes in credit risk was $209m (2017: loss of $4,107m).

HSBC Holdings

2018                           2017

$m                                 $m

Debt securities in issue (Note 25)                                                                                                                                                                                                                                 17,767                         17,496

Subordinated liabilities (Note 28)                                                                                                                                                                                                                                    7,282                         13,394

At 31 Dec                                                                                                                                                                                                                                                                            25,049                         30,890

The carrying amount of financial liabilities designated at fair value was $920m more than the contractual amount at maturity

(2017: $3,370m more). The cumulative amount of change in fair value attributable to changes in credit risk was a loss of $812m (2017: loss of $2,209m).

25     Debt securities in issue

HSBC

  2018                          2017

Footnotes                            $m                             $m

162,277                146,539

33,816                   23,100

196,093                169,639

1                             (1,400)                (40,734)

- financial liabilities designated at fair value (Note 24)


 

At 31 Dec

85,342                                                                                                                                                            64,546

1 Structured liabilities (including debt securities in issue) have moved from 'Trading liabilities' to 'Financial liabilities designated at fair value'. Comparatives have not been restated. See Note 37

for further detail.

HSBC Holdings

2018                           2017

$m                              $m

Debt securities                                                                                                                                                                                                                                                                        68,567                       51,754

Included within:

- financial liabilities designated at fair value (Note 24)                                                                                                                                                                                               (17,767)                    (17,496)

At 31 Dec                                                                                                                                                                                                                                                                                 50,800                       34,258

26     Accruals, deferred income and other liabilities

Footnotes

Accruals and deferred income

Settlement accounts                                                                                                                                                                                                                                 1

Cash collateral and margin payables                                                                                                                                                                                                     1

Endorsements and acceptances

Employee benefit liabilities (Note 6)

Liabilities of disposal groups held for sale

Other liabilities

At 31 Dec

 

1 Settlement accounts, cash collateral and margin payables were reclassified from 'Trading liabilities', 'Deposits by banks' and 'Customer accounts' to 'Other liabilities' on 1 January 2018. This

reclassification is to better reflect the nature of these balances and ensure consistency of presentation. Comparative data was not restated as the reclassification is not significant in the context of other changes to the balance sheet resulting from the adoption of IFRS 9. See Note 37 for further details.

Accruals, deferred income and other liabilities include $87,390m (2017: $34,048m) of financial liabilities, the majority of which are measured at amortised cost.

27 Provisions


275          HSBC Holdings plc Annual Report and Accounts 2018


Provisions (excluding contractual commitments)

At 31 Dec 2017

Additions

Amounts utilised

Unused amounts reversed

Exchange and other movements

At 31 Dec 2018

Contractual commitments1 

At 31 Dec 2017

Impact on transition to IFRS 9

Net change in expected credit loss provision and other movements


At 31 Dec 2018

Total Provisions

At 31 Dec 2017

At 31 Dec 2018


 


Restructuring

costs

$m

Contractual
commitments1

$m

Legal proceedings

and regulatory

matters

$m

Customer
remediation

$m

Other provisions

$m

Total

$m

At 1 Jan 2017

551

298

2,436

1,124

364

4,773

Additions

204

87

829

820

280

2,220

Amounts utilised

(353)

(3)

(850)

(543)

(133)

(1,882)

Unused amounts reversed

(103)

(135)

(980)

(52)

(107)

(1,377)

Exchange and other movements

35

6

66

105

65

277

At 31 Dec 2017

334

253

1,501

1,454

469

4,011

 

1     The contractual commitments provision at 31 December 2017 represented IAS 37 provisions on off-balance sheet loan commitments and guarantees, for which expected credit losses are provided following transition to IFRS 9 on 1 January 2018. It further includes provisions in respect of insurance contracts.

Further details of 'Legal proceedings and regulatory matters' are set out in Note 35. Legal proceedings include civil court, arbitration or tribunal proceedings brought against HSBC companies (whether by way of claim or counterclaim), or civil disputes that may, if not settled, result in court, arbitration or tribunal proceedings. Regulatory matters refer to investigations, reviews and other actions carried out by, or in response to the actions of, regulators or law enforcement agencies in connection with alleged wrongdoing by HSBC.

Customer remediation refers to HSBC's activities to compensate customers for losses or damages associated with a failure to comply with regulations or to treat customers fairly. Customer remediation is often initiated by HSBC in response to customer complaints and/or industry developments in sales practices, and is not necessarily initiated by regulatory action. Further details of customer remediation are set out in this note.

Refer to Note 37 for further information on the impact of IFRS 9 on undrawn loan commitments and financial guarantees, presented in 'Contractual commitments'. This provision results from the adoption of IFRS 9 and has no comparatives. Further analysis of the movement in the expected credit loss provision is disclosed within the 'Reconciliation of allowances for loans and advances to banks and customers including loan commitments and financial guarantees' table on page 100.

Payment protection insurance

At 31 December 2018, $555m (2017: $1,174m) of the customer remediation provision relates to the estimated liability for redress in respect of the possible mis-selling of payment protection insurance ('PPI') policies in previous years.

An increase in provisions of $79m was recognised during the second half of 2018, primarily reflecting an adjustment to expected future complaint volumes as a result of increased levels of observed complaints and of information requests during the year.

The estimated liability for redress is calculated on the basis of the total premiums paid by the customer plus simple interest of 8% per annum (or the rate inherent in the related loan product where higher). The basis for calculating the redress liability is the same for single premium and regular premium policies. Future estimated redress levels are based on the historically observed redress per policy.

A total of 5.4 million PPI policies have been sold since 2000, generating estimated revenue of $3.3bn at 2018. The gross written premiums on these policies were approximately $4.4bn.

At 31 December 2018, the estimated total complaints expected to be received were 2.3 million, representing 42% of total policies sold. It is estimated that contact will be made with regard to 2.6 million policies, representing 49% of total policies sold. This estimate includes inbound complaints as well as the Group's proactive contact exercise on certain policies ('outbound contact').

HSBC Holdings plc Annual Report and Accounts 2018    276


Notes on the financial statements

The following table details the cumulative number of complaints received at 31 December 2018 and the number of claims expected in the future:

Cumulative PPI complaints received to 31 December 2018 and future claims expected


Footnotes

Inbound complaints (000s of policies)                                                                                                                                                      1

Outbound contact (000s of policies)

Response rate to outbound contact

Average uphold rate per claim                                                                                                                                                                       2

Average redress per claim ($)

Complaints to Financial Ombudsman Service (000s of policies)

Average uphold rate per Financial Ombudsman Service claim


1     Excludes invalid claims for which no PPI policy exists.

2     Claims include inbound and responses to outbound contact.

A 100,000 increase/decrease in the total inbound complaints would increase/decrease the redress provision by approximately $260m at 2018 average exchange rates.

28     Subordinated liabilities

HSBC's subordinated liabilities


2018 $m

2017 $m

At amortised cost

22,437

19,826

- subordinated liabilities

20,651

1,786

17,988

1,838

- preferred securities

Designated at fair value (Note 24)

14,693

24,290

- subordinated liabilities

14,282

411

23,831

459

- preferred securities

At 31 Dec

37,130

44,116

Issued by HSBC subsidiaries

13,168

15,470

Issued by HSBC Holdings

23,962

28,646

 

Subordinated liabilities rank behind senior obligations and generally count towards the capital base of HSBC. Capital securities may be called and redeemed by HSBC subject to prior notification to the PRA and, where relevant, the consent of the local banking regulator. If not redeemed at the first call date, coupons payable may step up or become floating rate based on interbank rates. On capital securities other than floating rate notes, interest is payable at fixed rates of up to 10.176%.

The balance sheet amounts disclosed in the following table are presented on an IFRS basis and do not reflect the amount that the instruments contribute to regulatory capital principally due to regulatory amortisation and regulatory eligibility limits.


277          HSBC Holdings plc Annual Report and Accounts 2018


HSBC's subordinated liabilities in issue


 

2018

$m

750

500

300

300

1,850

-

382

513

757

286

758

4,546

Tier 2 securities issued by The Hongkong and Shanghai Banking Corporation Ltd

$400m               Primary capital undated floating rate notes (third series)                                                                                                    Jul 1991                                                     400

400

Tier 2 securities issued by HSBC Bank Malaysia Berhad

MYR500m         5.05% subordinated bonds                                                                                                                                                      Nov 2022             Nov 2027                      121

121

Tier 2 securities issued by HSBC USA Inc.

$750m               5.00% subordinated notes                                                                                                                                                                      -              Sep 2020                      747

$250m               7.20% subordinated debentures                                                                                                                                                           -               Jul 2097                      221

Other subordinated liabilities each less than $150m                                                                                   4                                                                                            269

1,237

Tier 2 securities issued by HSBC Bank USA, N.A.

$1,250m            4.875% subordinated notes                                                                                                                                                                   -             Aug 2020                  1,226

$1,000m            5.875% subordinated notes                                                                                                                                                                   -             Nov 2034                  1,106

$750m               5.625% subordinated notes                                                                                                                                                                   -             Aug 2035                      829

$700m               7.00% subordinated notes                                                                                                                                                                      -              Jan 2039                      697

3,858

Tier 2 securities issued by HSBC Finance Corporation

$2,939m            6.676% senior subordinated notes                                                                                                                  5                                   -              Jan 2021                      507

Tier 2 securities issued by HSBC Bank Canada

Other subordinated liabilities each less than $150m                                                                                                          Oct 1996             Nov 2083                        29

29

Securities issued by HSBC Mexico, S.A.

$300m               Non-convertible subordinated obligations                                                                                                    6, 7                  Jun 2014              Jun 2019                         -

Other subordinated liability less than $150m                                                                                               2, 6                                                                                           -

-

Securities issued by other HSBC subsidiaries

Other subordinated liabilities each less than $200m                                                                                                               4                                                                                            273

Subordinated liabilities issued by HSBC subsidiaries at 31 Dec                                                                                           8                                                                                      13,168

1     See paragraph below, 'Guaranteed by HSBC Holdings or HSBC Bank plc'.

2     These securities were redeemed in the first quarter of 2018.

3     The interest rate payable after November 2025 is the sum of the three-month sterling Libor plus 1.50% percentage points.

4     Some securities included here are ineligible for inclusion in the capital base of HSBC.

5     HSBC tendered for these securities in 2017. In January 2018, a further tender was conducted. The principal balance is now $507m. The original notional of these securities is $2,939m.

6     These securities are ineligible for inclusion in the capital base of HSBC.

7     Approximately $60m of these securities were held by HSBC Holdings.

8     Information regarding the effects of adoption of IFRS 9 can be found in Note 37.

HSBC Holdings' subordinated liabilities


2018

2017


$m

$m

At amortised cost

17,715

15,877

Designated at fair value (Note 24)

7,282

13,394

At 31 Dec

24,997

29,271

 

HSBC Holdings plc Annual Report and Accounts 2018    278


Notes on the financial statements

HSBC Holdings' subordinated liabilities in issue


 


Footnotes

First call

date

Maturity

date

Tier 2 securities issued by HSBC Holdings plc




Amounts owed to third parties




$2,000m           4.25% subordinated notes

2,3

-

Mar 2024

$1,500m           4.25% subordinated notes

2

-

Aug 2025

$1,500m           4.375% subordinated notes

2

-

Nov 2026

$488m               7.625% subordinated notes

1

-

May 2032

$222m               7.35% subordinated notes

1

-

Nov 2032

$2,000m           6.5% subordinated notes

1

-

May 2036

$2,500m           6.5% subordinated notes

1

-

Sep 2037

$1,500m           6.8% subordinated notes

1

-

Jun 2038

$1,500m           5.25% subordinated notes

2,3

-

Mar 2044





£650m               5.75% subordinated notes

2

-

Dec 2027

£650m               6.75% subordinated notes

2

-

Sep 2028

£750m               7.0% subordinated notes

2

-

Apr 2038

£900m               6.0% subordinated notes

2

-

Mar 2040





€1,600m           6.25% subordinated notes

2

-

Mar 2018

€1,750m           6.0% subordinated notes

2

-

Jun 2019

€1,500m           3.375% subordinated notes

2,3

Jan 2019

Jan 2024

€1,500m           3.0% subordinated notes

2

-

Jun 2025

€1,000m           3.125% subordinated notes

2

-

Jun 2028





Amounts owed to HSBC undertakings




$900m               10.176% subordinated step-up cumulative notes


Jun 2030

Jun 2040





At 31 Dec




 


1     Amounts owed to third parties represent securities included in the capital base of HSBC as tier 2 securities in accordance with the grandfathering provisions under CR0 IV rules.

2     These securities are included in the capital base of HSBC as fully CR0 IV-compliant tier 2 securities on an end point basis.

3     These subordinated notes are measured at amortised cost in HSBC Holdings, where the interest rate risk is hedged using a fair value hedge, while they are measured at fair value in the Group.

Additional tier 1 capital securities

Additional tier 1 capital securities are perpetual subordinated securities on which coupon payments may be deferred or cancelled at the discretion of HSBC. The securities presented in this Note are accounted for as liabilities because HSBC has an obligation to pay dividends in perpetuity. See Note 32 for additional tier 1 capital securities accounted for as equity.

The additional tier 1 securities presented in this section do not meet the identifying criteria in full for recognition as tier 1 capital under CRD IV, but are eligible as regulatory capital subject to grandfathering limits and progressive phase-out.

Guaranteed by HSBC Holdings or HSBC Bank plc

Capital securities guaranteed by HSBC Holdings or HSBC Bank plc were issued by the Jersey limited partnerships. The proceeds of these were lent to the respective guarantors by the limited partnerships in the form of subordinated notes. They qualify as additional tier 1 capital for HSBC under CRD IV by virtue of the application of grandfathering provisions, and the two capital securities guaranteed by HSBC Bank plc also qualify as additional tier 1 capital for HSBC Bank plc (on a solo and a consolidated basis) under CRD IV by virtue of the same grandfathering process.

These preferred securities, together with the guarantee, are intended to provide investors with economic rights equivalent to the rights that they would have had if they had purchased non-cumulative perpetual preference shares of the relevant issuer. There are limitations on the payment of distributions if such payments are prohibited under UK banking regulations or other requirements, if a payment would cause a breach of HSBC's capital adequacy requirements, or if HSBC Holdings or HSBC Bank plc has insufficient distributable reserves (as defined).

HSBC Holdings and HSBC Bank plc have individually covenanted that, if prevented under certain circumstances from paying distributions on the preferred securities in full, they will not pay dividends or other distributions in respect of their ordinary shares, or repurchase or redeem their ordinary shares, until the distribution on the preferred securities has been paid in full.

If the consolidated total capital ratio of HSBC Holdings falls below the regulatory minimum required, or if the Directors expect it to do so in the near term, provided that proceedings have not been commenced for the liquidation, dissolution or winding up of HSBC Holdings, the holders' interests in the preferred securities guaranteed by HSBC Holdings will be exchanged for interests in preference shares issued by HSBC Holdings that have economic terms which are in all material respects equivalent to the preferred securities and their guarantee.

If any of the two issues guaranteed by HSBC Bank plc are outstanding in April 2049 or November 2048 respectively, or if the consolidated total capital ratio of HSBC Bank plc falls below the regulatory minimum required, or if the Directors expect it to do so in the near term, provided that proceedings have not been commenced for the liquidation, dissolution or winding up of HSBC Bank plc, the holders' interests in the preferred securities guaranteed by HSBC Bank plc will be exchanged for interests in preference shares issued by HSBC Bank plc that have economic terms which are in all material respects equivalent to the preferred securities and their guarantee.

Tier 2 capital securities

Tier 2 capital securities are either perpetual or dated subordinated securities on which there is an obligation to pay coupons. These capital securities are included within HSBC's regulatory capital base as tier 2 capital under CRD IV by virtue of the application of grandfathering provisions (with the exception of identified securities that are compliant with CRD IV end point rules). In accordance with CRD IV, the capital contribution of all tier 2 securities is amortised for regulatory purposes in their final five years before maturity.

279          HSBC Holdings plc Annual Report and Accounts 2018


29     Maturity analysis of assets, liabilities and off-balance sheet commitments

The table on page 281 provides an analysis of consolidated total assets, liabilities and off-balance sheet commitments by residual contractual maturity at the balance sheet date. These balances are included in the maturity analysis as follows:

·   Trading assets and liabilities (including trading derivatives but excluding reverse repos, repos and debt securities in issue) are included in the 'Due not more than 1 month' time bucket, because trading balances are typically held for short periods of time.

·   Financial assets and liabilities with no contractual maturity (such as equity securities) are included in the 'Due over 5 years' time bucket. Undated or perpetual instruments are classified based on the contractual notice period, which the counterparty of the instrument is entitled to give. Where there is no contractual notice period, undated or perpetual contracts are included in the 'Due over 5 years' time bucket.

·   Non-financial assets and liabilities with no contractual maturity are included in the 'Due over 5 years' time bucket.

·   Financial instruments included within assets and liabilities of disposal groups held for sale are classified on the basis of the contractual maturity of the underlying instruments and not on the basis of the disposal transaction.

·   Liabilities under insurance contracts are included in the 'Due over 5 years' time bucket. Liabilities under investment contracts are classified in accordance with their contractual maturity. Undated investment contracts are included in the 'Due over 5 years' time bucket, however, such contracts are subject to surrender and transfer options by the policyholders.

·   Loan and other credit-related commitments are classified on the basis of the earliest date they can be drawn down.


