RNS Number : 0798S
HSBC Holdings PLC
06 March 2019
 

Financial summary

 

Page

Use of non-GAAP financial measures

34

Changes to presentation from 1 January 2018

 

34

Critical accounting estimates and judgements

35

Consolidated income statement

36

Group performance by income and expense item

37

Net interest income

37

Net fee income

39

Net income from financial instruments measured at fair value through profit or loss

 

40

Gains less losses from financial investments

41

Net insurance premium income

41

Other operating income

42

Net insurance claims and benefits paid and movement

in liabilities to policyholders

42

Change in expected credit losses and other credit impairment charges/Loan impairment charges and other credit risk provisions

44

Operating expenses

44

Share of profit in associates and joint ventures

46

Tax expense

47

Consolidated balance sheet

47

Balance sheet commentary compared with 1 January 2018

48

 

Use of non-GAAP financial measures

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

214

.

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

The global business segmental results on pages 47 to 55 are presented on an adjusted basis in accordance with IFRS 8 'Operating Segments', as detailed in 'Basis of preparation' on page 47.

Adjusted performance

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

We consider adjusted performance provides useful information for investors by aligning internal and external reporting, identifying and quantifying items management believes to be significant, and providing insight into how management assesses year-on-year performance.

Significant items

'Significant items' refers collectively to the items that management and investors would ordinarily identify and consider separately to improve the understanding of the underlying trends in the business.

The tables on pages 50 to 53 and pages 57 to 63 detail the effects of significant items on each of our global business segments and geographical regions in 2018, 2017 and 2016.

Foreign currency translation differences

Foreign currency translation differences reflect the movements of the US dollar against most major currencies during 2018.

We exclude them to derive constant currency data, allowing us to assess balance sheet and income statement performance on a like-for-like basis and better understand the underlying trends in the business.

Foreign currency translation differences

Foreign currency translation differences for 2018 are computed by retranslating into US dollars for non-US dollar branches, subsidiaries, joint ventures and associates:

•   the income statements for 2017 and 2016 at the average rates of exchange for 2018; and

•   the balance sheets at 31 December 2017 and 31 December 2016 at the prevailing rates of exchange on 31 December 2018.

No adjustment has been made to the exchange rates used to translate foreign currency-denominated assets and liabilities into the functional currencies of any HSBC branches, subsidiaries, joint ventures or associates. The constant currency data of HSBC's Argentinian subsidiaries has not been adjusted further for the impacts of hyperinflation. When reference is made to foreign currency translation differences in tables or commentaries, comparative data reported in the functional currencies of HSBC's operations has been translated at the appropriate exchange rates applied in the current period on the basis described above.

 

Changes to presentation from 1 January 2018

IFRS 9

HSBC adopted the requirements of IFRS 9 'Financial Instruments' on 1 January 2018, with the exception of the provisions relating to the presentation of gains and losses on financial liabilities designated at fair value, which were adopted on 1 January 2017. The impact of transitioning to IFRS 9 at 1 January 2018 on the consolidated financial statements of HSBC was a decrease in net assets of $1.6bn, arising from:

•    a decrease of $2.2bn from additional impairment allowances;

•    a decrease of $0.9bn from our associates reducing their net assets;

•    an increase of $1.1bn from the remeasurement of financial assets and liabilities as a consequence of classification changes, mainly from revoking fair value accounting designations for certain long-dated issued debt instruments; and

•    an increase in net deferred tax assets of $0.4bn.

The effect of IFRS 9 on the carrying value of investments in associates has been updated from the effect disclosed in our Annual Report and Accounts 2017 and in our Report on Transition to IFRS 9 'Financial Instruments' 1 January 2018 as a result of those entities publicly reporting their expected transition impacts. This resulted in a further decrease in net assets of $0.6bn, net of tax.

Refer to 'Standards applied during the year ended 31 December 2018' on page 224 and Note 37 'Effects of reclassification and remeasurement upon adoption of IFRS 9' for further detail.

Income statement presentation

The classification and measurement requirements under IFRS 9, which was adopted from 1 January 2018, is based on an entity's assessment of both the business model for managing the assets and the contractual cash flow characteristics of the assets. The standard contains a classification for items measured mandatorily at fair value through profit and loss as a residual category. Given its residual nature, the presentation of the income statement has been updated to separately present items in this category which are of a dissimilar nature or function, in line with IAS 1 'Presentation of Financial Statements' requirements. Comparative data has been re-presented. There is no net impact on total operating income.

Prior to 2018, foreign exchange exposure on some financial instruments designated at fair value was presented in the same line in the income statement as the underlying fair value movement on these instruments. In 2018, we grouped the entire effect of foreign exchange exposure in the profit and loss and presented it within 'Net trading activities' in 'Net income from financial instruments held for trading or managed on a fair value basis'. Comparative data has been re-presented. There is no net impact on total operating income and the impact on 'changes in fair value of long-term debt and related derivatives' in 2017 was $(517)m (2016: $1,978m; 2015: $110m; 2014: $130m).

IAS 29

From 1 July 2018, Argentina was deemed a hyperinflationary economy for accounting purposes.

The results of HSBC's operations with a functional currency of the Argentine peso have been prepared in accordance with IAS 29 'Financial Reporting in Hyperinflationary Economies' as if the economy had always been hyperinflationary. The results of those operations for the year ended 31 December 2018 are stated in terms of current purchasing power using the Indice de Precios al Consumidor at 31 December 2018, with the corresponding adjustment presented in other comprehensive income ('OCI'). In accordance with IAS 21 'The Effects of Changes in Foreign Exchange Rates', the results have been translated and presented in US dollars at the prevailing rate of exchange on 31 December 2018. The Group's comparative information presented in US dollars has not been restated.

The impact of applying IAS 29 and the hyperinflation provisions of IAS 21 in the current year was a decrease in the Group's profit before tax of $160m, comprising a decrease in revenue of $231m, offset by a decrease in expected credit losses of $8m, and a decrease in operating expenses of $63m.

 

Critical accounting estimates and judgements

The results of HSBC reflect the choice of accounting policies, assumptions and estimates that underlie the preparation of HSBC's consolidated financial statements. The significant accounting policies, including the policies which include critical accounting estimates and judgements, are described in Note 

1.2

 on the Financial Statements. The accounting policies listed below are highlighted as they involve a high degree of uncertainty and have a material impact on the financial statements:

•     Impairment of amortised cost financial assets and financial assets measured at fair value through other comprehensive income ('FVOCI'): The most significant judgements relate to defining what is considered to be a significant increase in credit risk, determining the lifetime and point of initial recognition of revolving facilities, and in making assumptions and estimates to incorporate relevant information about past events, current conditions and forecasts of economic conditions. A high degree of uncertainty is involved in making estimations using assumptions that are highly subjective and very sensitive to the risk factors. See Note 1.2(i) on page 230.

•     Hedge accounting and the replacement of major interest rate reference rates: The financial markets are going through a significant reform and replacement of the major interest rate reference rates. These interbank offered rates ('Ibors'), such as Libor and Euribor, are currently widely used as benchmarks for a large volume and broad range of financial products and contracts. This results in significant accounting judgement being involved in determining whether certain hedge accounting relationships that hedge variability of cash flows and interest rate risk due to changes in Ibors continue to qualify for hedge accounting as at 31 December 2018. See Note 1.2(h) on page 234.

•     Deferred tax assets: The most significant judgements relate to those made in respect of expected future profitability. See Note 1.2(l) on page 234.

•     Valuation of financial instruments: In determining the fair value of financial instruments a variety of valuation techniques are used, some of which feature significant unobservable inputs and are subject to substantial uncertainty. See Note 1.2(c) on page 228.

•     Impairment of interests in associates: Impairment testing involves significant judgement in determining the value in use, and in particular estimating the present values of cash flows expected to arise from continuing to hold the investment, based on a number of management assumptions. The most significant judgements relate to the impairment testing of our investment in Bank of Communications Co., Limited ('BoCom'). See Note 1.2(a) on page 226.

•     Goodwill impairment: A high degree of uncertainty is involved in estimating the future cash flows of the cash-generating units ('CGUs') and the rates used to discount these cash flows. See Note 1.2(a) on page 226.

•     Provisions: Significant judgement may be required due to the high degree of uncertainty associated with determining whether a present obligation exists, and estimating the probability and amount of any outflows that may arise. See Note 1.2(m) on page 234.

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

 

Consolidated income statement

 

Summary consolidated income statement

 

 

2018

2017

2016

2015

2014

 

Footnotes

$m

$m

$m

$m

$m

Net interest income

 

30,489

 

28,176

 

29,813

 

32,531

 

34,705

 

Net fee income

 

12,620

 

12,811

 

12,777

 

14,705

 

15,957

 

Net income from financial instruments held for trading or managed on a fair value basis

44, 45

9,531

 

8,426

 

7,521

 

8,717

 

6,730

 

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

45

(1,488

)

2,836

 

1,262

 

565

 

1,865

 

Change in fair value of long-term debt and related derivatives

44

(97

)

155

 

(1,997

)

973

 

638

 

Changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss

45

695

 

N/A

N/A

N/A

N/A

Gains less losses from financial investments

 

218

 

1,150

 

1,385

 

2,068

 

1,335

 

Dividend income

 

75

 

106

 

95

 

123

 

311

 

Net insurance premium income

 

10,659

 

9,779

 

9,951

 

10,355

 

11,921

 

Other operating income/(expense)

 

885

 

337

 

(971

)

1,055

 

1,131

 

Total operating income

 

63,587

 

63,776

 

59,836

 

71,092

 

74,593

 

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

 

(9,807

)

(12,331

)

(11,870

)

(11,292

)

(13,345

)

Net operating income before change in expected credit losses and other
credit impairment charges/Loan impairment charges and other credit risk provisions

26

53,780

 

51,445

 

47,966

 

59,800

 

61,248

 

Change in expected credit losses and other credit impairment charges
 

 

(1,767

)

N/A

N/A

N/A

N/A

Loan impairment charges and other credit risk provisions

 

N/A

(1,769

)

(3,400

)

(3,721

)

(3,851

)

Net operating income

 

52,013

 

49,676

 

44,566

 

56,079

 

57,397

 

Total operating expenses

 

(34,659

)

(34,884

)

(39,808

)

(39,768

)

(41,249

)

Operating profit

 

17,354

 

14,792

 

4,758

 

16,311

 

16,148

 

Share of profit in associates and joint ventures

 

2,536

 

2,375

 

2,354

 

2,556

 

2,532

 

Profit before tax

 

19,890

 

17,167

 

7,112

 

18,867

 

18,680

 

Tax expense

 

(4,865

)

(5,288

)

(3,666

)

(3,771

)

(3,975

)

Profit for the year

 

15,025

 

11,879

 

3,446

 

15,096

 

14,705

 

Attributable to:

 

 

 

 

 

 

-  ordinary shareholders of the parent company

 

12,608

 

9,683

 

1,299

 

12,572

 

13,115

 

-  preference shareholders of the parent company

 

90

 

90

 

90

 

90

 

90

 

-  other equity holders

 

1,029

 

1,025

 

1,090

 

860

 

483

 

-  non-controlling interests

 

1,298

 

1,081

 

967

 

1,574

 

1,017

 

Profit for the year

 

15,025

 

11,879

 

3,446

 

15,096

 

14,705

 

 

Five-year financial information

 

 

2018

2017

2016

2015

2014

 

Footnotes

$

$

$

$

$

Basic earnings per share

 

0.63

 

0.48

 

0.07

 

0.65

 

0.69

 

Diluted earnings per share

 

0.63

 

0.48

 

0.07

 

0.64

 

0.69

 

Dividends per ordinary share

46

0.51

 

0.51

 

0.51

 

0.50

 

0.49

 

 

 

%

%

%

%

%

Dividend payout ratio

47

81.0

 

106.3

 

728.6

 

76.5

 

71.0

 

Post-tax return on average total assets

 

0.6

 

0.5

 

0.1

 

0.6

 

0.5

 

Return on average risk-weighted assets

48

2.3

 

2.0

 

0.7

 

1.6

 

1.5

 

Return on average ordinary shareholders' equity

 

7.7

 

5.9

 

0.8

 

7.2

 

7.3

 

Return on average tangible equity

 

8.6

 

6.8

 

2.6

 

8.1

 

8.5

 

For footnotes, see page 67.

Unless stated otherwise, all tables in the Annual Report and Accounts 2018 are presented on a reported basis.

For a summary of our financial performance in 2018, see page 14.

For further financial performance data for each global business and geographical region, see pages 48 to 53 and 55 to 63, respectively.

 

Group performance by income and expense item

 

 

Net interest income

 

 

 

2018

2017

2016

 

Footnotes

$m

$m

$m

Interest income

 

49,609

 

40,995

 

42,414

 

Interest expense

 

(19,120

)

(12,819

)

(12,601

)

Net interest income

 

30,489

 

28,176

 

29,813

 

Average interest-earning assets

 

1,839,346

 

1,726,120

 

1,723,702

 

 

 

%

%

%

Gross interest yield

49

2.70

 

2.37

 

2.46

 

Less: cost of funds

 

(1.21

)

(0.88

)

(0.87

)

Net interest spread

50

1.49

 

1.49

 

1.59

 

Net interest margin

51

1.66

 

1.63

 

1.73

 

For footnotes, see page 67.

 

Summary of interest income by type of asset

 

 

2018

2017

2016

 

 

Average
balance

Interest
income

Yield

Average
balance

Interest
income

Yield

Average
balance

Interest
income

Yield

 

Footnotes

$m

$m

%

$m

$m

%

$m

$m

%

Short-term funds and loans and advances to banks

 

233,637

 

2,475

 

1.06

 

236,126

 

2,030

 

0.86

 

203,799

 

1,510

 

0.74

 

Loans and advances to customers

 

972,963

 

33,285

 

3.42

 

902,214

 

28,751

 

3.19

 

865,356

 

29,272

 

3.38

 

Reverse repurchase agreements - non-trading

 

205,427

 

3,739

 

1.82

 

173,760

 

2,191

 

1.26

 

168,207

 

1,227

 

0.73

 

Financial investments

 

386,230

 

9,166

 

2.37

 

389,807

 

7,440

 

1.91

 

430,775

 

7,248

 

1.68

 

Other interest-earning assets

 

41,089

 

944

 

2.30

 

24,213

 

583

 

2.41

 

55,565

 

3,157

 

5.68

 

Total interest-earning assets

 

1,839,346

 

49,609

 

2.70

 

1,726,120

 

40,995

 

2.37

 

1,723,702

 

42,414

 

2.46

 

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

52,53

195,922

 

5,215

 

2.66

 

N/A

N/A

N/A

N/A

N/A

N/A

Trading assets and financial assets designated at fair value

 

N/A

N/A

N/A

186,673

 

4,245

 

2.27

 

179,780

 

3,897

 

2.17

 

Expected credit losses provision

 

(7,816

)

 

 

N/A

N/A

N/A

N/A

N/A

N/A

Impairment allowance

 

N/A

N/A

N/A

(7,841

)

 

 

(9,127

)

 

 

Non-interest-earning assets

 

584,524

 

 

 

616,688

 

 

 

653,115

 

 

 

Year ended 31 Dec

 

2,611,976

 

54,824

 

2.10

 

2,521,640

 

45,240

 

1.79

 

2,547,470

 

46,311

 

1.82

 

For footnotes, see page 67.

