HSBC 2012 Annual Report Download

Download and view the complete annual report

Please find the complete 2012 HSBC annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 546

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164
  • 165
  • 166
  • 167
  • 168
  • 169
  • 170
  • 171
  • 172
  • 173
  • 174
  • 175
  • 176
  • 177
  • 178
  • 179
  • 180
  • 181
  • 182
  • 183
  • 184
  • 185
  • 186
  • 187
  • 188
  • 189
  • 190
  • 191
  • 192
  • 193
  • 194
  • 195
  • 196
  • 197
  • 198
  • 199
  • 200
  • 201
  • 202
  • 203
  • 204
  • 205
  • 206
  • 207
  • 208
  • 209
  • 210
  • 211
  • 212
  • 213
  • 214
  • 215
  • 216
  • 217
  • 218
  • 219
  • 220
  • 221
  • 222
  • 223
  • 224
  • 225
  • 226
  • 227
  • 228
  • 229
  • 230
  • 231
  • 232
  • 233
  • 234
  • 235
  • 236
  • 237
  • 238
  • 239
  • 240
  • 241
  • 242
  • 243
  • 244
  • 245
  • 246
  • 247
  • 248
  • 249
  • 250
  • 251
  • 252
  • 253
  • 254
  • 255
  • 256
  • 257
  • 258
  • 259
  • 260
  • 261
  • 262
  • 263
  • 264
  • 265
  • 266
  • 267
  • 268
  • 269
  • 270
  • 271
  • 272
  • 273
  • 274
  • 275
  • 276
  • 277
  • 278
  • 279
  • 280
  • 281
  • 282
  • 283
  • 284
  • 285
  • 286
  • 287
  • 288
  • 289
  • 290
  • 291
  • 292
  • 293
  • 294
  • 295
  • 296
  • 297
  • 298
  • 299
  • 300
  • 301
  • 302
  • 303
  • 304
  • 305
  • 306
  • 307
  • 308
  • 309
  • 310
  • 311
  • 312
  • 313
  • 314
  • 315
  • 316
  • 317
  • 318
  • 319
  • 320
  • 321
  • 322
  • 323
  • 324
  • 325
  • 326
  • 327
  • 328
  • 329
  • 330
  • 331
  • 332
  • 333
  • 334
  • 335
  • 336
  • 337
  • 338
  • 339
  • 340
  • 341
  • 342
  • 343
  • 344
  • 345
  • 346
  • 347
  • 348
  • 349
  • 350
  • 351
  • 352
  • 353
  • 354
  • 355
  • 356
  • 357
  • 358
  • 359
  • 360
  • 361
  • 362
  • 363
  • 364
  • 365
  • 366
  • 367
  • 368
  • 369
  • 370
  • 371
  • 372
  • 373
  • 374
  • 375
  • 376
  • 377
  • 378
  • 379
  • 380
  • 381
  • 382
  • 383
  • 384
  • 385
  • 386
  • 387
  • 388
  • 389
  • 390
  • 391
  • 392
  • 393
  • 394
  • 395
  • 396
  • 397
  • 398
  • 399
  • 400
  • 401
  • 402
  • 403
  • 404
  • 405
  • 406
  • 407
  • 408
  • 409
  • 410
  • 411
  • 412
  • 413
  • 414
  • 415
  • 416
  • 417
  • 418
  • 419
  • 420
  • 421
  • 422
  • 423
  • 424
  • 425
  • 426
  • 427
  • 428
  • 429
  • 430
  • 431
  • 432
  • 433
  • 434
  • 435
  • 436
  • 437
  • 438
  • 439
  • 440
  • 441
  • 442
  • 443
  • 444
  • 445
  • 446
  • 447
  • 448
  • 449
  • 450
  • 451
  • 452
  • 453
  • 454
  • 455
  • 456
  • 457
  • 458
  • 459
  • 460
  • 461
  • 462
  • 463
  • 464
  • 465
  • 466
  • 467
  • 468
  • 469
  • 470
  • 471
  • 472
  • 473
  • 474
  • 475
  • 476
  • 477
  • 478
  • 479
  • 480
  • 481
  • 482
  • 483
  • 484
  • 485
  • 486
  • 487
  • 488
  • 489
  • 490
  • 491
  • 492
  • 493
  • 494
  • 495
  • 496
  • 497
  • 498
  • 499
  • 500
  • 501
  • 502
  • 503
  • 504
  • 505
  • 506
  • 507
  • 508
  • 509
  • 510
  • 511
  • 512
  • 513
  • 514
  • 515
  • 516
  • 517
  • 518
  • 519
  • 520
  • 521
  • 522
  • 523
  • 524
  • 525
  • 526
  • 527
  • 528
  • 529
  • 530
  • 531
  • 532
  • 533
  • 534
  • 535
  • 536
  • 537
  • 538
  • 539
  • 540
  • 541
  • 542
  • 543
  • 544
  • 545
  • 546

Connecting customers
to opportunities
HSBC Holdings plc
Annual Report and Accounts 2012

Table of contents

  • Page 1
    Connecting customers to opportunities HSBC Holdings plc Annual Report and Accounts 2012

  • Page 2
    ...means HSBC Holdings plc and 'HSBC', the 'Group', 'we', 'us' and 'our' refers to HSBC Holdings together with its subsidiaries. Within this document the Hong Kong Special Administrative Region of the People's Republic of China is referred to as 'Hong Kong'. When used in the terms 'shareholders' equity...

  • Page 3
    ... four global businesses: Retail Banking and Wealth Management, Commercial Banking, Global Banking and Markets, and Global Private Banking. Our network covers 81 countries and territories in six geographical regions: Europe, Hong Kong, Rest of Asia-Pacific, Middle East and North Africa, North America...

  • Page 4
    ...shareholders of the parent company US$68,330m - down 5% 2011: US$72,280m 2010: US$68,247m US$13,454m - down 17% 2011: US$16,224m 2010: US$12,746m At the year-end Loans and advances to customers Customer accounts Ratio of customer advances to customer accounts US$998bn - up 6% 2011: US$940bn 2010...

  • Page 5
    ... operating income Net trading income to total operating income 2011: 57.5% 2010: 55.2% 2011: 48.7% 2010: 49.3% 2011: 20.6% 2010: 21.7% 2011: 7.8% 2010: 9.0% Share information at the year-end Closing market price US$0.50 ordinary shares in issue Market capitalisation London Hong Kong American...

  • Page 6
    ... their company is worth more than its contributed capital. We remained among the highest dividend payers in the FTSE 100, a performance which we know is of great importance to our shareholders. The cover to this year's Annual Report again illustrates our strategy of connecting customers and markets...

  • Page 7
    ... being sought by UK regulators. During 2012, the UK government increased the rate of levy applied on the global balance sheets of UK domiciled banks. The cost to HSBC of the revised levy for the current year was US$571m of which US$295m related to non-UK banking activity. The 2012 levy, which is...

  • Page 8
    ... Audit and Remuneration Committees. Renato brings to the Board considerable international business and financial expertise from a distinguished career in industrial, service and financial companies. He is currently Vice Chairman of the Supervisory Board and a member of the audit and the compensation...

  • Page 9
    ...programme, which helps street children, children in care and orphans to access education. Initiatives under this programme are developed and supported by HSBC colleagues around the world and, in 2012, 2,717 members of staff volunteered to support the programme. Importantly in all our community work...

  • Page 10
    ... Group structure in 2012, bringing the total number of announced disposals and closures of non-strategic businesses or non-core investments to 47 since the beginning of 2011, including 4 in 2013. During 2012, we completed the disposal of the Card and Retail Services business and the upstate New York...

  • Page 11
    ... globally. Commercial Banking also recorded revenue growth as customer loans and advances increased in all regions, with over half of this growth coming from our faster-growing regions of Hong Kong, Rest of Asia-Pacific and Latin America, driven by higher trade-related lending. Customer deposits...

  • Page 12
    HSBC HOLDINGS PLC Report of the Directors: Overview (continued) Group Chief Executive's Business Review and Cash Management products. In addition, Retail Banking and Wealth Management experienced revenue growth across all fastergrowing regions, in particular Hong Kong and Latin America. These ...

  • Page 13
    ... forward contract included within our 2012 results. On 19 February 2013 we announced the sale of our operations in Panama for US$2.1bn. S T Gulliver, Group Chief Executive 4 March 2013 11 Shareholder Information Financial Statements Corporate Governance Operating & Financial Review Overview

  • Page 14
    ... Group Risk Committee. management strategies/ • Diagram of risk exposures by global business. business models Capital adequacy and risk- • Reconciliation of the accounting balance sheet to the regulatory balance sheet. weighted assets • Regulatory capital flow statement. • Analysis of credit...

  • Page 15
    ... of non-strategic and non core investments were announced in 2012 and a further four in 2013, taking the total to 47 since 2011. The most significant of these transactions which were completed in 2012 were the sale of the US Card and Retail Services business and the upstate New York branches for...

  • Page 16
    ... of markets, as tabulated below. Business model We take deposits from our customers and use these funds to make loans, either directly or through the capital markets. Our direct lending includes residential and commercial mortgages and overdrafts, and term loan facilities. We finance importers and...

  • Page 17
    .... Global functions, including HSBC Technology and Services, support and facilitate the execution of the strategy. Holding company HSBC Holdings plc, the holding company of the Group, is listed in London, Hong Kong, New York, Paris and Bermuda. HSBC Holdings is the primary provider of equity capital...

  • Page 18
    ... Balance sheet management Asset driven • Credit and lending • Credit and lending • Trade and receivables finance • Credit and lending • Asset and trade finance • Credit and lending • Asset management • Wealth solutions and Fee driven and other financial planning • Commercial...

  • Page 19
    ...2010 2011 2012 Vehicle finance 18 Non-real estate (unsecured) For footnote, see page 120. We have identified segments of the real estate portfolio in the US that represent a high risk and/or a high operational burden or may be sold on a capital 17 Shareholder Information Financial Statements...

  • Page 20
    ... 2011 we have announced and completed a significant number of disposals: Announced transactions19 Completed 25 Still to complete 14 Number 8 2011 2012/2013 • Afore Key • HSBC Insurance (UK) Ltd • US Card and Retail Services • US branches • Ping An • Bao Viet Holdings • HSBC Bank...

  • Page 21
    ... our four global businesses to 19 Shareholder Information Financial Statements Our aim in executing our strategy is to be regarded as the world's leading international bank. We have defined financial targets to achieve a return on equity of between 12% and 15% with a core tier 1 ratio of between...

  • Page 22
    ... Other HSBC (including Holding Company) Global business RBWM CMB GB&M GPB Deposits Accounts services Credit and lending Asset management Wealth solutions and financial planning • Deposits • Payments and cash management • Deposits • Payments and cash management • Balance sheet...

  • Page 23
    ... its debt securities, and to provide profits for payment of future dividends to shareholders. We may be required to make substantial contributions to our pension plans. Operating & Financial Review Shareholder Information 21 • • • • Risks related to our business operations, governance and...

  • Page 24
    ...Surveys were not designed to report employee engagement information comparable with that derived from the Global People Surveys, we have not disclosed this KPI in 2012. During 2012, our senior management paid particular attention to a number of top and emerging risks. The current list is summarised...

  • Page 25
    ... and Retail Services business and derecognition of Ping An as an associate. Measure: loans and advances to customers as a percentage of the total of core customer deposits and term funding with a remaining term to maturity in excess of one year. Target: to maintain an advances to core funding ratio...

  • Page 26
    HSBC HOLDINGS PLC Report of the Directors: Overview (continued) KPIs // Financial summary > Use of non-GAAP financial measures Growing HSBC - continuing to position ourselves for growth Risk-adjusted revenue growth (2012: underlying growth 13%) 37 Strategy Dividends per ordinary share growth 14...

  • Page 27
    ... Shareholder Information Financial Statements The management commentary included in the Report of the Directors: 'Overview' and 'Operating and Financial Review', together with the 'Employees' and 'Corporate sustainability' sections of 'Corporate Governance' and the 'Directors' Remuneration Report...

  • Page 28
    ...global business28 Retail Banking and Wealth Management ...Commercial Banking ...Global Banking and Markets ...Global Private Banking ...Other ...Profit before tax ...By geographical region28 Europe ...Hong Kong ...Rest of Asia-Pacific ...Middle East and North Africa ...North America ...Latin America...

  • Page 29
    ... and commercial banking business of Lloyds Banking Group in the UAE by HSBC Bank Middle East Limited ...Fair value gain on acquisition US$m Jul 2011 Jun 2012 Oct 2012 (48) 3 18 27 Shareholder Information Financial Statements Corporate Governance Operating & Financial Review Overview We use...

  • Page 30
    ... global business Retail Banking and Wealth Management ...Commercial Banking ...Global Banking and Markets ...Global Private Banking ...Other ...Underlying profit before tax ...By geographical region Europe ...Hong Kong ...Rest of Asia-Pacific ...Middle East and North Africa ...North America ...Latin...

  • Page 31
    ...Shareholder Information Financial Statements Corporate Governance Operating & Financial Review 2012 US$m Net interest income ...Net fee income ...Net trading income ...Net income/(expense) from financial instruments designated at fair value ...Gains less losses from financial investments ...Dividend...

  • Page 32
    ...An. Our remaining shareholding in Ping An has been reclassified as a financial investment (see Note 26 on the Financial Statements), the sale of which was completed on 6 February 2013. We expect disposal of the Card and Retail Services business in North America and of our associate shares in Ping An...

  • Page 33
    ...) (553) 314 (96) (1,392) 243 (1,057) Notable revenue items by global business Retail Banking and Wealth Commercial Management Banking US$m US$m 2012 Non-qualifying hedges ...Ping An contingent forward sale contract37 ...Gain on sale of non-core investments in India ...Loss recognised following the...

  • Page 34
    ...pension credit ...Payroll tax ...US mortgage foreclosure and servicing costs ...2010 Restructuring and other related costs ...UK customer redress programmes ...US accounting gain on change in staff benefits ...Payroll tax ...For footnote, see page 120. 266 1,751 - 62 258 - Global Banking and Markets...

  • Page 35
    ... item Net interest income Overview Shareholder Information Financial Statements Corporate Governance Operating & Financial Review 2012 US$m Interest income ...Interest expense ...Net interest income39 ...Average interest-earning assets ...Gross interest yield ...Less: cost of funds ...Net interest...

  • Page 36
    ... 2012, principally in the US. These disposals also led to a change in the composition of our lending book as the decline in higher yielding card balances was replaced by volume growth in relatively lower yielding products, mainly residential mortgages and term lending, in Hong Kong, Rest of Asia...

  • Page 37
    ... also lower in North America, due to the sale of the full service retail brokerage business in Canada. In Europe, the decline was mainly due to challenging market conditions in the latter half of 2011 which led to a fall in average client assets in 2012 as well as net new money outflows and a fall...

  • Page 38
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Financial summary > Group performance by income and expense item Net trading income 2012 US$m Trading activities ...Ping An contingent forward sale contract37 ...Net interest income on trading activities ...Other...