HSBC Holdings plc Annual Report and Accounts 2018    280


Notes on the financial statements

HSBC

Maturity analysis of assets, liabilities and off-balance sheet commitments

 

Financial assets










 

Cash and balances at central banks

162,843

-

-

-

-

-

-

-

162,843

 

Items in the course of collection from other banks

5,787

-

-

-

-

-

-

-

5,787

 

Hong Kong Government certificates of indebtedness

35,859

-

-

-

-

-

-

-

35,859

 

Trading assets

235,443

264

707

744

104

197

671

-

238,130

 

Financial assets designated or otherwise mandatorily measured at fair value

7,743

49

371

145

334

918

2,415

29,136

41,111

 

Derivatives

206,925

15

57

79

18

69

328

334

207,825

 

Loans and advances to banks

40,114

10,421

3,486

2,004

3,282

7,158

4,508

1,194

72,167

 

Loans and advances to customers

178,613                           72,072                58,680             38,394               37,333             101,267             219,841             275,496            981,696

 

- personal

41,967

8,736

8,237

7,581

7,240

24,942

63,061

229,626

391,390

 

- corporate and commercial

118,294

58,623

45,918

27,001

25,597

67,093

143,959

42,540

529,025

 

- financial

18,352

4,713

4,525

3,812

4,496

9,232

12,821

3,330

61,281

 

Reverse repurchase agreements


 

- non-trading

172,795                           41,084                13,308                5,763                  3,574                  5,253                  1,027                       -              242,804

 

Financial investments

40,421

58,731

30,464

15,707

15,357

41,866

92,846

112,041

407,433

 

Accrued income and other financial assets

62,067

6,893

2,403

561

307

349

731

2,237

75,548

 

Financial assets at 31 Dec 2018

1,148,610

189,529

109,476

63,397

60,309

157,077

322,367

420,438

2,471,203

 

Non-financial assets

-

-

-

-

-

-

-

86,921

86,921

 

Total assets at 31 Dec 2018

1,148,610

189,529

109,476

63,397

60,309

157,077

322,367

507,359

2,558,124

 

Off-balance sheet commitments received










 

Loan and other credit-related commitments

73,464

-

-

-

1

3

98

656

74,222

 

Financial liabilities










 

Hong Kong currency notes in circulation

35,859

-

-

-

-

-

-

-

35,859

 

Deposits by banks

42,406

3,457

1,043

784

542

5,558

1,655

886

56,331

 

Customer accounts1

1,225,919                        66,990                31,315             17,218               13,760                  4,122                  3,194                     125         1,362,643

 

- personal

612,325

38,132

21,218

11,483

8,282

2,853

2,623

53

696,969

 

- corporate and commercial

457,661

22,922

8,029

4,599

4,317

1,092

509

29

499,158

 

- financial

155,933

5,936

2,068

1,136

1,161

177

62

43

166,516

 

Repurchase agreements


 

- non-trading

154,383                              8,140                1,750                       629                        73                   408                     501                        -              165,884

 

Items in the course of transmission to other banks

5,641                                        -                         -                         -                         -                      -                         -                         -                                                   5,641


Trading liabilities2

82,867                                   251                      326                     633                        81                   235                        36                          2                                                84,431

Financial liabilities designated at


 

fair value2

3,813                                   4,476                6,878                  3,076                  3,481                12,545                53,615               60,621           148,505

 

- debt securities in issue: covered bonds

-

-

205

-

-

1,190

2,721

1,137

5,253

 

- debt securities in issue: unsecured

981

1,562

2,659

2,290

2,353

9,143

47,443

37,633

104,064

 

- subordinated liabilities and preferred securities

-

-

2,125

-

-

-

-

12,568

14,693

 

- other

2,832

2,914

1,889

786

1,128

2,212

3,451

9,283

24,495

 

Derivatives

203,962                                   62                      135                     191                      144                   560                     159                      622            205,835

 

Debt securities in issue

6,777                                11,194                12,556                8,075                  3,330                10,670                19,713               13,027              85,342

 

- covered bonds

-

-

-

-

-

-

748

-

748

 

- otherwise secured

2,166

1,100

30

-

-

394

944

1,412

6,046

 

- unsecured

4,611

10,094

12,526

8,075

3,330

10,276

18,021

11,615

78,548

 

Accruals and other financial liabilities

69,958                                8,986                3,296                       659                 1,269                     885                   1,027                  1,300              87,380

 

Subordinated liabilities

6

89

3

-

-

1,996

1,384

18,959

22,437

 

Total financial liabilities at 31 Dec 2018

1,831,591

103,645

57,302

31,265

22,680

36,979

81,284

95,542

2,260,288

 

Non-financial liabilities

-

-

-

-

-

-

-

103,587

103,587

 

Total liabilities at 31 Dec 2018

1,831,591

103,645

57,302

31,265

22,680

36,979

81,284

199,129

2,363,875

 

Off-balance sheet commitments given










 

Loan and other credit-related commitments

769,311                              5,281                     941                 1,972                  1,257                     361                     731                      412            780,266

 

- personal

203,622

974

59

32

201

280

556

331

206,055

 

- corporate and commercial

441,199

2,694

799

1,895

974

34

150

73

447,818

 

- financial

124,490

1,613

83

45

82

47

25

8

126,393

 

 

281          HSBC Holdings plc Annual Report and Accounts 2018


 


Notes on the financial statements

HSBC Holdings

Maturity analysis of assets, liabilities and off-balance sheet commitments

 

Financial liabilities designated at fair value

-                                               -                    2,125                       -                         -                         -                  12,306                10,618             25,049

- debt securities in issue

-

-

-

-

-

-

12,306

5,461

17,767

- subordinated liabilities and preferred securities

-

-

2,125

-

-

-

-

5,157

7,282

Derivatives

1,321                                        -                         -                         -                         -                         -                       339                      499                 2,159


 


Undrawn formal standby facilities, credit lines and other commitments to lend

-                                               -                         -                         -                         -                         -                         -                         -                         -




 


283          HSBC Holdings plc Annual Report and Accounts 2018


Maturity analysis of assets, liabilities and off-balance sheet commitments (continued)

 

Due not more than 1 month

Due over 1 month but not more than

3 months

Due over 3 months

but not more than 6 months

Due over 6 months

but not more than 9 months

Due over 9 months

but not more than

1 year

Due over

1 year but not more than

2 years

Due over 2 years but not more than 5 years

Due over

5 years                       Total

 

$m                      $m                        $m                        $m                        $m                        $m                        $m                        $m                        $m

Financial assets










Cash at bank and in hand:










- balances with HSBC undertakings

1,985

-

-

-

-

-

-

-

1,985

Derivatives

1,952

-

-

-

-

80

-

356

2,388

Loans and advances to HSBC undertakings

4,861

13,039

3,145

5

2

1,134

29,560

24,881

76,627

Loans and advances to HSBC undertakings designated at fair value

-

-

-

-

-

-

2,411

9,533

11,944

Financial investments in HSBC undertakings

17

3

-

-

-

-

1,798

2,446

4,264

Accrued income and other financial assets

-

4

-

-

-

-

-

123

127

Total financial assets at 31 Dec 2017

8,815

13,046

3,145

5

2

1,214

33,769

37,339

97,335

Non-financial assets

-

-

-

-

-

-

-

94,399

94,399

Total assets at 31 Dec 2017

8,815

13,046

3,145

5

2

1,214

33,769

131,738

191,734

Financial liabilities










Amounts owed to HSBC undertakings

120

2,405

46

-

-

-

-

-

2,571

Financial liabilities designated at fair value

-

-

-

-

-

2,349

11,491

17,050

30,890

 

Derivatives

2,008

-

-

-

-

110

183

781

3,082

Debt securities in issue

-

-

-

-

1,081

-

10,354

22,823

34,258

Accruals and other financial liabilities

439

395

157

39

7

3

1

11

1,052

Subordinated liabilities

-

1,918

-

-

-

-

-

13,959

15,877

Total financial liabilities at 31 Dec 2017

2,567

4,718

203

39

1,088

2,462

22,029

54,624

87,730

Non-financial liabilities

-

-

-

-

-

-

-

217

217

Total liabilities at 31 Dec 2017

2,567

4,718

203

39

1,088

2,462

22,029

54,841

87,947

Off-balance sheet commitments given










Undrawn formal standby facilities, credit

lines and other commitments

to lend

-

-

-

-

-

-

-

-

-

30     Offsetting of financial assets and financial liabilities

In the following table, the 'Amounts not set off in the balance sheet' include transactions where:

·   the counterparty has an offsetting exposure with HSBC and a master netting or similar arrangement is in place with a right to set off only in the event of default, insolvency or bankruptcy, or the offset criteria are otherwise not satisfied; and

·   in the case of derivatives and reverse repurchase/repurchase, stock borrowing/lending and similar agreements, cash and non-cash collateral has been received/pledged.

For risk management purposes, the net amounts of loans and advances to customers are subject to limits, which are monitored and the relevant customer agreements are subject to review and updated, as necessary, to ensure the legal right to set off remains appropriate.

HSBC Holdings plc Annual Report and Accounts 2018    284


Notes on the financial statements


 


1     At 31 December 2018, the amount of cash margin received that had been offset against the gross derivatives assets was $3,935m (2017: $6,324m). The amount of cash margin paid that had been offset against the gross derivatives liabilities was $5,888m (2017: $5,196m).

2     For the amount of repos, reverse repos, stock lending, stock borrowing and similar agreements recognised on the balance sheet within 'Trading assets' $18,280m (2017: $17,120m) and 'Trading liabilities' $12,493m (2017: $10,618m), see the 'Funding sources and uses' table on page 134.

3     At 31 December 2018, the total amount of 'Loans and advances to customers' was $981,696m (2017: $962,964m), of which $28,066m (2017: $31,667m) was subject to offsetting.

4     At 31 December 2018, the total amount of 'Customer accounts' was $1,362,643m (2017: $1,364,462m), of which $27,818m (2017: $32,109m) was subject to offsetting.

5     These exposures continue to be secured by financial collateral, but we may not have sought or been able to obtain a legal opinion evidencing enforceability of the right of offset.

31      Non-controlling interests


2018

2017


$m

$m

Non-controlling interests attributable to holders of ordinary shares in subsidiaries

7,996

7,621

At 31 Dec

7,996

7,621

 

Hang Seng Bank Limited is the only subsidiary in the Group that gives rise to significant non-controlling interest. For summarised financial information of Hang Seng Bank Limited, see Note 19.

285          HSBC Holdings plc Annual Report and Accounts 2018


32      Called up share capital and other equity instruments

Called up share capital and share premium


HSBC Holdings ordinary shares of $0.50 each, issued and fully paid

Footnotes

At 1 Jan

Shares issued under HSBC employee share plans

Shares issued in lieu of dividends

Less: Shares repurchased and cancelled

At 31 Dec                                                                                                                                                      1


HSBC Holdings 6.20% non-cumulative US Dollar Preference Shares, Series A


 


HSBC Holdings share premium

 


2018 $m

At 31 Dec

13,609


Total called up share capital and share premium


2018 $m

At 31 Dec

23,789

 


1     All HSBC Holdings ordinary shares in issue, excluding 325,273,407 shares held in treasury, confer identical rights, including in respect of capital, dividends and voting.

2     Included in the capital base of HSBC as additional tier 1 capital in accordance with the CRD IV rules, by virtue of the application of grandfathering provisions.

HSBC Holdings 6.20% non-cumulative US dollar preference shares, Series A of $0.01

HSBC Holdings pays dividends on 6.20% non-cumulative US dollar preference shares, Series A of $0.01 each ('dollar preference shares') quarterly, at the discretion of the Board. The Board will not declare a dividend on them if this would stop the company from meeting the PRA's capital adequacy requirements, or if profit available for distribution as dividends is insufficient to also pay dividends on other shares that are equally entitled and scheduled on the same date.

HSBC Holdings may not declare or pay dividends on shares ranking lower in the right to dividends than dollar preference shares, or redeem or purchase any of its other shares ranking equal or lower than dollar preference shares, unless it has fully paid, or set aside an amount to fully pay, the dividends on the dollar preference shares for the then current dividend period.

The dollar preference shares carry no rights to conversion into ordinary shares. Holders of dollar preference shares are only entitled to attend and vote at shareholder meetings if dividends on these shares have not been paid in full on four consecutive dividend payment dates. In such circumstances, holders of these shares are entitled to vote at shareholder meetings until HSBC Holdings has paid a full dividend on them. These securities can be redeemed by HSBC at any time, subject to prior approval by the PRA.

HSBC Holdings non-cumulative preference share of £0.01

The one non-cumulative sterling preference share of £0.01 ('sterling preference share') has been in issue since 29 December 2010 and is held by a subsidiary of HSBC Holdings. Dividends are paid quarterly at the sole and absolute discretion of the Board. The sterling preference share carries no rights of conversion into ordinary shares of HSBC Holdings and no right to attend or vote at shareholder meetings of HSBC Holdings. These securities can be redeemed by HSBC at any time, subject to prior approval by the PRA.

Other equity instruments

HSBC Holdings includes three types of additional tier 1 capital securities in its tier 1 capital. Two are presented in this Note and are accounted for as equity because HSBC does not have an obligation to transfer cash or a variable number of its own ordinary shares to holders under any circumstances outside its control. See Note 28 for additional tier 1 securities accounted for as liabilities.

Additional tier 1 capital securities

Additional tier 1 capital securities are perpetual subordinated securities on which coupon payments may be deferred at HSBC Holdings' discretion. While any coupon payments are unpaid or deferred, HSBC Holdings will not declare or pay dividends or make distributions or similar periodic payments in respect of any securities of lower or equal rank, or repurchase or redeem them. Such securities do not generally carry voting rights, but rank higher than ordinary shares for coupon payments, and in the event of a winding-up. They do not meet the identifying criteria in full for recognition as tier 1 capital under CRD IV, but are eligible as regulatory capital subject to grandfathering limits and progressive phase-out.

At HSBC Holdings' discretion, and subject to certain conditions being satisfied, the capital securities may be exchanged on any coupon payment date for non-cumulative preference shares to be issued by HSBC Holdings and ranking pari passu with the dollar and sterling preference shares in issue. The preference shares were issued at a nominal value of $0.01 per share and a premium of $24.99 per share, with both amounts being subscribed and fully paid. These securities were redeemed by HSBC in June 2018.

HSBC Holdings plc Annual Report and Accounts 2018  286


 


33     Contingent liabilities, contractual commitments and guarantees

HSBC                                            HSBC Holdings1 

1     Guarantees by HSBC Holdings are all in favour of other Group entities.

2     'Financial guarantees' to which the impairment requirements in IFRS 9 are applied have been presented separately from other guarantees to align with credit risk disclosures. Comparatives have been re-presented accordingly.

3     The 31 December 2017 balances have been restated to include $44bn of loan commitments (unsettled reverse repurchase agreements) and $3bn of performance and other guarantees not previously identified for disclosure.

4     Includes $592,008m of commitments at 31 December 2018, to which the impairment requirements in IFRS 9 are applied where HSBC has become party to an irrevocable commitment.

The preceding table discloses the nominal principal amounts of off-balance sheet liabilities and commitments for the Group, which represent the maximum amounts at risk should the contracts be fully drawn upon and the clients default. As a significant portion of guarantees and commitments are expected to expire without being drawn upon, the total of the nominal principal amounts is not indicative of future liquidity requirements. The expected credit loss provision relating to guarantees and commitments under IFRS 9 is disclosed in Note 27.

Approximately half the guarantees have a term of less than one year, while guarantees with terms of more than one year are subject to HSBC's annual credit review process.

Contingent liabilities arising from legal proceedings, regulatory and other matters against Group companies are disclosed in Notes 27 and 35.

Financial Services Compensation Scheme

The Financial Services Compensation Scheme ('FSCS') has provided compensation to consumers following the collapse of a number of deposit takers. The compensation paid out to consumers was funded through loans from HM Treasury, which have now been repaid (2017: $6.3bn (£4.7bn)). The Group could be liable to pay a proportion of any future amounts that the FSCS borrows from HM Treasury. The ultimate FSCS levy to the industry as a result of a collapse cannot currently be estimated reliably, as it is dependent on various uncertain factors, including the potential recoveries of assets by the FSCS and changes in the level of protected deposits and the population of FSCS members at the time.

Associates

HSBC's share of associates' contingent liabilities, contractual commitments and guarantees amounted to $48.5bn at 31 December 2018 (2017: $46.3bn). No matters arose where HSBC was severally liable.

34     Lease commitments
Operating lease commitments

At 31 December 2018, future minimum lease payments under non-cancellable operating leases for land, buildings and equipment were $3,435m (2017: $3,950m).

Finance lease receivables

HSBC leases a variety of assets to third parties under finance leases, including transport assets (such as aircraft), property and general plant and machinery. At the end of lease terms, assets may be sold to third parties or leased for further terms. Rentals are calculated to recover the cost of assets less their residual value, and earn finance income.


Notes on the financial statements

35     Legal proceedings and regulatory matters

HSBC is party to legal proceedings and regulatory matters in a number of jurisdictions arising out of its normal business operations. Apart from the matters described below, HSBC considers that none of these matters are material. The recognition of provisions is determined in accordance with the accounting policies set out in Note 1. While the outcome of legal proceedings and regulatory matters is inherently uncertain, management believes that, based on the information available to it, appropriate provisions have been made in respect of these matters as at 31 December 2018 (see Note 27). Where an individual provision is material, the fact that a provision has been made is stated and quantified, except to the extent that doing so would be seriously prejudicial. Any provision recognised does not constitute an admission of wrongdoing or legal liability. It is not practicable to provide an aggregate estimate of potential liability for our legal proceedings and regulatory matters as a class of contingent liabilities.