 

Summary of interest expense by type of liability and equity

 

 

2018

2017

2016

 

 

Average
balance

Interest
expense

Cost

Average
balance

Interest
expense

Cost

Average
balance

Interest
expense

Cost

 

Footnotes

$m

$m

%

$m

$m

%

$m

$m

%

Deposits by banks

54

44,530

 

506

 

1.14

 

47,337

 

451

 

0.95

 

49,782

 

342

 

0.69

 

Financial liabilities designated at fair value - own debt issued

55

50,840

 

1,421

 

2.80

 

60,566

 

1,261

 

2.08

 

62,042

 

942

 

1.52

 

Customer accounts

56

1,138,620

 

8,287

 

0.73

 

1,094,920

 

5,405

 

0.49

 

1,074,661

 

5,492

 

0.51

 

Repurchase agreements - non-trading

 

161,204

 

3,409

 

2.11

 

136,561

 

1,665

 

1.22

 

118,789

 

626

 

0.53

 

Debt securities in issue

 

132,594

 

4,254

 

3.21

 

108,677

 

3,130

 

2.88

 

114,343

 

2,807

 

2.45

 

Other interest-bearing liabilities

 

53,731

 

1,243

 

2.31

 

7,009

 

907

 

12.94

 

22,387

 

2,392

 

10.68

 

Total interest-bearing liabilities

 

1,581,519

 

19,120

 

1.21

 

1,455,070

 

12,819

 

0.88

 

1,442,004

 

12,601

 

0.87

 

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

 

142,184

 

3,524

 

2.48

 

153,776

 

2,325

 

1.51

 

138,486

 

1,986

 

1.43

 

Non-interest bearing current accounts

 

211,815

 

 

 

197,104

 

 

 

184,016

 

 

 

Total equity and other non-interest bearing liabilities

 

676,458

 

 

 

715,690

 

 

 

782,964

 

 

 

Year ended 31 Dec

 

2,611,976

 

22,644

 

0.87

 

2,521,640

 

15,144

 

0.60

 

2,547,470

 

14,587

 

0.57

 

For footnotes, see page 67.

 

Significant items and currency translation

 

2018

2017

 

$m

$m

Significant items

53

 

(105

)

-  customer redress programmes

53

 

(108

)

-  currency translation on significant items

 

3

 

Currency translation

 

99

 

Year ended 31 Dec

53

 

(6

)

 

Net interest income of $30.5bn increased by $2.3bn or 8% compared with 2017. This included the minimal effects of significant items and foreign currency translation differences.

Net interest margin of 1.66% was 3 basis points ('bps') higher than in 2017. This included the minimal effects of significant items and foreign currency translation differences. The rise in net interest margin mainly reflected the effect of rate rises on asset yields, notably on term lending in Asia and on surplus liquidity in most regions. This was partly offset by the higher cost of customer accounts, notably in Asia and Europe, and the higher cost of debt issued to meet regulatory requirements.

The increase in net interest margin in 2018 includes the fourth-quarter impact of increased liquidity requirements in Europe and the increased cost of customer accounts in Asia.

 

Interest income

Interest income increased by $8.6bn compared with 2017. This included the minimal adverse effects of significant items and foreign currency translation. The increase in interest income was mainly driven by higher income from lending, surplus liquidity and reverse repurchase agreements.

Interest income on loans and advances to customers increased by $4.5bn compared with 2017. This included the minimal favourable effects of customer redress programmes and foreign currency translation differences, and reflected increases in all regions, notably:

•    in Asia, where growth was mainly due to central bank rate rises resulting in higher yields on term lending and mortgages, and volume growth; and

•    in Europe, where growth was mainly in the UK, reflecting higher yields on term lending following a central bank rate rise and growth in mortgage balances, although yields decreased.

Interest income on short-term funds and financial investments increased by $2.2bn compared with 2017, which included the adverse effects of customer redress programmes and foreign currency translation differences of $0.1bn. This increase was across all regions, but mainly in Asia and North America, primarily on debt securities, following central bank rate rises.

Interest income on reverse repurchase agreements increased by $1.5bn compared with 2017, notably in North America and Europe, following central bank rate rises.

 

Interest expense

Reported interest expense increased by $6.3bn, which included the favourable effects of significant items and foreign currency translation differences of $0.1bn. Excluding these impacts, interest expense was $6.4bn higher, primarily due to increases in interest expense on customer accounts, repurchase agreements and debt.

Interest expense on customer accounts was $2.9bn higher. This included the favourable effects of customer redress programmes and foreign currency translation differences of $0.1bn, and reflected average balance growth in most regions. The net increase also reflected changes in interest rates in key markets, including:

•    central bank rate rises in Asia, notably in Hong Kong, as well as a change in portfolio mix;

•    the 2018 increase in the UK base rate; and

•    rate rises in Latin America and North America.

Interest expense on repurchase agreements increased by $1.7bn, broadly in line with the increase in interest income on reverse repurchase agreements, notably in North America and Europe, reflecting increased balances and higher market rates.

Interest expense on debt securities in issue and own debt at fair value was $1.3bn higher. The increase reflected a rise in the external cost of debt, together with an increase in debt issued by HSBC Holdings to meet regulatory requirements.

 

Net fee income

 

2018

2017

2016

 

$m

$m

$m

Funds under management

2,221

 

2,188

 

2,076

 

Account services

2,177

 

2,244

 

2,417

 

Cards

1,956

 

1,994

 

1,970

 

Credit facilities

1,723

 

1,718

 

1,795

 

Broking income

1,210

 

1,191

 

1,060

 

Unit trusts

1,038

 

1,010

 

863

 

Remittances

778

 

759

 

766

 

Global custody

736

 

692

 

662

 

Underwriting

723

 

829

 

705

 

Imports/exports

709

 

736

 

820

 

Insurance agency commission

404

 

410

 

419

 

Other

2,369

 

2,082

 

2,116

 

Fee income

16,044

 

15,853

 

15,669

 

Less: fee expense

(3,424

)

(3,042

)

(2,892

)

Year ended 31 Dec

12,620

 

12,811

 

12,777

 

 

Significant items and currency translation

 

2018

2017

 

$m

$m

Significant items

-

 

-

 

Currency translation

 

(76

)

Year ended 31 Dec

-

 

(76

)

 

Net fee income of $12.6bn was $0.2bn lower compared with 2017 and included the favourable effects of foreign currency translation differences of $0.1bn. This decrease was mainly due to lower fee income from underwriting and corporate finance (disclosed within 'other') in GB&M and an increase in fee expense.

Fee income from underwriting and corporate finance decreased by $0.2bn as a result of lower volumes in investment banking products and reduced client activity, mainly in Europe and North America.

Fee income from cards also decreased, partly due to a reclassification from cards to interbank and clearing fees. This was partly offset by an increase in cards volumes, notably in Hong Kong and the US, from new product launches and campaigns, together with increased activity.

In addition, fee expense increased by $0.4bn, in part from cards due to increased customer activity in Hong Kong.

These factors were partly offset by an increase in Other fee income due in part to an increase in interbank and clearing fees in the UK and Mexico, following the reclassification of interchange fee income from cards with effect from 1 January 2018.

 

 

Net income from financial instruments measured at fair value through profit or loss

 

 

2018

2017

2016

 

Footnotes

$m

$m

$m

Trading activities

44

7,234

 

8,131

 

8,110

 

Other trading income - hedge ineffectiveness

 

(45

)

(1

)

18

 

-  on cash flow hedges

 

(8

)

(5

)

(5

)

-  on fair value hedges

 

(37

)

4

 

23

 

Fair value movement on non-qualifying hedges

57

(207

)

106

 

(655

)

Other instruments designated and managed on a fair value basis and related derivatives
 

 

2,549

 

190

 

48

 

Net income from financial instruments held for trading or managed on a fair value basis
 

 

9,531

 

8,426

 

7,521

 

Financial assets held to meet liabilities under insurance and investment contracts
 

 

(1,585

)

3,211

 

1,480

 

Liabilities to customers under investment contracts

 

97

 

(375

)

(218

)

Net income from assets and liabilities of insurance businesses, including related derivatives, measured at fair value through profit or loss

 

(1,488

)

2,836

 

1,262

 

Changes in fair value of long-term debt and related derivatives

44

(97

)

155

 

(1,997

)

Changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss

 

695

 

N/A

N/A

Year ended 31 Dec
 

 

8,641

 

11,417

 

6,786

 

 

For footnotes, see page 67.

 

 

Significant items and currency translation

 

 

2018

2017

 

Footnotes

$m

$m

Significant items

 

(108

)

(258

)

-  disposals, acquisitions and investment in new businesses

 

(8

)

-

 

-  fair value movement on financial instruments

57

(100

)

(245

)

-  currency translation on significant items

 

 

(13

)

Currency translation

 

 

(123

)

Year ended 31 Dec

 

(108

)

(381

)

For footnotes, see page 67.

 

Net income from financial instruments measured at fair value of $8.6bn was $2.8bn lower than in 2017. This included favourable effects of foreign currency translation differences and significant items relating to favourable fair value movements on financial instruments, including non-qualifying hedges and debit valuation adjustments.

'Net expense from assets and liabilities of insurance businesses, including related derivatives, measured at fair value through profit or loss' was $1.5bn, compared with net income of $2.8bn in 2017. This decrease primarily reflected unfavourable equity market performance in 2018 compared with 2017 in Hong Kong and France, resulting in revaluation losses on the equity and unit trust assets supporting insurance and investment contracts.

Corresponding movements were recorded in the liabilities to customers, reflecting the extent to which they participate in the investment performance of the associated assets. For investment contracts, the offsetting movements are recorded in 'Liabilities to customers under investment contracts', and for insurance contracts in 'Net insurance claims and benefits paid and movement in liabilities to policyholders'.

'Changes in fair value on long-term debt and related derivatives' were $0.1bn adverse in 2018, compared with favourable movements of $0.2bn in 2017. These movements were driven by changes in interest rates between the periods, notably in US dollars and pounds sterling.

'Net income from financial instruments held for trading or managed on a fair value basis' increased by $1.1bn. This included favourable foreign currency translation differences ($0.1bn), and a favourable movement in significant items ($0.1bn). The increase also included a number of accounting reclassifications under IFRS 9, which comprised:

•    a reclassification from 1 January 2018 of net income related to structured notes from 'trading activities' to 'other instruments designated and managed on a fair value basis and related derivatives';

•    a change in accounting treatment on 1 January 2018 of issued debt securities, which resulted in the fair value movements relating to changes in credit spreads on structured liabilities being reported in other comprehensive income. This compared with an expense of $0.5bn recognised in 'trading activities' in 2017;

•    a reclassification on 1 January 2018 of stock lending and borrowing instruments in Hong Kong from 'amortised cost' to 'held for trading'. This resulted in the income relating to these instruments no longer being recognised in net interest income, and instead being recognised in 'trading activities'. See Note 37 on the Financial Statements for further details.

The favourable effect of these reclassifications, as well as revaluation gains on US dollar-denominated capital in mainland China, were partly offset by a decrease in revenue from trading activities in GB&M. This decrease was primarily in Europe, as our Global Markets business experienced lower client activity, notably in Rates and Credit, which was partly offset by an increase in the US from higher metals and emerging markets trading activity.

We also recorded net adverse movements on derivatives, as well as on the revaluation of foreign exchange positions in France.

'Changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss' 
- a new financial statement line item under IFRS 9 - recorded revenue of $0.7bn in 2018. This revenue was mainly in the UK, reflecting fair value gains on underlying equities in GB&M and on disposal of investments, notably in Principal Investments, as well as fair value gains on debt securities.

The majority of our financial liabilities designated at fair value are fixed-rate, long-term debt issuances, and are managed in conjunction with interest rate swaps as part of our interest rate management strategy. These liabilities are discussed further on page 45.

 

 

Gains less losses from financial investments

 

2018

2017

2016

 

$m

$m

$m

Net gains from disposal of

218

 

1,248

 

1,421

 

-  debt securities

220

 

403

 

357

 

-  equity securities

N/A

838

 

1,058

 

-  other financial investments

(2

)

7

 

6

 

Impairment of available-for-sale equity securities

N/A

(98

)

(36

)

Year ended 31 Dec

218

 

1,150

 

1,385

 

 

Significant items and currency translation

 

2018

2017

 

$m

$m

Significant items

-

 

434

 

-  disposals, acquisitions and investment in new businesses
 

-

 

434

 

-  currency translation on significant items

 

-

 

Currency translation

 

(17

)

Year ended 31 Dec

-

 

417

 

 

Gains less losses from financial investments of $0.2bn decreased by $0.9bn compared with 2017. Following the implementation of IFRS 9, 'net gains on the disposal of equity securities' and 'impairment of available-for-sale equity securities' are no longer reported within 'gains less losses from financial investments'. These are now reported within 'net income/(expense) from financial instruments measured at fair value through profit or loss'.

Net gains from the disposal of equity securities were $0.8bn in 2017 and included disposals, acquisitions and investment in new businesses of $0.4bn. This comprised a gain on the disposal of our membership interest in Visa Inc. in the US of $0.3bn and gains on the disposal of our investment in Vietnam Technological and Commercial Joint Stock Bank ('Techcombank') of $0.1bn. The remaining balance in 2017 included net gains from the disposal of equity securities in GB&M, mainly in the UK, France and the US.

Net gains from the disposal of debt securities were $0.2bn lower. This reduction was mainly in Corporate Centre and related to net losses on disposals in legacy credit, as well as lower gains on disposals in Balance Sheet Management.

 

Net insurance premium income

 

2018

2017

2016

 

$m

$m

$m

Gross insurance premium income

11,338

 

10,802

 

10,588

 

Reinsurance premiums

(679

)

(1,023

)

(637

)

Year ended 31 Dec

10,659

 

9,779

 

9,951

 

 

Significant items and currency translation

 

2018

2017

 

$m

$m

Significant items

-

 

-

 

Currency translation

 

(68

)

Year ended 31 Dec

-

 

(68

)

 

Net insurance premium income was $0.9bn higher than in 2017, and included the effects of foreign currency translation differences.