  • Page 39
    ... to global businesses, but are reported in 'Other'. Credit spread movements on own debt designated at fair value are excluded from underlying results, and related fair value movements are not included in the calculation of regulatory capital. Financial Statements Corporate Governance Assets and...

  • Page 40
    ...fair value movements arose in 2012 as credit spreads tightened in Europe and North America, having widened during 2011. Net income arising from financial assets held to meet liabilities under insurance and investment contracts reflected net investment gains in 2012 as global equity market conditions...

  • Page 41
    ... Governance Operating & Financial Review The rise in net earned premium income was driven by Hong Kong and Latin America. In Hong Kong, sales of insurance contracts increased, in particular deferred annuity products, as we widened our product offerings to fulfil customers' long-term savings...

  • Page 42
    ...HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Financial summary > Group performance by income and expense item Change in present value of in-force long-term insurance business 2012 US$m Value of new business ...Expected return ...Assumption changes and experience...

  • Page 43
    ... of positive equity market movements in 2012 compared with losses experienced during 2011 notably in Hong Kong, France and the UK. The gains or losses on the financial assets designated at fair value held to support these insurance and investment contract liabilities are reported in 'Net income from...

  • Page 44
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Financial summary > Group performance by income and expense item following a review completed in the fourth quarter of 2012 which concluded that the estimated average period of time from current status to write-...

  • Page 45
    ... in 2011 (US$1.1bn as reported). 2012 % HSBC ...Geographical regions Europe ...Hong Kong ...Rest of Asia-Pacific ...Middle East and North Africa ...North America ...Latin America ...Global businesses Retail Banking and Wealth Management ...Commercial Banking ...Global Banking and Markets ...Global...

  • Page 46
    ... growth in lending balances and a rise in associated fee income, partly offset by higher operating expenses in line with business expansion, as well as increased loan impairment charges. On 7 January 2013, our holding in Industrial Bank was diluted following its issue of additional share capital to...

  • Page 47
    ...Loans and advances to customers54 ...Financial investments ...Assets held for sale ...Other assets ...Total assets ...LIABILITIES AND EQUITY Liabilities Deposits by banks ...Customer accounts ...Trading liabilities ...Financial liabilities designated at fair value ...Derivatives ...Debt securities...

  • Page 48
    ... the capital markets. Reverse repo balances also declined, mainly in Europe. During 2012 we reclassified to 'Assets held for sale' loans and advances to customers relating to the planned disposals of non-strategic RBWM banking operations in Rest of Asia-Pacific and businesses in Latin America and...

  • Page 49
    ... 2012, reflecting an improvement in the fair value of these assets. 47 Shareholder Information Financial Statements Corporate Governance Operating & Financial Review Overview Financial liabilities designated at fair value remained broadly in line with December 2011 levels. A net increase...

  • Page 50
    ...and advances to banks ...Loans and advances to customers ...Financial investments ...Assets held for sale ...Other assets ...Total assets ...Deposits by banks ...Customer accounts ...Trading liabilities ...Financial liabilities designated at fair value ...Derivative liabilities ...Debt securities in...

  • Page 51
    ... our strategy, we have agreed to sell a number of businesses across the Group. Assets and liabilities of businesses which, it is highly probable, will be sold are reported as held for sale on the balance sheet until the sale is closed. We include loans and advances to customers and customer account...

  • Page 52
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Financial summary > Consolidated balance sheet / Economic profit/loss Customer accounts by country At 31 December 2012 US$m Europe ...UK ...France61 ...Germany ...Malta ...Switzerland62 ...Turkey ...Other ...Hong...

  • Page 53
    ... to ordinary shareholders represents the amount of economic profit/(loss) generated. Our long-term cost of capital is reviewed annually and is 11% for 2012; this remains unchanged from 2011. However, it has been revised to 10% for 2013, primarily due to a reduction in the risk-free rate, reflecting...

  • Page 54
    ...as contributing to the longer-term performance of the Group. These include the run-off portfolios and the Card and Retail Services business which was sold in 2012. The Card and Retail Services average RWAs in the table below represent the average of the associated operational risk RWAs that were not...

  • Page 55
    ...By global business Retail Banking and Wealth Management ...Commercial Banking ...Global Banking and Markets ...Global Private Banking ...Other ...Profit/(loss) before tax ...By geographical region Europe ...Hong Kong ...Rest of Asia-Pacific ...Middle East and North Africa ...North America ...Latin...

  • Page 56
    ... mortgage lending portfolios. The adjustment was made following a review completed in the fourth quarter of 2012 which concluded that the estimated average period of time from current status to write-off was ten months for real estate loans (previously a period of seven months was used). During 2013...

  • Page 57
    ... Our accounting policy for goodwill is described in Note 2p on the Financial Statements. Note 23 on the Financial Statements lists our cash generating units ('CGU's) by geographical region and global business. HSBC's total goodwill amounted to US$21bn at 31 December 2012 (2011: US$21bn). The review...

  • Page 58
    ... PLC Report of the Directors: Operating and Financial Review (continued) Financial summary > Critical accounting policies for this CGU and concluded that there was no impairment. Note 23 on the Financial Statements includes details of the CGUs with significant balances of goodwill, states the key...

  • Page 59
    ... to reduce deductible funding expenses or otherwise deploy such capital or increase levels of taxable income. Management expects that, with this strategy, the US operations will generate sufficient future profits to support the recognition of the deferred tax assets. If HSBC Holdings were to decide...

  • Page 60
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Global businesses > Summary Global businesses Summary ...Products and services ...Retail Banking and Wealth Management ...Commercial Banking ...Global Banking and Markets ...Global Private Banking ...Other ......

  • Page 61
    ... US$m Retail Banking and Wealth Management ...Commercial Banking ...Global Banking and Markets ...Global Private Banking ...Other73 ...5,574 594 149 55 3,107 9,479 For footnotes, see page 120. 2011 US$m 3,328 76 114 (9) 141 3,650 2010 US$m 3 119 262 - 250 634 59 Shareholder Information Financial...

  • Page 62
    ... wealth management and a variety of other commercial risk insurance products in selected countries. • GB&M: our CMB franchise represents a key client base for GB&M products and services, including foreign exchange and interest rate products, together with capital raising on debt and equity markets...

  • Page 63
    ... Solutions comprise trusts and estate planning, designed to protect wealth and preserve it for future generations through structures tailored to meet the individual needs of each client. 61 Shareholder Information Financial Statements Corporate Governance Operating & Financial Review - capital...

  • Page 64
    ... as reported) relating to defined benefit pension obligations. Revenue grew by 13% in Hong Kong reflecting wider deposit spreads, higher lending and deposit balances and the gains on sale of the general insurance businesses and our shares in Global Payments Asia-Pacific Ltd. Insurance income also...

  • Page 65
    ... system across key markets in Europe and Asia towards the end of 2011. Foreign exchange services are a core component of our wealth strategy, and we continue to invest in order to further enhance our customer offering. By 31 December 2012, over 220,000 of our customers were using our Global View and...

  • Page 66
    ... PLC Report of the Directors: Operating and Financial Review (continued) Global businesses > RBWM / CMB • Sales of our long-term fund products, including our managed solutions, continued to grow. We launched the HSBC Asia Focused Income Fund in May which grew to US$1bn by the end of 2012. World...

  • Page 67
    ... deposits also benefited from higher liability spreads in Hong Kong, reflecting an increase in short-term interest rates. Net fee income benefited from higher transaction volumes of Payments and Cash Management products, mainly in Europe, Latin America and Hong Kong. Net fee income from Global Trade...

  • Page 68
    ... countries in Rest of Asia-Pacific by the end of 2013. International payments volumes in Payments and Cash Management have grown at twice the rate of the market globally since 2010 with yearon-year revenue increasing by 15% in 2012. This growth reflected new mandates and investments in new products...

  • Page 69
    ... 2012, we launched our trade credit insurance offering in Hong Kong, Brazil and the UK. It will be rolled out to further markets in the first half of 2013, including Turkey, France, Singapore and Malaysia. Simplify processes and enhance risk management controls by adopting a global operating model...

  • Page 70
    ...HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Global businesses > GB&M Global Banking and Markets GB&M provides tailored financial solutions to major government, corporate and institutional clients worldwide. 2012 US$m Net interest income ...Net fee income ...Net...

  • Page 71
    ... of total operating income 2012 US$m Global Markets79 ...Credit ...Rates ...Foreign Exchange .. Equities ...Securities Services . Asset and Structured Finance ...Global Banking ...Financing and Equity Capital Markets .. Payments and Cash Management80 ...Other transaction services81 ...Balance Sheet...

  • Page 72
    ... in key strategic markets. In Rest of Asia-Pacific, we enhanced our advisory, debt capital markets and credit and lending businesses through a number of senior appointments in the Resources and Energy and the Financial Institutions groups. We also appointed a Co-Head of Global Banking in Brazil to...

  • Page 73
    ... to higher revenues and increased Premier account openings respectively, compared with 2011. We also appointed a Head of Coverage in Hong Kong to strengthen our Global Banking franchise and deliver on IPC initiatives in the region. Operating & Financial Review We have worked closely with CMB...

  • Page 74
    ... US$70m of sustainable cost savings Outstanding Private Bank in Asia-Pacific and in the Middle East (Private Banker International Awards, 2012) • Strategic direction GPB works with high net worth clients to manage and preserve their wealth while connecting them to global opportunities. We focus...

  • Page 75
    ... US and Global Private Wealth Solutions in the Channel Islands, which provide integrated databases to support effective client management. We will continue to roll these systems out to other locations during 2013. Overview Shareholder Information Financial Statements Corporate Governance Operating...

  • Page 76
    ... four new real estate 'club deals' and two private equity launches in the year raising more than US$1.3bn. Further launches are expected in 2013. 2012 US$m Net interest expense ...Net fee income ...Net trading expense ...Change in credit spread on long-term debt ...Other changes in fair value ...Net...

  • Page 77
    ... to global businesses through a recharge mechanism, with income reported in 'Other operating income'. • • • • • • 75 Shareholder Information Financial Statements Corporate Governance • Operating & Financial Review Overview economically hedge fixed rate long-term debt, on...

  • Page 78
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Global businesses > Analysis Analysis by global business HSBC profit/(loss) before tax and balance sheet data 2012 Retail Banking and Wealth Commercial Management Banking US$m US$m Global Banking and Markets US$m...

  • Page 79
    2011 Retail Banking and Wealth Management US$m Global Banking and Markets US$m Global Private Banking US$m Inter- segment elimination85 US$m Commercial Banking US$m Other73 US$m Total US$m Profit before tax Net interest income/(expense) ...Net fee income ...Trading income/(expense) excluding net...

  • Page 80
    ...Hong Kong ...Rest of Asia-Pacific ...Middle East and North Africa ...North America ...Latin America ...Profit/(loss) before tax ...Gain on sale ...For footnotes, see page 120. 21 78 Commercial Banking US$m 133 - 4 2 1 - 203 20 363 (129) 234 (4) 230 (164) 66 89 155 2012 Global Banking and Markets...

  • Page 81
    ... that follows, operating income and operating expenses include intra-HSBC items of US$3,358m (2011: US$3,421m; 2010: US$3,125m). Overview Shareholder Information 79 2012 US$m Europe ...Hong Kong ...Rest of Asia-Pacific ...Middle East and North Africa ...North America ...Latin America ...(3,414...

  • Page 82
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Geographical regions > Europe Selected items included in profit before tax by geographical region Fair value movements arising from changes in own credit spreads26 2012 US$m Europe ...Hong Kong ...Rest of Asia-...

  • Page 83
    ... Strong Rates and Credit performance as investor sentiment improved 40% reduction in RBWM loan impairment charges US$2.3bn of customer redress provisions in the UK For footnotes, see page 120. 81 Shareholder Information Financial Statements Corporate Governance Operating & Financial Review...

  • Page 84
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Geographical regions > Europe Profit/(loss) before tax by country within global businesses Retail Banking and Wealth Management US$m 2012 UK ...France60 ...Germany ...Malta ...Switzerland ...Turkey ...Other ......

  • Page 85
    ... transactional Foreign Exchange business. To enhance coverage efforts in Global Banking, the Corporate Finance Group was established to strengthen the financial advisory and event financing business. Payments and Cash Management won a number of mandates and implemented the Global Liquidity Solutions...

  • Page 86
    ... in 2011 on the disposal of available-for-sale debt securities in our Insurance business in RBWM. These factors were partly offset by higher gains on the disposal of available-for-sale debt securities in Balance Sheet Management, mainly in the UK, as part of structural interest rate risk management...

  • Page 87
    ... in, and reallocate capital, to our designated growth businesses such as our mortgage offering, our international CMB business and our home and priority growth markets (UK, France, Germany and Turkey), as well as launching the M&S Bank in the UK. Operating & Financial Review US$268m related to the...

  • Page 88
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Geographical regions > Europe Profit/(loss) before tax and balance sheet data - Europe 2012 Retail Banking and Wealth Commercial Management Banking US$m US$m Global Banking and Markets US$m Global Private Banking...

  • Page 89
    ... US$m 434,336 1,281,945 493,404 (214,281) 87 Shareholder Information Balance sheet data74 Financial Statements Corporate Governance Operating & Financial Review Overview Retail Banking and Wealth Global Banking and Markets US$m Global Private Banking US$m Intersegment elimination85 US$m

  • Page 90
    ... operating expenses. In RBWM, we continue to develop our Wealth Management services for our retail customers and launched new investment funds, including the Global High Yield Bond Fund which attracted over US$1bn of subscriptions by the end of the year. The sale of the general insurance businesses...

  • Page 91
    ... Information Net income from financial instruments designated at fair value was US$447m compared with an expense of US$540m in 2011, due to net investment gains on assets held by the Insurance business (compared with net losses in 2011) as a result of more favourable equity market conditions...

  • Page 92
    ... sale of our shares in Global Payments Asia-Pacific Ltd and the HSBC and Hang Seng Bank general insurance businesses, realising gains of US$212m, US$117m and US$46m, respectively. While the value of the PVIF asset rose, this was not to the same extent as in 2011 as increased insurance sales in 2012...

  • Page 93
    ... tax and balance sheet data - Hong Kong 2012 Retail Banking and Wealth Commercial Management Banking US$m US$m Global Banking and Markets US$m Other US$m Total US$m Profit/(loss) before tax Net interest income/(expense) ...Net fee income ...Trading income/(expense) excluding net interest income...

  • Page 94
    ... HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Geographical regions > Hong Kong / Rest of Asia-Pacific Profit/(loss) before tax and balance sheet data - Hong Kong (continued) 2011 Retail Banking and Wealth Management US$m Commercial Banking US$m Global Banking...

  • Page 95
    ... in 2012 9% growth in lending balances (on a constant currency basis) 'Best Domestic Cash Management Bank' (Euromoney) across 14 countries in the region For footnotes, see page 120. 93 Shareholder Information Financial Statements Corporate Governance Operating & Financial Review Overview

  • Page 96
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Geographical regions > Rest of Asia-Pacific Profit/(loss) before tax by country within global businesses Retail Banking and Wealth Management US$m 2012 Australia ...India ...Indonesia ...Mainland China ...Ping An...