Bernard L. Madoff Investment Securities LLC

Bernard L. Madoff ('Madoff') was arrested in December 2008 and later pleaded guilty to running a Ponzi scheme. His firm, Bernard L. Madoff Investment Securities LLC ('Madoff Securities'), is being liquidated in the US by a trustee (the 'Trustee').

Various non-US HSBC companies provided custodial, administration and similar services to a number of funds incorporated outside the US whose assets were invested with Madoff Securities. Based on information provided by Madoff Securities as at 30 November 2008, the purported aggregate value of these funds was $8.4bn, including fictitious profits reported by Madoff.

Based on information available to HSBC, the funds' actual transfers to Madoff Securities minus their actual withdrawals from Madoff Securities during the time HSBC serviced the funds are estimated to have totalled approximately $4bn. Various HSBC companies have been named as defendants in lawsuits arising out of Madoff Securities' fraud.

US litigation: The Trustee has brought lawsuits against various HSBC companies and others in the US Bankruptcy Court, seeking recovery of transfers from Madoff Securities to HSBC in an amount not yet pleaded or determined. HSBC and other parties to the actions have moved to dismiss the Trustee's claims. The US Bankruptcy Court granted HSBC's motion to dismiss with respect to certain of the Trustee's claims in November 2016. In September 2017, the Trustee appealed the US Bankruptcy Court's decision, and the case remains pending before the US Court of Appeals for the Second Circuit (the 'Second Circuit Court of Appeals').

Fairfield Sentry Limited, Fairfield Sigma Limited and Fairfield Lambda Limited (together, 'Fairfield') (in liquidation since July 2009) have brought a lawsuit in the US against fund shareholders, including HSBC companies that acted as nominees for clients, seeking restitution of redemption payments. In December 2018, the US Bankruptcy Court issued an opinion, which ruled in favour of the defendants' motion to dismiss in respect of certain claims by the liquidators for Fairfield and granted a motion by the liquidators for Fairfield to file amended complaints.

In December 2014, SPV Optimal SUS Ltd ('SPV OSUS'), the purported assignee of the Madoff-invested company, Optimal Strategic US Equity Ltd, filed a lawsuit in New York state court against various HSBC companies and others, seeking damages on various alleged grounds, including breach of fiduciary duty and breach of trust. In April 2018, HSBC transferred the case to the US District Court for the Southern District of New York (the 'New York District Court'). In February 2019, SPV OSUS withdrew its action with prejudice against HSBC.

UK litigation: The Trustee has filed a claim against various HSBC companies in the High Court of England and Wales, seeking recovery of transfers from Madoff Securities to HSBC in an amount not yet pleaded or determined. The deadline for service of the claim has been extended to September 2019 for UK-based defendants and November 2019 for all other defendants.

Bermuda litigation: In January 2009, Kingate Global Fund Limited and Kingate Euro Fund Limited (together, 'Kingate') brought an action against HSBC Bank Bermuda Limited ('HBBM') for recovery of funds held in Kingate's accounts, fees and dividends. This action is pending, but is not expected to move forward until the resolution of the Trustee's US actions against Kingate and HBBM.

Cayman Islands litigation: In February 2013, Primeo Fund Limited ('Primeo') (in liquidation since April 2009) brought an action against HSBC Securities Services Luxembourg ('HSSL') and Bank of Bermuda (Cayman) Limited, alleging breach of contract and breach of fiduciary duty and claiming damages and equitable compensation. The trial concluded in February 2017 and, in August 2017, the court dismissed all claims against the defendants. In September 2017, Primeo appealed to the Court of Appeal of the Cayman Islands and the defendants cross-appealed in respect of certain of the trial court's findings. The appeals are pending before the court for a decision.

Luxembourg litigation: In April 2009, Herald Fund SPC ('Herald') (in liquidation since July 2013) brought an action against HSSL before the Luxembourg District Court, seeking restitution of cash and securities that Herald purportedly lost because of Madoff Securities' fraud, or money damages. The Luxembourg District Court dismissed Herald's securities restitution claim, but reserved Herald's cash restitution claim and its claim for money damages. Herald has appealed this judgment to the Luxembourg Court of Appeal, where the matter is pending. In late 2018, Herald brought additional claims against HSSL and HSBC Bank plc before the Luxembourg District Court, seeking further restitution and damages.

In October 2009, Alpha Prime Fund Limited ('Alpha Prime') brought an action against HSSL before the Luxembourg District Court, seeking the restitution of securities, or the cash equivalent, or money damages. This action has been temporarily suspended at the plaintiffs' request. In December 2018, Alpha Prime brought additional claims before the Luxembourg District Court seeking damages against various HSBC companies.

In December 2014, Senator Fund SPC ('Senator') brought an action against HSSL before the Luxembourg District Court, seeking restitution of securities, or the cash equivalent, or money damages. In April 2015, Senator commenced a separate action against the Luxembourg branch of HSBC Bank plc asserting identical claims before the Luxembourg District Court. In December 2018, Senator brought additional claims against HSSL and HSBC Bank plc Luxembourg branch before the Luxembourg District Court, seeking restitution of Senator's securities or money damages.

HSSL has also been named as a defendant in various actions by shareholders in Primeo Select Fund, Herald, Herald (Lux) SICAV and Hermes International Fund Limited. Most of these actions have been dismissed, suspended or postponed.

Ireland litigation: In November 2013, Defender Limited brought an action against HSBC Institutional Trust Services (Ireland) Limited ('HTIE') and others, based on allegations of breach of contract and claiming damages and indemnification for fund losses. The trial commenced in October 2018. In December 2018, the Irish High Court issued a judgment in HTIE's favour on a preliminary issue, holding that Defender Limited had no effective claim against HTIE. This judgment concluded the trial without further issues in dispute being heard. In February 2019, Defender Limited appealed the judgment.

In December 2014, SPV OSUS filed an action against HTIE and HSBC Securities Services (Ireland) Limited alleging breach of contract and claiming damages and indemnification for fund losses, which was dismissed on the basis of a preliminary issue by the Irish High Court in October 2015. In July 2018, following further appeals by SPV OSUS, the Irish Supreme Court affirmed the dismissal on a final basis.

There are many factors that may affect the range of possible outcomes, and the resulting financial impact, of the various Madoff-related proceedings described above, including but not limited to the multiple jurisdictions in which the proceedings have been brought. Based upon the information currently available, management's estimate of the possible aggregate damages that might arise as a result of all claims in the various Madoff-related proceedings is up

289          HSBC Holdings plc Annual Report and Accounts 2018


to or exceeding $500m, excluding costs and interest. Due to uncertainties and limitations of this estimate, the ultimate damages could differ significantly from this amount.

US mortgage securitisation activity and litigation

HSBC Bank USA N.A. ('HSBC Bank USA') was a sponsor or seller of loans used to facilitate whole loan securitisations underwritten by HSBC Securities (USA) Inc. ('HSI'). From 2005 to 2007, HSBC Bank USA purchased and sold approximately $24bn of such loans to HSI, which were subsequently securitised and sold by HSI to third parties. The outstanding principal balance was approximately $3.8bn as at 31 December 2018. In addition, HSI served as an underwriter on securitisations issued by HSBC Finance Corporation ('HSBC Finance') or third parties, and HSBC Bank USA served as a trustee on behalf of various mortgage securitisation trusts.

Mortgage trustee matters: Beginning in June 2014, a number of lawsuits were filed in state and federal courts in New York and Virginia against HSBC Bank USA as a trustee of more than 280 mortgage securitisation trusts. These lawsuits are brought on behalf of the trusts by a putative class of investors including, among others, BlackRock and PIMCO funds. The complaints allege that the trusts have sustained losses in collateral value of approximately $38bn. The lawsuits seek unspecified damages resulting from alleged breaches of the US Trust Indenture Act, breach of fiduciary duty, negligence, breach of contract and breach of the common law duty of trust. HSBC's motions to dismiss in several of these lawsuits were, for the most part, denied. In February 2018, one of these matters was dismissed on procedural grounds. The plaintiff in that action has appealed the decision and has also filed another proceeding in New York state court, which is currently stayed pending appeal. The motion for class certification filed by certain plaintiffs has been denied, as has their request for a review of that decision by the Second Circuit Court of Appeals.

There are many factors that may affect the range of outcomes, and the resulting financial impact, of these matters.

Loan repurchase matters: Since 2013, HSBC Bank USA, HSBC Finance and Decision One Mortgage Company LLC ('Decision One'), an indirect subsidiary of HSBC Finance, have been named as defendants in various mortgage loan repurchase actions brought by trustees of mortgage securitisation trusts. One of the two remaining actions against HSBC Bank USA was dismissed on appeal in December 2017; however, the New York Court of Appeals granted the plaintiffs' request for further review in September 2018. The second remaining action is currently pending before the New York state court.

Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of these matters, including the timing or any possible impact on HSBC, which could be significant.

RMBS investigations: Since 2010, various HSBC entities have received subpoenas and requests for information from the US Department of Justice (the 'DoJ') and the Massachusetts Attorney General, seeking the production of documents and information regarding HSBC's involvement in certain residential mortgage-backed securities ('RMBS') transactions as an issuer, sponsor, underwriter, depositor, trustee, custodian or servicer.

In August and October 2018, HSBC resolved the Massachusetts Attorney General's civil investigation, and the DoJ's civil claims, relating to HSBC's legacy RMBS origination and securitisation activities from 2005 to 2007, which entailed a payment to the DoJ of a civil money penalty of $765m.

Anti-money laundering and sanctions-related matters

In 2010, HSBC Bank USA entered into a consent cease-and-desist order with the Office of the Comptroller of the Currency ('OCC'), and HSBC North America Holdings Inc. ('HNAH') entered into a consent cease-and-desist order with the Federal Reserve Board ('FRB'). In 2012, HSBC Bank USA further entered into an enterprise-wide compliance consent order with the OCC (each an 'Order' and together, the 'Orders'). These Orders required improvements to establish an effective compliance risk management programme across HSBC's US businesses, including risk management related to the Bank Secrecy Act ('BSA') and anti-money laundering ('AML') compliance. In 2012, an additional consent order was entered into with the OCC that required HSBC Bank USA to correct the circumstances noted in the OCC's report and imposed restrictions on HSBC Bank USA acquiring control of, or holding an interest in, any new financial subsidiary, or commencing a new activity in its existing financial subsidiary, without the OCC's approval. Between June and September 2018,

following implementation of the required remediation actions by HNAH and HSBC Bank USA, the FRB and OCC terminated each of these orders.

In December 2012, among other agreements, HSBC Holdings plc ('HSBC Holdings') agreed to an undertaking with the UK Financial Conduct Authority ('FCA') and consented to a cease-and-desist order with the FRB, both of which contained certain forward-looking AML and sanctions-related obligations. HSBC also agreed to retain an independent compliance monitor (who is, for FCA purposes, a 'Skilled Person' under section 166 of the Financial Services and Markets Act and, for FRB purposes, an 'Independent Consultant') to produce periodic assessments of the Group's AML and sanctions compliance programme (the 'Skilled Person/Independent Consultant'). In December 2012, HSBC Holdings also entered into an agreement with the Office of Foreign Assets Control ('OFAC') regarding historical transactions involving parties subject to OFAC sanctions. The Skilled Person/Independent Consultant will continue to conduct country reviews and provide periodic reports for a period of time at the FCA's and FRB's discretion. The role of the Skilled Person/Independent Consultant is discussed on page 85.

Through the Skilled Person/Independent Consultant's country-level reviews, as well as internal reviews conducted by HSBC, certain potential AML and sanctions compliance issues have been identified that HSBC is reviewing further with the FRB, FCA and/or OFAC. The Financial Crimes Enforcement Network of the US Treasury Department, as well as the Civil Division of the US Attorney's Office for the Southern District of New York, are investigating the collection and transmittal of third-party originator information in certain payments instructed over HSBC's proprietary payment systems. The FCA is also conducting an investigation into HSBC Bank plc's compliance with UK money laundering regulations and financial crime systems and controls requirements. HSBC is cooperating with all of these investigations.

In May 2014, a shareholder derivative action was filed by a shareholder of HSBC Holdings purportedly on behalf of HSBC Holdings, HSBC Bank USA, HNAH and HSBC USA Inc. (the 'Nominal Corporate Defendants') in New York state court against certain current and former directors and officers of those HSBC companies (the 'Individual Defendants'). The complaint alleges that the Individual Defendants breached their fiduciary duties to the Nominal Corporate Defendants and caused a waste of corporate assets by allegedly permitting and/or causing the conduct underlying the five-year deferred prosecution agreement with the DoJ, entered into in December 2012. In November 2015, the New York state court granted the Nominal Corporate Defendants' motion to dismiss. In November 2018, the appellate court reversed the New York state court's decision and reinstated the action. In December 2018, the Nominal Corporate Defendants filed a motion for reargument or, in the alternative, for leave to appeal to the New York Court of Appeals. In February 2019, the Nominal Corporate Defendants and most of the Individual Defendants filed a motion to dismiss in the New York state court, where the matter is pending.

In July 2014, a claim was filed in the Ontario Superior Court of Justice against HSBC Holdings and a former employee purportedly on behalf of a class of persons who purchased HSBC common shares and American Depositary Shares between July 2006 and July 2012. The complaint, which seeks monetary damages of up to CA$20bn, alleges that the defendants made statutory and common law misrepresentations in documents released by HSBC Holdings and its wholly owned indirect subsidiary, HSBC Bank Canada, relating to HSBC's compliance with BSA, AML, sanctions and other laws. In September 2017, the Ontario Superior Court of Justice dismissed the statutory claims against HSBC Holdings and the former employee for lack of jurisdiction, and stayed the common law misrepresentation claim against HSBC Holdings on the basis of forum non conveniens. In October 2017, the plaintiff appealed to the Court of Appeal for Ontario and, in July 2018, that appeal was dismissed. In October 2018, the plaintiff applied for leave to appeal to the Supreme Court of Canada, where this matter is currently pending.

HSBC Holdings plc Annual Report and Accounts 2018  290


Notes on the financial statements

Since November 2014, a number of lawsuits have been filed in federal courts in the US against various HSBC companies and others on behalf of plaintiffs who are, or are related to, victims of terrorist attacks in the Middle East or of cartel violence in Mexico. In each case, it is alleged that the defendants aided and abetted the unlawful conduct of various sanctioned parties in violation of the US Anti-Terrorism Act. Nine actions are currently pending in federal court in New York, with one on appeal. In July 2018, in one case, the New York District Court granted HSBC's motion to dismiss, while in a different case, the magistrate judge issued a recommendation that the New York District Court should deny the defendants' motion to dismiss. The plaintiffs appealed the decision in the case granting dismissal and that appeal is pending. Motions to dismiss remain pending in two other cases. In December 2018, three new cases and two cases relating to existing actions were filed in the New York District Court. These new actions are at a very early stage.

In July 2018, a claim was issued against HSBC Holdings in the High Court of England and Wales alleging that HSBC Holdings made untrue and/or misleading statements and/or omissions in public statements between 2007 and 2012 regarding compliance by the HSBC Group with AML, anti-terrorist financing and sanctions laws, regulations and requirements, and the regulatory compliance of the HSBC Group more generally.

Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of these matters, including the timing or any possible impact on HSBC, which could be significant.

Tax-related investigations

Various tax administration, regulatory and law enforcement authorities around the world, including in the US, Belgium, Argentina, India and Spain, are conducting investigations and reviews of HSBC Private Bank (Suisse) SA ('HSBC Swiss Private Bank') and other HSBC companies in connection with allegations of tax evasion or tax fraud, money laundering and unlawful cross-border banking solicitation.

HSBC continues to cooperate in ongoing investigations by the DoJ and the US Internal Revenue Service regarding whether certain HSBC companies and employees, including those associated with HSBC Swiss Private Bank and an HSBC company in India, acted appropriately in relation to certain customers who may have had US tax reporting obligations. In connection with these investigations, HSBC Swiss Private Bank, with due regard for Swiss law, has produced records and other documents to the DoJ. In August 2013, the DoJ informed HSBC Swiss Private Bank that it was not eligible for the 'Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks' since a formal investigation had previously been authorised. These investigations remain pending.

In November 2014, HSBC Swiss Private Bank was placed under formal criminal examination in Belgium for alleged tax-related offences. In June 2017, Belgian authorities also placed HSBC Holdings and HSBC Private Bank Holdings (Suisse) SA, a Swiss holding company, under formal criminal examination. HSBC is cooperating with this ongoing investigation.

In November 2014, the Argentine tax authority initiated a criminal action against various individuals, including current and former HSBC employees. The criminal action includes allegations of tax evasion, conspiracy to launder undeclared funds and an unlawful association among HSBC Swiss Private Bank, HSBC Bank Argentina, HSBC Bank USA and certain HSBC employees, which allegedly enabled numerous HSBC customers to evade their Argentine tax obligations. HSBC is cooperating with this ongoing investigation.

In February 2015, the Indian tax authority issued a summons and request for information to an HSBC company in India. In August 2015 and November 2015, HSBC companies received notices issued by two offices of the Indian tax authority, alleging that the Indian tax authority had sufficient evidence to initiate prosecution against HSBC Swiss Private Bank and an HSBC company in Dubai for allegedly abetting tax evasion of four different Indian individuals and/or families and requesting that the HSBC companies show cause as to why such prosecution should not be initiated. HSBC Swiss Private Bank and the HSBC company in Dubai have responded to the show cause notices. HSBC is cooperating with this ongoing investigation.