The increase in insurance premiums was driven by higher new business volumes, particularly in Hong Kong and France, and lower reinsurance ceded in Hong Kong.

 

 

Other operating income

 

2018

2017

2016

 

$m

$m

$m

Rent received

152

 

171

 

157

 

Gains/(losses) recognised on assets held for sale

12

 

214

 

(1,949

)

Gains on investment properties

82

 

48

 

4

 

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

33

 

46

 

35

 

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

681

 

24

 

902

 

Other

(75

)

(166

)

(120

)

Year ended 31 Dec

885

 

337

 

(971

)

 

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

 

2018

2017

2016

 

$m

$m

$m

Value of new business

1,117

 

919

 

900

 

Expected return

(719

)

(599

)

(532

)

Assumption changes and experience variances

292

 

(280

)

513

 

Other adjustments

(9

)

(16

)

21

 

Year ended 31 Dec

681

 

24

 

902

 

 

Significant items and currency translation

 

2018

2017

 

$m

$m

Significant items

(107

)

(154

)

-  disposals, acquisitions and investment in new businesses

(107

)

(160

)

-  currency translation on significant items

 

6

 

Currency translation

 

(19

)

Year ended 31 Dec

(107

)

(173

)

 

 

 

Other operating income of $0.9bn in 2018 increased by $0.5bn compared with 2017. This was primarily due to a higher favourable change in the present value of in-force long-term insurance business ('PVIF') in 2018 (up $0.7bn).

This increase in PVIF reflected a favourable movement in 'assumption changes and experience variances' of $0.6bn, from the future sharing of investment returns with policyholders, primarily in Hong Kong. In addition, the value of new business written increased by $0.2bn during 2018 to $1.1bn. For further details, please see Note 21 on the Financial Statements.

Gains on assets held for sale were $0.2bn lower, mainly as gains in 2017 included the sale of our holding in VocaLink in the UK and the sale of our operations in Lebanon.

In Other, we recorded lower losses related to the early redemption of subordinated debt linked to the US run-off portfolio ($0.1bn). In addition, 2018 included the adverse effects of hyperinflation accounting in Argentina ($0.1bn), while 2017 included a $0.1bn charge arising from the opportunity to increase our investment in new businesses.

 

 

 

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

 

2018

2017

2016

 

$m

$m

$m

Gross

10,221

 

13,208

 

12,508

 

Less reinsurers' share

(414

)

(877

)

(638

)

Year ended 31 Dec

9,807

 

12,331

 

11,870

 

 

Significant items and currency translation

 

2018

2017

 

$m

$m

Significant items

-

 

-

 

Currency translation

 

68

 

Year ended 31 Dec

-

 

68

 

 

Net insurance claims and benefits paid and movement in liabilities to policyholders were $2.5bn lower than 2017.

This decrease was primarily due to lower returns on financial assets supporting contracts where the policyholder is subject to part or all of the investment risk. This reflected unfavourable equity market performance in Hong Kong and France compared with favourable performance in 2017 as well as higher claims and benefits paid.

These decreases were partly offset by the impact of higher new business volumes in Hong Kong and France and lower reinsurance ceded in Hong Kong.

The gains or losses recognised on the financial assets measured at fair value through profit and loss that are held to support these insurance contract liabilities are reported in 'Net income from assets and liabilities of insurance businesses, including related derivatives, measured at fair value through profit or loss' on page 39.

 

Change in expected credit losses and other credit impairment charges/Loan impairment charges and other credit risk provisions58

 

2018

2017

2016

 

$m

$m

$m

Loans and advances to banks and customers

1,896

 

1,992

 

3,350

 

-  new allowances net of allowance releases

2,304

 

2,636

 

3,977

 

-  recoveries of amounts previously written off

(408

)

(644

)

(627

)

Loan commitments and guarantees

(3

)

(50

)

63

 

Other financial assets

(21

)

17

 

50

 

Debt instruments measured at fair value through other comprehensive income

(105

)

N/A

N/A

Available-for-sale-debt securities

N/A

(190

)

(63

)

Change in expected credit losses and other credit impairment charges/Loan impairment charges and other credit risk provisions

1,767

 

1,769

 

3,400

 

For footnotes, see page 67.

 

Significant items and currency translation

 

2018

2017

 

$m

$m

Significant items

-

 

-

 

Currency translation

 

56

 

Year ended 31 Dec

-

 

56

 

 

Changes in expected credit losses and other credit impairment charges ('ECL') of $1.8bn in 2018 mainly reflected charges in RBWM and CMB. These were partly offset by net releases in Corporate Centre and GB&M.

In 2017, loan impairment charges and other credit risk provisions ('LICs') of $1.8bn were primarily in RBWM, CMB and GB&M, partly offset by releases in Corporate Centre. The effects of currency translation between the periods were minimal.

ECL in 2018

In 2018, ECL in RBWM of $1.2bn primarily comprised new allowances in Mexico ($0.4bn), the UK ($0.4bn) and Asia ($0.3bn), and related to unsecured lending balances. The charge in the UK also included charges relating to the current economic uncertainty. The overall allowance for ECL remained broadly unchanged compared with 1 January 2018, as these new allowances broadly offset releases, mainly from write-offs and derecognition of assets.

In CMB, ECL of $0.7bn were predominantly against a small number of specific exposures across various sectors. In Asia, charges of $0.3bn were mainly in Hong Kong, mainland China and Indonesia. In Europe, the charge was primarily in the UK ($0.2bn) against a small number of customers, and reflected the current economic uncertainty. In Middle East and North Africa ('MENA'), ECL of $0.2bn were against a small number of customers in Turkey and the UAE, as well as charges reflecting the challenging economic conditions in Turkey. In Latin America, charges of $0.1bn were driven by Mexico and Argentina. These charges were partly offset by net releases of $0.1bn in North America across various sectors.

In GB&M, a net ECL release of $26m was driven by the US ($0.2bn) relating to a small number of clients, notably within the oil and gas, construction and mining sectors. These releases were partly offset by charges against two large corporate exposures in the UK in the retail and construction sectors.

In Corporate Centre, a net ECL release of $0.1bn related to legacy credit in the UK.

LICs in 2017

In 2017, LICs in RBWM were $1.0bn, of which the largest portion of the charge was in Mexico ($0.4bn), reflecting our strategic growth in unsecured lending, together with an associated rise in delinquency. LICs in the UK were $0.1bn, and in Hong Kong were $0.1bn, primarily relating to our unsecured lending exposure. LICs in RBWM also included charges in MENA of $0.1bn.

In CMB, LICs of $0.5bn were driven by an increase in allowances in Hong Kong ($0.2bn) and in the UK ($0.1bn), related to a small number of clients across various sectors. These charges were partly offset by releases in North America.

In GB&M, LICs of $0.5bn were primarily in the UK ($0.4bn) against specific customers in the construction and retail sectors, and in Hong Kong ($0.1bn) against a small number of exposures. These charges were partly offset by releases in the US, particularly in the oil and gas sector.

In Corporate Centre, a net release of LICs of $0.2bn was mainly related to our legacy credit portfolio in the UK.

Operating expenses

Operating expenses

 

2018

2017

2016

 

$m

$m

$m

By expense category

 

 

 

Employee compensation and benefits

17,373

 

17,315

 

18,089

 

Premises and equipment (excluding depreciation and impairment)

3,422

 

3,530

 

3,758

 

General and administrative expenses

11,931

 

12,177

 

12,715

 

Administrative expenses

32,726

 

33,022

 

34,562

 

Depreciation and impairment of property, plant and equipment

1,119

 

1,166

 

1,229

 

Amortisation and impairment of intangible assets

814

 

696

 

777

 

Goodwill impairment

-

 

-

 

3,240

 

Year ended 31 Dec

34,659

 

34,884

 

39,808

 

 

Staff numbers (full-time equivalents)

 

2018

2017

2016

Global businesses

 

 

 

Retail Banking and Wealth Management

133,644

 

129,402

 

124,810

 

Commercial Banking

44,805

 

44,871

 

44,712

 

Global Banking and Markets

48,500

 

45,725

 

46,659

 

Global Private Banking

6,819

 

7,250

 

8,054

 

Corporate Centre

1,449

 

1,439

 

10,940

 

At 31 Dec

235,217

 

228,687

 

235,175

 

 

 

 

 

 

Significant items and currency translation

 

2018

2017

 

$m

$m

Significant items

1,669

 

3,796

 

-  costs to achieve

-

 

3,002

 

-  costs of structural reform

361

 

420

 

-  customer redress programmes

146

 

655

 

-  disposals, acquisitions and investment in new businesses

52

 

53

 

-  gain on partial settlement of pension obligation
 

-

 

(188

)

-  past service costs of guaranteed minimum pension benefits equalisation

228

 

-

 

-  restructuring and other related costs

66

 

-

 

-  settlements and provisions in connection with legal and regulatory matters

816

 

(198

)

-  currency translation on significant items

 

52

 

Currency translation

 

(143

)

Year ended 31 Dec

1,669

 

3,653

 

 

 

 

Reported operating expenses of $34.7bn were $0.2bn lower than in 2017. This reflected a net favourable movement in significant items of $2.1bn, which included:

•    the non-recurrence of costs to achieve, which were $3.0bn in 2017; and

•    customer redress programme costs of $0.1bn in 2018, compared with $0.7bn in 2017.

These items were partly offset by:

•    settlements and provisions in connection with legal and regulatory matters of $0.8bn in 2018, compared with a net release of $0.2bn in 2017;

•    a provision in relation to past service costs in connection with guaranteed minimum pension benefits equalisation of $0.2bn; and

•    the non-recurrence of gains on the partial settlement of pension obligations of $0.2bn in 2017.

The reduction in reported operating expenses also included an adverse effect of foreign currency translation differences of $0.1bn.

Excluding significant items and foreign currency translation differences, operating expenses of $33.0bn were $1.8bn higher than in 2017. This increase mainly reflected near- and medium- term investments to grow the business ($0.9bn), primarily in RBWM and GB&M. We also increased our investment in productivity programmes ($0.3bn), mainly in Technology and Operations.

Performance-related pay was higher by $0.2bn, and Operations and transaction volume-related operating expenses increased by $0.2bn.

The cost savings from our productivity programmes absorbed the impact of inflation. Our UK bank levy charge remained broadly unchanged, at $964m.

We maintained our momentum in growing the business during 2018.

•    In RBWM, we made investments to develop digital capabilities and recruit front-line staff to deliver improved customer service, as well as to grow the business, particularly in the UK, Hong Kong, mainland China (including the Pearl River Delta) and the US.

•    In GB&M, we made strategic hires in Global Markets and Global Banking, and continued to invest in mainland China as well as in new digital capabilities and functionalities for Securities Services and Global Liquidity and Cash Management businesses.

•    In CMB, we invested in digital offerings to improve customer journeys, such as on-boarding and credit, as well as market-leading innovations including landmark trade transactions on the Voltron and we.trade platforms.

The number of employees expressed in FTEs at 31 December 2018 was 235,217, an increase of 6,530 since 31 December 2017. This was primarily driven by investments in business growth programmes across RBWM, GB&M and CMB. The number of contractors as at 31 December 2018 was 10,854, a decrease of 2,040 from 31 December 2017.

 

 

 

Share of profit in associates and joint ventures

 

2018

2017

2016

 

$m

$m

$m

Share of profit in associates

2,519

 

2,349

2,326

-  Bank of Communications Co., Limited

2,032

 

1,863

1,892

-  The Saudi British Bank

421

 

422

415

-  other

66

 

64

19

Share of profit in joint ventures

17

 

26

28

Year ended 31 Dec

2,536

 

2,375

2,354

 

 

 

Our share of profit in associates and joint ventures was $2.5bn, an increase of $161m or 7% compared with 2017, and included the favourable effects of foreign currency translation differences of $41m.

Excluding the effects of foreign currency translation differences, our share of profit in associates and joint ventures increased by $120m compared with 2017. This primarily reflected an increase in income from Bank of Communications Co., Limited ('BoCom').

At 31 December 2018, we performed an impairment review of our investment in BoCom and concluded that it was not impaired, based on our value-in-use ('VIU') calculation (for more information on the key assumptions in our VIU calculation, including the sensitivity of the VIU to each key assumption (see Note 18 on the Financial Statements).

As discussed in Note 18 on the Financial Statements, in future periods the VIU may increase or decrease depending on the effect of changes to model inputs. It is expected that the carrying amount will increase due to retained profits earned by BoCom. At the point where the carrying amount exceeds the VIU, impairment would be recognised. We would continue to recognise our share of BoCom's profit or loss, but the carrying amount would be reduced to equal the VIU, with a corresponding reduction in income. An impairment review would continue to be performed at each subsequent reporting period, with the carrying amount and income adjusted accordingly.

 

 

 

Tax expense

 

2018

2017

2016

 

$m

$m

$m

Profit before tax

19,890

 

17,167

 

7,112

 

Tax expense

(4,865

)

(5,288

)

(3,666

)

Profit after tax for the year ended 31 Dec

15,025

 

11,879

 

3,446

 

Effective tax rate

24.5%

30.8%

51.5%

 

 

 

The effective tax rate for 2018 of 24.5% is lower than the 30.8% for 2017 as 2017 included a charge of $1.3bn due to the remeasurement of US deferred tax balances to reflect the reduction in the US federal tax rate from 35% to 21%.

This charge increased the 2017 effective tax rate by 7.5%.

Further detail is provided in Note 8 on the Financial Statements.