  • Page 97
    ...China from Balance Sheet Management, arising from growth in the debt securities portfolio and improved yields, as well as from increased trade-related and term lending in CMB and GB&M. We grew average deposit balances, notably in GB&M and CMB reflecting new Payments and Cash Management mandates, and...

  • Page 98
    ... into lower yielding products reflecting investor's lower risk appetite. Net trading income decreased by 34% compared with 2011, mainly from adverse fair value movements on the contingent forward sale contract of US$553m relating to Ping An (see Note 26 on the Financial Statements). Trading income...

  • Page 99
    ... ...Total operating expenses ...Operating profit ...Share of profit in associates and joint ventures ...Profit before tax ... Share of HSBC's profit before tax ...Cost efficiency ratio ... 7.3 72.3 Balance sheet data74 Loans and advances to customers (net) ...Total assets ...Customer accounts ...46...

  • Page 100
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Geographical regions > Rest of Asia-Pacific / Middle East and North Africa Profit before tax and balance sheet data - Rest of Asia-Pacific (continued) 2011 Retail Banking and Wealth Management US$m Commercial ...

  • Page 101
    ... programmes 4th consecutive year: 5th consecutive year: Best Regional Cash Best Trade Finance Management Provider Bank in the Middle in the Middle East East and North Africa (Euromoney) (Global Trade Review 2012) For footnotes, see page 120. 99 Shareholder Information Our reported...

  • Page 102
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Geographical regions > Middle East and North Africa Profit/(loss) before tax by country within global businesses Retail Banking and Wealth Management US$m 2012 Egypt ...Qatar ...United Arab Emirates ...Other ......

  • Page 103
    ... Bank. This was driven by higher revenue resulting from strong balance sheet growth, together with lower costs derived from effective control and monitoring. 101 Shareholder Information Financial Statements Corporate Governance Operating & Financial Review In CMB, we continued to support...

  • Page 104
    ... HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Geographical regions > Middle East and North Africa Profit/(loss) before tax and balance sheet data - Middle East and North Africa 2012 Retail Banking and Wealth Commercial Management Banking US$m US$m Global Banking...

  • Page 105
    ...,875 57,464 36,422 (3,181) 103 Shareholder Information Financial Statements Share of HSBC's profit before tax ...Cost efficiency ratio ... Corporate Governance Operating & Financial Review Overview Global Banking and Markets US$m Global Private Banking US$m Intersegment elimination85 US$m

  • Page 106
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Geographical regions > North America North America Our North American businesses are located in the US, Canada and Bermuda. Operations in the US are primarily conducted through HSBC Bank USA, N.A., and HSBC ...

  • Page 107
    ... trading volumes, and higher revenues in Balance Sheet Management reflecting an increase in gains on sales of available-for-sale assets. These results were partly offset by lower net interest income due to the closure of the Canadian consumer finance company to new business, spread compression...

  • Page 108
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Geographical regions > North America existing infrastructure. We also completed the sale of the retail branches, principally in upstate New York, recognising gains of US$586m in RBWM and US$278m in CMB. In Canada...

  • Page 109
    ... of our long-term debt during the year. Operating & Financial Review Net trading income increased in GB&M during 2012 as a result of the improved performance of economic hedges used to manage interest rate risk, which benefited from a more stable interest rate environment. Rates revenue was higher...

  • Page 110
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Geographical regions > North America Profit/(loss) before tax and balance sheet data - North America 2012 Retail Banking and Wealth Commercial Management Banking89 US$m US$m Global Banking and Markets US$m 948 ...

  • Page 111
    ... Share of HSBC's profit before tax ...Cost efficiency ratio ... (12.2) 56.9 Balance sheet data74 US$m Loans and advances to customers (net) reported in: - loans and advances to customers (net) ...- assets held for sale (disposal groups) ...Total assets ...Customer accounts reported in: - customer...

  • Page 112
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Geographical regions > North America / Latin America North America RBWM - profit/(loss) before tax and balance sheet data 2012 Card and Retail Services US$m Run-off portfolios US$m Rest of RBWM US$m North America...

  • Page 113
    ...Balance Sheet Management revenues in Brazil following a downward movement in interest rates which lowered the cost of funding. In Brazil, loan 111 Shareholder Information Financial Statements Our operations in Latin America reported a profit before tax of US$2.4bn in 2012, 3% higher than in 2011...

  • Page 114
    ... PLC Report of the Directors: Operating and Financial Review (continued) Geographical regions > Latin America Profit/(loss) before tax by country within global businesses Retail Banking and Wealth Management US$m 2012 Argentina ...Brazil ...Mexico ...Panama ...Other ...209 94 338 29 (62) 608 2011...

  • Page 115
    ... benefited from a change in the composition of the lending book in Brazil as we increased our balances of higher yielding assets. Net interest income from deposits also increased due to higher balances in current accounts in Mexico and savings accounts in Argentina supported by marketing campaigns...

  • Page 116
    ... general insurance business in Argentina in 2012. Loan impairment charges and other credit risk provisions increased by 29%. This was mainly in Brazil, driven by increased delinquency rates in RBWM and CMB, particularly in Business Banking, reflecting lower economic growth in 2012. We took a number...

  • Page 117
    ... expenses ...Operating profit/(loss) ...Share of profit in associates and joint ventures ...Profit/(loss) before tax ... Share of HSBC's profit before tax ...Cost efficiency ratio ... 2.9 64.8 Balance sheet data74 US$m Loans and advances to customers (net) ...Total assets ...Customer accounts ...17...

  • Page 118
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Geographical regions > Latin America / Disposals, held for sale and run-off portfolios Profit/(loss) before tax and balance sheet data - Latin America (continued) 2011 Retail Banking and Wealth Management US$m ...

  • Page 119
    ... Shareholder Information Financial Statements Corporate Governance Operating & Financial Review Summary income statements for disposals, held for sale and run-off portfolios69,70 2012 Rest of Asia-Pacific US$m 40 (3) 5 North America US$m 4,051 401 (186) Latin America US$m 372 30 27 Europe US$m Net...

  • Page 120
    ... and multi-asset products, in Rest of Asia-Pacific, Hong Kong and Latin America. GPB funds increased by 11% on 31 December 2011 to US$288bn, mainly due to the inclusion of custody assets in client assets and favourable equity market and foreign exchange movements. Negative net new money was driven...

  • Page 121
    ... above are made in the report 'Enhancing the Risk Disclosures of Banks' issued by the Enhanced Disclosure Task Force of the Financial Stability Board on 29 October 2012. 119 Shareholder Information Financial Statements Corporate Governance Operating & Financial Review Overview 126 to 128

  • Page 122
    ...financial assets). Including hedge funds, real estate and private equity. Vehicle Finance was sold in 2010. 'Transactions' refers to the sale or closure of non-strategic businesses or non-core investment. Hong Kong, Rest of Asia-Pacific, Middle East and North Africa, and Latin America. Net operating...

  • Page 123
    ...-related policies. Consequently, claims rise in line with increases in sales of savings-related business and with investment market growth. Consolidated balance sheet 54 Net of impairment allowances. 55 The calculation of capital resources, capital ratios and risk-weighted assets for 2012 and 2011...

  • Page 124
    ... a Global Markets limit structure. Balance Sheet Management revenues include notional tax credits on income earned from tax-exempt investments of US$116m in 2012, US$85m in 2011 and US$50m in 2010, which are offset within 'Other'. 83 'Other' in GB&M includes net interest earned on free capital held...

  • Page 125
    ... to globally consistent standards and risk management policies across the Group. • Our top and emerging risks • • Macro-prudential, regulatory and legal risk to our business model. Risks related to our business operations, governance and internal control systems. Financial Statements...

  • Page 126
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Risk > Managing risk Managing risk (Unaudited) on our attitude towards risk and the behaviours expected by our policies. Our risk culture is reinforced by our approach to remuneration, which is discussed in the ...

  • Page 127
    ... rate management of • is managed using risk limits approved by the GMB for HSBC our retail and commercial Holdings and our various global businesses. These units are allocated banking assets and across business lines and to the Group's legal entities. liabilities, financial investments designated...

  • Page 128
    ... monthly by Group Sustainability Risk management; and • is managed using sustainability risk policies covering project finance lending and sector-based sustainability polices for sectors with high environmental or social impacts. Pension risk arises from investments delivering an inadequate return...

  • Page 129
    ... of risk, intra-group lending, strategic investments, risk categories and risk diversification and concentration. Measurement against the metrics guides underlying business activity, ensuring it is aligned to risk appetite statements; informs risk-adjusted remuneration; enables the key underlying...

  • Page 130
    ... spread of our businesses, we believe that the level of inherent compliance risk that we face as a Group will continue to remain high for the foreseeable future. Commercial real estate Our exposure to commercial real estate lending continued to be concentrated in Hong Kong, the UK, Rest of Asia...

  • Page 131
    ...The relevance of current market conditions to impairment assessment is particularly relevant over a 12-month period. Over a 12 to 24-month horizon, US$3.3bn of UK commercial real estate and other property-related lending loans are due to be refinanced. Reviews of more sensitive assets due between 12...

  • Page 132
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Risk > Areas of special interest / Top and emerging risks placement of funds directly with central banks in the most highly-rated countries. Our businesses in peripheral eurozone countries are funded from a mix ...

  • Page 133
    ... and public debt. This is expected to help resolve the sovereign and banking crisis in the medium term but, in the short term, it is limiting growth, leaving labour markets weak and thereby making fiscal consolidation a bigger challenge. This is affecting the rest of the world through lower trade...

  • Page 134
    ... capital for lending to sectors perceived as higher risk, (iii) the designation of the Group by the Financial Stability Board as a global systemically important bank; (iv) proposed legislation in the UK to give effect to the recommendations of the ICB in relation to 'ring-fencing' of the UK retail...

  • Page 135
    ...institution or more generally in relation to a particular product. We have seen recent examples of this approach in the context of the mis-selling of payment protection insurance and of interest rate derivative products to SMEs. Corporate Governance Operating & Financial Review Bank USA is not in...

  • Page 136
    ... in Note 43 on the Financial Statements. Potential impact on HSBC Dispute risk gives rise to potential financial loss and significant reputational damage which could adversely affect customer and investor confidence. Risks related to our business operations, governance and internal control systems...

  • Page 137
    .... Overview Shareholder Information Financial Statements Corporate Governance Operating & Financial Review Level of change creating operational complexity and heightened operational risk There are many drivers of change affecting HSBC and the banking industry, including new banking regulations, the...

  • Page 138
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Risk > Top and emerging risks // Credit risk • We pro-actively review relevant external events and assess the impact they may have on our systems. Within HSBC, we have a strong focus on industry best practices...

  • Page 139
    ... balances ...Number of renegotiated real estate secured accounts remaining in HSBC Finance's portfolio ...Movement in impaired loans by geographical region ...Residential mortgage loans ...Commercial real estate loans and advances by collateral ...Other corporate, commercial and financial (non-bank...

  • Page 140
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Risk > Credit risk > Summary in 2012 Page Impairment of loans and advances Further analysis of impairment (continued) App1 Tables Individually and collectively assessed impairment charge to the income statement...

  • Page 141
    ... as the related balances had been transferred to 'Assets held for sale' during 2011. Corporate Governance Operating & Financial Review Overview Rest of Asia-Pacific. First lien residential mortgages represented 30% of total gross loans and advances, mainly in the UK, the US and Hong Kong. Other...

  • Page 142
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Risk > Credit risk > Summary in 2012 the redeployment of liquidity in Europe to central banks, together with maturities and repayments in Hong Kong. Loan and other credit-related commitments declined from US$...

  • Page 143
    ...Shareholder Information Financial Statements At 31 December 2012, our corporate and commercial lending balances were US$517bn. The increase of 8% compared with the end of 2011 was mainly in the international trade and services sector, largely in Europe despite muted demand for credit, and in Hong...

  • Page 144
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Risk > Credit risk > Summary in 2012 Credit quality of gross loans and advances (Unaudited) Hong Kong US$m 200,110 275 1,311 8 477 109 191,691 309 1,107 4 608 134 Rest of AsiaPacific US$m 179,337 199 2,974 35 1,...

  • Page 145
    ... commercial Commercial real estate Financial 2012 2011 During 2012, the growth in gross loans and advances was affected by a reclassification of certain lending balances to 'Assets held for sale'. Disclosures relating to assets held for sale are provided in the following credit risk management...

  • Page 146
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Risk > Credit risk > Summary in 2012 / Credit exposure The lending balances in 'Assets held for sale' at the end of 2012 included non-real estate personal loan balances from our CML portfolio in North America and...

  • Page 147
    ... into available-for-sale investments, notably treasury bills in Hong Kong and highly-rated debt securities in North America. Trading assets In 2012, our exposure to trading assets rose by 19% reflecting increased client activity compared with the subdued levels seen in 2011. This resulted in...

  • Page 148
    ... banks ...Hong Kong Government certificates of indebtedness ...Trading assets ...Treasury and other eligible bills ...Debt securities ...Loans and advances to banks ...Loans and advances to customers ...Financial assets designated at fair value ...Treasury and other eligible bills ...Debt securities...

  • Page 149
    ... products such as overdrafts, credit cards and payroll loans; and debt consolidation loans which may be secured or unsecured. Total personal lending (Unaudited) Rest of Europe US$m 8,148 27,656 24 3,060 - 24,572 35,804 Hong Kong US$m 52,296 18,045 - 5,930 - 12,115 70,341 Rest of North America...

  • Page 150
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Risk > Credit risk > Personal lending In 2012, the credit quality of the majority of our personal lending portfolios improved, reflecting the continued low levels of interest rates and strong customer repayments ...

  • Page 151
    ... the purpose of 149 Shareholder Information Financial Statements Corporate Governance Operating & Financial Review 301,862 6,961 Overview mortgages, was US$309bn, 5% higher than at the end of 2011. Our most significant concentrations of mortgage lending were in the UK, the US and Hong Kong.

  • Page 152
    ... our own sales force, and the self-certification of income was not permitted. The majority of our mortgage lending in the UK was to existing customers who held current or savings accounts with HSBC. The average LTV ratio for new business was 59% during December 2012, while loan impairment charges...

  • Page 153
    ... allowance is close to 100% in the CML portfolios, and more than 80% in HSBC Bank USA. Overview Shareholder Information Financial Statements Corporate Governance Operating & Financial Review For further information on renegotiated loans in North America, see page 158. Mortgage lending In our...

  • Page 154
    ... 2012 were related to HSBC Bank USA's credit card programme. Personal non-credit card lending Personal non-credit card lending balances and two months and over delinquent balances in the US fell, largely due to the reclassification of non-real estate personal loan balances to 'Assets held for sale...