As at 31 December 2018, HSBC has recognised a provision for these various matters in the amount of $626m. There are many factors that may affect the range of outcomes, and the resulting financial impact, of these investigations and reviews. Based on the information currently available, management's estimate of the possible aggregate penalties that might arise as a result of the matters in respect of which it is practicable to form estimates is up to or exceeding $800m, including amounts for which a provision has been recognised. Due to uncertainties and limitations of these estimates, the ultimate penalties could differ significantly from this amount.

In light of the media attention regarding these matters, it is possible that other tax administration, regulatory or law enforcement authorities will also initiate or enlarge similar investigations or regulatory proceedings.

London interbank offered rates, European interbank offered rates and other benchmark interest rate investigations and litigation

In December 2016, the European Commission (the 'EC') issued a decision finding that HSBC, among other banks, engaged in anti-competitive practices in connection with the pricing of euro interest rate derivatives in early 2007. The EC imposed a fine on HSBC based on a one-month infringement. HSBC has appealed the decision.

US dollar Libor: Beginning in 2011, HSBC and other panel banks have been named as defendants in a number of private lawsuits filed in the US with respect to the setting of US dollar Libor. The complaints assert claims under various US laws, including US antitrust and racketeering laws, the US Commodity Exchange Act ('US CEA') and state law. The lawsuits include individual and putative class actions, most of which have been transferred and/or consolidated for pre-trial purposes before the New York District Court.

In 2017 and 2018, HSBC reached agreements with plaintiffs to resolve putative class actions brought on behalf of the following five groups of plaintiffs: persons who purchased US dollar Libor-indexed bonds; persons who purchased US Libor-indexed exchange-traded instruments; US-based lending institutions that made or purchased US dollar Libor-indexed loans (the 'Lender class'); persons who purchased US dollar Libor-indexed interest rate swaps and other instruments directly from the defendant banks and their affiliates (the 'OTC class'); and persons who purchased US dollar Libor-indexed interest rate swaps and other instruments from certain financial institutions that are not the defendant banks or their affiliates. During 2018, the New York District Court granted final approval of the settlements with the OTC and Lender classes. The remaining settlements are subject to final court approval. Additionally, a number of other US dollar Libor-related actions remain pending against HSBC in the New York District Court and the Second Circuit Court of Appeals.

Intercontinental Exchange ('ICE') Libor: In January 2019, HSBC and other panel banks were named as defendants in a putative class action filed in the New York District Court on behalf of persons who purchased over-the-counter instruments paying interest indexed to ICE Libor from a panel bank. The complaint alleges, among other things, misconduct related to the suppression of this benchmark rate in violation of US antitrust and state law. This matter is at a very early stage.

Singapore interbank offered rate ('Sibor'), Singapore swap offer rate ('SOR') and Australia bank bill swap rate ('BBSW'): In July 2016 and August 2016, HSBC and other panel banks were named as defendants in two putative class actions filed in the New York District Court on behalf of persons who transacted in products related to the Sibor, SOR and BBSW benchmark rates. The complaints allege, among other things, misconduct related to these benchmark rates in violation of US antitrust, commodities and racketeering laws, and state law. Following a decision in October 2018 on the defendants' motion to dismiss in the Sibor/SOR litigation, the claims against a number of HSBC entities were dismissed, and the Hongkong and Shanghai Banking Corporation Limited remains the only HSBC defendant in this action. In October 2018, the Hongkong and Shanghai Banking Corporation Limited filed a motion for reconsideration of the

291          HSBC Holdings plc Annual Report and Accounts 2018


decision based on the issue of personal jurisdiction. The plaintiff filed a third amended complaint in October 2018 naming only the Sibor panel members. In November 2018, the defendants moved to dismiss the third amended complaint, and this motion remains pending.

In November 2018, the court granted in part and denied in part the defendants' motion to dismiss the BBSW case and dismissed all foreign defendants, including all the HSBC entities, on personal jurisdiction grounds. The plaintiff sought leave to file a second amended complaint in January 2019.

There are many factors that may affect the range of outcomes, and the resulting financial impact, of these matters, which could be significant.

Foreign exchange-related investigations and litigation

Various regulators and competition authorities around the world, including in the EU, Switzerland, Brazil and South Africa, are conducting investigations and reviews into trading by HSBC and others on the foreign exchange markets. HSBC is cooperating with these investigations and reviews.

In January 2018, HSBC Holdings entered into a three-year deferred prosecution agreement with the Criminal Division of the DoJ (the 'FX DPA'), regarding fraudulent conduct in connection with two particular transactions in 2010 and 2011. This concluded the DoJ's investigation into HSBC's historical foreign exchange activities. Under the terms of the FX DPA, HSBC has a number of ongoing obligations, including implementing enhancements to its internal controls and procedures in its Global Markets business, which will be the subject of annual reports to the DoJ. In addition, HSBC agreed to pay a financial penalty and restitution.

In December 2016, Brazil's Administrative Council of Economic Defense ('CADE') publicly announced that it is initiating an investigation into the onshore foreign exchange market and has identified a number of banks, including HSBC, as subjects of its investigation.

In February 2017, the Competition Commission of South Africa referred a complaint for proceedings before the South African Competition Tribunal against 18 financial institutions, including HSBC Bank plc, for alleged misconduct related to the foreign exchange market in violation of South African antitrust laws. In April 2017, HSBC Bank plc filed an exception to the complaint based on a lack of jurisdiction and statute of limitations. In January 2018, the South African Competition Tribunal approved the provisional referral of additional financial institutions, including HSBC Bank USA, to the proceedings. HSBC Bank USA has objected to the provisional referral. These proceedings are at an early stage.

In October 2018, HSBC Holdings and HSBC Bank plc received an information request from the EC concerning potential coordination in foreign exchange options trading. This matter is at an early stage.

In late 2013 and early 2014, various HSBC companies and other banks were named as defendants in various putative class actions consolidated in the New York District Court. The consolidated complaint alleged, among other things, that the defendants conspired to manipulate the WM/Reuters foreign exchange benchmark rates. In September 2015, HSBC reached an agreement with plaintiffs to resolve the consolidated action, and the court granted final approval of the settlement in August 2018.

A putative class action complaint making similar allegations on behalf of retail customers of foreign exchange products was filed in the US District Court for the Northern District of California in 2015, and was subsequently transferred to the New York District Court where it remains pending. In 2017, putative class action complaints making similar allegations on behalf of purported 'indirect' purchasers of foreign exchange products were filed in New York and were subsequently consolidated in the New York District Court, where they remain pending.

In September 2018, various HSBC companies and other banks were named as defendants in a class action complaint filed in Israel that alleges foreign exchange-related misconduct and, in November and December 2018, complaints alleging foreign exchange-related misconduct were filed in the New York District Court and the High Court of England and Wales against HSBC and other defendants, by certain plaintiffs that opted out of the US class action settlement. These matters are at an early stage. It is possible that additional actions will be initiated against HSBC in relation to its historical foreign exchange activities.

There are many factors that may affect the range of outcomes, and the resulting financial impact, of these matters, which could be significant.

Precious metals fix-related investigations and litigation

In November 2014, the Antitrust Division and Criminal Fraud Section of the DoJ issued a document request to HSBC Holdings, seeking the voluntary production of certain documents in connection with a criminal investigation that the DoJ is conducting of alleged anti-competitive and manipulative conduct in precious metals trading. In January 2019, the DoJ closed its investigation without taking any action against HSBC.

Gold: Beginning in March 2014, numerous putative class actions were filed in the New York District Court and the US District Courts for the District of New Jersey and the Northern District of California, naming HSBC and other members of The London Gold Market Fixing Limited as defendants. The complaints allege that, from January 2004 to June 2013, the defendants conspired to manipulate the price of gold and gold derivatives for their collective benefit in violation of US antitrust laws, the US CEA and New York state law. The actions were consolidated in the New York District Court. The defendants' motion to dismiss the consolidated action was granted in part and denied in part in October 2016. In June 2017, the court granted the plaintiffs leave to file a third amended complaint, naming a new defendant. The court has denied the pre-existing defendants' request for leave to file a joint motion to dismiss, and discovery is proceeding.

Beginning in December 2015, numerous putative class actions under Canadian law were filed in the Ontario and Quebec Superior Courts of Justice against various HSBC companies and other financial institutions. The plaintiffs allege that, among other things, from January 2004 to March 2014, the defendants conspired to manipulate the price of gold and gold derivatives in violation of the Canadian Competition Act and common law. These actions are at an early stage.

Silver: Beginning in July 2014, numerous putative class actions were filed in the US District Courts for the Southern and Eastern Districts of New York, naming HSBC and other members of The London Silver Market Fixing Ltd as defendants. The complaints allege that, from January 2007 to December 2013, the defendants conspired to manipulate the price of silver and silver derivatives for their collective benefit in violation of US antitrust laws, the US CEA and New York state law. The actions were consolidated in the New York District Court. The defendants' motion to dismiss the consolidated action was granted in part and denied in part in October 2016. In June 2017, the court granted the plaintiffs leave to file a third amended complaint, which names several new defendants. The court has denied the pre-existing defendants' request for leave to file a joint motion to dismiss, and discovery is proceeding.

In April 2016, two putative class actions under Canadian law were filed in the Ontario and Quebec Superior Courts of Justice against various HSBC companies and other financial institutions. The plaintiffs in both actions allege that, from January 1999 to August 2014, the defendants conspired to manipulate the price of silver and silver derivatives in violation of the Canadian Competition Act and common law. The Ontario action is at an early stage. The Quebec action has been temporarily stayed.

Platinum and palladium: Between late 2014 and early 2015, numerous putative class actions were filed in the New York District Court, naming HSBC and other members of The London Platinum and Palladium Fixing Company Limited as defendants. The complaints allege that, from January 2008 to November 2014, the defendants conspired to manipulate the price of platinum group metals ('PGM') and PGM-based financial products for their collective benefit in violation of US antitrust laws and the US CEA. In March 2017, the defendants' motion to dismiss the second amended consolidated complaint was granted in part and denied in part. In June 2017, the plaintiffs filed a third amended complaint. The defendants filed a joint motion to dismiss, which remains pending.

HSBC Holdings plc Annual Report and Accounts 2018  292


Notes on the financial statements

Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of these matters, including the timing or any possible impact on HSBC, which could be significant.

Film finance litigation

In July and November 2015, respectively, two actions were brought by individuals against HSBC Private Bank (UK) Limited ('PBGB') in the High Court of England and Wales seeking damages on various alleged grounds, including breach of duty to the claimants, in connection with their participation in certain Ingenious film finance schemes. These actions are ongoing.

In December 2018, a further action was brought against PBGB in the High Court of England and Wales by multiple claimants seeking damages for alleged unlawful means conspiracy and dishonest assistance in connection with lending provided by PBGB to third parties in respect of certain Ingenious film finance schemes in which the claimants participated. In February 2019, PBGB received a letter before claim by investors in Eclipse film finance schemes asserting various claims against PBGB and others in connection with their roles in facilitating the design, promotion and operation of such schemes. These matters are at very early stages.

It is possible that additional actions or investigations will be initiated against PBGB as a result of its historical involvement in the provision of certain film finance-related services.

Based on the facts currently known, it is not practicable to predict the resolution of these matters, including the timing or possible aggregate impact, which could be significant.

Other regulatory investigations, reviews and litigation

HSBC Holdings and/or certain of its affiliates are subject to a number of other investigations and reviews by various regulators and competition and law enforcement authorities, as well as litigation, in connection with various matters relating to the firm's businesses and operations, including:

·   requests for information from various tax administration or regulatory authorities relating to Mossack Fonseca & Co., or Fédération Internationale de Football Association ('FIFA');

·   an investigation by the DoJ regarding US Treasury securities trading practices;

·   an investigation by the US Commodity Futures Trading Commission regarding trading screens used to price certain derivative products;

·   an investigation by the Swiss Competition Commission in connection with the setting of Euribor and Japanese yen Libor;

·   an information request from the UK Competition and Markets Authority concerning the financial services sector;

·   an investigation by the US Securities and Exchange Commission of multiple institutions, including HSBC, in relation to hiring practices of candidates referred by or related to government officials or employees of state-owned enterprises in Asia-Pacific;

·   putative individual and class actions brought in the New York District Court relating to the Canadian dealer offered rate, the credit default swap market and the Mexican government bond market, and putative class actions brought in the New York District Court and in the Superior and Federal Courts in Canada relating to the market for US dollar-denominated supranational sovereign and agency bonds; and

·   putative class actions brought in the US District Court for the Northern District of Texas and a claim issued in the High Court of England and Wales in connection with HSBC Bank plc's role as a correspondent bank to Stanford International Bank Ltd from 2003 to 2009.

There are many factors that may affect the range of outcomes, and the resulting financial impact, of these matters, which could be significant.

36     Related party transactions

Related parties of the Group and HSBC Holdings include subsidiaries, associates, joint ventures, post-employment benefit plans for HSBC employees, Key Management Personnel ('KMP') as defined by IAS 24, close family members of KMP and entities that are controlled or jointly controlled by KMP or their close family members. KMP are defined as those persons having authority and responsibility for planning, directing and controlling the activities of HSBC Holdings. These individuals also constitute 'senior management' for the purposes of the Hong Kong Listing Rules. Following a review of the application of IAS 24, it was determined that the roles of Chief Legal Officer, Group Head of Internal Audit, Group Chief Human Resources Officer, Group Chief Compliance Officer, Chief Communications Officer and Group Chief of Staff did not meet the criteria for KMP as provided for in the standard.

Particulars of transactions with related parties are tabulated below. The disclosure of the year-end balance and the highest amounts outstanding during the year is considered to be the most meaningful information to represent the amount of the transactions and outstanding balances during the year.

Key Management Personnel

Details of Directors' remuneration and interest in shares are disclosed in the Directors' remuneration report on pages 172 to 206. IAS 24 'Related party disclosures' requires the following additional information for key management compensation.

Compensation of Key Management Personnel


 


Short-term employee benefits

Other long-term employee benefits

Share-based payments
Year ended 31 Dec


Shareholdings, options and other securities of Key Management Personnel


 


Number of options held over HSBC Holdings ordinary shares under employee share plans

Number of HSBC Holdings ordinary shares held beneficially and non-beneficially At 31 Dec


293          HSBC Holdings plc Annual Report and Accounts 2018


Transactions and balances during the year with Key Management Personnel

Footnotes

Key Management Personnel                                                                                                                        1

Advances and credits                                                                                                                                    2

Guarantees

Deposits


1     Includes Key Management Personnel, close family members of Key Management Personnel and entities that are controlled or jointly controlled by Key Management Personnel or their close family members.

2     Advances and credits entered into by subsidiaries of HSBC Holdings during 2018 with Directors, disclosed pursuant to Section 413 of the Companies Act 2006, totalled $1m (2017: $2m).

Some of the transactions were connected transactions as defined by the Rules Governing The Listing of Securities on The Stock Exchange of Hong Kong Limited, but were exempt from any disclosure requirements under the provisions of those rules. The above transactions were made in the ordinary course of business and on substantially the same terms, including interest rates and security, as for comparable transactions with persons of a similar standing or, where applicable, with other employees. The transactions did not involve more than the normal risk of repayment or present other unfavourable features.

Associates and joint ventures

The Group provides certain banking and financial services to associates and joint ventures including loans, overdrafts, interest and non-interest bearing deposits and current accounts. Details of the interests in associates and joint ventures are given in Note 18.


HSBC Holdings plc Annual Report and Accounts 2018    294


Notes on the financial statements

Transactions and balances during the year with associates and joint ventures


 


2018

Highest balance                        Balance at

during the year                              31 Dec

$m                                   $m


2017

 

Highest balance during the year

$m

Balance at 31 Dec

$m



1,985

1,985

11,944

11,944

2,796

2,388

89,810

76,627

4,264

4,264

95,850

92,930

206,649

190,138



2,906

2,571

4,904

3,082

892

892

8,702

6,545

9,692

7,778


The above outstanding balances arose in the ordinary course of business and on substantially the same terms, including interest rates and security, as for comparable transactions with third-party counterparties.

Some employees of HSBC Holdings are members of the HSBC Bank (UK) Pension Scheme, which is sponsored by a separate Group company. HSBC Holdings incurs a charge for these employees equal to the contributions paid into the scheme on their behalf. Disclosure in relation to the scheme is made in Note 6.

37       Effects of reclassification upon adoption of IFRS 9

295          HSBC Holdings plc Annual Report and Accounts 2018


 


Notes on the financial statements

Reconciliation for consolidated balance sheet at 31 December 2017 and 1 January 2018 (continued)


Footnotes

Measurement category13

IAS 39 carrying amount at 31 Dec 2017

$m

IFRS 9 reclassification to


Carrying amount

post-

reclassification

$m

IFRS 9 remeasurement including expected credit losses4

$m

IFRS 9 carrying amount at 1 Jan 2018

$m

                                  Fair value             Fair value

                                      through      through other

    Other changes in   profit and    comprehensive

          classification              loss                 income

                          $m              $m                        $m

Amortised

cost

$m

Liabilities









Hong Kong currency notes in circulation


Amortised cost

34,186

-                                          -                                -


-34,186


-34,186

Deposits by banks

1

Amortised cost

69,922

(5,430)                                -                                -


-64,492


-64,492

Customer accounts

1

Amortised cost

1,364,462

(4,235)                                -                                -


-1,360,227

-

1,360,227

Repurchase agreements - non-trading


Amortised cost

130,002

-                                          -                                -


-130,002


-130,002

Items in the course of transmission to other banks


Amortised cost

6,850

-                                          -                                -


-6,850


-6,850

Trading liabilities

1, 11

FVPL

184,361

(103,497)                           -                                -


-80,864


-80,864

Financial liabilities designated at fair value

9, 10, 11

FVPL

94,429

59,267                                -                           -(9,699)


143,997

9

144,006

Derivatives


FVPL

216,821

-                                          -                                -


-216,821


-216,821

Debt securities in issue

10

Amortised cost

64,546

-                                          -                              -2,095


66,641

(105)

66,536

Accruals, deferred income and other liabilities

1, 10

Amortised cost

45,907

53,895                                -                                 -124


99,926


-99,926

Current tax liabilities


N/A

928

-                                          -                                -


-928


-928

Liabilities under insurance contracts

9

N/A

85,667

-                                          -                                -


-85,667

(69)

85,598

Provisions


N/A

4,011

-                                          -                                -


-4,011

284

4,295

Deferred tax liabilities

14

N/A

1,982

-                                          -                                -


-1,982

(368)

1,614

Subordinated
liabilities

10

Amortised cost

19,826

-                                          -                              -7,480


27,306

(1,445)

25,861

Total liabilities



2,323,900

-                                          -                                -


-2,323,900

(1,694)

2,322,206

 

For footnotes, see page 299.