 

 

 

Consolidated balance sheet

 

 

 

 

 

Five-year summary consolidated balance sheet

 

 

2018

2017

2016

2015

2014

 

Footnotes

$m

$m

$m

$m

$m

Assets

 

 

 

 

 

 

Cash and balances at central banks

 

162,843

 

180,624

 

128,009

 

98,934

 

129,957

 

Trading assets

 

238,130

 

287,995

 

235,125

 

224,837

 

304,193

 

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

 

41,111

 

N/A

N/A

N/A

N/A

Financial assets designated at fair value

 

N/A

29,464

 

24,756

 

23,852

 

29,037

 

Derivatives

 

207,825

 

219,818

 

290,872

 

288,476

 

345,008

 

Loans and advances to banks

 

72,167

 

90,393

 

88,126

 

90,401

 

112,149

 

Loans and advances to customers

59

981,696

 

962,964

 

861,504

 

924,454

 

974,660

 

Reverse repurchase agreements - non-trading

 

242,804

 

201,553

 

160,974

 

146,255

 

161,713

 

Financial investments

 

407,433

 

389,076

 

436,797

 

428,955

 

415,467

 

Other assets

 

204,115

 

159,884

 

148,823

 

183,492

 

161,955

 

Total assets at 31 Dec

 

2,558,124

 

2,521,771

 

2,374,986

 

2,409,656

 

2,634,139

 

Liabilities and equity

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Deposits by banks

 

56,331

 

69,922

 

59,939

 

54,371

 

77,426

 

Customer accounts

 

1,362,643

 

1,364,462

 

1,272,386

 

1,289,586

 

1,350,642

 

Repurchase agreements - non-trading

 

165,884

 

130,002

 

88,958

 

80,400

 

107,432

 

Trading liabilities

 

84,431

 

184,361

 

153,691

 

141,614

 

190,572

 

Financial liabilities designated at fair value

 

148,505

 

94,429

 

86,832

 

66,408

 

76,153

 

Derivatives

 

205,835

 

216,821

 

279,819

 

281,071

 

340,669

 

Debt securities in issue

 

85,342

 

64,546

 

65,915

 

88,949

 

95,947

 

Liabilities under insurance contracts

 

87,330

 

85,667

 

75,273

 

69,938

 

73,861

 

Other liabilities

 

167,574

 

113,690

 

109,595

 

139,801

 

121,459

 

Total liabilities at 31 Dec

 

2,363,875

 

2,323,900

 

2,192,408

 

2,212,138

 

2,434,161

 

Equity

 

 

 

 

 

 

Total shareholders' equity

 

186,253

 

190,250

 

175,386

 

188,460

 

190,447

 

Non-controlling interests

 

7,996

 

7,621

 

7,192

 

9,058

 

9,531

 

Total equity at 31 Dec

 

194,249

 

197,871

 

182,578

 

197,518

 

199,978

 

Total liabilities and equity at 31 Dec

 

2,558,124

 

2,521,771

 

2,374,986

 

2,409,656

 

2,634,139

 

For footnotes, see page 67.

A more detailed consolidated balance sheet is contained in the Financial Statements on page 216.

 

 

 

 

 

Five-year selected financial information

 

 

2018

2017

2016

2015

2014

 

Footnotes

$m

$m

$m

$m

$m

Called up share capital

 

10,180

 

10,160

 

10,096

 

9,842

 

9,609

 

Capital resources

60

173,238

 

182,383

 

172,358

 

189,833

 

190,730

 

Undated subordinated loan capital

 

1,969

 

1,969

 

1,967

 

2,368

 

2,773

 

Preferred securities and dated subordinated loan capital

61

35,014

 

42,147

 

42,600

 

42,844

 

47,208

 

Risk-weighted assets

 

865,318

 

871,337

 

857,181

 

1,102,995

 

1,219,765

 

Total shareholders' equity

 

186,253

 

190,250

 

175,386

 

188,460

 

190,447

 

Less: preference shares and other equity instruments

 

(23,772

)

(23,655

)

(18,515

)

(16,517

)

(12,937

)

Total ordinary shareholders' equity

 

162,481

 

166,595

 

156,871

 

171,943

 

177,510

 

Less: goodwill and intangible assets (net of tax)

 

(22,425

)

(21,680

)

(19,649

)

(24,626

)

(26,196

)

Tangible ordinary shareholders' equity

 

140,056

 

144,915

 

137,222

 

147,317

 

151,314

 

Financial statistics

 

 

 

 

 

 

Loans and advances to customers as a percentage of customer accounts

 

72.0%

70.6%

67.7%

71.7%

72.2%

Average total shareholders' equity to average total assets

 

7.16%

7.33%

7.37%

7.31%

7.01%

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

62

8.13

 

8.35

 

7.91

 

8.77

 

9.28

 

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

 

7.01

 

7.26

 

6.92

 

7.51

 

7.91

 

Number of $0.50 ordinary shares in issue (millions)

 

20,361

 

20,321

 

20,192

 

19,685

 

19,218

 

Basic number of $0.50 ordinary shares outstanding (millions)

 

19,981

 

19,960

 

19,838

 

19,604

 

19,119

 

Basic number of $0.50 ordinary shares outstanding and dilutive potential ordinary shares (millions)

 

20,059

 

20,065

 

19,933

 

19,744

 

19,209

 

Closing foreign exchange translation rates to $:

 

 

 

 

 

 

$1: £

 

0.783

 

0.740

 

0.811

 

0.675

 

0.642

 

$1: €

 

0.873

 

0.834

 

0.949

 

0.919

 

0.823

 

For footnotes, see page 67.

 

 

 

Balance sheet commentary compared with 
1 January 2018

The effect of the adoption of IFRS 9 'Financial Instruments' on 1 January 2018 was a reduction in our total assets of $3.3bn from 31 December 2017, and the reclassification of certain items within the balance sheet. The commentary that follows compares our balance sheet at 31 December 2018 with that at 1 January 2018.

At 31 December 2018, our total assets were $2.6tn, an increase of $40bn or 2% on a reported basis and $118bn or 5% on a constant currency basis. The increase reflected targeted lending growth, notably in Asia.

Our ratio of customer advances to customer accounts was 72%, up from 70% at 1 January 2018.

 

Assets

Cash and balances at central banks decreased by $18bn or 10% and included an adverse effect of foreign currency translation differences of $7bn. Excluding this, cash and balances at central banks decreased by $11bn, mainly in Europe, reflecting the redeployment of our commercial surplus.

Trading assets decreased by $16bn or 6%, mainly driven by an adverse effect of foreign currency translation differences of $10bn. Excluding this, trading assets decreased by $6bn, reflecting a reduction in equity security holdings, notably in the UK. This was partly offset by increased debt securities and government bonds held in the US and Hong Kong.

Derivative assets decreased by $12bn or 5%, mainly reflecting an adverse effect of foreign currency translation differences of $10bn. Excluding this, derivative assets decreased by $2bn, which is consistent with the decrease in derivative liabilities, since the underlying risk is broadly matched.

'Reverse repurchase agreements - non-trading' increased by $41bn or 20%, notably in the UK and France, mainly driven by customer demand in our Global Markets business. This was partly offset by a reduction in the US, reflecting a decrease in the commercial surplus due to lower customer deposits and the repayment of long-term debt.

Financial investments increased by $24bn or 6%, mainly in Hong Kong due to an increase in investments in government bonds and debt securities. Financial investments were also higher in the US, reflecting increased investment in mortgage-backed securities and corporate bonds.

Loans and advances to customers

Loans and advances to customers increased by $32bn or 3% on a reported basis. This included an adverse effect of foreign currency translation differences of $34bn, resulting in growth of $66bn or 7% on a constant currency basis.

Loans and advances to customers increased by $69bn or 8%, after excluding the effects of foreign currency translation differences, and a reduction in corporate current account balances of $4bn relating to CMB and GB&M customers in the UK that settled their overdraft and deposit balances on a net basis.

This growth was primarily in Asia (up $38bn). The increase in Asia was notably in RBWM (up $15bn) as we continued to increase personal lending, primarily in Hong Kong (up $12bn), reflecting our strategy to maintain our leading position in mortgages and personal lending. Customer lending was also higher in CMB (up $13bn) and GB&M (up $11bn), reflecting higher term lending in Hong Kong resulting from our continued strategic focus on loan growth in the region, as well as from an increase in customer demand.

In Europe, customer lending increased by $20bn, notably in the UK from growth in mortgage balances (up $11bn), due to our focus on broker-originated mortgages. We also grew balances in CMB in the UK (up $6bn), driven by business growth aligned to the Group strategy, which resulted in higher term lending and overdraft balances, primarily to mid-market and commercial real estate clients.

In North America, loans and advances to customers increased by $6bn, primarily in Canada ($5bn) in CMB ($4bn), mainly from new to bank client acquisition and higher facility utilisation on term lending, and in RBWM ($1bn) from increased residential mortgage lending.

 

Liabilities

'Repurchase agreements - non-trading' increased by $36bn or 28%, primarily in the US and France, mainly driven by the increased use of repurchase agreements for funding in our Global Markets business.

Debt securities in issue increased by $19bn or 28%, notably relating to an increase in commercial paper issuances, primarily US dollar-denominated. In addition, there was an increase in senior MREL issuances in the period as well as sterling- and euro-denominated medium term notes, primarily in the UK.

Derivative liabilities fell by $11bn or 5%, mainly reflecting the adverse effect of foreign currency translation differences of $9bn. Excluding this, derivative liabilities decreased by $2bn, which is consistent with the decrease in derivative assets, since the underlying risk is broadly matched.

Customer accounts

Customer accounts increased by $2bn on a reported basis, including the adverse effect of foreign currency translation differences of $43bn, resulting in growth of $45bn or 3% on a constant currency basis.

Customer accounts rose by $49bn, after excluding the impacts of foreign currency translation differences and a reduction in corporate current account balances of $4bn, relating to CMB and GB&M customers in the UK that settled their overdraft and deposit balances on a net basis.

This growth in customer accounts was notably in Europe (up $29bn). GB&M balances rose by $11bn as we targeted balance growth to support funding in the non-ring-fenced bank, mainly in GLCM in the UK. CMB balances increased by $9bn, notably reflecting growth in GLCM within the UK ring-fenced bank. Customer accounts were also higher in RBWM (up $8bn) mainly in the UK, from higher current accounts and savings balances.

In Asia, we grew customer accounts by $18bn, notably in RBWM (up $10bn) and in GB&M (up $9bn) primarily in savings, reflecting higher customer inflows due to competitive rates.

Customer accounts increased in Latin America (up $4bn), notably in Argentina and Mexico, reflecting higher savings and term deposits, and the impact of currency devaluation on foreign currency deposits booked on our Argentina balance sheet.

These increases were partly offset in North America (down $5bn), notably in CMB (down $2bn) due to balance outflows in Bermuda and a reduction in savings deposits in the US. GB&M balances fell by $2bn driven by a decrease in demand deposits in the US.

 

Equity

Total shareholders' equity of $186bn decreased by $2bn or 1%. The effects of profits generated in the period ($14bn) and favourable changes in fair value attributable to changes in own credit risk ($3bn) were more than offset by an increase in accumulated foreign exchange losses ($7bn) and dividends paid to shareholders ($12bn).

 

Risk-weighted assets

Risk-weighted assets ('RWAs') were $865.3bn at 31 December 2018. Excluding the $0.8bn impact of IFRS 9 implementation on 1 January 2018 and foreign currency translation differences, RWAs increased by $16.6bn in 2018. This comprised growth of $27.6bn from asset size and $2.9bn from changes in asset quality. This was partly offset by a $10.0bn fall from changes to methodology and policy and a $3.9bn decrease due to model updates.

Asset size movements principally included:

•    a $41.5bn growth predominantly in corporate and mortgage lending across CMB, RBWM and GB&M, most significantly in Asia; and

•    a $11.3bn decrease in Corporate Centre RWAs, predominantly due to reductions in legacy portfolios.

 

 

 

Customer accounts by country/territory

 

2018

2017

 

$m

$m

Europe

503,154

 

505,182

 

-  UK

399,487

 

401,733

 

-  France

45,169

 

45,833

 

-  Germany

16,713

 

17,355

 

-  Switzerland

6,315

 

7,936

 

-  other

35,470

 

32,325

 

Asia

664,824

 

657,395

 

-  Hong Kong

484,897

 

477,104

 

-  mainland China

45,712

 

45,991

 

-  Singapore

42,323

 

41,144

 

-  Australia

20,649

 

20,212

 

-  Malaysia

13,904

 

14,027

 

-  Taiwan

13,602

 

13,459

 

-  India

14,210

 

13,228

 

-  Indonesia

3,810

 

4,211

 

-  other

25,717

 

28,019

 

Middle East and North Africa (excluding Saudi Arabia)

35,408

 

34,658

 

-  United Arab Emirates

16,583

 

16,602

 

-  Turkey

4,169

 

3,772

 

-  Egypt

4,493

 

3,912

 

-  other

10,163

 

10,372

 

North America

133,291

 

143,432

 

-  US

82,523

 

89,887

 

-  Canada

43,898

 

45,510

 

-  other

6,870

 

8,035

 

Latin America

25,966

 

23,795

 

-  Mexico

19,936

 

17,809

 

-  other

6,030

 

5,986

 

At 31 Dec

1,362,643

 

1,364,462

 

 

 

 

 

 

Loans and advances, Deposits by currency

 

At

 

31 Dec 2018

$m

USD

GBP

HKD

EUR

CNY

Others63

Total

Loans and advances to banks

23,469

 

4,351

 

3,241

 

3,462

 

7,418

 

30,226

 

72,167

 

Loans and advances to customers

176,907

 

243,541

 

220,458

 

86,583

 

29,973

 

224,234

 

981,696

 

Total loans and advances

200,376

 

247,892

 

223,699

 

90,045

 

37,391

 

254,460

 

1,053,863

 

 

 

 

 

 

 

 

 

Deposits by banks

17,802

 

5,777

 

3,748

 

15,923

 

4,065

 

9,016

 

56,331

 

Customer accounts

348,741

 

340,244

 

290,748

 

116,095

 

49,596

 

217,219

 

1,362,643

 

Total deposits

366,543

 

346,021

 

294,496

 

132,018

 

53,661

 

226,235

 

1,418,974

 

For footnotes, see page 67.

 

 

 

Global businesses and

geographical regions

 

Page

Analysis of adjusted results by global business

51

Reconciliation of reported and adjusted items

52

Reconciliation of reported and adjusted items - global businesses

 

53

Supplementary tables for RBWM and GPB

56

Analysis of reported results by geographical regions

58

Reconciliation of reported and adjusted items - geographical regions

60

Analysis of reported results by country/territory

66

 

Summary

(Audited)

The Group Chief Executive and the rest of the Group Management Board ('GMB') review operating activity on a number of bases, including by global business and geographical region. Global businesses are our reportable segments under IFRS 8 'Operating Segments'.

Basis of preparation
The Group Chief Executive, supported by the rest of the GMB, is considered the Chief Operating Decision Maker ('CODM') for the purposes of identifying the Group's reportable segments. Global business results are assessed by the CODM on the basis of adjusted performance that removes the effects of significant items and currency translation from reported results. We therefore present these results on an adjusted basis as required by IFRSs. The 2017 and 2016 adjusted performance information is presented on a constant currency basis as described on page 34.