  • Page 155
    ... trade and services ...- Commercial real estate ...- Other property-related ...- Government ...- Other commercial9 ...Financial (non-bank financial institutions)...Asset-backed securities reclassified ...Loans and advances to banks ...Total wholesale lending (A) ...Impairment allowances on wholesale...

  • Page 156
    ...not meet netting criteria under accounting rules. The aggregate of our commercial real estate and other property-related lending was US$117bn at 31 December 2012, 3% higher than at 31 December 2011, representing 12% of total loans and advances to customers. This growth was mainly in Hong Kong, where...

  • Page 157
    ... 2012 Cash and balances at central banks ...Items in the course of collection from other banks.. Hong Kong Government certificates of indebtedness .. Trading assets ...- treasury and other eligible bills ...- debt securities ...- loans and advances: to banks ...to customers ...Financial assets...

  • Page 158
    ... course of collection from other banks.. Hong Kong Government certificates of indebtedness .. Trading assets ...- treasury and other eligible bills ...- debt securities ...- loans and advances: to banks ...to customers ...Financial assets designated at fair value11 ...- treasury and other eligible...

  • Page 159
    ... in 2012 was primarily in North America in the CML portfolio, due to the reclassification of non-real estate personal loan balances to 'Assets held for sale' as well as the continued run-off of the lending balances. This was partly offset by increases in Rest of Asia-Pacific relating to a number of...

  • Page 160
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Risk > Credit risk > Credit quality of financial instruments Renegotiated loans and forbearance (Audited) Current policies and procedures regarding renegotiated loans and forbearance are described in the Appendix...

  • Page 161
    ... due to releases and write-offs of a number of non-performing loans as well as the sale of a number of exposures. The renegotiated loans in Europe largely consisted of commercial real estate and other property-related sector lending of 37% (2011: 43%) mainly in the UK, and manufacturing Since 2006...

  • Page 162
    ...December 2012, renegotiated real estate secured accounts in HSBC Finance represented 86% (2011: 86%) of North America's total renegotiated loans; US$14bn (2011: US$16bn) of these renegotiated real estate secured loans were classified as impaired. This decline was mainly due to lower lending balances...

  • Page 163
    ...UK commercial real estate and other property-related lending. Excluding the change in basis of reporting renegotiated loans, total renegotiated loans in the commercial real estate and other property-related sector remained broadly unchanged. Corporate Governance Total Operating & Financial Review...

  • Page 164
    ... that the customer will be able to meet the revised terms. Renegotiated loan balances in the manufacturing and international trade services sector increased in 2012, mainly in Latin America from the restructuring of a small number of loans in Mexico. In the Middle East and North Africa, renegotiated...

  • Page 165
    ... in Global Banking that their size requires the use of portfolio level credit mitigants. Across Global Banking risk limits and utilisations, maturity profiles and risk quality are monitored and managed pro-actively. This process is key to the setting of risk appetite Financial Statements Loans and...

  • Page 166
    ... Global Banking portfolio management team. Hedging activity is carried out within agreed credit parameters, and is subject to market risk limits and a robust governance structure. CDS mitigants are held at portfolio level and are not reported in the presentation below. Residential mortgage loans...

  • Page 167
    ...sheet loan commitments, primarily undrawn credit lines. Overview Shareholder Information Financial Statements Corporate Governance Operating & Financial Review Commercial real estate loans and advances including loan commitments by level of collateral (Audited) Europe US$m At 31 December 2012 Rated...

  • Page 168
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Risk > Credit risk > Collateral / Impairment of loans and advances purposes of this disclosure. In Hong Kong, market practice is for lending to major property companies to be typically secured by guarantees or ...

  • Page 169
    ... with counterparties and netting agreements. We do not currently undertake active management of our 167 Shareholder Information The collateral used in the assessment of the above lending relates primarily to cash and marketable securities. Loans and advances to banks are typically unsecured...

  • Page 170
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Risk > Credit risk > Collateral / Impairment of loans and advances general OTC derivative counterparty exposure in the credit markets, although we may manage individual exposures in certain circumstances. A ...

  • Page 171
    ... footnotes, see page 249. 15 35.8 0.3 1.2 169 Shareholder Information Financial Statements Corporate Governance At 31 December 2011 Gross loans and advances to customers Individually assessed impaired loans14 (E) ... Operating & Financial Review 55,771 1,013,735 Overview Europe US$m MENA...

  • Page 172
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Risk > Credit risk > Impairment of loans and advances Net loan impairment charge to the income statement by geographical region (Unaudited) Hong Kong US$m (8) 32 (34) (6) 92 117 (25) 84 84 Rest of AsiaPacific US...

  • Page 173
    ... America decreased by 2% from the end of 2011 to US$401m, mainly in Brazil. For an analysis of loan impairment charges and other credit risk provisions by global business, see page 76. 171 Shareholder Information Financial Statements Corporate Governance Operating & Financial Review Overview

  • Page 174
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Risk > Credit risk > Impairment of loans and advances Further analysis of impairment Movement in impairment allowances by industry sector and by geographical region (Unaudited) Hong Kong US$m 581 (219) (128) - (...

  • Page 175
    ... against banks: - individually assessed ...Impairment allowances against customers: - individually assessed ...- collectively assessed17 ...At 31 December 2011 ...For footnotes, see page 249. 173 Shareholder Information Financial Statements Corporate Governance 9 Operating & Financial Review...

  • Page 176
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Risk > Credit risk > Impairment of loans and advances Movement in impairment allowances by industry sector (Unaudited) 2012 US$m Impairment allowances at 1 January ...Amounts written off ...Personal ...- first ...

  • Page 177
    ... US$m Banks ...Personal ...First lien residential mortgages ...Other personal1 ...Corporate and commercial ...Manufacturing and international trade and services ...Commercial real estate and other property-related ...Other commercial9 ...Financial ...Total charge to income statement ...For footnotes...

  • Page 178
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Risk > Credit risk > Impairment of loans and advances Net loan impairment charge to the income statement (Unaudited) 2012 US$m Individually assessed impairment allowances ...New allowances ...Release of ...

  • Page 179
    .... 177 Shareholder Information Financial Statements Corporate Governance Operating & Financial Review Loans and advances to customers are excluded from average balances when reclassified to 'Assets held for sale'. Including these loans and advances to customers, the total new allowances net of...

  • Page 180
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Risk > Credit risk > Concentration of exposure Reconciliation of reported and constant currency impairment charge to the income statement (Unaudited) 31 Dec 11 at 31 Dec 12 exchange rates US$m 1,855 2,951 (531) (...

  • Page 181
    ...trade and services ...Commercial real estate ...Other property-related ...Government ...Other commercial9 ...Financial ...Non-bank financial institutions ...Settlement accounts ...Asset-backed securities reclassified ...Total gross loans and advances to customers ...Gross loans and advances to banks...

  • Page 182
    ...lending represented 8% of total gross lending to customers. Lending increased marginally, as the demand for funds in property investment and development remained strong in Hong Kong. The main concentrations of commercial real estate lending were in the UK and Hong Kong. Lending to non-bank financial...

  • Page 183
    ... ...International trade and services ...Commercial real estate ...Other property-related ...Government ...Other commercial9 ...Financial ...Non-bank financial institutions ...Settlement accounts ...Asset-backed securities reclassified .. Total gross loans and advances to customers (A) ...Percentage...

  • Page 184
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Risk > Credit risk > Concentration of exposure Loans and advances to banks by geographical region (Unaudited) Hong Kong US$m 23,500 35,159 33,585 36,197 29,646 Rest of AsiaPacific US$m 44,592 47,309 40,437 35,648...

  • Page 185
    ...residential mortgages US$m At 31 December 2011 Europe ...UK ...France ...Germany ...Malta ...Switzerland ...Turkey ...Other ...Hong Kong ...Rest of Asia-Pacific ...Australia ...India ...Indonesia ...Mainland China ...Malaysia ...Singapore ...Taiwan ...Vietnam ...Other ...Middle East and North Africa...

  • Page 186
    ... represent claims on Group subsidiaries in Europe and North America. All of the derivative transactions are with HSBC undertakings which are banking counterparties (2011: 100%) and for which HSBC Holdings has in place master netting arrangements. From 2012, the credit risk exposure has been managed...

  • Page 187
    ... are assets held in the GB&M legacy credit portfolio with a carrying value of US$31.6bn (2011: US$35.4bn). Operating & Financial Review Shareholder Information Financial Statements Corporate Governance A summary of the nature of HSBC's exposures is provided in the Appendix to Risk on page 259. 2012...

  • Page 188
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Risk > Credit risk > Securitisation exposures and other structured products Movement in the available-for-sale reserve (Audited) 2012 Directly held/ Solitaire28 US$m Available-for-sale reserve at 1 January ......

  • Page 189
    ...) Designated at fair value Held to through maturity profit or loss US$m US$m Of which held through consolidated Total SPEs US$m US$m Gross principal exposure30 US$m Credit default swap protection31 US$m Net principal exposure32 US$m Trading US$m At 31 December 2012 Mortgage-related assets: Sub...

  • Page 190
    ...the Directors: Operating and Financial Review (continued) Risk > Credit risk > Securitisation exposures and other structured products HSBC HOLDINGS PLC Carrying amount of HSBC's consolidated holdings of ABSs, and direct lending held at fair value through profit or loss26 (continued) Designated at...

  • Page 191
    ... in 2012 (2011: US$36m). Transactions with monoline insurers (Audited) Our principal exposure to monolines is through a number of OTC derivative transactions, mainly CDSs. We entered into these CDSs primarily to purchase credit protection against securities held at the time within the trading...

  • Page 192
    ... assets described in Note 17 on the Financial Statements. Leveraged finance transactions (Audited) HSBC's exposure to debt securities which benefit from guarantees provided by monolines Within both the trading and available-for-sale portfolios, we hold bonds that are 'wrapped' with a credit...

  • Page 193
    ... for loan files and estimated future demands in respect of mortgages sold to date which are either two or more payments delinquent or expected to become delinquent at an estimated conversion rate. Repurchase demands of US$89m were outstanding at 2012 (2011: US$113m). Operating & Financial Review...

  • Page 194
    ... transacted with counterparties incorporated or domiciled outside the country whose exposure they reference. • Short positions managed together with trading assets mitigate risk to which HSBC is exposed at the balance sheet date when, in the event of default, the trading asset and related short...

  • Page 195
    ... 26.1 Corporate Governance Operating & Financial Review between the counterparties. Such credit events normally include bankruptcy, payment default on a reference asset or assets, restructuring and repudiation or moratoria. Off-balance sheet exposures mainly relate to commitments to lend and the...

  • Page 196
    ... 6.6 HSBC HOLDINGS PLC Sovereign and agencies US$bn Cash and balances at central banks ...Loans and advances ...- gross ...- impairment allowances ...Financial investments available for sale37 ...- amortised cost ...Trading assets ...Derivative assets ...Gross balance sheet exposure before risk...

  • Page 197
    ...-balance sheet exposures ...- commitments ...- guarantees and others ...Total net exposure ...Of which: - net trading assets representing cash collateral posted ...- on-balance sheet exposures held to meet DPF insurance liabilities ...Total credit default swaps - CDS bought positions ...- CDS sold...

  • Page 198
    ...-balance sheet exposures ...- commitments ...- guarantees and others ...Total net exposure ...Of which: - net trading assets representing cash collateral posted ...- on-balance sheet exposures held to meet DPF insurance liabilities ...Total credit default swaps - CDS bought positions ...- CDS sold...

  • Page 199
    ... ...Risk mitigation ...- short trading positions ...- collateral and derivative liabilities ...Net on-balance sheet exposure ...Off-balance sheet exposures ...- commitments ...- guarantees and others ...Total net exposure ...Total credit default swaps - CDS bought positions ...- CDS sold positions...

  • Page 200
    ... HSBC HOLDINGS PLC Sovereign and agencies US$bn Loans and advances ...- gross ...Financial investments available for sale ...- cumulative impairment ...- amortised cost ...- available-for-sale reserve ...Trading assets ...Derivative assets ...Gross balance sheet exposure before risk mitigation...

  • Page 201
    ... off-balance sheet commitments and guarantees to other financial institutions and corporates of US$0.1bn (2011: US$0.1bn). 199 Shareholder Information Financial Statements Corporate Governance Operating & Financial Review Overview Italian other financial institutions and corporates mainly...

  • Page 202
    ... PLC Report of the Directors: Operating and Financial Review (continued) Risk > Eurozone exposures > Redenomination risk Exposures to other eurozone countries Summary of exposures to other eurozone countries (Unaudited) Other financial institutions and corporates US$bn Sovereign and agencies...

  • Page 203
    ... comprise loans and deposits arising from our commercial banking operations in these countries. The net assets represent our net funding exposure to those countries which we consider most likely to be affected by a redenomination event. The table also identifies incountry off-balance sheet exposures...

  • Page 204
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Risk > Eurozone exposures > Redenomination risk // Liquidity and funding rise to a balance sheet exposure. It is to be noted that this analysis can only be an indication as it does not include euro-denominated ...

  • Page 205
    ...-bank loans and intra-group deposits and reverse repo, repo and short positions ... 207 208 264 264 265 261 Group's contractual undrawn exposures monitored under the contingent liquidity risk limit structure ...Funding sources and uses ...Wholesale funding cash flows payable by HSBC under financial...

  • Page 206
    ... recording a decrease in its advances to core funding ratio to 78% as at 31 December 2012 (2011: 86%). Customer deposit markets Customer accounts increased by 7% year on year. After excluding repo balances, the year-on-year increase was 7%. Retail Banking and Wealth Management We continued to grow...

  • Page 207
    ...% (2011: 96%). Financial Statements Our liquidity and funding risk management framework ('LFRF') employs two key measures to define, monitor and control the liquidity and funding risk of each of our operating entities. The advances to core funding ratio is used to monitor the structural long-term...

  • Page 208
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Risk > Liquidity and funding > Management of liquidity and funding risk Stressed one-month and three-month coverage ratios39 (Audited) Stressed one-month coverage ratios at 31 December 2012 2011 % % 114 116 117 ...

  • Page 209
    ...Level 2 under the new policy and are shown as such in the comparatives. Liquid assets held by HSBC USA decreased as a result of the sale of the US Card and Retail Services business and non-strategic branches during 2012. Net contractual cash flows Corporate Governance Operating & Financial Review...

  • Page 210
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Risk > Liquidity and funding > Management of liquidity and funding risk / Contingent liquidity risk Net cash inflows/(outflows) for interbank and intra-group loans and deposits and reverse repo, repo and short ...

  • Page 211
    .... The Group remained a net unsecured lender to the banking sector. 209 Shareholder Information Financial Statements Corporate Governance Operating & Financial Review Overview UK. Since HSBC controls the size of the portfolio of securities held by these conduits, no contingent liquidity risk...

  • Page 212
    ... HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Risk > Liquidity and funding > Contingent liquidity risk / Encumbered and unencumbered assets Funding sources and uses (Audited) 2012 US$m Sources Customer accounts ...- repos ...- cash deposits ...Deposits by banks...