297          HSBC Holdings plc Annual Report and Accounts 2018


Reconciliation of impairment allowance under IAS 39 and provision under IAS 37 to expected credit losses under IFRS 9




Reclassification to


Remeasurement

Total $m

IAS 39 measurement category

Fair value through profit and loss

$m

Fair value through other comprehensive income

$m

Amortised cost

$m

Stage 1 & Stage

       Stage 3                         2

             $m                     $m

Financial assets at amortised cost







IAS 39 impairment allowance at 31 Dec 2017






7,532

Cash and balances at central banks

Amortised cost (Loans and

receivables)

-

-

-

-                                       3

3

Items in the course of collection from other banks

Amortised cost (Loans and

receivables)

-

-

-

-                                      -

-

Hong Kong Government certificates of indebtedness

Amortised cost (Loans and

receivables)

-

-

-

-                                      -

-

Loans and advances to banks

Amortised cost (Loans and

receivables)

-

-

-

1                                      22

23

Loans and advances to customers

Amortised cost (Loans and

receivables)

(31)

-

-

629                           1,261

1,859

Reverse repurchase agreements - non-trading

Amortised cost (Loans and

receivables)

-

-

-

-                                      -

-

Financial investments

Amortised cost (Held to

maturity)

-

-

3

-                                     13

16

Prepayments, accrued income and other assets

Amortised cost (Loans and

receivables)

-

-

-

-                                     47

47

Expected credit loss allowance at 1 Jan 2018






9,480

Loan commitments and financial guarantee contracts







IAS 37 provisions at 31 Dec 2017






253

Provisions (loan commitments and financial guarantees)

N/A

N/A

N/A

N/A

74                                 210

284

Expected credit loss provision at 1 Jan 2018






537

 

The pre-tax net asset impact of additional impairment allowances on adoption of IFRS 9 is $2,232m; $1,948m in respect of financial assets at amortised cost and $284m related to loan commitments and financial guarantee contracts. Total expected credit loss allowance at 1 January 2018 is $9,480m in respect of financial assets at amortised cost, and $537m related to loan commitments and financial guarantee contracts.


Effects of reclassification upon adoption of IFRS 9

 


Footnotes

Carrying amount at 31

Dec 2018

$m

Fair value at 31 Dec

2018

$m

Reclassified from available-for-sale to amortised cost




Other financial assets held at amortised cost


5,781

5,876

Reclassified from fair value through profit and loss to amortised cost or fair value though other comprehensive income




Debt securities in issue

15

1,939

1,823

Subordinated liabilities

16

5,872

6,635

For footnotes, see page 299.



 


HSBC Holdings plc Annual Report and Accounts 2018    298


Notes on the financial statements


Footnotes to 'Effect of reclassification upon adoption of IFRS 9'

1          Settlement accounts, cash collateral and margin receivables of $37,900m have been reclassified from 'Trading assets' to 'Prepayments, accrued income and other assets' as a result of the assessment of the business model in accordance with IFRS 9.

Settlement accounts, cash collateral and margin receivables previously presented as 'Loans and advances to banks' of $5,939m and 'Loans and advances to customers' of $3,976m have been re-presented in 'Prepayments, accrued income and other assets' to ensure consistent presentation of all such balances. Settlement accounts, cash collateral and margin payables previously presented as 'Trading liabilities' of $44,230m, 'Deposits by banks' of $5,430m and 'Customer accounts' of $4,235m have been re-presented in 'Accruals, deferred income and other liabilities'. This change in presentation for financial liabilities is considered to provide more relevant information, given the change in presentation for the financial assets. These changes in presentation for financial assets and liabilities have had no effect on measurement of these items and therefore on 'Retained earnings'.

2          'Loans and advances to customers' of $3,903m and 'Loans and advances to banks' of $712m did not meet the 'solely payments of principal and interest' ('SPPI') requirement for amortised cost classification under IFRS 9. As a result, these financial assets were reclassified to 'Financial assets designated and otherwise mandatorily measured at fair value through profit or loss'.

3          Stock borrowing assets of $4,642m have been reclassified from 'Loans and advances to banks and customers' to 'Trading assets'. The change in measurement is a result of the determination of the global business model for this activity and will align the presentation throughout the Group.

4          IFRS 9 ECL decreased net assets by $2,232m, principally comprising of $1,890m reduction in the carrying value of assets classified as 'Loans and advances to customers' and $284m increase in 'Provisions' relating to expected credit losses on loan commitments and financial guarantee contracts.

5          Debt instruments of $3,131m previously classified as available-for-sale under IAS 39 did not meet the SPPI requirement for FVOCI classification. As a result, these financial assets were classified as 'Financial assets designated and otherwise mandatorily measured at fair value through profit or loss' upon adoption of IFRS 9. Debt instruments of $7,026m previously classified as available-for-sale under IAS 39, have been reclassified to amortised cost as a result of 'hold to collect' business model classification under IFRS 9. This resulted in a $441m downward remeasurement of the financial assets now measured at amortised cost excluding expected credit losses.

6          $2,104m of available-for-sale non-traded equity instruments have been reclassified as 'Financial assets designated and otherwise mandatorily measured at fair value through profit or loss' in accordance with IFRS 9. The Group has elected to apply the FVOCI option under IFRS 9 for the remaining $1,813m.

7          $214m of other financial assets measured at amortised cost under IAS 39 did not meet the SPPI requirement for amortised cost classification under IFRS 9. As a result, these financial assets were classified as 'Financial assets designated and otherwise mandatorily measured at fair value through profit or loss'.

8          'Interests in associates and joint ventures' includes the consequential downward remeasurement of our interests in associates and joint ventures as a result of these entities applying IFRS 9 of $942m. The effect of IFRS 9 on the carrying value of investments in associates has been updated from the estimate disclosed in our Annual Report and Accounts 2017 as a result of those entities publicly reporting their expected transition impacts.


9       Changes in the classification and measurement of financial assets held in our insurance business and the recognition of ECL under IFRS 9 has resulted in secondary impacts on the present value of in-force long-term insurance business ('PVIF') and liabilities to holders of insurance and investment contracts. The gross carrying value of PVIF reported in 'Goodwill and intangible assets' and liabilities reported in 'Liabilities under insurance contracts' has decreased by $79m and $69m respectively. Liabilities reported under 'Financial liabilities designated at fair value' have increased by $9m.

10     As permitted by IFRS 9, fair value designations have been revoked for certain long-dated liabilities where the accounting mismatch will be better mitigated by undertaking fair value hedge accounting, resulting in reclassifications of $7,110m from 'Financial liabilities designated at fair value' to 'Subordinated liabilities' measured at amortised cost and $2,095m from 'Financial liabilities designated at fair value' to 'Debt securities in issue' measured at amortised cost. A further $124m of associated accrued interest has been reclassified to 'Accruals, deferred income and other liabilities'. In addition, as required by IFRS 9, fair value designations have been revoked where accounting mismatches no longer exist, resulting in a further $370m of 'Subordinated liabilities' being measured at amortised cost. Together, these changes result in the financial liabilities now being measured at amortised cost, decreasing 'Debt securities in issue' by $105m and 'Subordinated Liabilities' by $1,445m.

11     We have considered market practices for the presentation of $59,267m of financial liabilities containing both deposit and derivative components. We have concluded that a change in accounting policy and presentation from 'Trading liabilities' would be appropriate, since it would better align with the presentation of similar financial instruments by peers and therefore provide more relevant information about the effect of these financial liabilities on our financial position and performance. As a result, rather than being classified as held for trading, we will designate these financial liabilities as at fair value through profit or loss since they are managed and their performance evaluated on a fair value basis. Consequently, changes in fair value of these instruments attributable to changes in own credit risk are recognised in other comprehensive income rather than profit or loss. For 2017, a restatement would have increased 'Net income from financial instruments held for trading or managed on a fair value basis' by $545m and increased tax expense by $168m, with an equivalent net decrease in other comprehensive income.

12     While IFRS 9 ECL has no effect on the carrying value of FVOCI financial assets, which remain measured at fair value, the adoption of IFRS 9 results in a transfer from the FVOCI reserve (formerly AFS reserve) to retained earnings to reflect the cumulative impairment recognised in profit or loss in accordance with IFRS 9 (net of impairment losses previously recognised in profit or loss under IAS 39). The amount transferred from 'Other reserves' to 'Retained earnings' was $61m. The resulting cumulative expected credit losses recognised in 'Retained earnings' on financial assets measured at FVOCI on adoption of IFRS 9 is $184m. In addition, the cumulative AFS reserve relating to financial investments reclassified to 'Financial assets designated and otherwise mandatorily measured at fair value through profit or loss' in accordance with IFRS 9 has been transferred to retained earnings.

13     Measurement refers to that under IAS 39 and IFRS 9. Financial investments measured under fair value through other comprehensive income were measured as available-for-sale instruments under IAS 39.

14     The effect of IFRS 9 remeasurement has been updated from the estimate disclosed

in our Annual Report and Accounts 2017 as a result of our associates publicly reporting their transition impacts.

15     The effective interest rate on the issued debt security reclassified at 1 January 2018 was 4.05%.

16     Effective interest rate on subordinated liabilities reclassified at 1 January 2018 were 3.16%, 5.34%, 6.57% and 7.69%.


299          HSBC Holdings plc Annual Report and Accounts 2018


Reconciliation of HSBC Holdings balance sheet at 31 December 2017 and 1 January 2018


Footnotes

IAS 39 measurement

category

IFRS 9 measurement

category

Other

  IAS 39 carrying  changes in

         amount at       classifi-

       31 Dec 2017         cation

                     $m             $m

IFRS 9 reclassification to

Carrying amount post-reclassifi-cation

$m

IFRS 9 remeasur-

ment including expected credit losses

$m

IFRS 9 carrying amount at 1 Jan 2018

$m

Fair value
through

Fair value   other

through  compre-

profit and hensive      Amorti-

loss           income       sed cost

$m                  $m              $m

Assets









Cash and balances with HSBC undertakings


Amortised cost

Amortised cost

1,985                                 -

-                                   -                -

1,985

-

1,985

Financial assets designated and otherwise mandatorily measured at fair value through profit or loss

1

FVPL

FVPL

11,944                               -

4,264                            -                -

16,208

-

16,208

Derivatives


FVPL

FVPL

2,388                                 -

-                                   -                -

2,388

-

2,388

Loans and advances to HSBC undertakings


Amortised cost

Amortised cost

76,627                               -

-                                   -                -

76,627

-

76,627

Financial investments

1

FVOCI (Available for sale - debt instruments)

FVPL

4,264                                 -

(4,264)                         -                -

-

-

-

FVOCI (Available for sale - equity instruments)

FVOCI

-                                        -

-                                   -                -

-

-

-

Amortised cost (Debt instruments held to maturity)

Amortised cost

-                                        -

-                                   -                -

-

-

-

Prepayments, accrued income and intangible assets


Amortised cost

Amortised cost

662                                     -

-                                   -                -

662

-

662

Current tax assets


N/A

N/A

379                                     -

-                                   -                -

379

-

379

Investment in
subsidiaries


N/A

N/A

92,930                               -

-                                   -                -

92,930

-

92,930

Deferred tax assets


N/A

N/A

555                                     -

-                                   -                -

555

(175)

380

Total assets




191,734                            -

-                                   -                -

191,734

(175)

191,559

 


Footnotes

IAS 39

measurement category

IFRS 9 reclassification to


amount

$m

cost            post-reclassification

IFRS 9 remeasurement including expected credit losses

$m

IFRS 9 carrying amount at 1 Jan 2018

$m

                                                                 Fair value            Fair value

    IAS 39 carrying                                        through     through other

            amount at    Other changes in     profit and   comprehensive

         31 Dec 2017          classification                loss                income

                        $m                          $m                $m                       $m

Amortised                 Carrying

$m

Liabilities








Amount owed to HSBC undertakings


Amortised cost

2,571                                            -                  -                                -

-

2,571

-

2,571

Financial liabilities designated at fair value

2

FVPL

30,890                                          -                  -                                -

(5,402)

25,488

-

25,488

Derivatives


Amortised cost

3,082                                            -                  -                                -

-

3,082

-

3,082

Debt securities in issue


Amortised cost

34,258                                          -                  -                                -

-

34,258

-

34,258

Accruals, deferred income and other liabilities

2

Amortised cost

1,269                                            -                  -                                -

75

1,344

-

1,344

Subordinated liabilities

2

Amortised cost

15,877                                          -                  -                                -

5,327

21,204

(1,065)

20,139

Total liabilities



87,947                                          -                  -                                -

-

87,947

(1,065)

86,882

 

HSBC Holdings plc Annual Report and Accounts 2018    300


Notes on the financial statements


Reconciliation for HSBC Holdings balance sheet at 31 December 2017 and 1 January 2018 (continued)

1       $4,264 of available-for-sale assets have been reclassified as 'Financial assets designated and otherwise mandatorily measured at fair value through profit or loss' in accordance with IFRS 9.

2     As permitted by IFRS 9, fair value designations have been revoked for certain long-dated liabilities where the accounting mismatch will be better mitigated by undertaking fair value hedge accounting, resulting in reclassifications of $5,402m from 'Financial liabilities designated at fair value' to 'Subordinated liabilities' measured at amortised cost.

38     Events after the balance sheet date

In its assessment of events after the balance sheet date, HSBC considered, among others, the events related to the process of the UK's withdrawal from the European Union that occurred between 31 December 2018 and the date when the financial statements were authorised for issue, and concluded that no adjustments to the financial statements were required.

A fourth interim dividend for 2018 of $0.21 per ordinary share (a distribution of approximately $4,205m) was declared by the Directors after 31 December 2018. These accounts were approved by the Board of Directors on 19 February 2019 and authorised for issue.

39     HSBC Holdings' subsidiaries, joint ventures and associates

In accordance with section 409 of the Companies Act 2006 a list of HSBC Holdings plc subsidiaries, joint ventures and associates, the registered office address and the effective percentage of equity owned at 31 December 2018 are disclosed below.

Unless otherwise stated, the share capital comprises ordinary or common shares that are held by Group subsidiaries. The ownership percentage is provided for each undertaking. The undertakings below are consolidated by HSBC unless otherwise indicated.

Subsidiaries


301          HSBC Holdings plc Annual Report and Accounts 2018


 

              


% of share class held by
immediate parent
company (or by the



% of share class held by
immediate parent
company (or by the


Subsidiaries

Group where this varies)

Footnotes

Subsidiaries

Group where this varies)

Footnotes

ACN 087 652 113 Pty Limited (in liquidation)

100.00

15

Eton Corporate Services Limited

100.00

22

Almacenadora Banpacifico S.A. (in liquidation)

99.99

18

Far East Leasing SA (in liquidation)

100.00

44

Assetfinance December (F) Limited

100.00

19

Fdm 5 SAS

100.00         (99.99)

4, 41

Assetfinance December (H) Limited

100.00

19

FEPC Leasing Ltd. (in liquidation)

100.00

3,  45

Assetfinance December (M) Limited

100.00

19

Finanpar 2

100.00         (99.99)

4,  43

Assetfinance December (P) Limited

100.00

19

Finanpar 7

100.00         (99.99)

4, 43

Assetfinance December (R) Limited

100.00

19

Flandres Contentieux S.A.

100.00         (99.99)

1, 4, 45

Assetfinance June (A) Limited

100.00

19

Foncière Elysées

100.00         (99.99)

4, 42

Assetfinance June (D) Limited

100.00

19




Forward Trust Rail Services Limited (in liquidation)

100.00

19

Assetfinance Limited

100.00

19

Assetfinance March (B) Limited

100.00

20




Fujian Yongan HSBC Rural Bank Company Limited

100.00

12, 47

Assetfinance March (D) Limited

100.00

19

Assetfinance March (F) Limited

100.00

19

Fulcher Enterprises Company Limited

100.00         (62.14)

48

Assetfinance September (F) Limited

100.00

19

Fundacion HSBC, A.C.

99.99

1, 11, 18

Assetfinance September (G) Limited

100.00

19

Giller Ltd.

100.00

27

B&Q Financial Services Limited

100.00

21

Global Payments Technology Mexico


18

S.A. De C.V.

100.00         (99.99)


Banco Nominees (Guernsey) Limited

100.00

22

Banco Nominees 2 (Guernsey) Limited

100.00

22

GPIF Co-Investment, LLC

n/a

7, 29

Banco Nominees Limited

100.00

23

Griffin International Limited

100.00

19

Bank of Bermuda (Cayman) Limited

100.00

24

Grundstuecksgesellschaft Trinkausstrasse


7, 50

Kommanditgesellschaft

n/a


Beau Soleil Limited Partnership

n/a

7, 25

Grupo Financiero HSBC, S. A. de C. V.