 

As required by IFRS 8, reconciliations of the total adjusted global business results to the Group reported results are presented on page 48. Supplementary reconciliations from reported to adjusted results by global business are presented on pages 50 to 52 for information purposes.
Global business performance is also assessed using return on tangible equity ('RoTE'), excluding significant items and the UK bank levy. A reconciliation of global business RoTE, excluding significant items and the UK bank levy to the Group's RoTE is provided in the reconciliations of non-GAAP financial measures at 31 December 2018.
Our operations are closely integrated and, accordingly, the presentation of data includes internal allocations of certain items of income and expense. These allocations include the costs of certain support services and global functions to the extent that they can be meaningfully attributed to global businesses and geographical regions. While such allocations have been made on a systematic and consistent basis, they necessarily involve a degree of subjectivity. Costs that are not allocated to global businesses are included in Corporate Centre.
Where relevant, income and expense amounts presented include the results of inter-segment funding along with inter-company and inter-business line transactions. All such transactions are undertaken on arm's length terms. The intra-Group elimination items for the global businesses are presented in Corporate Centre.
The expense of the UK bank levy is included in the Europe geographical region as HSBC regards the levy as a cost of being headquartered in the UK. For the purposes of the presentation by global business, the cost of the levy is included in the Corporate Centre.
The results of geographical regions are presented on a reported basis.
Geographical information is classified by the location of the principal operations of the subsidiary or, for The Hongkong and Shanghai Banking Corporation Limited, HSBC Bank plc, HSBC UK Bank plc, HSBC Bank Middle East Limited and HSBC Bank USA, by the location of the branch responsible for reporting the results or providing funding.

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

 

 

 

Analysis of adjusted results by global business

 

(Audited)

HSBC adjusted profit before tax and balance sheet data

 

 

2018

 

 

Retail
Banking and
Wealth
Management

Commercial
Banking

Global
Banking and
Markets

Global
Private
Banking

Corporate Centre

Total

 

Footnotes

$m

$m

$m

$m

$m

$m

Net operating income before change in expected credit losses and other credit impairment charges

26

21,935

 

14,885

 

15,512

 

1,785

 

(177

)

53,940

 

-  external

 

17,270

 

14,652

 

17,986

 

1,497

 

2,535

 

53,940

 

-  inter-segment

 

4,665

 

233

 

(2,474

)

288

 

(2,712

)

-

 

of which: net interest income/(expense)

 

15,822

 

10,666

 

5,259

 

888

 

(2,199

)

30,436

 

Change in expected credit losses and other credit impairment charges
 

 

(1,177

)

(739

)

26

 

8

 

115

 

(1,767

)

Net operating income/(expense)

 

20,758

 

14,146

 

15,538

 

1,793

 

(62

)

52,173

 

Total operating expenses

 

(13,711

)

(6,477

)

(9,460

)

(1,449

)

(1,893

)

(32,990

)

Operating profit/(loss)

 

7,047

 

7,669

 

6,078

 

344

 

(1,955

)

19,183

 

Share of profit in associates and joint ventures

 

33

 

-

 

-

 

-

 

2,503

 

2,536

 

Adjusted profit before tax

 

7,080

 

7,669

 

6,078

 

344

 

548

 

21,719

 

 

 

%

%

%

%

%

%

Share of HSBC's adjusted profit before tax

 

32.6

 

35.3

 

28.0

 

1.6

 

2.5

 

100.0

 

Adjusted cost efficiency ratio

 

62.5

 

43.5

 

61.0

 

81.2

 

(1,069.5

)

61.2

 

Adjusted balance sheet data

 

$m

$m

$m

$m

$m

$m

Loans and advances to customers (net)

 

361,872

 

333,162

 

244,978

 

39,217

 

2,467

 

981,696

 

Interests in associates and joint ventures

 

397

 

-

 

-

 

-

 

22,010

 

22,407

 

Total external assets

 

476,784

 

360,216

 

1,012,272

 

43,790

 

665,062

 

2,558,124

 

Customer accounts

 

640,924

 

357,596

 

290,914

 

64,658

 

8,551

 

1,362,643

 

Adjusted risk-weighted assets (unaudited)

64

126,865

 

321,244

 

281,021

 

16,824

 

118,550

 

864,504

 

 

 

 

 

2017

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

26

20,220

 

13,247

 

15,285

 

1,723

 

1,186

 

51,661

 

-  external

 

17,024

 

13,378

 

16,557

 

1,453

 

3,249

 

51,661

 

-  inter-segment

 

3,196

 

(131

)

(1,272

)

270

 

(2,063

)

-

 

of which: net interest income/(expense)

 

13,927

 

9,060

 

4,851

 

825

 

(481

)

28,182

 

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

 

(969

)

(465

)

(446

)

(16

)

183

 

(1,713

)

Net operating income

 

19,251

 

12,782

 

14,839

 

1,707

 

1,369

 

49,948

 

Total operating expenses

 

(12,786

)

(5,953

)

(8,991

)

(1,411

)

(2,090

)

(31,231

)

Operating profit/(loss)

 

6,465

 

6,829

 

5,848

 

296

 

(721

)

18,717

 

Share of profit in associates and joint ventures

 

14

 

-

 

-

 

-

 

2,402

 

2,416

 

Adjusted profit before tax

 

6,479

 

6,829

 

5,848

 

296

 

1,681

 

21,133

 

 

 

%

%

%

%

%

%

Share of HSBC's adjusted profit before tax

 

30.6

 

32.3

 

27.7

 

1.4

 

8.0

 

100.0

 

Adjusted cost efficiency ratio

 

63.2

 

44.9

 

58.8

 

81.9

 

176.2

 

60.5

 

Adjusted balance sheet data

 

$m

$m

$m

$m

$m

$m

Loans and advances to customers (net)

 

332,261

 

305,213

 

244,476

 

39,597

 

7,294

 

928,841

 

Interests in associates and joint ventures

 

363

 

-

 

-

 

-

 

21,656

 

22,019

 

Total external assets

 

451,516

 

336,163

 

946,747

 

46,247

 

662,364

 

2,443,037

 

Customer accounts

 

621,092

 

351,617

 

273,080

 

64,957

 

10,883

 

1,321,629

 

Adjusted risk-weighted assets (unaudited)

64

118,131

 

289,824

 

293,135

 

15,795

 

128,795

 

845,680

 

For footnotes, see page 67.

 

 

 

 

 

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

 

 

2016

 

 

Retail
Banking and
Wealth
Management

Commercial
Banking

Global
Banking and
Markets

Global
Private
Banking

Corporate Centre

Total

 

Footnotes

$m

$m

$m

$m

$m

$m

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

26

18,483

 

12,656

 

14,807

 

1,770

 

1,544

 

49,260

 

-  external

 

16,050

 

12,656

 

17,488

 

1,512

 

1,554

 

49,260

 

-  inter-segment

 

2,433

 

-

 

(2,681

)

258

 

(10

)

-

 

of which: net interest income

 

12,906

 

8,506

 

4,800

 

813

 

1,176

 

28,201

 

Loan impairment charges and other credit risk provisions

 

(1,101

)

(986

)

(461

)

-

 

(24

)

(2,572

)

Net operating income

 

17,382

 

11,670

 

14,346

 

1,770

 

1,520

 

46,688

 

Total operating expenses

 

(12,144

)

(5,747

)

(8,846

)

(1,484

)

(1,926

)

(30,147

)

Operating profit/(loss)

 

5,238

 

5,923

 

5,500

 

286

 

(406

)

16,541

 

Share of profit in associates and joint ventures

 

20

 

-

 

-

 

-

 

2,345

 

2,365

 

Adjusted profit before tax

 

5,258

 

5,923

 

5,500

 

286

 

1,939

 

18,906

 

 

 

%

%

%

%

%

%

Share of HSBC's adjusted profit before tax

 

27.8

 

31.3

 

29.1

 

1.5

 

10.3

 

100.0

 

Adjusted cost efficiency ratio

 

65.7

 

45.4

 

59.7

 

83.8

 

124.7

 

61.2

 

Adjusted balance sheet data

 

$m

$m

$m

$m

$m

$m

Loans and advances to customers (net)

 

312,393

 

285,253

 

230,171

 

36,222

 

12,331

 

876,370

 

Interests in associates and joint ventures

 

391

 

-

 

-

 

-

 

19,635

 

20,026

 

Total external assets

 

421,559

 

309,905

 

949,732

 

43,663

 

692,740

 

2,417,599

 

Customer accounts

 

595,765

 

346,746

 

261,949

 

71,389

 

14,344

 

1,290,193

 

Adjusted risk-weighted assets (unaudited)

64

111,617

 

276,705

 

301,728

 

15,418

 

149,680

 

855,148

 

For footnotes, see page 67.

 

 

 

 

 

Reconciliation of reported and adjusted items

(Audited)

Adjusted results reconciliation

 

 

2018

2017

2016

 

 

Adjusted

Significant items

Reported

Adjusted

Currency translation

Significant items

Reported

Adjusted

Currency translation

Significant items

Reported

 

Footnotes

$m

$m

$m

$m

$m

$m

$m

$m

$m

$m

$m

Revenue

26

53,940

 

(160

)

53,780

 

51,661

 

(133

)

(83

)

51,445

 

49,260

 

803

 

(2,097

)

47,966

 

ECL

 

(1,767

)

-

 

(1,767

)

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

LICs

 

N/A

N/A

N/A

(1,713

)

(56

)

-

 

(1,769

)

(2,572

)

(24

)

(804

)

(3,400

)

Operating expenses

 

(32,990

)

(1,669

)

(34,659

)

(31,231

)

143

 

(3,796

)

(34,884

)

(30,147

)

(361

)

(9,300

)

(39,808

)

Share of profit in associates
and joint ventures

 

2,536

 

-

 

2,536

 

2,416

 

(41

)

-

 

2,375

 

2,365

 

(10

)

(1

)

2,354

 

Profit/(loss) before tax

 

21,719

 

(1,829

)

19,890

 

21,133

 

(87

)

(3,879

)

17,167

 

18,906

 

408

 

(12,202

)

7,112

 

For footnotes, see page 67.

Adjusted balance sheet reconciliation

 

2018

2017

2016

 

Reported and adjusted

Adjusted

Currency translation

Reported

Adjusted

Currency translation

Reported

 

$m

$m

$m

$m

$m

$m

$m

Loans and advances to customers (net)

981,696

 

928,841

 

34,123

 

962,964

 

876,370

 

(14,866

)

861,504

 

Interests in associates and joint ventures

22,407

 

22,019

 

725

 

22,744

 

20,026

 

3

 

20,029

 

Total external assets

2,558,124

 

2,443,037

 

78,734

 

2,521,771

 

2,417,599

 

(42,613

)

2,374,986

 

Customer accounts
 

1,362,643

 

1,321,629

 

42,833

 

1,364,462

 

1,290,193

 

(17,807

)

1,272,386

 

 

 

 

 

 

Adjusted profit reconciliation

 

 

2018

2017

2016

 

Footnotes

$m

$m

$m

Year ended 31 Dec

 

 

 

 

Adjusted profit before tax

 

21,719

 

21,133

 

18,906

 

Significant items

 

(1,829

)

(3,879

)

(12,202

)

-  customer redress programmes (revenue)

 

53

 

(108

)

2

 

-  disposals, acquisitions and investment in new businesses (revenue)

 

(113

)

274

 

264

 

-  fair value movements on financial instruments

65, 66

(100

)

(245

)

(2,453

)

-  costs of structural reform

 

(361

)

(420

)

(223

)

-  costs to achieve

 

-

 

(3,002

)

(3,118

)

-  customer redress programmes (operating expenses)

 

(146

)

(655

)

(559

)

-  disposals, acquisitions and investment in new businesses (operating expenses)

 

(52

)

(53

)

(1,087

)

-  disposals, acquisitions and investment in new businesses (LICs)

 

-

 

-

 

(748

)

-  gain on partial settlement of pension obligation

 

-

 

188

 

-

 

-  impairment of GPB - Europe goodwill

 

-

 

-

 

(3,240

)

-  past service costs of guaranteed minimum pension benefits equalisation

 

(228

)

-

 

-

 

-  restructuring and other related costs

 

(66

)

-

 

-

 

-  settlements and provisions in connection with legal and other regulatory matters

 

(816

)

198

 

(1,025

)

-  disposals, acquisitions and investment in new businesses (share of profit in associates and joint ventures)

 

-

 

-

 

(1

)

-  currency translation on significant items

 

 

(56

)

(14

)

Currency translation

 

 

(87

)

408

 

Reported profit before tax

 

19,890

 

17,167

 

7,112

 

For footnotes, see page 67.

 

 

 

 

 

Reconciliation of reported and adjusted items - global businesses

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

 

 

2018

 

 

Retail Banking and Wealth
Management

Commercial
Banking

Global
Banking and
Markets

Global
Private
Banking

Corporate Centre

Total

 

Footnotes

$m

$m

$m

$m

$m

$m

Revenue

26

 

 

 

 

 

 

Reported

 

21,928

 

14,938

 

15,634

 

1,790

 

(510

)

53,780

 

Significant items

 

7

 

(53

)

(122

)

(5

)

333

 

160

 

-  customer redress programmes

 

-

 

(53

)

-

 

-

 

-

 

(53

)

-  disposals, acquisitions and investment in new businesses

 

7

 

-

 

-

 

(5

)

111

 

113

 

-  fair value movements on financial instruments
 

65

-

 

-

 

(122

)

-

 

222

 

100

 

Adjusted

 

21,935

 

14,885

 

15,512

 

1,785

 

(177

)

53,940

 

Change in expected credit losses and other credit impairment charges

 

 

 

 

 

 

 

Reported

 

(1,177

)

(739

)

26

 

8

 

115

 

(1,767

)

Adjusted

 

(1,177

)

(739

)

26

 

8

 

115

 

(1,767

)

Operating expenses

 

 

 

 

 

 

 

Reported

 

(13,902

)

(6,480

)

(9,348

)

(1,550

)

(3,379

)

(34,659

)

Significant items

 

191

 

3

 

(112

)

101

 

1,486

 

1,669

 

-  costs of structural reform

 

2

 

8

 

41

 

-

 

310

 

361

 

-  customer redress programmes

 

173

 

(5

)

(22

)

-

 

-

 

146

 

-  disposals, acquisitions and investment in new businesses

 

-

 

-

 

-

 

52

 

-

 

52

 

-  past service costs of guaranteed minimum pension benefits equalisation

 

-

 

-

 

-

 

-

 

228

 

228

 

-  restructuring and other related costs

 

-

 

-

 

-

 

7

 

59

 

66

 

-  settlements and provisions in connection with legal and regulatory matters

 

16

 

-

 

(131

)

42

 

889

 

816

 

Adjusted

 

(13,711

)

(6,477

)

(9,460

)

(1,449

)

(1,893

)

(32,990

)

Share of profit in associates and joint ventures

 

 

 

 

 

 

 

Reported

 

33

 

-

 

-

 

-

 

2,503

 

2,536

 

Adjusted

 

33

 

-

 

-

 

-

 

2,503

 

2,536

 

Profit/(loss) before tax

 

 

 

 

 

 

 

Reported

 

6,882

 

7,719

 

6,312

 

248

 

(1,271

)

19,890

 

Significant items

 

198

 

(50

)

(234

)

96

 

1,819

 

1,829

 

-  revenue

 

7

 

(53

)

(122

)

(5

)

333

 

160

 

-  operating expenses

 

191

 

3

 

(112

)

101

 

1,486

 

1,669

 

Adjusted

 

7,080

 

7,669

 

6,078

 

344

 

548

 

21,719

 

Loans and advances to customers (net)

 

 

 

 

 

 

 

Reported

 

361,872

 

333,162

 

244,978

 

39,217

 

2,467

 

981,696

 

Adjusted

 

361,872

 

333,162

 

244,978

 

39,217

 

2,467

 

981,696

 

Customer accounts

 

 

 

 

 

 

 

Reported

 

640,924

 

357,596

 

290,914

 

64,658

 

8,551

 

1,362,643

 

Adjusted

 

640,924

 

357,596

 

290,914

 

64,658

 

8,551

 

1,362,643

 

For footnotes, see page 67.