  • Page 213
    ... consolidated balance sheet as the table incorporates, on an undiscounted basis, all cash flows relating to principal and future coupon payments. Funding of HSBC Finance We do not expect the professional markets to be a source of funding for HSBC Finance in the future in view of the sale of the Card...

  • Page 214
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Risk > Liquidity and funding > Encumbered and unencumbered assets At 31 December 2012, the Group held US$1,749bn of unencumbered assets that could be used to support potential future funding and collateral needs,...

  • Page 215
    ... from other banks ...Hong Kong Government certificates of indebtedness ...Trading assets ...- Treasury and other eligible bills ...- debt securities ...- equity securities ...- loans and advances to banks ...- loans and advances to customers ...Financial assets designated at fair value ...- Treasury...

  • Page 216
    ... of repos and debt securities in issue included in trading liabilities is presented on page 485. In addition, loan and other credit-related commitments and financial guarantees and similar contracts are generally not recognised on our balance sheet. The undiscounted cash flows potentially payable...

  • Page 217
    ... ...Other financial liabilities ...Loan and other credit-related commitments ...Financial guarantees and similar contracts ...At 31 December 2011 Deposits by banks ...Customer accounts ...Trading liabilities ...Financial liabilities designated at fair value ...Derivatives ...Debt securities in issue...

  • Page 218
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Risk > Liquidity and funding > Liquidity regulation // Market risk Cash flows payable by HSBC Holdings under financial liabilities by remaining contractual maturities (Audited) On demand US$m At 31 December 2012 ...

  • Page 219
    ... ...Credit spread risk for available-for-sale debt securities ...Equity securities classified as available for sale ...Structural foreign exchange exposures ...Non-trading interest rate risk ...Balance Sheet Management ...Sensitivity of net interest income ...Defined benefit pension schemes...

  • Page 220
    ... from the interest rate management of our retail and commercial banking assets and liabilities, financial investments designated as available for sale and held to maturity, and exposures arising from our insurance operations (see page 239). Monitoring and limiting market risk exposures Our objective...

  • Page 221
    ... securities are mainly held within Balance Sheet Management in GB&M. The positions which are originated in order to manage structural interest rate and liquidity risk are treated as non-trading risk for the purposes of market risk management. Available-for-sale security holdings within insurance...

  • Page 222
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Risk > Market risk > Trading portfolios / Non-trading portfolios For a description of the parameters used in calculating VAR, see the 'Appendix to Risk' on page 266. Trading portfolios (Audited) Value at risk ...

  • Page 223
    ... (2011: US$389m). This sensitivity was 221 Shareholder Information Credit spread VAR for available-for-sale debt securities, excluding those held in insurance operations, is included in the Group non-trading VAR. Financial Statements Corporate Governance Operating & Financial Review Overview...

  • Page 224
    ... invested for short-term cash management ...Investment to facilitate ongoing business54 ...Other strategic investments ...2.9 0.2 1.1 1.6 5.8 For footnotes, see page 249. 2011 US$bn 3.0 0.2 1.1 2.9 7.2 • to define the rules governing the transfer of interest rate risk from the global businesses...

  • Page 225
    ...571 (1,909) 223 Shareholder Information Financial Statements Corporate Governance Operating & Financial Review Cash and balances at central banks ...Trading assets ...Financial assets designated at fair value ...Loans and advances: - to banks ...- to customers ...Financial investments ...Other...

  • Page 226
    ...assets with determinable cash flows. The principal tools used in the management of market risk are VAR for foreign exchange rate risk, and the projected sensitivity of HSBC Holdings' net interest income to future changes in yield curves and interest rate gap re-pricing tables for interest rate risk...

  • Page 227
    ... Financial Statements Corporate Governance (Audited) Operating & Financial Review HSBC Holdings monitors net interest income sensitivity over a 5-year time horizon reflecting the longer-term perspective on interest rate risk management appropriate to a financial services holding company...

  • Page 228
    ... structure of interest rate mismatches within HSBC Holdings' balance sheet. Total US$m At 31 December 2012 Cash at bank and in hand: - balances with HSBC undertakings ...Derivatives ...Loans and advances to HSBC undertakings ...Financial investments ...Investments in subsidiaries ...Other assets...

  • Page 229
    ...with HSBC's management and staff. Each regional, global business, country, business unit and functional head is required to maintain oversight over operational risk and internal control covering all business and operational activities for which they are responsible. A summary of our current policies...

  • Page 230
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Risk > Market risk > Operational risk > In 2012 Operational risk management framework Operational risks Operations Accounting Compliance Fiduciary Internal fraud External fraud Physical Business continuity ...

  • Page 231
    ... in Note 43 on the Financial Statements. Frequency of operational risk incidents by risk category Compliance 4% 5% 54% 55% 8% 8% 28% 25% 3% 6% 3% 1% • Fraud Legal Operations and Systems People 2011 2012 Other 229 Shareholder Information Financial Statements Corporate Governance The...

  • Page 232
    ...laws, codes, rules, regulations and standards of good market practice. In 2012, we experienced increasing levels of compliance risk as regulators and other agencies pursued investigations into historical activities and as we continued to work with them in relation to already identified issues. These...

  • Page 233
    Fiduciary risk (Unaudited) 231 Shareholder Information Financial Statements Corporate Governance Operating & Financial Review A fiduciary duty is one where HSBC holds, manages, oversees or has responsibility for assets for a third party that involves a legal and/or regulatory duty to act with ...

  • Page 234
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Risk > Risk management of insurance operations > Bancassurance / In 2012 Risk management of insurance operations (Audited) Page HSBC's bancassurance model ...Overview of insurance products ...Nature and extent of...

  • Page 235
    ... (HSBC). Financial risks include market risk, credit risk and liquidity risk. There were no material changes to our policies and practices for the management of risks arising in the insurance operations, including the risks relating to different life and non-life products, during 2012. A summary...

  • Page 236
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Risk > Risk management of insurance operations > In 2012 / Balance sheet of manufacturing subsidiaries a contract, claims and benefits may exceed the aggregate amount of premiums received and investment income. ...

  • Page 237
    ... case at the end of 2012. A principal tool used to manage exposures to both financial and insurance risk, in particular for life insurance contracts, is asset and liability matching. 235 Shareholder Information Financial Statements Corporate Governance Operating & Financial Review Overview

  • Page 238
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Risk > Risk management of insurance operations > Balance sheet of insurance manufacturing subsidiaries Balance sheet of insurance manufacturing subsidiaries by type of contract (Audited) Insurance contracts Term ...

  • Page 239
    ... 581 3,136 North America57 US$m 1,573 1,573 - - - - 1,037 1,037 536 1,573 Latin America US$m 9,254 4 6,702 - 1,998 550 35 557 201 10,047 - 455 7,639 177 327 8,598 1,449 10,047 At 31 December 2012 Financial assets ...- trading assets ...- financial assets designated at fair value ...- derivatives...

  • Page 240
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Risk > Risk management of insurance operations > Financial risks Financial risks (Audited) as there are insufficient assets that can be realised as cash. Further details on the nature of these financial risks ...

  • Page 241
    ... of financial assets were invested in debt securities at 31 December 2012 (2011: 65.2%) with 24.5% (2011: 22.9%) invested in equity securities. Long-term insurance or investment products may incorporate benefits that are guaranteed. Where mismatches exist as a result of current yields falling below...

  • Page 242
    ... bills and debt securities within our Insurance business by measures of credit quality. The five credit quality classifications are defined in the Appendix to Risk on page 253. Only assets supporting liabilities under non-linked insurance and investment contracts and shareholders' funds are included...

  • Page 243
    ... 50 3,820 Supporting shareholders' funds Financial assets designated at fair value ...- debt securities ...Financial investments ...- other eligible bills ...- debt securities ... 71 341 341 3,198 50 3,148 3,539 Total Trading assets - debt securities ...Financial assets designated at fair value...

  • Page 244
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Risk > Risk management of insurance operations > Financial risks / PVIF Reinsurers' share of liabilities under insurance contracts (Audited) Neither past due nor impaired Strong US$m At 31 December 2012 Linked ...

  • Page 245
    ... basis with reference to market risk free yields. Financial Statements • Corporate Governance Present value of in-force long-term insurance business • unwind of the discount rate less the reversal of expected cash flows for the period ('Expected return'); Operating & Financial Review 195...

  • Page 246
    ... linked insurance business in Brazil. For 2011, other adjustments related to the US$243m gain recognised upon refinement of the PVIF calculation. Key assumptions used in the computation of PVIF for main life insurance operations (Audited) 2012 UK Hong Kong % % Risk free rate ...Risk discount rate...

  • Page 247
    ... 101 245 Shareholder Information Financial Statements Corporate Governance Operating & Financial Review Policyholder liabilities and PVIF for life manufacturers are determined by reference to noneconomic assumptions including mortality and/or morbidity, lapse rates and expense rates. The table...

  • Page 248
    ...the UK ...The principal plan ...Future developments ...Pension plans in Hong Kong ...The HSBC Group Hong Kong Local Staff Retirement Benefit Scheme ...Pension plans in North America ...The HSBC North America (US) Retirement Income Plan ...Sustainability risk ...1 Appendix to Risk - risk policies and...

  • Page 249
    ... years 2013, 2014 and 2015. 247 Shareholder Information Financial Statements As part of the 31 December 2011 valuation, calculations were also carried out as to the amount of assets that might be needed to meet the liabilities if the Scheme was discontinued and the members' benefits bought...

  • Page 250
    ... HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Risk > Other material risks / Pension risk / Sustainability risk / Footnotes After the 2008 valuation, HSBC considered that the agreed recovery plan payments, together with investment returns (at an expected level...

  • Page 251
    ...-standard (2012: US$422m; 2011: US$556m) and impaired (2012: US$259m; 2011: US$229m). 249 Shareholder Information Financial Statements Corporate Governance Operating & Financial Review In 2010, the Investment Committee (the 'Committee') unanimously agreed to transition the Plan's target asset...

  • Page 252
    ... Marks and Spencer Financial Services Limited and HSBC Trust Company (UK) Limited, managed as a single operating entity, in line with the application of UK liquidity regulation as agreed with the UK FSA. 41 The Hongkong and Shanghai Banking Corporation represents the bank in Hong Kong including all...

  • Page 253
    ... on future business. Pension risk 75 In 2011 and 2012, alternative assets included ABSs, MBSs and infrastructure assets. In 2006, alternative assets included loans and infrastructure assets. 251 Shareholder Information Financial Statements Corporate Governance Operating & Financial Review...

  • Page 254
    ... must develop local credit policies consistent with Group policies; • to guide operating companies on our appetite for credit risk exposure to specified market sectors, activities and banking products and controlling exposures to certain higher-risk sectors; • to undertake an independent review...

  • Page 255
    ...credit quality classifications below. Special attention is paid to problem exposures in order to accelerate remedial action. When appropriate, our operating companies use specialist units to provide customers with support to help them avoid default wherever possible. Group and regional Credit Review...

  • Page 256
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Risk > Appendix - Risk policies and practices > Credit risk Quality classification definitions • 'Strong' exposures demonstrate a strong capacity to meet financial commitments, with negligible or low ...

  • Page 257
    ... below. Overview Shareholder Information Financial Statements Corporate Governance Operating & Financial Review For loan restructurings in wholesale lending, indicators of significant concerns regarding a borrower's ability to pay include the debtor is currently in default on any of its debt; the...

  • Page 258
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Risk > Appendix - Risk policies and practices > Credit risk for the borrower. For corporate and commercial loans, which are individually assessed for impairment and where non-monthly payments are more commonly ...

  • Page 259
    ... the current market rate for new debt with similar risk; reduction (absolute or contingent) of the face amount or maturity amount of the debt; and reduction (absolute or contingent) of accrued interest. In assessing whether payment-related forbearance is a satisfactory and sustainable strategy, the...

  • Page 260
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Risk > Appendix - Risk policies and practices > Credit risk Impairment assessment (Audited) It is our policy that each operating company in HSBC creates impairment allowances for impaired loans promptly and ...

  • Page 261
    ... of loans and advances For details of our policy on the write-off of loans and advances, see Note 2g on the Financial Statements. Overview Shareholder Information Financial Statements Corporate Governance Operating & Financial Review In HSBC Finance, the carrying amounts of residential mortgage and...

  • Page 262
    ... HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Risk > Appendix - Risk policies and practices > Credit risk / Liquidity and funding Our exposure to non-residential mortgage-related ABSs and direct lending includes securities with collateral relating to commercial...

  • Page 263
    ..., and to manage to. 261 Shareholder Information Inherent liquidity risk categorisation Financial Statements Customer deposits in the form of current accounts and savings deposits payable on demand or at short notice form a significant part of our funding, and we place considerable importance on...

  • Page 264
    ... loans and advances to customers without corresponding growth in core customer deposits or long-term debt funding with a residual maturity beyond one year; this measure is referred to as the 'advances to core funding' ratio. Advances to core funding ratio limits are set by the Risk Management...

  • Page 265
    ... a defined stressed haircut of up to 20%. Overview Shareholder Information Financial Statements Corporate Governance Operating & Financial Review Liquid assets of HSBC's principal operating entities Stressed scenario analysis and the numerator of the coverage ratio include the assumed cash...

  • Page 266
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Risk > Appendix - Risk policies and practices > Liquidity and funding / Market risk Internal categorisation Level 1 Cash inflow recognised Within one month Asset classes Central government Central bank (...

  • Page 267
    ... rates Foreign exchange and commodities Credit spreads Equities Non-trading risk - Interest rates - Credit spreads - Foreign exchange (structural) - GB&M Global businesses (including Balance Sheet Management ('BSM')) GB&M (including BSM) GPB CMB Monitoring and limiting market risk exposures...

  • Page 268
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Risk > Appendix - Risk policies and practices > Market risk Market risk is managed and controlled through limits approved by the GMB for HSBC Holdings and our various global businesses. These limits are allocated...

  • Page 269
    ...measures are calculated to a 99% confidence level and use a one-day holding period scaled to 10 days, whereas stressed VAR uses a 10-day holding period. Overview Shareholder Information Financial Statements Corporate Governance Operating & Financial Review The nature of the VAR models means that an...

  • Page 270
    ...non-trading portfolios is based on transferring the risks to the books managed by Global Markets or the local ALCO. The net exposure is typically managed through the use of interest rate swaps within agreed limits. The VAR for these portfolios is included within the Group VAR. Credit spread risk for...

  • Page 271
    ...in long-term interest rates, inflation, salary levels and the longevity of scheme members. Pension scheme assets include equities and debt securities, the cash flows of which change as equity prices and interest rates (and credit risk) vary. There is a risk that market movements in equity prices and...

  • Page 272
    ... rate risk and foreign currency risk. Exposure to these risks arises from short-term cash balances, funding positions held, loans to subsidiaries, investments in longterm financial assets and financial liabilities including debt capital issued. The objective of HSBC Holdings' market risk management...