99.99

18






12, 25




Beijing Miyun HSBC Rural Bank Company Limited

100.00




12, 51

Guangdong Enping HSBC Rural Bank Company Limited

100.00


Billingsgate Nominees Limited

100.00

19

Hang Seng (Nominee) Limited

100.00         (62.14)

48

Canada Crescent Nominees (UK) Limited

100.00

19

Hang Seng Bank (China) Limited

100.00         (62.14)

12, 54

Canada Square Nominees (UK) Limited

100.00

19

Hang Seng Bank (Trustee) Limited

100.00         (62.14)

48




Canada Water Nominees (UK) Limited (in liquidation)

100.00

19

Hang Seng Bank Limited

62.14

48

Capco/Cove, Inc.

100.00

27

Hang Seng Bullion Company Limited

100.00         (62.14)

48

Card-Flo #1, Inc.

100.00

28

Hang Seng Credit Limited

100.00         (62.14)

48

Card-Flo #3, Inc.

100.00

29

Hang Seng Data Services Limited

100.00         (62.14)

48

CC&H Holdings LLC

n/a

7, 30

Hang Seng Finance Limited

100.00         (62.14)

48

CCF & Partners Asset Management Limited

99.99

19

Hang Seng Financial Information Limited

100.00         (62.14)

48




Hang Seng Futures Limited (in liquidation)

100.00         (62.14)

48

CCF Charterhouse GmbH & Co Asset Leasing KG (in liquidation)

n/a

7, 31

Hang Seng Indexes Company Limited

100.00         (62.14)

48

CCF Charterhouse GmbH (in liquidation)

100.00        (99.99)

4, 31

Hang Seng Insurance Company Limited

100.00         (62.14)

48

CCF Holding (LIBAN) S.A.L. (in liquidation)

74.99

1, 32

Hang Seng Investment Management Limited

100.00         (62.14)

48

Charterhouse Administrators (D.T.) Limited

100.00        (99.99)

19

Hang Seng Investment Services Limited

100.00         (62.14)

48




Hang Seng Life Limited

100.00         (62.14)

48

Charterhouse Development Limited (in liquidation)

100.00

35

Hang Seng Real Estate Management Limited

100.00         (62.14)

48

Charterhouse Management Services Limited

100.00        (99.99)

19

Hang Seng Securities Limited

100.00         (62.14)

48

Charterhouse Pensions Limited

100.00

19

Hang Seng Security Management Limited

100.00         (62.14)

48




Hang Seng Qianhai Fund Management Company



Chongqing Dazu HSBC Rural Bank Company Limited

100.00

12, 33

Limited

70.00           (43.49)

12, 189




Haseba Investment Company Limited

100.00         (62.14)

48

Chongqing Fengdu HSBC Rural Bank Company Limited

100.00

12, 34

HFC Bank Limited (in liquidation)

100.00

35

Chongqing Rongchang HSBC Rural Bank Company


12, 35

Hg Janus A Co-Invest L.P.

n/a

7, 210

Limited

100.00


High Time Investments Limited

100.00         (62.14)

48

CL Residential Limited (in liquidation)

100.00

35

HITG Administration GmbH

100.00

55

COIF Nominees Limited

n/a

7, 19

Honey Green Enterprises Ltd.

100.00

55

Cordico Management AG

100.00

37

Hongkong International Trade Finance (Holdings)



Limited (in liquidation)

100.00

19

Corhold Limited

100.00

38

Corsair IV Financial Services Capital Partners

n/a

7, 49

Household Capital Markets LLC

n/a

7, 29




Household Finance Corporation III

100.00

29

Dalian Pulandian HSBC Rural Bank Company Limited

100.00

12, 39

Household International Europe Limited (in



liquidation)

100.00

3, 35

Decision One Mortgage Company, LLC

n/a

7, 40

Dem 5

100.00        (99.99)

4, 41

Household Pooling Corporation

100.00

58

Dem 9

100.00        (99.99)

4, 41

HRMG Nominees Limited

100.00

22

Dempar 1

100.00        (99.99)

4, 42

HSBC (BGF) Investments Limited

100.00

19

Dempar 4

100.00        (99.99)

4, 42

HSBC (General Partner) Limited

100.00

2, 50

Desarrollo Turistico, S.A. de C.V. (in liquidation)

99.99

18

HSBC (Guernsey) GP PCC Limited

100.00

22

Elysees GmbH (in liquidation)

100.00        (99.99)

11, 31

HSBC (Kuala Lumpur) Nominees Sdn Bhd

100.00

51

Elysées Immo Invest

100.00        (99.99)

4, 43

HSBC (Malaysia) Trustee Berhad

100.00

52

Equator Holdings Limited (in liquidation)

100.00

19

HSBC (Singapore) Nominees Pte Ltd

100.00

53




HSBC Administradora de Inversiones S.A.

100.00         (99.65)

54




HSBC Agency (India) Private Limited

100.00

55






7, 55




HSBC Alpha Funding (UK) Holdings LP (in liquidation)

n/a


 

HSBC Holdings plc Annual Report and Accounts 2018  302


Notes on the financial statements

                              







Subsidiaries

% of share class held by

immediate parent

company (or by the Group where this varies)

Footnotes

Subsidiaries

% of share class held by

immediate parent

company (or by the Group where this varies)

Footnotes

HSBC Alternative Investments Limited

100.00

19

HSBC Client Holdings Nominee (UK) Limited

100.00

19

HSBC Amana h Malaysia Berhad

100.00

61

HSBC Client Share Offer Nominee (UK) Limited

100.00

19

HSBC Amana h Takaful (Malaysia) Berhad

49.00

9, 61

HSBC Columbia Funding, LLC

n/a

7, 29

HSBC Americas Corporation (Delaware)

100.00

29

HSBC Corporate Advisory (Malaysia) Sdn Bhd

100.00

61

HSBC Argentina Holdings S.A.

100.00

67

HSBC Corporate Finance (Hong Kong) Limited

100.00

68

HSBC Asia Holdings (UK) Limited

100.00

19

HSBC Corporate Trustee Company (UK) Limited

100.00

19

HSBC Asia Holdings B.V.

100.00

3, 19

HSBC Asia Holdings Limited

100.00

2, 68

HSBC Custody Nominees (Australia) Limited

100.00

16

HSBC Asia Pacific Holdings (UK) Limited

100.00

5, 19

HSBC Custody Services (Guernsey) Limited

100.00

22

HSBC Asset Finance (UK) Limited

100.00

19

HSBC Daisy Investments (Mauritius) Limited

100.00

94

HSBC Asset Finance Holdings Limited (in liquidation)

100.00

19

HSBC Diversified Loan Fund General Partner Sarl


7, 95

HSBC Asset Finance M.O.G. Holdings (UK) Limited

100.00


n/a19 HSBC Electronic Data Processing (Guangdong) Limited

100.00

12, 96

HSBC Asset Management (India) Private Limited

100.00         (99.99)

3, 69

HSBC Electronic Data Processing (Malaysia) Sdn Bhd

100.00

97

HSBC Assurances Vie (France)

100.00         (99.99)

4, 46

HSBC Electronic Data Processing (Philippines), Inc.

99.99

98

HSBC Australia Holdings Pty Limited

100.00

3, 5, 16

HSBC Bank (Chile)

100.00

70

HSBC Electronic Data Processing India Private Limited

100.00

99

HSBC Bank (China) Company Limited

100.00

12, 71

HSBC Bank (General Partner) Limited

100.00

60

HSBC Electronic Data Processing Lanka (Private) Limited

100.00100


HSBC Bank (Mauritius) Limited

100.00

72

HSBC Electronic Data Service Delivery (Egypt) S.A.E.

100.00

101

HSBC Bank (RR) (Limited Liability Company)

100.00

13, 73

HSBC Bank (Singapore) Limited

100.00

63

HSBC Enterprise Investment Company (UK) Limited

100.00

19

HSBC Bank (Taiwan) Limited

100.00

74

HSBC Bank (Uruguay) S.A.

100.00

75

HSBC Epargne Entreprise (France)

100.00        (99.99)

4, 46

HSBC Bank (Vietnam) Ltd.

100.00

76

HSBC Equator (UK) Limited (in liquidation)

100.00

19

HSBC Bank A.S.

100.00

77

HSBC Equipment Finance (UK) Limited

100.00

19

HSBC Bank Argentina S.A.

100.00         (99.99)

67

HSBC Equity (UK) Limited

100.00

19

HSBC Bank Armenia cjsc

70.00

78

HSBC Europe B.V.

100.00

19

HSBC Bank Australia Limited

100.00

16

HSBC Executor & Trustee Company (UK) Limited

100.00

19

HSBC Bank Bermuda Limited

100.00

23

HSBC Bank Canada

100.00

3, 79

HSBC Factoring (France)

100.00        (99.99)

4, 42

HSBC Bank Capital Funding (Sterling 1) LP

n/a

7, 60

HSBC Finance (Brunei) Berhad

100.00

102

HSBC Bank Capital Funding (Sterling 2) LP

n/a

7, 60

HSBC Finance (Netherlands)

100.00

2, 19

HSBC Bank Egypt S.A.E

94.54

80

HSBC Finance Corporation

100.00

29

HSBC Bank Malaysia Berhad

100.00

61

HSBC Finance Limited

100.00

19

HSBC Bank Malta p.l.c.

70.03

81

HSBC Finance Mortgages Inc.

100.00

103

HSBC Bank Middle East Limited

100.00

5, 82

HSBC Finance Transformation (UK) Limited

100.00

2, 19

HSBC Bank Middle East Limited, Representative Office Morocco SARL

100.00

83

HSBC Financial Services (Lebanon) s.a.l.

99.60

104

HSBC Financial Services (Middle East) Limited (in liquidation)

100.00

105

HSBC Bank Nominee (Jersey) Limited

100.00

85

HSBC Bank Oman S.A.O.G.

51.00

86

HSBC Financial Services (Uruguay) S.A. (in liquidation)

100.00

106

HSBC Bank Pension Trust (UK) Limited

100.00

19

HSBC Bank plc

100.00

3, 19

HSBC France

99.99

4, 42

HSBC Bank Polska S.A.

100.00

3, 87

HSBC Fund Services (Korea) Limited

92.95

108

HSBC Bank USA, National Association

100.00

3, 88

HSBC Funding (UK) Holdings (active proposal to strike off)

100.00

19

HSBC Branch Nominee (UK) Limited

100.00

19

HSBC Brasil Holding S.A.

100.00

89

HSBC Germany Holdings GmbH

100.00

50

HSBC Brasil S.A. Banco De Investimento

100.00

89

HSBC Global Asset Management (Bermuda) Limited

100.00

3, 23

HSBC Broking Forex (Asia) Limited

100.00

68

HSBC Broking Futures (Asia) Limited

100.00

68

HSBC Global Asset Management (Canada) Limited

100.00

79

HSBC Broking Futures (Hong Kong) Limited

100.00

68

HSBC Broking Securities (Asia) Limited

100.00

68

HSBC Global Asset Management (Deutschland) GmbH

100.00        (80.67)

50

HSBC Broking Securities (Hong Kong) Limited

100.00

68

HSBC Global Asset Management (France)

100.00        (99.99)

4, 110

HSBC Broking Services (Asia) Limited

100.00

68

HSBC Global Asset Management (Hong Kong) Limited

100.00

25

HSBC Canadian Covered Bond (Legislative) GP Inc

100.00

90

HSBC Global Asset Management (International) Limited (in liquidation)

100.00

111

HSBC Canadian Covered Bond (Legislative) Guarantor Limited Partnership

n/a

7, 90

HSBC Global Asset Management (Japan) K. K.

100.00

112

HSBC Capital (USA), Inc.

100.00

29

HSBC Global Asset Management (Malta) Limited

100.00        (70.03)

113

HSBC Capital Funding (Dollar 1) L.P.

n/a

7, 60

HSBC Capital Limited

100.00

68

HSBC Global Asset Management (Mexico), S.A. de C.V., Sociedad Operadora de Fondos de Inversión, Grupo Financiero HSBC

99.99

18

HSBC Card Services Inc.

100.00

29

HSBC Casa de Bolsa, S.A. de C.V., Grupo Financiero HSBC

99.99

18

HSBC Global Asset Management (Oesterreich) GmbH

100.00        (80.67)

6, 114

HSBC Cayman Services Limited

100.00

92

HSBC City Funding Holdings

100.00

19

 

303          HSBC Holdings plc Annual Report and Accounts 2018


                        


% of share class held by
immediate parent
company (or by the



% of share class held by
immediate parent
company (or by the


Subsidiaries

Group where this varies)

Footnotes

Subsidiaries

Group where this varies)

Footnotes



63



3, 133

HSBC Global Asset Management (Singapore) Limited

100.00


HSBC InvestDirect Securities (India) Private Limited

99.99            (99.61)





HSBC Investment Bank Holdings B.V.

100.00

19

HSBC Global Asset Management (Switzerland) AG

100.00         (90.33)

4, 115

HSBC Investment Bank Holdings Limited

100.00

19




HSBC Investment Company (Egypt) S.A.E (in



HSBC Global Asset Management (Taiwan) Limited

100.00

116

liquidation)

100.00         (94.54)

1, 134

HSBC Global Asset Management (UK) Limited

100.00

19

HSBC Investment Funds (Canada) Inc.

100.00

5,                     135

HSBC Global Asset Management (USA) Inc.

100.00

117

HSBC Investment Funds (Hong Kong) Limited

100.00

25

HSBC Global Asset Management Holdings (Bahamas)



HSBC Investment Funds (Luxembourg) SA

100.00

136

Limited

100.00

118

HSBC Invoice Finance (UK) Limited

100.00

138

HSBC Global Asset Management Limited

100.00

2, 19




HSBC Global Custody Nominee (UK) Limited

100.00

19

HSBC Iris Investments (Mauritius) Ltd (in liquidation)

100.00

139

HSBC Global Custody Proprietary Nominee (UK)



HSBC Issuer Services Common Depositary Nominee



Limited

100.00

19

(UK) Limited

100.00

19

HSBC Global Services (Canada) Limited

100.00

3, 119




HSBC Issuer Services Depositary Nominee (UK) Limited

100.00

19

HSBC Global Services (China) Holdings Limited

100.00

19

HSBC Global Services (Hong Kong) Limited

100.00

68

HSBC Latin America B.V.

100.00

19

HSBC Global Services (UK) Limited

100.00

19

HSBC Latin America Holdings (UK) Limited

100.00

2, 19

HSBC Global Services Limited

100.00

2, 19

HSBC Leasing (Asia) Limited

100.00

68

HSBC Global Shared Services (India) Private Limited (in



HSBC Leasing (France)

100.00         (99.99)

4, 41

liquidation)

100.00         (99.99)

65

HSBC Life (International) Limited

100.00

23

HSBC Group Management Services Limited

100.00

19

HSBC Life (Property) Limited

100.00

124

HSBC Group Nominees UK Limited

100.00

1, 2, 19

HSBC Life (UK) Limited

100.00

19

HSBC Holdings B.V.

100.00

3, 19

HSBC Life Assurance (Malta) Limited

100.00         (70.03)

113

HSBC IM Pension Trust Limited

100.00

1, 19

HSBC Life Insurance Company Limited

50.00

140

HSBC Infrastructure Limited

100.00

19




HSBC Lodge Funding (UK) Holdings (active proposal to


19

HSBC INKA Investment-AG TGV

100.00         (80.67)

14, 120

strike off)

100.00


HSBC Inmobiliaria (Mexico), S.A. de C.V.

100.00

18

HSBC LU Nominees Limited

100.00

19

HSBC Institutional Trust Services (Asia) Limited

100.00

68

HSBC Management (Guernsey) Limited

100.00

22




HSBC Markets (USA) Inc.

100.00

29

HSBC Institutional Trust Services (Bermuda) Limited

100.00

23

HSBC Marking Name Nominee (UK) Limited

100.00

19

HSBC Institutional Trust Services (Ireland) DAC

100.00         (99.99)

121

HSBC Mexico, S.A., Institucion de Banca Multiple,






Grupo Financiero HSBC

100.00         (99.99)

18

HSBC Institutional Trust Services (Mauritius) Limited

100.00

122

HSBC Middle East Finance Company Limited

80.00

141



63

HSBC Middle East Holdings B.V.

100.00

2, 3, 82

HSBC Institutional Trust Services (Singapore) Limited

100.00


HSBC Middle East Leasing Partnership

n/a

7, 142

HSBC Insurance (Asia) Limited

100.00

124

HSBC Middle East Securities L.L.C

49.00

9, 143



5, 125

HSBC Mortgage Corporation (Canada)

100.00

144

HSBC Insurance (Asia-Pacific) Holdings Limited

100.00


HSBC Mortgage Corporation (USA)

100.00

29

HSBC Insurance (Bermuda) Limited

100.00

23

HSBC Nominees (Asing) Sdn Bhd

100.00

61

HSBC Insurance (Singapore) Pte. Limited

100.00

63

HSBC Nominees (Hong Kong) Limited

100.00

68

HSBC Insurance Agency (USA) Inc.

100.00

117

HSBC Nominees (New Zealand) Limited

100.00

145

HSBC Insurance Brokers (Philippines) Inc

100.00         (99.99)

127

HSBC Nominees (Tempatan) Sdn Bhd

100.00

61

HSBC Insurance Holdings Limited

100.00

2,                     19

HSBC North America Holdings Inc.