 

 

 

Reconciliation of reported and adjusted items (continued)

 

 

2017

 

 

Retail
Banking and
Wealth
Management

Commercial
Banking

Global
Banking and
Markets

Global
Private
Banking

Corporate Centre

Total

 

Footnotes

$m

$m

$m

$m

$m

$m

Revenue

26

 

 

 

 

 

 

Reported

 

20,519

 

13,120

 

14,617

 

1,723

 

1,466

 

51,445

 

Currency translation

 

(67

)

27

 

181

 

21

 

(29

)

133

 

Significant items

 

(232

)

100

 

487

 

(21

)

(251

)

83

 

-  customer redress programmes

 

3

 

103

 

2

 

-

 

-

 

108

 

-  disposals, acquisitions and investment in new businesses

 

(235

)

-

 

99

 

(20

)

(118

)

(274

)

-  fair value movements on financial instruments
 

65

-

 

-

 

373

 

-

 

(128

)

245

 

-  currency translation on significant items

 

-

 

(3

)

13

 

(1

)

(5

)

4

 

Adjusted

 

20,220

 

13,247

 

15,285

 

1,723

 

1,186

 

51,661

 

LICs

 

 

 

 

 

 

 

Reported

 

(980

)

(496

)

(459

)

(16

)

182

 

(1,769

)

Currency translation

 

11

 

31

 

13

 

-

 

1

 

56

 

Adjusted

 

(969

)

(465

)

(446

)

(16

)

183

 

(1,713

)

Operating expenses

 

 

 

 

 

 

 

Reported

 

(13,734

)

(6,001

)

(8,723

)

(1,586

)

(4,840

)

(34,884

)

Currency translation

 

38

 

(6

)

(112

)

(18

)

(45

)

(143

)

Significant items

 

910

 

54

 

(156

)

193

 

2,795

 

3,796

 

-  costs of structural reform

 

6

 

3

 

8

 

-

 

403

 

420

 

-  costs to achieve

 

270

 

44

 

240

 

3

 

2,445

 

3,002

 

-  customer redress programmes

 

637

 

16

 

2

 

-

 

-

 

655

 

-  disposals, acquisitions and investment in new businesses

 

-

 

-

 

-

 

31

 

22

 

53

 

-  gain on partial settlement of pension obligation

 

(26

)

(9

)

(9

)

(3

)

(141

)

(188

)

-  settlements and provisions in connection with legal and regulatory matters

 

-

 

-

 

(376

)

164

 

14

 

(198

)

-  currency translation on significant items

 

23

 

-

 

(21

)

(2

)

52

 

52

 

Adjusted

 

(12,786

)

(5,953

)

(8,991

)

(1,411

)

(2,090

)

(31,231

)

Share of profit in associates and joint ventures

 

 

 

 

 

 

 

Reported

 

18

 

-

 

-

 

-

 

2,357

 

2,375

 

Currency translation

 

(4

)

-

 

-

 

-

 

45

 

41

 

Adjusted

 

14

 

-

 

-

 

-

 

2,402

 

2,416

 

Profit/(loss) before tax

 

 

 

 

 

 

 

Reported

 

5,823

 

6,623

 

5,435

 

121

 

(835

)

17,167

 

Currency translation

 

(22

)

52

 

82

 

3

 

(28

)

87

 

Significant items

 

678

 

154

 

331

 

172

 

2,544

 

3,879

 

-  revenue

 

(232

)

100

 

487

 

(21

)

(251

)

83

 

-  operating expenses

 

910

 

54

 

(156

)

193

 

2,795

 

3,796

 

Adjusted

 

6,479

 

6,829

 

5,848

 

296

 

1,681

 

21,133

 

Loans and advances to customers (net)

 

 

 

 

 

 

 

Reported

 

346,148

 

316,533

 

252,474

 

40,326

 

7,483

 

962,964

 

Currency translation

 

(13,887

)

(11,320

)

(7,998

)

(729

)

(189

)

(34,123

)

Adjusted

 

332,261

 

305,213

 

244,476

 

39,597

 

7,294

 

928,841

 

Customer accounts

 

 

 

 

 

 

 

Reported

 

639,592

 

362,908

 

283,943

 

66,512

 

11,507

 

1,364,462

 

Currency translation

 

(18,500

)

(11,291

)

(10,863

)

(1,555

)

(624

)

(42,833

)

Adjusted

 

621,092

 

351,617

 

273,080

 

64,957

 

10,883

 

1,321,629

 

For footnotes, see page 67.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of reported and adjusted items (continued)

 

 

2016

 

 

Retail
Banking and
Wealth
Management

Commercial
Banking

Global
Banking and
Markets

Global
Private
Banking

Corporate Centre

Total

 

Footnotes

$m

$m

$m

$m

$m

$m

Revenue

26

 

 

 

 

 

 

Currency translation

 

 

 

 

 

 

 

Reported

 

20,338

 

13,405

 

15,213

 

1,745

 

(2,735

)

47,966

 

Currency translation

 

(374

)

(214

)

(89

)

14

 

(140

)

(803

)

Significant items

 

(1,481

)

(535

)

(317

)

11

 

4,419

 

2,097

 

-  customer redress programmes

 

-

 

-

 

-

 

(2

)

-

 

(2

)

-  disposals, acquisitions and investment in new businesses

 

(1,413

)

(518

)

(268

)

14

 

1,921

 

(264

)

-  fair value movements on financial instruments
 

65, 66

-

 

-

 

(26

)

-

 

2,479

 

2,453

 

-  currency translation on significant items

 

(68

)

(17

)

(23

)

(1

)

19

 

(90

)

Adjusted

 

18,483

 

12,656

 

14,807

 

1,770

 

1,544

 

49,260

 

LICs

 

 

 

 

 

 

 

Reported

 

(1,633

)

(1,272

)

(471

)

1

 

(25

)

(3,400

)

Currency translation

 

33

 

(4

)

(5

)

(1

)

1

 

24

 

Significant items

 

499

 

290

 

15

 

-

 

-

 

804

 

-  disposals, acquisitions and investment in new businesses

 

462

 

272

 

14

 

-

 

-

 

748

 

-  currency translation on significant items

 

37

 

18

 

1

 

-

 

-

 

56

 

Adjusted

 

(1,101

)

(986

)

(461

)

-

 

(24

)

(2,572

)

Operating expenses

 

 

 

 

 

 

 

Reported

 

(14,138

)

(6,087

)

(9,302

)

(5,074

)

(5,207

)

(39,808

)

Currency translation

 

249

 

83

 

16

 

(19

)

32

 

361

 

Significant items

 

1,745

 

257

 

440

 

3,609

 

3,249

 

9,300

 

-  costs of structural reform

 

2

 

1

 

-

 

-

 

220

 

223

 

-  costs to achieve

 

393

 

62

 

233

 

6

 

2,424

 

3,118

 

-  customer redress programmes

 

497

 

34

 

28

 

-

 

-

 

559

 

-  disposals, acquisitions and investment in new businesses

 

805

 

155

 

82

 

18

 

27

 

1,087

 

-  impairment of GPB - Europe goodwill

 

-

 

-

 

-

 

3,240

 

-

 

3,240

 

-  settlements and provisions in connection with legal and regulatory matters

 

-

 

-

 

94

 

341

 

590

 

1,025

 

-  currency translation on significant items

 

48

 

5

 

3

 

4

 

(12

)

48

 

Adjusted

 

(12,144

)

(5,747

)

(8,846

)

(1,484

)

(1,926

)

(30,147

)

Share of profit in associates and joint ventures

 

 

 

 

 

 

 

Reported

 

20

 

-

 

-

 

-

 

2,334

 

2,354

 

Currency translation

 

-

 

-

 

-

 

-

 

10

 

10

 

Significant items

 

-

 

-

 

-

 

-

 

1

 

1

 

-  disposals, acquisitions and investment in new businesses

 

-

 

-

 

-

 

-

 

1

 

1

 

-  currency translation on significant items

 

-

 

-

 

-

 

-

 

-

 

-

 

Adjusted

 

20

 

-

 

-

 

-

 

2,345

 

2,365

 

Profit/(loss) before tax

 

 

 

 

 

 

 

Reported

 

4,587

 

6,046

 

5,440

 

(3,328

)

(5,633

)

7,112

 

Currency translation

 

(92

)

(135

)

(78

)

(6

)

(97

)

(408

)

Significant items

 

763

 

12

 

138

 

3,620

 

7,669

 

12,202

 

-  revenue

 

(1,481

)

(535

)

(317

)

11

 

4,419

 

2,097

 

-  LICs

 

499

 

290

 

15

 

-

 

-

 

804

 

-  operating expenses

 

1,745

 

257

 

440

 

3,609

 

3,249

 

9,300

 

-  share of profit in associates and joint ventures

 

-

 

-

 

-

 

-

 

1

 

1

 

Adjusted

 

5,258

 

5,923

 

5,500

 

286

 

1,939

 

18,906

 

Loans and advances to customers (net)

 

 

 

 

 

 

 

Reported

 

306,056

 

281,930

 

225,855

 

35,456

 

12,207

 

861,504

 

Currency translation

 

6,337

 

3,323

 

4,316

 

766

 

124

 

14,866

 

Adjusted

 

312,393

 

285,253

 

230,171

 

36,222

 

12,331

 

876,370

 

Customer accounts

 

 

 

 

 

 

 

Reported

 

590,502

 

341,729

 

256,095

 

69,850

 

14,210

 

1,272,386

 

Currency translation

 

5,263

 

5,017

 

5,854

 

1,539

 

134

 

17,807

 

Adjusted

 

595,765

 

346,746

 

261,949

 

71,389

 

14,344

 

1,290,193

 

For footnotes, see page 67.

 

 

 

 

 

Reconciliation of reported and adjusted risk-weighted assets

 

 

At 31 Dec 2018

 

 

Retail

Banking and

Wealth
Management

Commercial
Banking

Global
Banking and
Markets

Global Private
Banking

Corporate Centre

Total

 

Footnotes

$bn

$bn

$bn

$bn

$bn

$bn

Risk-weighted assets

 

 

 

 

 

 

 

Reported

 

126.9

 

321.2

 

281.0

 

16.8

 

119.4

 

865.3

 

Disposals

 

-

 

-

 

-

 

-

 

(0.8

)

(0.8

)

-  operations in Brazil

 

-

 

-

 

-

 

-

 

(0.8

)

(0.8

)

Adjusted

64

126.9

 

321.2

 

281.0

 

16.8

 

118.6

 

864.5

 

 

 

 

 

 

 

 

 

 

 

At 31 Dec 2017

Risk-weighted assets

 

 

 

 

 

 

 

Reported

 

121.5

 

301.0

 

299.3

 

16.0

 

133.5

 

871.3

 

Currency translation

 

(3.4

)

(11.2

)

(6.1

)

(0.2

)

(2.0

)

(22.9

)

Disposals

 

-

 

-

 

-

 

-

 

(2.7

)

(2.7

)

-  operations in Brazil

 

-

 

-

 

-

 

-

 

(2.6

)

(2.6

)

-  operations in Lebanon

 

-

 

-

 

-

 

-

 

(0.1

)

(0.1

)

Adjusted

64

118.1

 

289.8

 

293.2

 

15.8

 

128.8

 

845.7

 

 

 

 

At 31 Dec 2016

Risk-weighted assets

 

 

 

 

 

 

 

Reported

 

115.1

 

275.9

 

300.4

 

15.3

 

150.5

 

857.2

 

Currency translation

 

(0.1

)

2.2

 

2.0

 

0.1

 

(0.1

)

4.1

 

Disposals

 

(3.4

)

(1.4

)

(0.7

)

-

 

(0.7

)

(6.2

)

-  operations in Brazil

 

(3.2

)

(1.0

)

(0.7

)

-

 

(0.2

)

(5.1

)

-  operations in Lebanon

 

(0.2

)

(0.4

)

-

 

-

 

(0.5

)

(1.1

)

Adjusted

64

111.6

 

276.7

 

301.7

 

15.4

 

149.7

 

855.1

 

For footnotes, see page 67.

 

 

 

 

 

 

 

 

 

 

 

Supplementary tables for RBWM and GPB

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

RBWM - adjusted profit before tax data

 

 

Consists of

 

 

Total

RBWM

Banking

operations

Insurance manufacturing

Asset

management

 

Footnotes

$m

$m

$m

$m

Year ended 31 Dec 2018

 

 

 

 

 

Net operating income before change in expected credit losses and other credit impairment charges

26

21,935

 

19,053

 

1,816

 

1,066

 

-  net interest income

 

15,822

 

13,759

 

2,063

 

-

 

-  net fee income/(expense)

 

5,198

 

4,723

 

(579

)

1,054

 

-  other income

 

915

 

571

 

332

 

12

 

ECL

 

(1,177

)

(1,175

)

(2

)

-

 

Net operating income

 

20,758

 

17,878

 

1,814

 

1,066

 

Total operating expenses

 

(13,711

)

(12,517

)

(472

)

(722

)

Operating profit

 

7,047

 

5,361

 

1,342

 

344

 

Share of profit in associates and joint ventures

 

33

 

2

 

31

 

-

 

Profit before tax

 

7,080

 

5,363

 

1,373

 

344

 

 

 

 

 

 

 

Year ended 31 Dec 2017

 

 

 

 

 

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

26

20,220

 

17,182

 

1,971

 

1,067

 

-  net interest income

 

13,927

 

11,914

 

2,013

 

-

 

-  net fee income/(expense)

 

5,150

 

4,628

 

(498

)

1,020

 

-  other income

 

1,143

 

640

 

456

 

47

 

LICs

 

(969

)

(969

)

-

 

-

 

Net operating income

 

19,251

 

16,213

 

1,971

 

1,067

 

Total operating expenses

 

(12,786

)

(11,681

)

(403

)

(702

)

Operating profit

 

6,465

 

4,532

 

1,568

 

365

 

Share of profit in associates and joint ventures

 

14

 

4

 

10

 

-

 

Profit before tax

 

6,479

 

4,536

 

1,578

 

365

 

For footnotes, see page 67.