  • Page 273
    ...reports to the Group Chief Risk Officer. There are compliance teams in all of the countries where we operate and in all global businesses lines. These compliance teams are principally overseen by Regional Compliance Officers located in Europe, the US, Canada, Latin America, the Middle East and North...

  • Page 274
    ... how much time the business could sustain an outage before the level of losses becomes unacceptable, i.e. its criticality. These plans are reviewed and tested every year. The planning is undertaken against Group policy and standards and each business confirms in an annual compliance certificate that...

  • Page 275
    ... Governance Operating & Financial Review HSBC Securities Services, where it is exposed to fiduciary risk via its Securities Services and Corporate Trust activities; HSBC Asset Management, which is exposed to fiduciary risks via its investment activities on behalf of clients; HSBC Private Banking...

  • Page 276
    ... Report of the Directors: Operating and Financial Review (continued) Risk > Appendix - Risk policies and practices > Risk management of insurance operations Insurance manufacturers set their own control procedures in addition to complying with guidelines issued by the Group Insurance Head Office...

  • Page 277
    We manage these risks through pricing (for example, imposing restrictions and deductibles in the policy terms and conditions), product design, risk selection, claims handling and reinsurance policy. The majority of our non-life insurance contracts are renewable annually, providing added flexibility ...

  • Page 278
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Risk > Appendix - Risk policies and practices > Risk management of insurance operations because the forecast payment dates of liabilities may exceed the duration of the longest dated investments available. We use...

  • Page 279
    .... Operating & Financial Review Shareholder Information Financial Statements Corporate Governance Overview Credit risk (Audited) Description of credit risk Credit risk arises in two main areas for our insurance manufacturers: i) ii) risk of default by debt security counterparties after investing...

  • Page 280
    ... operate a number of pension plans throughout the world, as described in Note 7 on the Financial Statements, the Pension risk section on page 224 and below. Some of them are defined benefit plans, of which the largest is the HSBC Bank (UK) Pension Scheme ('the principal plan'). In order to fund the...

  • Page 281
    ... of asset allocation and manager structure in the Defined Benefit Section. Longevity risk in the principal plan is assessed as part of the measurement of the pension liability and managed through the funding process of the scheme. Pension plans in Hong Kong In Hong Kong, the HSBC Group Hong Kong...

  • Page 282
    ... governance and manage the concomitant issues. The finance and investment sub-committee manages the various issues in relation to both assets and liabilities of the scheme. Pension plans in North America The HSBC North America (US) Retirement Income Plan covers all employees of HSBC Bank USA, HSBC...

  • Page 283
    ... ...Structural banking reform ...1 Appendix to Capital 288 288 Estimated effect of CRD IV end point rules applied to the 31 December 2012 position ... 298 289 298 300 291 291 291 292 281 Shareholder Information Financial Statements Corporate Governance Operating & Financial Review Overview

  • Page 284
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Capital > Capital overview / RWAs Our objective in the management of Group capital is to maintain appropriate levels of capital to support our business strategy and meet our regulatory requirements. Capital ...

  • Page 285
    ... US$6.1bn RWA impact attained through 283 Shareholder Information Financial Statements Corporate Governance Credit risk RWAs are calculated using three approaches as permitted by the UK regulator. For consolidated Group reporting we have adopted the advanced IRB approach for the majority of our...

  • Page 286
    ... in book size in North America, due to a decrease in the GB&M legacy credit portfolio and from maturing trades, and in Latin America due to reduced repo activity with central banks and lower exposure in respect of derivative transactions. RWA movement by key driver - market risk - internal model...

  • Page 287
    ... credit spread and net of dividends. The table below sets out the composition of our capital under the current regulatory requirements. 285 Shareholder Information Financial Statements Corporate Governance Operating & Financial Review Market risk RWAs decreased by US$10bn in 2012 with the main...

  • Page 288
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Capital > Capital structure Capital structure Composition of regulatory capital (Audited) At 31 December 2011 2012 US$m US$m 167,360 175,242 (1,405) (5,851) (626) 4,348 7,887 (2,428) (501) (610) (2,437) 1,223 112...

  • Page 289
    ... 2012 Riskweighted assets Reported capital ratios before management actions ...Reported totals (US$m) ...Management actions completed in 2013 (US$m) ...Dilution of our shareholding in Industrial Bank and the subsequent change in accounting treatment ...Completion of the second tranche of the sale...

  • Page 290
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Capital > Capital structure Ref Liabilities and equity Deposits by banks ...Customer accounts ...Trading liabilities ...Financial liabilities designated at fair value ...of which: - term subordinated debt ...

  • Page 291
    ...2012 RWAs Capital US$m US$m Reported core tier 1 capital under the current regime ...Regulatory adjustments applied to core tier 1 in respect of amounts subject to CRD IV treatment Investments in own shares through the holding of composite products of which HSBC is a component (exchange traded funds...

  • Page 292
    ... GB&M legacy credit portfolios and the sale of the Card and Retail Services business. Post year-end, we sold our remaining investment in Ping An and reduced our percentage holding in Industrial Bank following a private placement by the company. Although the effect of the future CRD IV rules is shown...

  • Page 293
    ...mortgages with high loan to value or loan to income ratios at origination). This will include both banking book and trading book exposures and be irrespective of the domicile of the ultimate borrower. Operating & Financial Review In parallel with the Basel III proposals, the Basel Committee issued...

  • Page 294
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Capital > Future developments // Appendix to Capital > Capital management banks aim to reach a 9% EBA defined core tier 1 ratio by the end of June 2012. In October 2012 the EBA announced that they would no longer...

  • Page 295
    ... the consolidated Group and by our local regulators for individual Group companies. Our assessment of capital adequacy is aligned to our assessment of risks, including: credit, market, operational, interest rate risk in the banking book, pension fund, insurance, structural foreign exchange risk and...

  • Page 296
    ... book size and book quality. Particular attention is paid to identifying and segmenting items within the day-to-day control of the business and those items that are driven by changes in risk models or regulatory methodology. Capital generation HSBC Holdings is the primary provider of equity capital...

  • Page 297
    ... by the FSA, or the FSA's standard rules. Our internal market risk models comprise VAR, stressed VAR, incremental risk charge and correlation trading under the comprehensive risk measure. Financial Statements Shareholder Information Overview Corporate Governance Operating & Financial Review 295

  • Page 298
    ... less insurance premiums allocated to each of eight defined business lines. Both these approaches use an average of the last three financial years' revenues. Finally, the advanced measurement approach uses banks' own statistical analysis and modelling of operational risk data to determine capital...

  • Page 299
    ... advanced IRB Retail mortgages Qualifying revolving retail exposures Retail SME Other retail The total of the results is shown in book size within the RWA movement by key driver table. 6. Book quality This represents RWA movements resulting from changes in the underlying credit quality of customers...

  • Page 300
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Capital > Appendix to Capital > CRD IV end point Market risk drivers - definitions and quantification The RWA movement by key driver for market risk combines the credit risk drivers 5 and 6 into a single driver ...

  • Page 301
    ... reduced for any related tax effects. Under current FSA rules, any related tax credit offset is recognised 50% in CT1 and 50% in tier 1 capital. Overview Shareholder Information Financial Statements Corporate Governance Operating & Financial Review Securitisation positions risk-weighted under CRD...

  • Page 302
    HSBC HOLDINGS PLC Report of the Directors: Operating and Financial Review (continued) Capital > Appendix to Capital > CRD IV end point // Corporate Governance > Report / Letter from Group Chairman Under CRD IV, the amount of such deferred tax assets and significant investments which individually ...

  • Page 303
    ... the Group Chairman Dear Shareholder At HSBC, we are committed to the highest standards of corporate governance. This is more important than ever in light of developments and changes in regulatory policy for financial services, society's view of the role of banks and the need to maintain investor...

  • Page 304
    ...30 years' international experience with HSBC; has held a number of key roles in the Group's operations worldwide, including in London, Hong Kong, Tokyo, Kuala Lumpur and the United Arab Emirates; played a leading role in developing and expanding Global Banking and Markets, the wholesale banking 302

  • Page 305
    ... East Limited and HSBC Private Banking Holdings (Suisse) SA. Head of Global Banking and Markets; Co-Head of Global Banking and Markets; Head of Global Markets; Head of Treasury and Capital Markets in Asia-Pacific; Deputy Chairman of HSBC Trinkaus & Burkhardt AG and a member of its Supervisory Board...

  • Page 306
    ..., Tokyo, New York and London. Former Chief Executive Officer of Allianz Global Investors AG and member of the management board of Allianz SE; 14 years' experience with Citigroup Inc. holding positions in Trading and Project Finance and as Head of Capital Markets for Europe, North America and Japan...

  • Page 307
    ...'s Business Advisory Group on 31 December 2012. 305 Shareholder Information Current appointments include: Chief Executive Officer of Centrica plc; and Lead Non-executive Board Member of the UK Department for Transport. Financial Statements Corporate Governance Operating & Financial Review...

  • Page 308
    ...to the Board: 2010 Current appointments include: member of the Group Management Board. Former appointments include: director of Hang Seng Bank Limited; Chief Financial Officer, AsiaPacific; and Chief Financial Officer, HSBC North America Holdings Inc; Vice President and Chief Financial Officer of GE...

  • Page 309
    ... Norton Rose. 307 Shareholder Information Financial Statements Corporate Governance Operating & Financial Review Joined HSBC in 1980. Group Company Secretary since 1986 and Company Secretary of HSBC Holdings plc since 1990. Appointed a Group General Manager in 2006. Chairman of the Disclosure...

  • Page 310
    ...director of HSBC Global Asset Management Limited; Head of Global Markets; and Head of Global Markets for Europe, Middle East and Africa. Ceased to be a director of HSBC Bank Egypt S.A.E. on 7 November 2012. I M Dorner, 58 President and Chief Executive Officer of HSBC USA Joined HSBC in 1986. A Group...

  • Page 311
    .... A Group Managing Director since 2008. Chairman of HSBC Life (UK) Limited. Director of HSBC Bank Bermuda Limited since 1 January 2012. Former HSBC appointments include: Group Chief Risk Officer; Group General Manager, Group Credit and Risk; and Head of Global Banking and Markets for North America...

  • Page 312
    ... to approve credit, market risk limits, acquisitions, disposals, investments, capital expenditure or realisation or creation of a new venture, specified senior appointments and any substantial change in balance sheet management policy. During 2012 the Board adopted terms of reference which are...

  • Page 313
    .... Key responsibilities Group Chairman - D J Flint1 • Leads the Board and ensures its effectiveness. • Develops relationships with governments, regulators and investors. • Leads the Group's interactions on matters of public policy and regulatory reform with regard to the banking and financial...

  • Page 314
    ... Hong Kong Limited, each non-executive Director determined by the Board to be independent has provided an annual confirmation of his or her independence to HSBC Holdings. Information and support The Board regularly reviews reports on progress against financial objectives, business developments...

  • Page 315
    ...Group Company Secretary to facilitate the Group Chairman's annual review of each non-executive Director. S A Catz Attended bespoke briefings on managing operational and reputational risk and recovery and resolution planning. L M L Cha Gave keynote speeches at the Institute of Directors in Hong Kong...

  • Page 316
    ... HOLDINGS PLC Report of the Directors: Corporate Governance (continued) Board of Directors > Directors Rules; obligations under the Hong Kong Securities and Futures Ordinance; and mechanisms for core risk appetite measures. Participated in the annual forum for HSBC Group non-executive directors...

  • Page 317
    ... any other connection with the Company. Bvalco's report was prepared following interviews with Directors and senior members of management The Bvalco report concluded that the Board operates effectively with a number of important strengths. The report is used by the Board in its annual evaluation of...

  • Page 318
    ... shareholders and brokers, analysts' forecasts, information from research reports and share price performance data. Twice each year the Board also receives a report from one of our corporate brokers on market views and investor relations. On several occasions during 2012, nonexecutive Directors...

  • Page 319
    ... Exchange of Hong Kong Limited primarily take into account accepted practices in the UK, particularly in respect of employee share plans. Following specific enquiry, each Director has confirmed that he or she has complied with the code of conduct for transactions in HSBC Group securities throughout...

  • Page 320
    ... Sustainability Committee Group Management Board KEY ROLE Non-executive responsibility for oversight of, and advice to the Board on, matters relating to financial reporting. Non-executive responsibility for oversight of, and advice to the Board on, high level risk-related matters and risk...

  • Page 321
    ... Representatives from global businesses, functions and certain Group companies • Reviews the Group's material communications with investors • Assists the Group Chief Executive and Group Finance Director to discharge their obligations relating to financial reporting under the Securities Exchange...

  • Page 322
    ... 14 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited) for inclusion in the financial statements; advised the Board that the annual report and accounts, taken as a whole, is fair, balanced and understandable; received reports on proposed changes to the Group...

  • Page 323
    ... and the Group Head of Internal Audit, with an opportunity at each meeting for discussions to take place without management present. Corporate Governance Operating & Financial Review HSBC's involvement in the sale of interest rate swaps to small and medium sized businesses in the UK and the...

  • Page 324
    ... to financial years beginning on or after 1 October 2012 and the Hong Kong Corporate Governance Code. In addition to the scheduled Committee meetings, the Chairman met regularly with the Group Finance Director, the Group Chief Accounting Officer, the Group Chief Risk Officer, the Group Head of...

  • Page 325
    ...of the remuneration paid in respect of audit and non-audit services provided by KPMG for each of the past three years is disclosed in Note 8 on the Financial Statements. Group Risk Committee The GRC is responsible for advising the Board on high-level risk-related matters and risk governance and for...

  • Page 326
    ... Formulates high-level global risk policy Exercises delegated risk management authority Oversees implementation of risk appetite and controls Monitors all categories of risk and determines appropriate mitigating action • Promotes a supportive Group culture in relation to risk management Develops...

  • Page 327
    ... for developing the Annual Operating Plan and to enhance alignment between Group strategy and risk appetite; and These core characteristics are applied to define the risk appetite statements on a Group-wide, global business and regional level. The relevant strategic and operational objectives...

  • Page 328
    HSBC HOLDINGS PLC Report of the Directors: Corporate Governance (continued) Board committees > Group Risk Committee Current top and emerging risks Categories Macroeconomic and geopolitical risk Top and emerging risks • Emerging market slow down • Macroeconomic risks within developed economies ...

  • Page 329
    ... refined 2012 Risk Appetite Statement being used in the preparation of the Annual Operating Plan for 2013. Reports and presentations were received from the Group Chief Risk Officer, including on the results of HSBC's stress testing and scenario analysis programme. Alignment of remuneration with risk...

  • Page 330
    ... services to the board of HSBC North America Holdings Inc. The Financial System Vulnerabilities Committee, established by resolution of the Board in January 2013, has non-executive responsibility for governance, oversight and policy guidance over the framework of controls and procedures designed...

  • Page 331
    ... share plans, other long-term incentive plans and the individual remuneration packages of executive Directors and other senior Group employees, including all in positions of significant influence and those having an impact on our risk profile and in doing so takes into account the pay and conditions...