100.00

0,  29

HSBC Insurance Management Services Limited (in



HSBC Odeme Sistemleri Bilgisayar Teknolojileri Basin



liquidation)

100.00

128

Yayin Ve Musteri Hizmetleri

99.99

146

HSBC Insurance Services (Lebanon) S.A.L. (in



HSBC Operational Services GmbH

n/a

7, 147

liquidation)

97.70

129

HSBC Overseas Holdings (UK) Limited

100.00

2, 19

HSBC Insurance Services Holdings Limited

100.00

19









149

HSBC International Finance Corporation (Delaware)

100.00

130

HSBC Overseas Investments Corporation (New York)

100.00


HSBC Overseas Nominee (UK) Limited

100.00

19

HSBC International Holdings (Jersey) Limited (in



HSBC Participaciones (Argentina) S.A.

100.00         (99.99)

67

liquidation)

100.00

85

HSBC PB Corporate Services 1 Limited

100.00

150

HSBC International Limited (in liquidation)

100.00

85

HSBC PB Services (Suisse) SA

100.00

151




HSBC International Nominees Limited (in liquidation)

100.00

1, 131

HSBC Pension Trust (Ireland) DAC

100.00

121

HSBC International Trustee (BVI) Limited

100.00

10, 132

HSBC Pensiones, S.A.

99.99

152




HSBC PI Holdings (Mauritius) Limited

100.00

122

HSBC International Trustee (Holdings) Pte. Limited

100.00

63

HSBC Portfoy Yonetimi A.S.

100.00         (99.98)

153

HSBC International Trustee Limited

100.00

131

HSBC Preferential LP (UK)

100.00

19

HSBC Inversiones S.A.

99.99

70

HSBC Private Bank (C.I.) Limited

100.00

22

HSBC Inversiones y Servicios Financieros Limitada (in



HSBC Private Bank (Luxembourg) S.A.

100.00

136

liquidation)

100.00         (99.99)

70

HSBC Private Bank (Monaco) SA

99.99

3,                     155

HSBC InvestDirect (India) Limited

99.99           (99.54)

133

HSBC Private Bank (Suisse) SA

100.00

151




HSBC Private Bank (UK) Limited

100.00

19

HSBC InvestDirect Financial Services (India) Limited

100.00         (99.54)

133

HSBC Private Bank International

100.00

156




HSBC Private Banking Holdings (Suisse) SA

100.00

151

HSBC InvestDirect Sales & Marketing (India) Limited

99.99           (98.54)

65







HSBC Private Banking Nominee 3 (Jersey) Limited

100.00

150

 

HSBC Holdings plc Annual Report and Accounts 2018  304


Notes on the financial statements

                     








% of share class held by
immediate parent
company (or by the



% of share class held by
immediate parent
company (or by the


Subsidiaries

Group where this varies)

Footnotes

Subsidiaries

Group where this varies)

Footnotes

HSBC Private Equity Advisors LLC

n/a

7, 29

HSBC Trinkaus & Burkhardt Gesellschaft fur



Bankbeteiligungen mbH

100.00         (80.67)

50

HSBC Private Equity Investments (UK) Limited

100.00

19

HSBC Private Trustee (Hong Kong) Limited

100.00

68




HSBC Trinkaus Europa Immobilien-Fonds Nr. 5 GmbH

100.00         (80.67)

50

HSBC Private Wealth Services (Canada) Inc.

100.00

3, 157




HSBC Trinkaus Family Office GmbH

100.00         (80.67)

6, 50

HSBC Professional Services (India) Private Limited

98.61

65

HSBC Trinkaus Immobilien Beteiligungs KG

100.00         (80.67)

50

HSBC Property (UK) Limited

100.00

19

HSBC Trinkaus Real Estate GmbH

100.00         (80.67)

6, 50

HSBC Property Funds (Holding) Limited

100.00

19

HSBC Trust Company (Canada)

100.00

144

HSBC Provident Fund Trustee (Hong Kong) Limited

100.00

68

HSBC Trust Company (Delaware), National Association

100.00

175

HSBC Qianhai Securities Limited

100.00          (51.00)

12, 158

HSBC Trust Company (UK) Limited

100.00

19

HSBC Rail (UK) Limited (in liquidation)

100.00

19

HSBC Trust Company AG

100.00

37

HSBC Real Estate Leasing (France)

99.00

4, 46

HSBC Trustee (C.I.) Limited

100.00

150

HSBC Realty Credit Corporation (USA)

100.00

3, 29

HSBC Trustee (Cayman) Limited

100.00

176

HSBC REIM (France)

100.00          (99.99)

4, 46

HSBC Trustee (Guernsey) Limited

100.00

22

HSBC Representative Office (Nigeria) Limited

100.00

159

HSBC Trustee (Hong Kong) Limited

100.00

68

HSBC Retirement Benefits Trustee (UK) Limited

100.00

1, 2, 19




HSBC Trustee (Mauritius) Limited (in liquidation)

100.00

177

HSBC Retirement Services Limited

100.00

1, 19

HSBC Savings Bank (Philippines) Inc.

99.99

161

HSBC Trustee (Singapore) Limited

100.00

63

HSBC Securities (Asia) Limited

100.00

68

HSBC UK Bank plc

100.00

178

HSBC Securities (Canada) Inc.

100.00

119

HSBC UK Client Nominee Limited

100.00

19

HSBC Securities (Egypt) S.A.E.

100.00          (94.54)

80

HSBC UK Holdings Limited

100.00

2, 19

HSBC Securities (Japan) Limited

100.00

19

HSBC USA Inc.

100.00

3, 149

HSBC Securities (Philippines) Inc.

99.99

1, 162

HSBC Violet Investments (Mauritius) Limited

100.00

94

HSBC Securities (Singapore) Pte Limited

100.00

63

HSBC Wealth Client Nominee Limited

100.00

19

HSBC Securities (South Africa) (Pty) Limited

100.00

163

HSBC Yatirim Menkul Degerler A.S.

99.98

153

HSBC Securities (Taiwan) Corporation Limited

100.00

164

HSI Asset Securitization Corporation

100.00

29

HSBC Securities (USA) Inc.

100.00

29

HSI International Limited

100.00         (62.14)

48

HSBC Securities and Capital Markets (India) Private



HSIL Investments Limited

100.00

19

Limited

99.99

5, 65




Hubei Macheng HSBC Rural Bank Company Limited

100.00

12, 182




HSBC Securities Asia International Nominees Limited

100.00

165

Hubei Suizhou Cengdu HSBC Rural Bank Company



Limited

100.00

12, 183

HSBC Securities Asia Nominees Limited

100.00

68

HSBC Securities Brokers (Asia) Limited

100.00

68



12, 184

Hubei Tianmen HSBC Rural Bank Company Limited

100.00


HSBC Securities Investments (Asia) Limited

100.00

68

HSBC Securities Services (Bermuda) Limited

100.00

23



12, 185

Hunan Pingjiang HSBC Rural Bank Company Limited

100.00


HSBC Securities Services (Guernsey) Limited

100.00

22

Imenson Limited

100.00         (62.14)

48

HSBC Securities Services (Ireland) DAC

100.00

121

InfraRed NF China Real Estate Investments LP

n/a

7, 53

HSBC Securities Services (Luxembourg) S.A.

100.00

136



174

HSBC Securities Services Holding Limited

100.00

131

INKA Internationale Ka pita lanlagegesellschaft mbH

100.00         (80.67)





HSBC Securities Services Holdings (Ireland) DAC

100.00

121

Inmobiliaria Banci, S.A. de C.V.

100.00         (98.91)

18

Inmobiliaria Bisa, S.A. de C.V.

100.00         (99.99)

18

HSBC Seguros de Retiro (Argentina) S.A.

100.00          (99.99)

67

Inmobiliaria Grufin, S.A. de C.V.

100.00         (99.99)

18

HSBC Seguros de Vida (Argentina) S.A.

100.00          (99.99)

67

Inmobiliaria Guatusi, S.A. de C.V.

100.00         (99.99)

18




HSBC Seguros, S.A de C.V., Grupo Financiero HSBC

99.99

3, 152

IRERE Property Investments (French Offices) Sarl (in


186

liquidation)

100.00


HSBC Service Delivery (Polska) Sp. z o.o.

100.00

167

James Capel & Co. Limited

100.00

19

HSBC Services (France)

99.99

4, 42

James Capel (Channel Islands) Nominees Limited (in



HSBC Services Japan Limited

100.00

168

liquidation)

100.00

111

HSBC Services USA Inc.

100.00

169

James Capel (Nominees) Limited

100.00

19

HSBC Servicios Financieros, S.A. de C.V

99.99

18

James Capel (Second Nominees) Limited (in


36




liquidation)

100.00


HSBC Servicios, S.A. DE C.V., Grupo Financiero HSBC

99.99

18

James Capel (Taiwan) Nominees Limited

100.00

19

HSBC SFH (France)

99.99

4, 46

Jasmine22 Limited

100.00

187

HSBC Software Development (Canada) Inc

100.00

170

John Lewis Financial Services Limited

100.00

19




Keyser Ullmann Limited

100.00         (99.99)

19

HSBC Software Development (Guangdong) Limited

100.00

12, 171




Kings Meadow Nominees Limited (in liquidation)

100.00

188




HSBC Software Development (India) Private Limited

100.00

172

Legend Estates Limited (in liquidation)

100.00

19




Lion Corporate Services Limited

100.00

68

HSBC Software Development (Malaysia) Sdn Bhd

100.00

97

Lion International Corporate Services Limited

100.00

131

HSBC Specialist Investments Limited

100.00

5, 19

Lion International Management Limited

100.00

131

HSBC Stockbrokers Nominee (UK) Limited

100.00

19

Lion Management (Hong Kong) Limited

100.00

68

HSBC Technology & Services (China) Limited

100.00

12, 173

Lyndholme Limited

100.00

68

HSBC Technology & Services (USA) Inc.

100.00

29

Marks and Spencer Financial Services plc

100.00

188

HSBC Transaction Services GmbH

100.00          (80.67)

6, 174

Marks and Spencer Retail Financial Services Holdings



HSBC Trinkaus & Burkhardt (International) S.A.

100.00          (80.67)

136

Limited (in liquidation)

100.00

188

HSBC Trinkaus & Burkhardt AG

80.67

14, 50




 

305          HSBC Holdings plc Annual Report and Accounts 2018


 

        


% of share class held by
immediate parent
company (or by the



% of share class held by
immediate parent
company (or by the


Subsidiaries

Group where this varies)

Footnotes

Subsidiaries

Group where this varies)

Footnotes





The Hongkong and Shanghai Banking Corporation



Marks and Spencer Savings and Investments Limited

100.00


188

Limited

100.00

68





The Venture Catalysts Limited

100.00

19

Marks and Spencer Unit Trust Management Limited

100.00


188

Timberlink Settlement Services (USA) Inc.

100.00

29

Maxima S.A. AFJP (in liquidation)

100.00

(99.98)

67

Tooley Street View Limited

100.00

1, 2, 19

Mercantile Company Limited

100.00


19

Tower Investment Management

100.00

207

Mexicana de Fomento, S.A. de C.V.

99.90


18

Trinkaus Australien Immobilien Fonds Nr. 1 Brisbane



GmbH & Co. KG

100.00         (80.67)

50

Midcorp Limited

100.00


19

Midland Bank (Branch Nominees) Limited

100.00


19

Trinkaus Australien Immobilien-Fonds Nr. 1 Treuhand-



GmbH

100.00         (80.67)

6, 50

Midland Nominees Limited

100.00


19

MIL (Cayman) Limited

100.00


193

Trinkaus Europa Immobilien-Fonds Nr.3 Objekt



Utrecht Verwaltungs-GmbH

100.00         (80.67)

50

MIL (Jersey) Limited

100.00


150

MW Gestion SA

100.00


67

Trinkaus Immobilien-Fonds Geschaeltsluehrungs-


6, 50

Promocion en Bienes Raices, S.A. de C.V.

99.99

(0.99)

3, 18

GmbH

100.00         (80.67)






Trinkaus Immobilien-Fonds Verwaltungs-GmbH

100.00         (80.67)

6, 50

Prudential Client HSBC GIS Nominee (UK) Limited

100.00


19

Trinkaus Private Equity Management GmbH

100.00         (80.67)

50

PT Bank HSBC Indonesia

100.00

(98.93)

195

Trinkaus Private Equity Verwaltungs GmbH

100.00         (80.67)

6, 50

PT HSBC Sekuritas Indonesia

100.00

(85.00)

196

Tropical Nominees Limited

100.00

193

R/CLIP Corp.

100.00


29

Turnsonic (Nominees) Limited

100.00

19

Real Estate Collateral Management Company

100.00


29

Vadep Holding AG (in liquidation)

100.00

209

Republic Nominees Limited

100.00


22

Valeurs Mobilières Elysées

100.00         (99.99)

4, 52

Republic Overseas Capital Corporation

100.00


117

Wardley Limited

100.00

68

RLUKREF Nominees (UK) One Limited

100.00


19

Wayloong Credit Limited (in liquidation)

100.00

68

RLUKREF Nominees (UK) Two Limited

100.00


19

Wayloong Finance Limited (in liquidation)

100.00

68

S.A.P.C. - Ulipro Recouvrement

99.97


11, 41

Wayloong Nominees Limited

100.00

68

Sal Baiyun

100.00

(99.99)

4, 43

Wayhong (Bahamas) Limited

100.00

118

Sal Chang Jiang

100.00

(99.99)

4, 43

Westminster House, LLC

n/a

7, 29

Sal Guangzhou

100.00

(99.99)

4, 43

Woodex Limited

100.00

23

Sal Zhu Jiang

100.00

(99.99)

4, 43

Yan Nin Development Company Limited

100.00         (62.14)

48

Sal Zhu Jiang Jiu

100.00

(99.99)

4, 43

Joint ventures



Sal Zhu Jiang Shi Ba

100.00

(99.99)

4, 43



The undertakings below are joint ventures and equity accounted.


Sal Zhu Jiang Shi Er

100.00

(99.99)

4, 43



Sal Zhu Jiang Shi Jiu

100.00

(99.99)

4, 43




Sal Zhu Jiang Shi Liu

100.00

(99.99)

4, 43


% of share class held by immediate


Sal Zhu Jiang Shi Qi

100.00

(99.99)

4, 43


parent company



(or by the Group


Sal Zhu Jiang Shi Wu

100.00

(99.99)

4, 43

Joint ventures

where this varies)

Footnotes

SAS Bosquet -Audrain

100.00

(94.90)

4, 199

HCM Holdings Limited

50.99

36

SAS Cyatheas Pasteur

100.00

(94.93)

4, 41

House Network Sdn Bhd

25.00

15

SAS Orona

100.00

(94.92)

1, 4, 200




HSBC Jintrust Fund Management Company Limited

49.00

12, 93

SCI HSBC Assurances Immo

100.00

(99.99)

11, 46

SFM

99.99


4, 42

HSBC Saudi Arabia

49.00            (69.40)

191

SFSS Nominees (Pty) Limited

100.00


163

ProServe Bermuda Limited

50.00

107

Shandong Rongcheng HSBC Rural Bank Company




Sino AG

24.94            (20.11)

208

Limited

100.00


12, 201

The London Silver Market Fixing Limited

n/a

1, 7, 180

Sico Limited

100.00


202

Vaultex UK Limited

50.00

109

SNC Dorique

100.00

(99.99)

1, 11, 203




SNC Kerouan

100.00

(99.99)

11, 43




SNC Les Mercuriales

100.00

(99.99)

1, 11, 43




SNC Les Oliviers D'Antibes

60.00


11, 46




SNC Makala

100.00

(99.99)

1, 11, 43




SNC Nuku-Hiva Bail

100.00

(99.99)

1, 11, 43




SNCB/M6 - 2008 A

100.00

(99.99)

1, 4, 43




SNCB/M6-2007 A

100.00

(99.99)

1, 4, 43




SNCB/M6-2007 B

100.00

(99.99)

1, 4, 43




Societe CCF Finance Moyen-Orient S.A.L. (in







liquidation)

99.64

(99.08)

1, 32




Société Française et Suisse

100.00

(99.99)

4, 43




Societe Immobiliere Atlas S.A. (in liquidation)

100.00


151




Somers Dublin DAC

100.00

(99.99)

121




Somers Nominees (Far East) Limited

100.00


23




Sopingest

100.00

(99.99)

4, 43




South Yorkshire Light Rail Limited

100.00


19




St Cross Trustees Limited

100.00


19







12, 206




Sun Hung Kai Development (Lujiazui III) Limited

100.00






Swan National Leasing (Commercials) Limited

100.00


19




Swan National Limited

100.00


19




Thasoslin

100.00

(99.99)

4, 46




 

HSBC Holdings plc Annual Report and Accounts 2018  306


Notes on the financial statements

Associates                                                                                                 Registered offices

The undertakings below are associates and equity accounted.                            22          Arnold House St Julians Avenue, St Peter Port, Guernsey, GY1 3NF

23       37 Front Street, Hamilton, Bermuda, HM 11

Associates

% of share class held by
immediate
parent company
(or by the Group

where this varies)                                                           Footnotes

PO Box 513, Strathvale House, Ground Floor, 90 North Church Street, George Town,

24       Grand Cayman, Cayman Islands, KY1-1106

25       HSBC Main Building, 1 Queen's Road Central, Hong Kong

First Floor, Xinhua Bookstore Xindong Road (SE of roundabout), Miyun District,


Bank of Communications Co., Ltd.                                    19.03                                        9, 126

Barrowgate Limited                                                               24.64                                            137

BGF Group PLC                                                                      24.48                                         140