RBWM insurance manufacturing adjusted revenue of $1,816m (2017: $1,971m) was disclosed within the management view of adjusted revenue on page 18, as follows:  Wealth Management $1,656m (2017: $1,870m) and Other $160m (2017: $101m).

 

RBWM Insurance manufacturing adjusted results

The following table shows the results of our insurance manufacturing operations by income statement line item. It shows the results of insurance manufacturing operations for RBWM and for all global business segments in aggregate, and separately the insurance distribution income earned by HSBC bank channels.

 

Adjusted results of insurance manufacturing operations and insurance distribution income earned by HSBC bank channels67

 

 

2018

2017

 

 

RBWM

All global businesses

RBWM

All global businesses

 

Footnotes

$m

$m

$m

$m

Net interest income

 

2,063

 

2,227

 

2,013

 

2,193

 

Net fee income

 

(579

)

(567

)

(498

)

(485

)

- fee income

 

182

 

275

 

233

 

330

 

- fee expense

 

(761

)

(842

)

(731

)

(815

)

Net income from financial instruments held for trading or managed on a fair value basis

 

216

 

204

 

(37

)

13

 

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

 

(1,562

)

(1,578

)

2,878

 

2,837

 

Gains less losses from financial investments

 

59

 

58

 

23

 

31

 

Net insurance premium income

 

10,235

 

10,716

 

9,470

 

9,895

 

Other operating income

 

712

 

766

 

61

 

97

 

Of which: PVIF

 

640

 

681

 

11

 

21

 

Total operating income

 

11,144

 

11,826

 

13,910

 

14,581

 

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

 

(9,328

)

(9,786

)

(11,939

)

(12,391

)

Net operating income before change in expected credit losses and other credit impairment charges

 

1,816

 

2,040

 

1,971

 

2,190

 

Change in expected credit losses and other credit impairment charges

 

(2

)

(2

)

-

 

-

 

Net operating income

 

1,814

 

2,038

 

1,971

 

2,190

 

Total operating expenses

 

(472

)

(491

)

(403

)

(434

)

Operating profit

 

1,342

 

1,547

 

1,568

 

1,756

 

Share of profit in associates and joint ventures

 

31

 

31

 

10

 

10

 

Profit before tax of insurance manufacturing operations

68

1,373

 

1,578

 

1,578

 

1,766

 

Annualised new business premiums of insurance manufacturing operations

 

3,173

 

3,252

 

2,666

 

2,725

 

Insurance distribution income earned by HSBC bank channels

 

945

 

1,067

 

908

 

1,033

 

For footnotes, see page 67.

 

Insurance manufacturing

The following commentary, unless otherwise specified, relates to the 'All global businesses' results.

HSBC recognises the present value of long-term in-force insurance contracts and investment contracts with discretionary participation features ('PVIF') as an asset on the balance sheet. The overall balance sheet equity, including PVIF, is therefore a measure of the embedded value in the insurance manufacturing entities, and the movement in this embedded value in the period drives the overall income statement result.

Adjusted profit before tax of $1.6bn decreased by $0.2bn or 11%. This was mainly due to adverse market impacts of $0.3bn in 2018, which primarily reflected unfavourable equity market performance. This compared with favourable market impacts of $0.3bn in 2017. This reduction was partly offset by a $0.2bn increase in the value of new business written, as well as favourable actuarial assumptions and methodology updates of $0.1bn (2017: $0.1bn adverse).

Adjusted revenue was $0.2bn or 6.8% lower than 2017. This reflected the following:

•    'Net expense from assets and liabilities of insurance businesses, including related derivatives, measured at fair value through profit or loss' of $1.6bn in 2018 compared with net income of $2.8bn in 2017, due to unfavourable equity market performance in Hong Kong and France in 2018 compared with 2017, resulting in revaluation losses on equity and unit trust assets supporting insurance and investment contracts. This negative movement resulted in a corresponding movement in liabilities to policyholders and PVIF (see 'Other operating income' below), reflecting the extent to which policyholders participate in the investment performance of the associated asset portfolio.

•    Net insurance premium income of $10.7bn was $0.8bn higher. This was driven by higher new business volumes, particularly in Hong Kong and France, and lower reinsurance ceded in Hong Kong.

•    Other operating income of $0.8bn increased by $0.7bn, mainly from favourable movements in PVIF. This reflected an increase in 'assumption changes and experience variances' of $0.6bn, primarily in Hong Kong, from the future sharing of investment returns with policyholders. In addition, the value of new business written increased by $0.2bn to $1.1bn. For further details, please see Note 21 on the Financial Statements.

•    Net insurance claims and benefits paid and movement in liabilities to policyholders of $9.8bn were $2.6bn lower than 2017. This was primarily due to lower returns on financial assets supporting contracts where the policyholder is subject to part or all of the investment risk, partly offset by the impact of higher new business volumes in Hong Kong and France, and lower reinsurance ceded in Hong Kong.

Adjusted operating expenses of $0.5bn increased by $0.1bn or 13% compared with 2017, reflecting investment in core insurance functions and capabilities.

Annualised new business premiums ('ANP') is used to assess new insurance premium generation by the business. It is calculated as 100% of annualised first year regular premiums and 10% of single premiums, before reinsurance ceded. Growth in ANP during the period reflected new business growth, mainly in Hong Kong.

Insurance distribution income from HSBC channels included $663m (2017: $642m) on HSBC manufactured products, for which a corresponding fee expense is recognised within insurance manufacturing, and $404m (2017: $391m) products manufactured by third-party providers. The RBWM component of this distribution income was $588m (2017: $571m) from HSBC manufactured products and $357m (2017: $337m) from third-party products.

 

 

 

 

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

GPB - reported client assets69

 

2018

2017

2016

 

$bn

$bn

$bn

At 1 Jan

330

 

298

 

349

 

Net new money

10

 

-

 

(17

)

-  of which: areas targeted for growth

15

 

15

 

2

 

Value change

(17

)

21

 

(1

)

Disposals

-

 

(10

)

(24

)

Exchange and other

(14

)

21

 

(9

)

At 31 Dec

309

 

330

 

298

 

 

GPB - reported client assets by geography

 

 

2018

2017

2016

 

Footnotes

$bn

$bn

$bn

Europe

 

149

 

161

 

147

 

Asia

 

124

 

130

 

108

 

North America

 

36

 

39

 

40

 

Latin America

 

-

 

-

 

3

 

Middle East

70

-

 

-

 

-

 

At 31 Dec

 

309

 

330

 

298

 

For footnotes, see page 67.

 

 

 

 

 

Analysis of reported results by geographical regions

 

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

 

 

2018

 

 

Europe

Asia

MENA

North America

Latin America

Intra-HSBC
items

Total

 

Footnotes

$m

$m

$m

$m

$m

$m

$m

Net interest income

 

6,841

 

16,108

 

1,763

 

3,521

 

2,020

 

236

 

30,489

 

Net fee income

 

3,996

 

5,676

 

607

 

1,854

 

498

 

(11

)

12,620

 

Net income from financial instruments held for trading or managed on a fair value basis

 

3,942

 

4,134

 

285

 

728

 

736

 

(294

)

9,531

 

Net income from assets and liabilities of insurance businesses, including related derivatives, measured at fair value through profit and loss

 

(789

)

(717

)

-

 

-

 

18

 

-

 

(1,488

)

Changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss

 

601

 

(26

)

(1

)

36

 

27

 

58

 

695

 

Other income

71

3,113

 

3,609

 

33

 

586

 

(237

)

(5,171

)

1,933

 

Net operating income before change in
expected credit losses and other credit
impairment charges/recoveries

26

17,704

 

28,784

 

2,687

 

6,725

 

3,062

 

(5,182

)

53,780

 

Change in expected credit losses and other credit
impairment charges/recoveries

 

(609

)

(602

)

(209

)

223

 

(570

)

-

 

(1,767

)

Net operating income

 

17,095

 

28,182

 

2,478

 

6,948

 

2,492

 

(5,182

)

52,013

 

Total operating expenses

 

(17,934

)

(12,466

)

(1,357

)

(6,149

)

(1,935

)

5,182

 

(34,659

)

Operating profit/(loss)

 

(839

)

15,716

 

1,121

 

799

 

557

 

-

 

17,354

 

Share of profit in associates and joint ventures

 

24

 

2,074

 

436

 

-

 

2

 

-

 

2,536

 

Profit/(loss) before tax

 

(815

)

17,790

 

1,557

 

799

 

559

 

-

 

19,890

 

 

 

%

%

%

%

%

 

%

Share of HSBC's profit before tax

 

(4.1

)

89.5

 

7.8

 

4.0

 

2.8

 

 

100.0

 

Cost efficiency ratio

 

101.3

 

43.3

 

50.5

 

91.4

 

63.2

 

 

64.4

 

Balance sheet data

 

$m

$m

$m

$m

$m

$m

$m

Loans and advances to customers (net)

 

373,073

 

450,545

 

28,824

 

108,146

 

21,108

 

-

 

981,696

 

Total assets

 

1,150,235

 

1,047,636

 

57,455

 

390,410

 

51,923

 

(139,535

)

2,558,124

 

Customer accounts

 

503,154

 

664,824

 

35,408

 

133,291

 

25,966

 

-

 

1,362,643

 

Risk-weighted assets

72

298,056

 

363,894

 

56,689

 

131,582

 

38,341

 

-

 

865,318

 

 

For footnotes, see page 67.

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

2017

 

 

Europe

Asia

MENA

North America

Latin America

Intra-HSBC

items

Total

 

Footnotes

$m

$m

$m

$m

$m

$m

$m

Net interest income

 

6,970

 

14,153

 

1,752

 

3,441

 

2,098

 

(238

)

28,176

 

Net fee income

 

4,161

 

5,631

 

619

 

1,880

 

520

 

-

 

12,811

 

Net income from financial instruments held for trading or managed on a fair value basis

44, 45

4,066

 

2,929

 

180

 

527

 

486

 

238

 

8,426

 

Net income from assets and liabilities of insurance businesses, including related derivatives, measured at fair value through profit and loss

 

769

 

2,003

 

-

 

-

 

64

 

-

 

2,836

 

Changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss

 

N/A

N/A

N/A

N/A

N/A

N/A

N/A

Other income/(expense)

45, 71

1,454

 

1,090

 

109

 

865

 

57

 

(4,379

)

(804

)

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

26

17,420

 

25,806

 

2,660

 

6,713

 

3,225

 

(4,379

)

51,445

 

Loan impairment charges and other credit risk provisions

 

(658

)

(570

)

(207

)

189

 

(523

)

-

 

(1,769

)

Net operating income

 

16,762

 

25,236

 

2,453

 

6,902

 

2,702

 

(4,379

)

49,676

 

Total operating expenses

 

(18,665

)

(11,790

)

(1,394

)

(5,305

)

(2,109

)

4,379

 

(34,884

)

Operating profit/(loss)

 

(1,903

)

13,446

 

1,059

 

1,597

 

593

 

-

 

14,792

 

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

 

39

 

1,883

 

442

 

4

 

7

 

-

 

2,375

 

Profit/(loss) before tax

 

(1,864

)

15,329

 

1,501

 

1,601

 

600

 

-

 

17,167

 

 

 

%

%

%

%

%

 

%

Share of HSBC's profit before tax

 

(10.8

)

89.3

 

8.7

 

9.3

 

3.5

 

 

100.0

 

Cost efficiency ratio

 

107.1

 

45.7

 

52.4

 

79.0

 

65.4

 

 

67.8

 

Balance sheet data

 

$m

$m

$m

$m

$m

$m

$m

Loans and advances to customers (net)

 

381,547

 

425,971

 

28,050

 

107,607

 

19,789

 

-

 

962,964

 

Total assets

 

1,169,515

 

1,008,498

 

57,469

 

391,292

 

48,413

 

(153,416

)

2,521,771

 

Customer accounts

 

505,182

 

657,395

 

34,658

 

143,432

 

23,795

 

-

 

1,364,462

 

Risk-weighted assets

72

311,612

 

357,808

 

59,196

 

131,276

 

36,372

 

-

 

871,337

 

 

 

 

 

 

 

 

 

 

2016

Net interest income

 

8,346

 

12,490

 

1,831

 

4,220

 

3,006

 

(80

)

29,813

 

Net fee income

 

4,247

 

5,200

 

709

 

1,898

 

723

 

-

 

12,777

 

Net income from financial instruments held for trading or managed on a fair value basis

44, 45

3,018

 

3,127

 

385

 

462

 

449

 

80

 

7,521

 

Net income from assets and liabilities of insurance businesses, including related derivatives, measured at fair value through profit and loss

 

454

 

445

 

-

 

-

 

363

 

-

 

1,262

 

Changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss

 

N/A

N/A

N/A

N/A

N/A

N/A

N/A

Other income

45, 71

(549

)

2,058

 

44

 

485

 

(1,855

)

(3,590

)

(3,407

)

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

26

15,516

 

23,320

 

2,969

 

7,065

 

2,686

 

(3,590

)

47,966

 

Loan impairment charges and other credit risk provisions

 

(446

)

(677

)

(316

)

(732

)

(1,229

)

-

 

(3,400

)

Net operating income

 

15,070

 

22,643

 

2,653

 

6,333

 

1,457

 

(3,590

)

44,566

 

Total operating expenses

 

(21,845

)

(10,785

)

(1,584

)

(6,147

)

(3,037

)

3,590

 

(39,808

)

Operating profit

 

(6,775

)

11,858

 

1,069

 

186

 

(1,580

)

-

 

4,758

 

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

 

1

 

1,921

 

434

 

(1

)

(1

)

-

 

2,354

 

Profit before tax

 

(6,774

)

13,779

 

1,503

 

185

 

(1,581

)

-

 

7,112

 

 

 

%

%

%

%

%

 

%

Share of HSBC's profit before tax

 

(95.2

)

193.7

 

21.1

 

2.6

 

(22.2

)

 

100.0

 

Cost efficiency ratio

 

140.8

 

46.2

 

53.4

 

87.0

 

113.1

 

 

83.0

 

Balance sheet data

 

$m

$m

$m

$m

$m

$m

$m

Loans and advances to customers (net)

 

336,670

 

365,430

 

30,740

 

111,710

 

16,954

 

-

 

861,504

 

Total assets

 

1,068,446

 

965,730

 

60,472

 

409,021

 

43,137

 

(171,820

)

2,374,986

 

Customer accounts

 

446,615

 

631,723

 

34,766

 

138,790

 

20,492

 

-

 

1,272,386

 

Risk-weighted assets

72

298,384

 

333,987

 

59,065

 

150,714

 

34,341

 

-

 

857,181

 

 

 

 

 

For footnotes, see page 67.