  • Page 332
    ... employee engagement, help manage the risks of lending, leverage savings through eco-efficiency and secure new revenue streams. They generally fall into one or more of the four broad areas discussed below. Business finance We aim to build long-term customer relationships around the world through...

  • Page 333
    ... HSBC Sustainability Report 2012. Community investment We have a long-standing commitment to the communities in which we operate. Many of our key markets are emerging economies. Our operations bring benefits to our host countries through tax contributions, and to local people and businesses through...

  • Page 334
    ... and procedures are in place in HSBC to identify, control and report on the major risks including credit, market, liquidity, capital, financial management, model, reputational, pension, strategic, sustainability, operational (including accounting, tax, legal, compliance, fiduciary, information...

  • Page 335
    ... for setting policies, procedures and standards for the following risks: credit, market, liquidity, capital, financial management, model, reputational, pension, strategic, sustainability and operational risk (including accounting, tax, legal, compliance, fiduciary, information security, security and...

  • Page 336
    ... financial services, conduct their business or use financial products and services. Chief Risk Officer and the Head of Global Internal Audit; reports on the annual reviews of the internal control framework of HSBC Holdings which cover all internal controls, both financial and non-financial; annual...

  • Page 337
    .... Operating & Financial Review Diversity and inclusion Overview policies and processes for managing credit, liquidity and market risk are described in the 'Risk' section; and HSBC's approach to capital management and allocation is described in the 'Capital' section. Employee relations We...

  • Page 338
    ... of Hong Kong Limited at www.hkex.com.hk or can be obtained upon request from the Group Company Secretary, 8 Canada Square, London E14 5HQ. Particulars of options held by Directors of HSBC Holdings are set out on page 363. Note 7 on the Financial Statements gives details on share-based payments...

  • Page 339
    ... period. The middle market closing price for HSBC Holdings ordinary shares quoted on the London Stock Exchange, as derived from the Daily Official List on 23 April 2012, the day before options were granted in 2012, was £5.46. A review of the plans will be undertaken in 2013 and there will be...

  • Page 340
    ... 2003 21 Apr 2013 3 Apr 2012 ordinary shares over the five day period to the completion of the acquisition. The exercise price payable for each option was adjusted using the same exchange ratio. Details of options to acquire shares in HSBC Holdings under the share plans of HSBC Bank Bermuda are set...

  • Page 341
    ... Annual General Meeting until 30 June 2013 a recording of the proceedings will be available on www.hsbc.com. On behalf of the Board D J Flint, Group Chairman HSBC Holdings plc Registered number 617987 4 March 2013 339 Shareholder Information Financial Statements Corporate Governance Operating...

  • Page 342
    ... HOLDINGS PLC Report of the Directors: Corporate Governance (continued) Appendix > Other required disclosures > Share capital Appendix to Report of the Directors Other required disclosures Share capital Issued share capital The nominal value of our issued share capital paid up at 31 December 2012...

  • Page 343
    ...case of the Dollar Preference Shares in issue at 4 March 2013, HSBC Holdings may redeem such shares in whole at any time on or after 16 December 2010, subject to the prior consent of the FSA. Overview Shareholder Information Financial Statements Corporate Governance Operating & Financial Review 341

  • Page 344
    ...May 2012 July 2012 October 2012 December 2012 96,994,187 28,357,393 91,127,385 87,820,228 65,036,059 Market value US$ 7.4224 9.1170 8.2065 8.9127 9.8255 £ 4.7461 5.7466 5.2022 5.6560 6.1138 All-Employee share plans Number HSBC Holdings savings-related share option plans HSBC ordinary shares issued...

  • Page 345
    ... 2012. Treasury shares Operating & Financial Review Shareholder Information Financial Statements Corporate Governance In accordance with the terms of a waiver granted by the Hong Kong Stock Exchange on 19 December 2005, HSBC Holdings will comply with the applicable law and regulation in the UK...

  • Page 346
    ... waived his rights to receive dividends on the share and had undertaken to transfer the share to HSBC on ceasing to be a director of HSBC France. No Directors held any short position as defined in the Securities and Futures Ordinance of Hong Kong in the shares and loan capital of HSBC Holdings and...

  • Page 347
    ...the Annual General Meeting or the informal meeting of shareholders held in Hong Kong to discuss our progress. Shareholders may send enquiries to the Board in writing to the Group Company Secretary, HSBC Holdings plc, 8 Canada Square, London E14 5HQ or by sending an email to shareholderquestions@hsbc...

  • Page 348
    ... Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited at least 25% of the total issued share capital has been held by the public at all times during 2012 and up to the date of this Report. Dealings in HSBC Holdings shares Except for dealings as intermediaries by HSBC Bank...

  • Page 349
    ... the long-term strategy of the Group. Structure of remuneration In order to simplify remuneration, elements are limited to the following fixed pay; benefits; annual incentive; and the Group Performance Share Plan. Overview Shareholder Information Financial Statements Corporate Governance Operating...

  • Page 350
    ... and investor sentiment improved in Europe. CMB also recorded revenue growth as customer loans and advances increased in all regions, with over half of this growth coming from the faster-growing regions of Hong Kong, Rest of Asia-Pacific and Latin America, driven by higher trade-related lending. In...

  • Page 351
    ... calculation is described on page 348. The 2011 Group pre-tax profit pre-variable pay includes the add-back of restructuring costs incurred during the year, and the adjustment for movements in the fair value of own debt attributable to credit spread. Change in key metrics (Unaudited) Change: 2012...

  • Page 352
    ... from the Group Managing Director, Group Head of Human Resources and Corporate Sustainability, A Almeida, the Group Head of Performance and Reward, T Roberts and the Group Chief Risk Officer, M M Moses, all of whom provided advice as part of their executive role as employees of HSBC. The Committee...

  • Page 353
    ...annual financial and non-financial measures and adherence to HSBC Values which are consistent with the medium to long-term strategy. Group Performance Share Plan ('GPSP')1 Incentivises sustainable longterm performance and alignment with shareholder interests. Operation and planned changes to policy...

  • Page 354
    HSBC HOLDINGS PLC Directors' Remuneration Report (continued) Summary of remuneration policy Long-term Incentive Plan - Group Performance Share Plan 2013 long-term scorecard Measure Long-term target range Weighting 15% 15% 15% 15% 20% Return on equity ...12% - 15% Cost efficiency ratio ...48% - 52...

  • Page 355
    ... risk management. In considering individual awards, a comparison of the pay and employment conditions of our employees, Directors and senior executives is considered by the Committee. 353 Shareholder Information Financial Statements Corporate Governance Group-wide thematic reviews of risk...

  • Page 356
    ... 40% 60% 80% 100% Fixed1 Annual incentive2 Long-term incentive plan3 1 Salary paid in the year for executive Directors, taxable benefits, pension and cash in lieu of pensions. 2 Maximum award level as stated in policy. Includes deferred portion of award. Target has been defined as 50% of the...

  • Page 357
    ...required standard. Corporate Governance Operating & Financial Review 2012 £000 2011 £000 Overview Long-term incentives: long-term incentives include all other awards where final vesting is determined as a result of the achievement of performance conditions that end in the year being reported...

  • Page 358
    ... PLC Directors' Remuneration Report (continued) 2012 remuneration outcomes Financial (60% weighting - achieved 32%) The Committee continued to judge Capital Strength (10%) and Dividend Payout (10%) as critically important reflections of financial performance as they encapsulate a number of key...

  • Page 359
    ... in the Annual Report and Accounts 2012. 2 Based on results from The Brand Finance® Banking 500 2013 survey. parentheses reflect the available opportunity under the GPSP. Overview Shareholder Information Financial Statements Corporate Governance Operating & Financial Review Long-term target range...

  • Page 360
    ... the short-term deliverables of targeted disposals and investments to review the frameworks being established to improve capital deployment, establish and enforce Global Standards, improve cost efficiency while maintaining strong operational and risk controls and enhance global business co-operation...

  • Page 361
    ... and Group Managing Directors are set out below. The Directors' shareholdings at 31 December 2012 are also set out below. There are no shareholding requirements for non-executive Directors. 359 Shareholder Information Financial Statements Corporate Governance Operating & Financial Review...

  • Page 362
    ... categorised as equity derivatives under Part XV of the Securities and Futures Ordinance of Hong Kong. Each ADS represents five HSBC Holdings ordinary shares. 8 The ADS closing price on 31 December 2012 on the New York Stock Exchange was US$53.07. 9 Interests at 25 May 2012, the date of retirement...

  • Page 363
    ... ...US$000 Total remuneration ... Emoluments table Corporate Governance Shareholder Information Financial Statements The following table shows the 2012 emoluments of the Group Chairman and executive Directors of HSBC Holdings, with annual incentives disclosed on an actual paid basis, pursuant to...

  • Page 364
    ... exceeding three years, subject to their re-election by shareholders at Annual General Meetings. Non-executive Directors have no service contract and are not eligible to participate in our share plans. Non-executive Directors' current terms of appointment will expire as follows: • • • in 2013...

  • Page 365
    ... 2015 31 Jan 2012 1 May be advanced to an earlier date in certain circumstances, e.g. retirement. 2 Options lapsed on 31 October 2012 following the end of the six month period following retirement within which employees may exercise options under the HSBC Holdings savings-related share option plans...

  • Page 366
    ... 2012, the market value per share was £5.59. The market value per share on the date of the award, 2 March 2009, was £3.99. Awards of Restricted Shares HSBC Share Plan 2011 (Audited) HSBC Holdings ordinary shares Year in which awards may vest 2012 2013-2015 2012 2012 2013-2015 2012 2012 2013-2015...

  • Page 367
    ...former director of that bank. 365 Shareholder Information 1 The transfer value represents a liability of HSBC's pension fund (the International Staff Retirement Benefits Scheme ('ISRBS')) and not a sum paid or due to the individual; it cannot therefore meaningfully be added to annual remuneration...

  • Page 368
    ... two executive Directors and two Group Managing Directors of HSBC Holdings), for the year ended 31 December 2012. Emoluments of the five highest paid employees 5 highest paid employees £000 Basic salaries, allowances and benefits in kind ...Pension contributions ...Performance-related pay paid or...

  • Page 369
    ... to a six month retention period. 3 Awards vest 100% after five years subject to the successful completion of the Deferred Prosecution Agreements and subject to the terms of the Plan. 367 Shareholder Information Financial Statements Corporate Governance Operating & Financial Review Employee...

  • Page 370
    ... fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy. • • On behalf of the Board D J Flint Group Chairman 1 Other than J B Comey, who was not a Director at the time of approval of the Annual...

  • Page 371
    ... the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements. 369 Shareholder Information Financial Statements Corporate Governance Operating & Financial Review This report is made solely to the company's members, as...

  • Page 372
    ...of the Corporate Governance Statement relating to the company's compliance with the nine provisions of the June 2010 edition of the UK Corporate Governance Code specified for our review; and certain elements of the report to shareholders by the Board on Directors' remuneration. G Bainbridge (Senior...

  • Page 373
    ... of changes in equity ...HSBC Holdings balance sheet ...HSBC Holdings statement of cash flows...HSBC Holdings statement of changes in equity ...Notes on the Financial Statements 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Basis of preparation ...Summary of significant accounting policies ...Net income...

  • Page 374
    HSBC HOLDINGS PLC Financial Statements (continued) Consolidated income statement / Consolidated statement of comprehensive income Consolidated income statement for the year ended 31 December 2012 Notes Interest income ...Interest expense ...Net interest income ...Fee income ...Fee expense ...Net ...

  • Page 375
    ... attributable to exchange differences ...Other comprehensive income for the year, net of tax ...Total comprehensive income for the year ...Total comprehensive income for the year attributable to: - shareholders of the parent company ...- non-controlling interests ...15,334 2011 US$m 17,944 2010 US...

  • Page 376
    ... and equity Liabilities Hong Kong currency notes in circulation ...Deposits by banks ...Customer accounts ...Items in the course of transmission to other banks ...Trading liabilities ...Financial liabilities designated at fair value ...Derivatives ...Debt securities in issue ...Liabilities...

  • Page 377
    ... share options ...Subordinated loan capital issued ...Subordinated loan capital repaid ...Net cash inflow/(outflow) from change in stake in subsidiaries ...Dividends paid to shareholders of the parent company ...Dividends paid to non-controlling interests ...Dividends paid to holders of other equity...

  • Page 378
    ...statement of changes in equity HSBC HOLDINGS PLC Consolidated statement of changes in equity for the year ended 31 December 2012 2012 Other reserves Called up share capital US$m At 1 January ...Profit for the year ...Other comprehensive income (net of tax) ...Available-for-sale investments ...Cash...

  • Page 379
    ... (net of tax) ...Available-for-sale investments ...Cash flow hedges ...Actuarial gains/(losses) on defined benefit plans ...Share of other comprehensive income of associates and joint ventures ...Exchange differences ...Total comprehensive income for the year ...Shares issued under employee share...

  • Page 380
    ... equity / HSBC Holdings balance sheet Consolidated statement of changes in equity for the year ended 31 December 2012 (continued) 2010 Other reserves Called up share capital US$m At 1 January ...Profit for the year ...Other comprehensive income (net of tax) ...Available-for-sale investments ...Cash...

  • Page 381
    ... page 382. Shareholder Information D J Flint, Group Chairman Corporate Governance Operating & Financial Review Cash at bank and in hand: - balances with HSBC undertakings ...Derivatives ...Loans and advances to HSBC undertakings ...Financial investments ...Current tax assets ...Prepayments and...

  • Page 382
    ...HSBC Holdings statement of cash flows for the year ended 31 December 2012 Notes Cash flows from operating activities Profit before tax ...Adjustments for: - non-cash items included in profit before tax ...- change in operating assets ...- change in operating liabilities ...- net loss from investing...

  • Page 383
    ... share plans ...At 31 December 2012 ...At 1 January 2011 ...Profit for the year ...Other comprehensive income (net of tax) ...Available-for-sale investments ...Income tax ...Total comprehensive income for the year ...Shares issued under employee share plans ...Shares issued in lieu of dividends...

  • Page 384
    ... part of these financial statements. 2 Fair value gains in available-for-sale investments for 2012 include US$737m relating to the investment in Ping An classified as assets held for sale. 3 Adjustment to bring changes between opening and closing balance sheet amounts to average rates. This is not...

  • Page 385
    ...During 2012, HSBC adopted a number of interpretations and amendments to standards which had an insignificant effect on the consolidated financial statements of HSBC and the separate financial statements of HSBC Holdings. (b) Differences between IFRSs and Hong Kong Financial Reporting Standards There...

  • Page 386
    ... relevant to the underlying transactions, events and conditions of its subsidiaries, as well as representing a significant proportion of its funds generated from financing activities. HSBC uses the US dollar as its presentation currency in its consolidated financial statements because the US...

  • Page 387
    ... December 2012, a number of standards and amendments to standards had been issued by the IASB which are not effective for these consolidated financial statements. In addition to the projects to complete financial instrument accounting, the IASB is continuing to work on projects on insurance, revenue...

