HSBC 2011 Annual Report Download - page 376

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
24 – Goodwill and intangible assets
374
Global Banking and Markets – Europe: the key assumption included in the cash flow projection for Global Banking
and Markets – Europe is that European markets will stabilise and begin to recover in 2012. Accordingly, European
revenues are forecast to recover partially in 2012 and this recovery is assumed to continue over the projection period
such that in the period to 2014 overall revenue is forecast to grow at a compound annual rate of 14.5% to recover to a
level broadly in line with 2010. Our ability to achieve the forecast cash flows for Global Banking and Markets –
Europe could be adversely impacted by regulatory change during the forecast period including but not limited to the
impact of the recommendations set out in the Final Report by the Independent Commission on Banking.
Based on management’s value in use calculation, Global Banking and Markets – Europe has an excess of recoverable
amount over carrying amount (‘headroom’) of US$3.6bn as at 1 July 2011. Headroom was US$4.9bn as at
31 December 2011 based on goodwill at that point of US$3.0bn. The change in carrying value between 1 July 2011
and 31 December 2011 arises from retranslating goodwill into the presentation currency of the Group. The same
assumptions were used in the impairment tests as at 1 July 2011 and 31 December 2011. The following changes to
the key assumptions used in the value in use calculation would be necessary in order to reduce headroom to nil:
Key assumption Change to key assumption to reduce headroom to nil
Discount rate ......................................................................................................... Increase by 140 basis points
Nominal growth rate beyond initial cash flow projection .................................... Decrease by 160 basis points
Revenue compound annual growth rate ............................................................... Decrease from 14.5% to 12.4%
Retail Banking and Wealth Management – Latin America: the assumptions included in the cash flow projections for
Retail Banking and Wealth Management – Latin America reflect the economic environment and financial outlook of
the countries within this segment, with Brazil and Mexico being two of the largest countries included within this
segment. Key assumptions include the growth in lending and deposit volumes and the credit quality of the loan
portfolios. Mexico and Central America in particular are sensitive to economic conditions in the US which could
constrain demand. Based on the conditions at the balance sheet date, management determined that a reasonably
possible change in any of the key assumptions described above would not cause an impairment to be recognised in
respect of Retail Banking and Wealth Management – Latin America.