 

 

 

 

 

Reconciliation of reported and adjusted items - geographical regions

 

Reconciliation of reported and adjusted items

 

 

2018

 

 

Europe

Asia

MENA

North
America*

Latin
America

Total

 

Footnotes

$m

$m

$m

$m

$m

$m

Revenue

26

 

 

 

 

 

 

Reported

73

17,704

 

28,784

 

2,687

 

6,725

 

3,062

 

53,780

 

Significant items

 

98

 

(38

)

(1

)

95

 

6

 

160

 

-  customer redress programmes

 

(53

)

-

 

-

 

-

 

-

 

(53

)

-  disposals, acquisitions and investment in new businesses

 

(5

)

-

 

-

 

103

 

15

 

113

 

-  fair value movements on financial instruments
 

65

156

 

(38

)

(1

)

(8

)

(9

)

100

 

Adjusted

73

17,802

 

28,746

 

2,686

 

6,820

 

3,068

 

53,940

 

Change in expected credit losses and other credit impairment charges

 

 

 

 

 

 

 

Reported

 

(609

)

(602

)

(209

)

223

 

(570

)

(1,767

)

Adjusted

 

(609

)

(602

)

(209

)

223

 

(570

)

(1,767

)

Operating expenses

 

 

 

 

 

 

 

Reported

73

(17,934

)

(12,466

)

(1,357

)

(6,149

)

(1,935

)

(34,659

)

Significant items

 

677

 

16

 

-

 

976

 

-

 

1,669

 

-  costs of structural reform

 

352

 

9

 

-

 

-

 

-

 

361

 

-  customer redress programmes

 

146

 

-

 

-

 

-

 

-

 

146

 

-  disposals, acquisitions and investment in new businesses

 

52

 

-

 

-

 

-

 

-

 

52

 

-  past service costs of guaranteed minimum pension benefits equalisation

 

228

 

-

 

-

 

-

 

-

 

228

 

-  restructuring and other related costs

 

46

 

7

 

-

 

13

 

-

 

66

 

-  settlements and provisions in connection with legal and regulatory matters

 

(147

)

-

 

-

 

963

 

-

 

816

 

Adjusted
 

73

(17,257

)

(12,450

)

(1,357

)

(5,173

)

(1,935

)

(32,990

)

Share of profit in associates and joint ventures

 

 

 

 

 

 

 

Reported

 

24

 

2,074

 

436

 

-

 

2

 

2,536

 

Adjusted

 

24

 

2,074

 

436

 

-

 

2

 

2,536

 

Profit/(loss) before tax

 

 

 

 

 

 

 

Reported

 

(815

)

17,790

 

1,557

 

799

 

559

 

19,890

 

Significant items

 

775

 

(22

)

(1

)

1,071

 

6

 

1,829

 

-  revenue

 

98

 

(38

)

(1

)

95

 

6

 

160

 

-  operating expenses

 

677

 

16

 

-

 

976

 

-

 

1,669

 

Adjusted

74

(40

)

17,768

 

1,556

 

1,870

 

565

 

21,719

 

Loans and advances to customers (net)

 

 

 

 

 

 

 

Reported

 

373,073

 

450,545

 

28,824

 

108,146

 

21,108

 

981,696

 

Adjusted

 

373,073

 

450,545

 

28,824

 

108,146

 

21,108

 

981,696

 

Customer accounts

 

 

 

 

 

 

 

Reported

 

503,154

 

664,824

 

35,408

 

133,291

 

25,966

 

1,362,643

 

Adjusted

 

503,154

 

664,824

 

35,408

 

133,291

 

25,966

 

1,362,643

 

For footnotes, see page 67.

 

 

 

 

Reconciliation of reported and adjusted items (continued)

 

 

2018

 

 

UK

Hong

Kong

Mainland China

US*

Mexico

 

Footnotes

$m

$m

$m

$m

$m

Revenue

26

 

 

 

 

 

Reported

 

13,597

 

18,231

 

2,888

 

4,741

 

2,294

 

Significant items

 

109

 

5

 

(1

)

97

 

(7

)

-  customer redress programmes

 

(53

)

-

 

-

 

-

 

-

 

-  disposals, acquisitions and investment in new businesses

 

-

 

-

 

-

 

103

 

-

 

-  fair value movements on financial instruments

65

162

 

5

 

(1

)

(6

)

(7

)

Adjusted

 

13,706

 

18,236

 

2,887

 

4,838

 

2,287

 

Change in expected credit losses and other credit impairment charges

 

 

 

 

 

 

Reported

 

(516

)

(214

)

(143

)

199

 

(463

)

Adjusted

 

(516

)

(214

)

(143

)

199

 

(463

)

Operating expenses

 

 

 

 

 

 

Reported

 

(14,502

)

(6,539

)

(1,920

)

(4,987

)

(1,303

)

Significant items

 

531

 

16

 

-

 

919

 

-

 

-  costs of structural reform

 

294

 

9

 

-

 

-

 

-

 

-  customer redress programmes

 

146

 

-

 

-

 

-

 

-

 

-  disposals, acquisitions and investment in new businesses

 

-

 

-

 

-

 

-

 

-

 

-  past service costs of guaranteed minimum pension benefits equalisation

 

228

 

-

 

-

 

-

 

-

 

-  restructuring and other related costs

 

39

 

7

 

-

 

11

 

-

 

-  settlements and provisions in connection with legal and regulatory matters

 

(176

)

-

 

-

 

908

 

-

 

Adjusted

 

(13,971

)

(6,523

)

(1,920

)

(4,068

)

(1,303

)

Share of profit in associates and joint ventures

 

 

 

 

 

 

Reported

 

25

 

36

 

2,033

 

-

 

-

 

Adjusted

 

25

 

36

 

2,033

 

-

 

-

 

Profit/(loss) before tax

 

 

 

 

 

 

Reported

 

(1,396

)

11,514

 

2,858

 

(47

)

528

 

Significant items

 

640

 

21

 

(1

)

1,016

 

(7

)

-  revenue

 

109

 

5

 

(1

)

97

 

(7

)

-  operating expenses

 

531

 

16

 

-

 

919

 

-

 

Adjusted

 

(756

)

11,535

 

2,857

 

969

 

521

 

Loans and advances to customers (net)

 

 

 

 

 

 

Reported

 

287,144

 

290,547

 

38,979

 

64,011

 

17,895

 

Adjusted

 

287,144

 

290,547

 

38,979

 

64,011

 

17,895

 

Customer accounts

 

 

 

 

 

 

Reported

 

399,487

 

484,897

 

45,712

 

82,523

 

19,936

 

Adjusted

 

399,487

 

484,897

 

45,712

 

82,523

 

19,936

 

 

*     Of which US (excluding CML run-off portfolio): adjusted revenue $4,792m (RBWM: $1,200m; CMB: $1,016m; GB&M $1,924m; GPB: $259m); adjusted ECL $199m; adjusted operating expenses $(3,996)m; adjusted profit before tax ('PBT') $996m (RBWM: $(180)m; CMB: $473m; GB&M $618m; GPB: $23m); adjusted RWAs (RBWM: $10.6bn; CMB: $27.8bn; GB&M $45.5bn; GPB: $4.1bn; Corporate Centre: $10.2bn).

      Of which Mexico: adjusted revenue $2,287m (RBWM: $1,508m; CMB: $378m; GB&M $321m); adjusted ECL $(463)m; adjusted operating expenses $(1,303)m; adjusted PBT $521m (RBWM: $194m; CMB: $114m; GB&M $189m); adjusted RWAs (RBWM: $7.0bn; CMB: $6.9bn; GB&M $10.6bn; Corporate Centre: $3.0bn).

For footnotes, see page 67.

 

 

 

 

 

Reconciliation of reported and adjusted items (continued)

 

 

 

 

 

 

 

 

 

2017

 

 

Europe

Asia

MENA

North
America*

Latin
America

Total

 

Footnotes

$m

$m

$m

$m

$m

$m

Revenue

26

 

 

 

 

 

 

Reported

73

17,420

 

25,806

 

2,660

 

6,713

 

3,225

 

51,445

 

Currency translation

73

751

 

(130

)

(75

)

-

 

(403

)

133

 

Significant items

 

66

 

123

 

1

 

(93

)

(14

)

83

 

-  customer redress programmes

 

108

 

-

 

-

 

-

 

-

 

108

 

-  disposals, acquisitions and investment in new businesses

 

(98

)

(27

)

-

 

(130

)

(19

)

(274

)

-  fair value movements on financial instruments

65

54

 

148

 

1

 

37

 

5

 

245

 

-  currency translation on significant items

 

2

 

2

 

-

 

-

 

-

 

4

 

Adjusted

73

18,237

 

25,799

 

2,586

 

6,620

 

2,808

 

51,661

 

LICs

 

 

 

 

 

 

 

Reported

 

(658

)

(570

)

(207

)

189

 

(523

)

(1,769

)

Currency translation

 

17

 

5

 

3

 

2

 

29

 

56

 

Adjusted

 

(641

)

(565

)

(204

)

191

 

(494

)

(1,713

)

Operating expenses

 

 

 

 

 

 

 

Reported

73

(18,665

)

(11,790

)

(1,394

)

(5,305

)

(2,109

)

(34,884

)

Currency translation

73

(565

)

65

 

60

 

-

 

287

 

(143

)

Significant items

 

2,876

 

634

 

28

 

201

 

57

 

3,796

 

-  costs of structural reform

 

420

 

-

 

-

 

-

 

-

 

420

 

-  costs to achieve

 

1,908

 

623

 

34

 

371

 

66

 

3,002

 

-  customer redress programmes

 

655

 

-

 

-

 

-

 

-

 

655

 

-  disposals, acquisitions and investment in new businesses

 

36

 

-

 

-

 

17

 

-

 

53

 

-  gain on partial settlement of pension obligation
 

 

-

 

-

 

-

 

(188

)

-

 

(188

)

-  settlements and provisions in connection with legal and regulatory matters

 

(215

)

17

 

-

 

-

 

-

 

(198

)

-  currency translation on significant items

 

72

 

(6

)

(6

)

1

 

(9

)

52

 

Adjusted

73

(16,354

)

(11,091

)

(1,306

)

(5,104

)

(1,765

)

(31,231

)

Share of profit in associates and joint ventures

 

 

 

 

 

 

 

Reported

 

39

 

1,883

 

442

 

4

 

7

 

2,375

 

Currency translation

 

-

 

45

 

-

 

-

 

(4

)

41

 

Adjusted

 

39

 

1,928

 

442

 

4

 

3

 

2,416

 

Profit/(loss) before tax

 

 

 

 

 

 

 

Reported

 

(1,864

)

15,329

 

1,501

 

1,601

 

600

 

17,167

 

Currency translation

 

203

 

(15

)

(12

)

2

 

(91

)

87

 

Significant items

 

2,942

 

757

 

29

 

108

 

43

 

3,879

 

-  revenue

 

66

 

123

 

1

 

(93

)

(14

)

83

 

-  operating expenses

 

2,876

 

634

 

28

 

201

 

57

 

3,796

 

Adjusted

 

1,281

 

16,071

 

1,518

 

1,711

 

552

 

21,133

 

Loans and advances to customers (net)

 

 

 

 

 

 

 

Reported

 

381,547

 

425,971

 

28,050

 

107,607

 

19,789

 

962,964

 

Currency translation

 

(19,881

)

(8,138

)

(1,177

)

(3,194

)

(1,733

)

(34,123

)

Adjusted

 

361,666

 

417,833

 

26,873

 

104,413

 

18,056

 

928,841

 

Customer accounts

 

 

 

 

 

 

 

Reported

 

505,182

 

657,395

 

34,658

 

143,432

 

23,795

 

1,364,462

 

Currency translation

 

(26,838

)

(8,991

)

(1,112

)

(3,619

)

(2,273

)

(42,833

)

Adjusted

 

478,344

 

648,404

 

33,546

 

139,813

 

21,522

 

1,321,629

 

For footnotes, see page 67.

 

 

 

Reconciliation of reported and adjusted items (continued)

 

 

 

2017

 

 

UK

Hong
Kong

Mainland China

US*

Mexico

 

Footnotes

$m

$m

$m

$m

$m

Revenue

26

 

 

 

 

 

Reported

 

12,922

 

16,117

 

2,379

 

4,876

 

2,160

 

Currency translation

 

550

 

(91

)

58

 

-

 

(45

)

Significant items

 

55

 

(51

)

101

 

(99

)

5

 

-  customer redress programmes

 

108

 

-

 

-

 

-

 

-

 

-  disposals, acquisitions and investment in new businesses

 

(78

)

(126

)

99

 

(130

)

-

 

-  fair value movements on financial instruments

65

24

 

75

 

2

 

31

 

5

 

-  currency translation on significant items

 

1

 

-

 

-

 

-

 

-

 

Adjusted

 

13,527

 

15,975

 

2,538

 

4,777

 

2,120

 

LICs

 

 

 

 

 

 

Reported

 

(492

)

(396

)

(67

)

108

 

(473

)

Currency translation

 

14

 

3

 

(3

)

-

 

9

 

Adjusted

 

(478

)

(393

)

(70

)

108

 

(464

)

Operating expenses

 

 

 

 

 

 

Reported

 

(15,086

)

(6,131

)

(1,687

)

(4,267

)

(1,297

)

Currency translation

 

(424

)

34

 

(35

)

-

 

25

 

Significant items

 

2,537

 

306

 

71

 

119

 

45

 

-  costs of structural reform

 

410

 

-

 

-

 

-

 

-

 

-  costs to achieve

 

1,766

 

291

 

69

 

290

 

46

 

-  customer redress programmes

 

655

 

-

 

-

 

-

 

-

 

-  disposals, acquisitions and investment in new businesses

 

-

 

-

 

-

 

17

 

-

 

-  gain on partial settlement of pension obligation
 

 

-

 

-

 

-

 

(188

)

-

 

-  settlements and provisions in connection with legal and regulatory matters

 

(362

)

17

 

-

 

-

 

-

 

-  currency translation on significant items

 

68

 

(2

)

2

 

-

 

(1

)

Adjusted

 

(12,973

)

(5,791

)

(1,651

)

(4,148

)

(1,227

)

Share of profit in associates and joint ventures

 

 

 

 

 

 

Reported

 

38

 

8

 

1,863

 

-