HSBC 2011 Annual Report Download - page 7

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Overview Operating & Financial Review Corporate Governance Financial Statements Shareholder Information
to US$27.2 billion, making HSBC the second largest
dividend payer in the FTSE100 during this period.
Addressing a matter of public interest, the cost
to shareholders of performance-related rewards
made within our Global Banking and Markets
business in 2011 and during the past four years
amounted to some US$1 billion and US$4.7 billion,
respectively. Pre-tax profit from Global Banking and
Markets was, in aggregate, US$30 billion in the
same four years, and represented the largest
contribution, at 52%, of Group pre-tax profits during
that period.
At the end of 2011, total shareholders’ equity
stood at US$159 billion, up 24% from its pre-crisis
level of US$128 billion at the end of 2007. Over the
same period, our balance sheet grew by only 9%.
The core tier 1 ratio at the end of 2011 stood at
10.1%, in line with our target range.
As foreshadowed in last year’s Statement, the
UK government proceeded with its plan to raise
£2.5 billion through a levy on the global balance
sheets of UK domiciled banks. The cost to HSBC
was US$570 million of which US$340 million
related to non-UK banking activity. The levy, which
is not tax deductible, is the equivalent of US$0.03
per ordinary share and, as indicated last year, would
otherwise be available for distribution to
shareholders.
Progress on regulatory reform
A number of important milestones were passed
during 2011 on the regulatory reform agenda. In the
UK the Independent Commission on Banking
(‘ICB’) delivered its report in September and the
Government published its response in December. In
the US, greater clarity on the Dodd-Frank legislation
was delivered through a multitude of notices of
proposed new regulation and four US financial
regulatory agencies issued proposed uniform
regulations that would implement the Volcker Rule,
which aims to constrain major financial institutions
from engaging in proprietary trading and most hedge
fund and proprietary investment activities. The Basel
Committee, in conjunction with the Financial
Stability Board, set out its proposals to identify and
increase capital requirements for Global
Systemically Important Banks and most major
jurisdictions published their proposals around
recovery and resolution planning for major
institutions. Europe continued to embed the Basel III
proposals within a new draft Capital Requirements
Directive (‘CRD IV’), the European Banking
Authority formally came into existence as the hub of
financial regulatory bodies in Europe and, in the UK,
HM Treasury published its proposals for a new
approach to financial regulation and the replacement
of the FSA with a new supervisory structure,
directed by the Bank of England.
Many topics remain subject to further debate
including cross-border resolution protocols, the
governance and operation of central counterparties,
the prospective role of clearing systems and
exchanges, the calibration of the proposed new
liquidity framework, the definition and operation
of proposed proprietary trading restrictions, the
possible harmonisation and peer review of the
calculation of the risk weights that drive capital
requirements, a reassessment of the risk free
treatment of sovereign debt and some 22 follow-on
workstreams are ongoing in the wake of the UK
Government’s response to the ICB Report.
It is clear from the above that the industry will
continue to bear a heavy burden of both time
commitment and cost as it works with policymakers
to finalise the regulatory reforms, including
addressing the many inconsistencies within and
extraterritorial dimensions of national rule-making.
We are committed to all necessary constructive
dialogue and support to speed the finalisation of
these remaining issues. Our input will stress that
it is critical that the reforms deliver a sustainable
business model that can attract external economic
capital. This is essential for the financial system to
be able to contribute as fully as it should to the
economic growth agenda which is being mandated
by political leaders globally.
Board changes
We bid farewell at the upcoming AGM to two
directors who have given huge service to HSBC over
many years and who will not stand for re-election.
Sir Brian Williamson has served on the Board
of HSBC Holdings since 2002 and brought great
insight and wisdom to the Board from a
distinguished career in financial services, most
notably in the areas of money and bond markets,
clearing, exchanges and electronic trading platforms
where he was a pioneer in establishing The London
International Financial Futures and Options
Exchange.
Gwyn Morgan has served on the Board of
HSBC Holdings since 2006 and before that on the
Board of HSBC Canada for some nine years. His
vast experience of leading large international
companies in the engineering and energy sectors
brought a balanced industrialist’s perspective to
Board discussions and debate.