Bud Financial Limited                                                              8.02                                          3, 9, 17
Canara HSBC Oriental Bank of Commerce Life

148

Insurance Company Limited                                               26.00

CFAC Payment Scheme Limited                                          33.33                                          1, 3, 154

Chemi & Cotex (Rwanda) Limited                                       99.98           (33.99)              1, 160

Chemi & Cotex Kenya Limited                                             99.99           (33.99)              1, 166

Chemi and Cotex Industries Limited                                  100.00         (33.99)             1 , 179

EPS Company (Hong Kong) Limited                                   40.58                                           68

GZHS Research Co Ltd                                                          33.00           (20.50)        1, 12, 181
HSBC Mortgage Limited Liability Partnership (in

7, 190

liquidation)                                                                             n/a

Icon Brickell LLC (in liquidation)                                         n/a                                             7,192

Jeppe Star Limited                                                                  100.00         (33.99)                  123

MENA Infrastructure Fund (GP) Ltd                                  33.33                                           142

Northstar Trade Finance Inc.                                               20.08                                           197

Novo Star Limited                                                                  33.99                                           198

PEF 2005 (A) Limited Partnership                                      n/a                                              7, 57

PEF 2005 (D) Limited Partnership                                     n/a                                              7, 57

PEF 2010 (A) Limited Partnership                                      n/a                                              7, 57

Peregrine Capital (India) Private Limited                           33.46                                           91

Prisma Medios de Pago S.A.                                                7.06                                          1, 205

Quantexa Limited                                                                   10.51                                       9, 204

Services Epargne Entreprise                                                 14.35                                     4, 9, 59

The London Gold Market Fixing Limited                           n/a                                        1, 7, 180

The Saudi British Bank                                                          40.00                                         194

Vizolution Limited                                                                 17.95                                       9, 123


26       Beijing, China

27       95 Washington Street, Buffalo, New York, United States Of America, 14203

28       1209 Orange Street, Wilmington, Delaware, United States Of America, 19801

c/o The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware,

29       United States Of America, 19801

Corporation Service Company, 251 Little Falls Drive, Wilmington, Delaware, United

30       States Of America, 19808

31       Unsoeldstrasse 2, Munich, Germany, 80538

Solidere - Rue Saad Zaghloul Immeuble - 170 Marfaa, PO Box 17 5476 Mar Michael

32       11042040, Beyrouth, Lebanon

33       No 1, Bei Huan East Road Dazu County, Chongqing, China

34       No 107, Ping Du Avenue (E), Sanhe Town, Fengdu County, Chongqing, China

35       No. 3, 5, 7, Haitang Erzhi Road, Changyuan, Rongchang, Chongqing, China, 402460

36       Hill House, 1 Little New Street, London, United Kingdom, EC4A 3TR

37       Bederstrasse 49, Zurich, Switzerland, CH-8002

Rawlinson and Hunter Limited, Woodbourne Hall, PO Box 3162, Road Town, Tortola,

38       British Virgin Islands, VG1110

39       First & Second Floor, No.3 Nanshan Road, Pulandian, Dalian, Liaoning, China

CT Corporation System, 225 Hillsborough Street, Raleigh, North Carolina, United

40       States Of America, 27603

41       39, rue de Bassano, Paris, France, 75008

42       103, avenue des Champs-Elysées, Paris, France, 75008

43       64, rue Galilée, Paris, France, 75008

44       MMG Tower, 23 floor, Ave. Paseo del Mar, Urbanizacion Costa del Este, Panama Walkers Corporate Services Limited, Walker House, 87 Mary Street, George Town,


We Trade Innovation Designated Activity Company      8.52                                            9, 84                45    Grand Cayman KY1-9005, Cayman Islands


Footnotes for Note 39

1            Management has determined that these undertakings are excluded from consolidation in the Group accounts as these entities do not meet the definition of subsidiaries in accordance with IFRS. HSBC's consolidation policy is described in Note 1.2(a).

2            Directly held by HSBC Holdings plc

Description of shares

3            Preference Shares

4            Actions

5            Redeemable Preference Shares

6            GmbH Anteil

7            This undertaking is a partnership and does not have share capital

8            Liquidating Share Class

9            HSBC Holdings plc exercises control or significant influence over this undertaking notwithstanding its equity interest

10          Non-Participating Voting Shares

11          Parts

12          Registered Capital Shares

13          Russian Limited Liability Company Shares

14          Stückaktien

Registered offices

Lot 6.05, Level 6, KPMG Tower 8 First Avenue, Bandar Utama Petaling Jaya Selangor,

15          Darul Ehsan, Malaysia 47800

Level 36 Tower 1 International Towers Sydney, 100 Barangaroo Avenue, Sydney,

16          New South Wales, Australia, 2000

17          First Floor The Bower, 207 Old Street, London, England, EC1V 9NR

18          Paseo de la Reforma 347, Col. Cuauhtemoc, Mexico, 06500

19          8 Canada Square, London, United Kingdom, E14 5HQ

20          5 Donegal Square South, Belfast, Northern Ireland, BT1 5JP

21          Camden House West, The Parade, Birmingham, United Kingdom, B1 3PY

307             HSBC Holdings plc Annual Report and Accounts 2018


46       15, rue Vernet, Paris, France, 75008

47       No. 1 1211 Yanjiang Zhong Road, Yongan, Fujian, China

48       83 Des Voeux Road Central, Hong Kong

c/o Maples Corporate Services Limited, Ugland House, PO Box 309, Grand Cayman,

49       KY1-1104, Cayman Islands

50       Königsallee 21/23, Düsseldorf, Germany, 40212

51       No. 44, Xin Ping Road Central, Encheng, Enping, Guangdong, China, 529400

52       109 avenue des Champs-Elysees, Paris, France, 75008

53       Regency Court, Glategny Esplanade, St. Peter Port, Guernsey GY1 1WW

34/F and 36/F, Hang Seng Bank Tower, 1000 Lujiazui Ring Road,, China (Shanghai)

54       Pilot Free Trade Zone,, Shanghai, China, 200120

55       11-17 Ludwig-Erhard-Str., Hamburg, Germany, 20459

Commerce House, Wickhams Cay 1, P.O. Box 3140, Road Town, Tortola, Tortola,

56       British Virgin Islands

57       Suite 1020, 885 West Georgia Street, Vancouver, BC, V6C 3E8

The Corporation Trust Company of Nevada 311 S. Division Street, Carson City,

58       Nevada, United States Of America, 89703

59       32 Rue du Champ de Tir, 44300 Nantes

60       HSBC House Esplanade, St. Helier, Jersey, JE4 8UB

61       10th Floor, North Tower 2 Leboh Ampang, Kuala Lumpur, Malaysia, 50100

62       13th Floor, South Tower 2 Leboh Ampang, Kuala Lumpur, Malaysia, 50100

63       21 Collyer Quay, #13-02 HSBC Building, Singapore, 049320

64       Bouchard 557, Piso 18°, Cdad. Autónoma de Buenos Aires, Argentina, 1106

65       52/60 M G Road, Fort, Mumbai, India, 400 001

PO Box 513 HSBC House, 68 West Bay Road, George Town, Grand Cayman, Cayman

66       Islands, KY1-1102

557 Bouchard, Level 22, Ciudad de Buenos Aires, Capital federal, Argentina,

67       C1106ABG

68       1 Queen's Road Central, Hong Kong

3rd Floor, Merchantile Bank Chamber 16, Veer Nariman Road, Fort, Mumbai, India,

69       400001

70       Isidora Goyenechea 2800, 23rd floor, Las Condes, Santiago, Chile, 7550647


          





Registered offices

Registered offices



118

Mareva House, 4 George Street, Nassau, Bahamas

71

HSBC Building Shanghai ifc, 8 Century Avenue, Pudong, Shanghai, China, 200120

119

70 York Street, Toronto, Ontario, Canada, M5H 1S9

72

6th floor, HSBC Centre, 18, Cybercity, Ebene, Mauritius

120

Breite Str. 29/31, Düsseldorf, Germany, 40213

73

2 Paveletskaya square, building 2, Moscow, Russian Federation, 115054

121

1 Grand Canal Square, Grand Canal Harbour, Dublin 2, D02 P820, Ireland

74

13F-14F, 333 Keelung Road, Sec.1, Taipei, 110

122

HSBC Centre Eighteen, Cybercity, Ebene, Mauritius

75

25 de Mayo 471, Montevideo, Uruguay, 11000

123

Office Block A, Bay Studios Business Park, Fabian Way, Swansea, United Kingdom, SA1 8QB



76

The Metropolitan 235 Dong Khoi Street, District 1, Ho Chi Minh City, Viet Nam



77

Esentepe mah. Büyükdere Caddesi, No.128 Istanbul 34394, Turkey

124

18th Floor, Tower 1, HSBC Centre, 1 Sham Mong Road, Kowloon, Hong Kong

78

66 Teryan Street, Yerevan, Armenia, 0009





125

Level 32, HSBC Main Building, 1 Queen's Road Central, Hong Kong SAR, Hong Kong

79

885 West Georgia Street, 3rd Floor, Vancouver, British Columbia, Canada, V6C 3E9


No.188, Yin Cheng Zhong Road China (Shanghai) Pilot Free Trade Zone, Shanghai,

80

306 Corniche El Nil, Maadi, Egypt, 11728

126

China

81

116 Archbishop Street, Valletta, Malta




Level 1, Building No. 8, Gate Village Dubai International Financial Centre, PO Box

127

7/F HSBC Centre 3058 Fifth Ave West, Bonifacio Global City, Taguig City, Philippines

82

502601, United Arab Emirates

128

1 More London Place, London, United Kingdom, SE1 2AF

83

Tour Crystal 1 10EME Etage BD Al Mohades 20000, Morocco


HSBC Building Minet El Hosn, Riad el Solh, Beirut 1107-2080, PO Box 11-1380,

84

10 Earlsfort Terrace, Dublin, Ireland D02 T380

129

Lebanon

85

HSBC House Esplanade, St. Helier, Jersey, JE1 1HS


300 Delaware Avenue Suite 1400, Wilmington, Delaware, United States Of America,

130

19801

86

Al Khuwair Office, PO Box 1727 PC111 CPO Seeb, Muscat, Oman



87

Rondo ONZ 1, Warsaw, Poland, 00-124

131

Craigmuir Chambers, PO Box 71, Road Town, Tortola, British Virgin Islands


1800 Tysons Corner, Boulevard Suite 50, Tysons Corner, Virginia, United States Of

132

Woodbourne Hall, Road Town PO Box 916, Tortola, British Virgin Islands

88

America, 22102


9-11 Floors, NESCO IT Park Building No. 3 Western Express Highway, Goregaon


Rua Funchal, nº 160, SP Corporate Towers, Torre Norte, 19° andar, cj 191A - Parte,

133

(East), Mumbai, India, 400063

89

São Paulo, Brazil, 04551-060

134

3, Aboul Feda Street, Zamalek, Cairo, Egypt

90

66 Wellington Street West, Suite 5300, Toronto, Ontario, Canada, M5K 1E6

135

300 - 885 West Georgia Street, Vancouver, British Columbia, Canada, V6C 3E9


Rahejas, 4th Floor, Corner of Main Avenue & V.P. Road, Santacruz (West), Mumbai -

136

16 Boulevard d'Avranches, Luxembourg, L-1160

91

400054

137

49/F, The Lee Gardens, 33 Hysan Avenue, Hong Kong


90 North Church Street, Strathvale House - Ground Floor, PO Box 1109, George

138

21 Farncombe Rd, Worthing, Sussex, BN11 2BW

92

Town, Grand Cayman, Grand Cayman, Cayman Islands, KY1-1102


c/o Kross Border Trust Services Limited St. Louis Business Centre, Cnr Desroches & St



139

Louis Streets, Port Louis, Mauritius

93

17F, HSBC Building, Shanghai ifc 8 Century Avenue, Pudong, Shanghai, China

140

13 - 15 York Buildings, London, United Kingdom, WC2N 6JU

94

c/o Rogers Capital, St. Louis Business Centre, Cnr Desroches & St Louis Streets, Port Louis, Mauritius

141

Plot No.312-878 Mezzanine Floor, Bldg. of Sheikh Hamdan Bin Rashid, Dubai Creek, Dubai, United Arab Emirates

95

49 avenue J.F. Kennedy, Luxembourg, Luxembourg, 1855


Precinct Building 4, Level 3 Dubai International Financial Centre, Dubai, United Arab


4-17/F, Office Tower 2 TaiKoo Hui, No. 381 Tian He Road, Tian He District,

142

Emirates, PO BOX 506553

96

Guangzhou, Guangdong, China


HSBC Bank Middle East Building - Level 5, building 5, Emaar, Dubai, United Arab


Suite 1005, 10th Floor, Wisma Hamzah Kwong Hing No. 1, Leboh Ampang, Kuala

143

Emirates, 502601

97

Lumpur, Malaysia, 50100




HSBC, Filinvest One Bldg, Northgate Cyberzone, Filinvest Corporate City, Alabang,

144

885 West Georgia Street Suite 300, Vancouver, British Columbia, Canada, V6C 3E9

98

Muntinlupa City, Philippines

145

HSBC House, Level 9, One Queen Street, Auckland, New Zealand, 1010


HSBC House, Plot No.8, Survey No.64 (Part), Hightec City Layout Madhapur,

146

Büyükdere Cad. No.122 D Blok Esentepe Sisli Istanbul, Turkey

99

Hyderabad, India, 500081

147

21-23 Yorckstraße, Düsseldorf, Nordrhein-Westfalen, Germany, 40476



100

439, Sri Jayawardenapura Mawatha Welikada, Rajagiriya, Colombo, Sri Lanka


148

110001, India

101

Smart Village 28th Km Cairo- Alexandria Desert Road Building, Cairo, Egypt


The Corporation Trust Incorporated, 2405 York Road, Suite 201, Lutherville

149

Timonium, Maryland, United States Of America, 21093

102

HSBC Chambers, Corner of Jalan Sultan / Jalan Pemancha , Bandar Seri Begawan, Brunei Darussalam, BS8811

150

HSBC House Esplanade, St. Helier, Jersey, JE1 1GT

151

Quai des Bergues 9-17, Geneva, Switzerland, 1201

103

Suite 300, 3381 Steeles Avenue East, Toronto, Ontario, Canada, M2H 3S7

152

Paseo de la Reforma 359, 6th Floor, Mexico, 06500


Centre Ville 1341 Building - 4th Floor Patriarche Howayek Street (facing Beirut

104

Souks), PO Box Riad El Solh, Lebanon, 9597

153

Büyükdere Cad. No.128 D Blok Esentepe Sisli Istanbul, Turkey



154

6th Floor, 65 Gresham Street, London, United Kingdom, EC2V 7NQ


First Floor, Building No. 5, Emaar Square, P.O. Box 502601, Dubai, Dubai, United

155

17, avenue d'Ostende, Monaco, 98000

105

Arab Emirates, 00000


World Trade Center Montevideo Avenida Luis Alberto de Herrera 1248, Torre 1, Piso

156

1441 Brickell Avenue, Miami, Florida, United States Of America, 33131

106

15, Oficina 1502, Montevideo, Uruguay, CP 11300

157

2910 Virtual Way, Vancouver, British Columbia, Canada, V5M 0B2


c/o MUFG Fund Services (Bermuda) Limited, The Belvedere Building, 69 Pitts Bay


Block 27 A&B, Qianhai Enterprise Dream Park No. 63 Qianwan Yi Road, Shenzhen-

107

Road, Pembroke, Bermuda, HM08

158

Hong Kong Cooperation Zone, Shenzhen, China, 518052



159

St Nicholas House, 10th Floor Catholic Mission St Lagos, Nigeria

108

Level 12, HSBC Building 37, Chilpae-ro, Jung-gu, Seoul, Korea, Republic Of (South)

160

Kacyiru BP 3094, Kigali, Rwanda

109

All Saints Triangle, Caledonian Road, London, United Kingdom, N19UT


Unit 1 GF The Commercial Complex, Madrigal Avenue, Ayala Alabang Village,

110

Immeuble Coeur Défense 110, Esplanade du Général de Gaulle- La défense 4, Courbevoie, France, 92400

161

Muntinlupa City, Philippines, 1770


7/F The Enterprise Centre - Tower I, 6766 Ayala Avenue corner Paseo De Roxas,

111

HSBC House Esplanade, St. Helier, Jersey, JE4 8WP

162

Makati City, Philippines

112

HSBC Building 11-1, Nihonbashi 3-chome, Chuo-ku, Tokyo, Japan, 103-0027

163

2 Exchange Square, 85 Maude Street, Sandown, Sandton, South Africa, 2196

113

80 Mill Street, Qormi, Malta, QRM 3101

164

13F 333 Keelung Road, Sec.1, Taipei, Taiwan, 110

114

Herrengasse 1-3, Wien, Austria, 1010

165

Palm Grove House PO Box 438, Road Town, Tortola, British Virgin Islands

115

Gartenstrasse 26, Zurich, Switzerland


R No. 1758/13 Grevella Grove Road, Kalamu House PO Box 47323-00100, Nairobi,

166

Kenya

116

24th Fl., 97-99, Sec.2, Tunhwa S. Rd., Taipei, Taiwan, R.O.C., Taiwan

117

452 Fifth Avenue, New York NY10018, United States Of America

167

Kapelanka 42A, Krakow, Poland, 30-347

 

HSBC Holdings plc Annual Report and Accounts 2018   308


Notes on the financial statements

309          HSBC Holdings plc Annual Report and Accounts 2018


HSBC Holdings plc Annual Report and Accounts 2018 310


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