  • Page 388
    HSBC HOLDINGS PLC Notes on the Financial Statements (continued) 1 - Basis of preparation / 2 - Summary of significant accounting policies In May 2011, the IASB also issued IFRS 13 'Fair Value Measurement.' This standard is effective for annual periods beginning on or after 1 January 2013 with ...

  • Page 389
    ... for use in the EU. 2 Summary of significant accounting policies (a) Interest income and expense Interest income and expense for all financial instruments except for those classified as held for trading or designated at fair value (except for debt securities issued by HSBC and derivatives managed in...

  • Page 390
    HSBC HOLDINGS PLC Notes on the Financial Statements (continued) 2 - Summary of significant accounting policies Dividend income is recognised when the right to receive payment is established. This is the ex-dividend date for listed equity securities, and usually the date when shareholders have ...

  • Page 391
    ... a fair value adjustment relating only to the hedged risk. Loans and advances are reclassified to 'Assets held for sale' when their carrying amounts are to be recovered principally through sale, they are available for sale in their present condition and their sale is highly probable (Note 2ac...

  • Page 392
    ... of the debt. The realisable value of security is determined based on the current market value when the impairment assessment is performed. The value is not adjusted for expected future changes in market prices; however, adjustments are made to reflect local conditions such as forced sale discounts...

  • Page 393
    ... loan; and management's experienced judgement as to whether current economic and credit conditions are such that the actual level of inherent losses at the balance sheet date is likely to be greater or less than that suggested by historical experience. Homogeneous groups of loans and advances...

  • Page 394
    HSBC HOLDINGS PLC Notes on the Financial Statements (continued) 2 - Summary of significant accounting policies the statistical models, they are taken into account by adjusting the impairment allowances derived from the statistical models to reflect these changes as at the balance sheet date. These...

  • Page 395
    ... rate risk management strategy. An accounting mismatch would arise if the debt securities issued were accounted for at amortised cost, because the related derivatives are measured at fair value with changes in the fair value recognised in the income statement. By designating the long-term debt...

  • Page 396
    ...-for-sale debt securities using the effective interest rate, calculated over the asset's expected life. Premiums and/or discounts arising on the purchase of dated investment securities are included in the calculation of their effective interest rates. Dividends are recognised in the income statement...

  • Page 397
    ...for loans and advances to banks and customers, and as net trading income for trading assets. Corporate Governance Operating & Financial Review Overview Available-for-sale equity securities. Objective evidence of impairment for available-for sale equity securities may include specific information...

  • Page 398
    ...future cash flows attributable to a recognised asset or liability, or a forecast transaction ('cash flow hedges'); or (iii) a hedge of a net investment in a foreign operation ('net investment hedges'). Hedge accounting is applied to derivatives designated as hedging instruments in a fair value, cash...

  • Page 399
    ...immediately in the income statement. These gains and losses are reported in 'Net trading income', except where derivatives are managed in conjunction with financial instruments designated at fair value (other than derivatives managed in conjunction with debt securities issued by HSBC), in which case...

  • Page 400
    ... retained. (ii) Intangible assets include the present value of in-force long-term insurance business, computer software, trade names, mortgage servicing rights, customer lists, core deposit relationships, credit card customer relationships and merchant or other loan relationships. Computer software...

  • Page 401
    ...For the accounting policy governing the present value of in-force long-term insurance business (see Note 2y). (iii) Intangible assets with finite useful lives are amortised, generally on a straight-line basis, over their useful lives as follows: Trade names ...Mortgage servicing rights ...Internally...

  • Page 402
    ... the reporting date by the schemes' actuaries using the Projected Unit Credit Method. The net charge to the income statement mainly comprises the current service cost, plus the unwinding of the discount rate on plan liabilities, less the expected return on plan assets, and is presented in operating...

  • Page 403
    ... rate of exchange ruling at the balance sheet date. Any resulting exchange 401 Shareholder Information Financial Statements Corporate Governance Operating & Financial Review Overview The defined benefit liability recognised in the balance sheet represents the present value of defined benefit...

  • Page 404
    ... statements, the assets, including related goodwill where applicable, and liabilities of branches, subsidiaries, joint ventures and associates whose functional currency is not US dollars, are translated into the Group's presentation currency at the rate of exchange ruling at the balance sheet date...

  • Page 405
    ... are reported as income over the term of the insurance contracts based on the proportion of risks borne during the accounting period. The unearned premium (the proportion of the business underwritten in the accounting year relating to the period of risk after the balance sheet date) is calculated on...

  • Page 406
    ... asset represents the present value of the equity holders' interest in the issuing insurance companies' profits expected to emerge from these contracts written at the balance sheet date. The present value of in-force long-term insurance business and long-term investment contracts with DPF, referred...

  • Page 407
    ... as held for sale, movements arising from the initial measurement or subsequent remeasurement of the non-current assets (or disposal groups) are recognised in 'Other operating income'. 405 Shareholder Information Financial Statements Corporate Governance Operating & Financial Review Overview

  • Page 408
    ... customers under investment contracts ...- HSBC's long-term debt issued and related derivatives ...- changes in own credit spread on long-term debt ...- derivatives managed in conjunction with HSBC's issued debt securities ...- other changes in fair value ...- other financial liabilities designated...

  • Page 409
    ...079 3,984 1,810 2,174 223 (681) 904 4,207 3,645 2,525 1,120 - - - 3,645 407 Shareholder Information Financial Statements Life insurance (non-linked) US$m Life insurance (linked) US$m Investment contracts with DPF1 US$m Corporate Governance Operating & Financial Review Overview Total US$m

  • Page 410
    ... payable relating to trust and other fiduciary activities where HSBC holds or invests assets on behalf of its customers ...UK bank levy ...Auditors' remuneration (see Note 8) ...Gains/(losses) Gain on disposal or settlement of loans and advances ...Impairment of available-for-sale equity securities...

  • Page 411
    ...Social security costs ...Post-employment benefits ...17,780 1,633 1,078 20,491 2011 US$m 18,923 1,754 489 21,166 2010 US$m 17,193 1,567 1,076 Average number of persons employed by HSBC during the year 2012 Europe ...Hong Kong ...Rest of Asia-Pacific ...Middle East and North Africa ...North America...

  • Page 412
    HSBC HOLDINGS PLC Notes on the Financial Statements (continued) 7 - Employee compensation and benefits Reconciliation of total incentive awards granted to incentive awards in employee compensation and benefits 2012 US$m Total incentive awards approved and granted for the current year1 ...Less: ...

  • Page 413
    ... of the date of grant. • Long-term incentive plan between 2000 and 2005 during which certain HSBC employees were awarded share options. Purpose • Eligible employees save up to £250 per month (or its equivalent in US dollars, Hong Kong dollars or euros), with the option to use the savings to...

  • Page 414
    HSBC HOLDINGS PLC Notes on the Financial Statements (continued) 7 - Employee compensation and benefits Significant weighted average assumptions used to estimate the fair value of options granted Savings-related share option plans 1-year plan 3-year plans 5-year plans 2012 Risk-free interest rate1 ...

  • Page 415
    ... 49 3 1,078 2011 US$m (172) (428) 256 626 454 32 3 489 2010 US$m 468 308 160 545 1,076 Net assets/(liabilities) recognised on balance sheet in respect of defined benefit plans 2012 US$m Defined benefit pension plans HSBC Bank (UK) Pension Scheme ...- fair value of plan assets ...- present value of...

  • Page 416
    ... and related current service costs vary according to the economic conditions of the countries in which the plans are situated. At 31 December 2012, the present values of the defined benefit obligations of The HSBC Bank (UK) Pension Scheme was US$26,475m (2011: US$24,367m), The HSBC Group Hong Kong...

  • Page 417
    ... no bonds (2011: nil) issued by HSBC and US$292m (2011: US$1,228m) of other assets placed or transacted with HSBC. The fair value of plan assets included derivatives entered into with HSBC Bank plc by the HSBC Bank (UK) Pension Scheme with a positive fair value of US$5,226m at 31 December 2012 (2011...

  • Page 418
    ...Total (income)/expense recognised in the income statement in 'Employee compensation and benefits' HSBC Bank (UK) Pension Scheme 2012 2011 2010 US$m US$m US$m Current service cost ...Interest cost ...Expected return on plan assets ...Past service cost ...Gains on curtailments ...Gains on settlements...

  • Page 419
    ... plans' local actuaries, on the basis of current average yields of high quality (AA rated or equivalent) debt instruments, with maturities consistent with those of the defined benefit obligations. In countries where there is not a deep market in corporate bonds, government bond yields have been used...

  • Page 420
    ... HOLDINGS PLC Notes on the Financial Statements (continued) 7 - Employee compensation and benefits / 8 - Auditors' remuneration Expected rates of return 2012 Expected rates of return1 % HSBC Bank (UK) Pension Scheme Fair value of plan assets ...Equities ...Bonds ...Property ...Other ...Other plans...

  • Page 421
    ..., which show the change in 2012 pension cost from a 25bps increase/decrease, were calculated in accordance with the accounting policy set out in Note 2(t). HSBC Holdings Employee compensation and benefit expense in respect of HSBC Holdings' employees in 2012 amounted to US$439m (2011: US$413m). The...

  • Page 422
    HSBC HOLDINGS PLC Notes on the Financial Statements (continued) 8 - Auditors' remuneration / 9 - Tax Fees payable by HSBC to KPMG 2012 US$m Fees for HSBC Holdings' statutory audit1 ...- relating to current year ...- relating to prior year ...Fees for other services provided to HSBC ...Audit of ...

  • Page 423
    ... to the income statement Overview Shareholder Information Financial Statements Corporate Governance Operating & Financial Review 2012 US$m Current tax UK corporation tax ...- for this year ...- adjustments in respect of prior years ...Overseas tax1 ...- for this year ...- adjustments in respect of...

  • Page 424
    ... Company ('CFC') rules. Following further discussion with Her Majesty's Revenue and Customs, the CFC and certain other open UK issues have now been resolved. Deferred taxation The table overleaf shows the gross deferred tax assets and liabilities recognised in the balance sheet and the related...

  • Page 425
    ... of deferred tax assets and liabilities before offsetting balances within countries Loan Unused tax Accelerated AvailableRetirement impairment losses and capital for-sale benefits provisions tax credits allowances investments US$m US$m US$m US$m US$m 2012 Assets ...Liabilities ...At 1 January...

  • Page 426
    HSBC HOLDINGS PLC Notes on the Financial Statements (continued) 9 - Tax / 10 - Dividends Brazil The net deferred tax asset relating to HSBC's operations in Brazil was US$0.9bn (2011: US$0.7bn). The deferred tax assets included in this total arose primarily in relation to deductible temporary ...

  • Page 427
    ...no deferred tax asset is recognised in the balance sheet was US$1,775m (2011: US$8m) of which US$9m (2011: US$8m) relate to capital losses. The losses have no expiry date. 10 Dividends Dividends to shareholders of the parent company 2012 Per share US$ Dividends declared on ordinary shares In respect...

  • Page 428
    ... were anti-dilutive (2011: 151m; 2010: 150m). 12 Segmental analysis HSBC's operating segments are organised into six geographical regions, Europe, Hong Kong, Rest of Asia-Pacific, Middle East and North Africa ('MENA'), North America and Latin America. Geographical information is classified by the...

  • Page 429
    ...(current and savings accounts, mortgages and personal loans, credit cards, debit cards and local and international payment services) and wealth management services (insurance and investment products, global asset management services and financial planning services). Commercial Banking ('CMB') offers...

  • Page 430
    ...Profit for the year ...2011 Net interest income ...Net fee income ...Net trading income/(expense) ...Other income ...Net operating income1 ...Loan impairment charges and other credit risk provisions ...Net operating income ...Employee compensation and benefits .. General and administrative expenses...

  • Page 431
    ...Net operating income before loan impairment charges and other credit risk provisions. 429 Shareholder Information Financial Statements Corporate Governance Operating & Financial Review Overview Europe US$m Hong Kong US$m Rest of AsiaPacific US$m MENA US$m North America US$m Latin America...

  • Page 432
    ... ...Loan impairment losses gross of recoveries and other credit risk provisions ...Impairment of financial investments ...Changes in fair value of long-term debt and related derivatives ...Restructuring costs ...2010 Net operating income ...External ...Inter-segment ...Profit for the year includes...

  • Page 433
    Balance sheet information Hong Kong US$m Rest of AsiaPacific US$m North America US$m Latin America US$m IntraHSBC items US$m At 31 December 2012 Loans and advances to customers (net) ...Interests in associates and joint ventures ...Total assets ...Customer accounts ...Total liabilities ...Capital ...

  • Page 434
    ... credit risk provisions, also referred to as revenue. The table previously reported net operating income after loan impairment charges and other credit risk provisions. Information by country 2012 External net operating income1,2 US$m UK ...Hong Kong ...USA ...France ...Brazil ...Other countries...

  • Page 435
    ...Total financial assets ...Financial liabilities Hong Kong currency notes in circulation ...Deposits by banks ...Customer accounts ...Items in the course of transmission to other banks ...Trading liabilities ...Financial liabilities designated at fair value ...Derivatives ...Debt securities in issue...

  • Page 436
    ...Total financial assets ...Financial liabilities Hong Kong currency notes in circulation ...Deposits by banks ...Customer accounts ...Items in the course of transmission to other banks ...Trading liabilities ...Financial liabilities designated at fair value ...Derivatives ...Debt securities in issue...

  • Page 437
    ... liabilities designated at fair value ...Derivatives ...Debt securities in issue ...Accruals ...Subordinated liabilities ...Total financial liabilities ...At 31 December 2011 Financial assets Cash at bank and in hand ...Derivatives ...Loans and advances to HSBC undertakings ...Financial investments...

  • Page 438
    ...305,312 103,499 408,811 Treasury and other eligible bills ...Debt securities ...Equity securities ...Trading assets at fair value ...Loans and advances to banks ...Loans and advances to customers ...26,282 144,677 41,634 212,593 78,271 117,947 408,811 2011 US$m 235,916 94,535 330,451 34,309 130,487...

  • Page 439
    Loans and advances to customers held for trading 2012 US$m Reverse repos ...Settlement accounts ...Stock borrowing ...Other ...73,666 8,186 10,710 25,385 117,947 2011 US$m 69,128 15 Fair values of financial instruments carried at fair value Operating & Financial Review Shareholder Information ...

  • Page 440
    ... of heads of Global Markets, finance and risk functions • Establishing accounting policies for fair value support functions (product control, market risk management, quantitative risk and valuation group and finance), in addition to senior management • Establishing procedures governing...

  • Page 441
    ..., fair value adjustments will decrease when the related positions are unwound, but this may not result in profit or loss. 439 Shareholder Information Financial Statements Corporate Governance Operating & Financial Review Overview bid/offer spread represents the difference in prices at...

  • Page 442
    HSBC HOLDINGS PLC Notes on the Financial Statements (continued) 15 - Fair values of financial instruments carried at fair value Global Banking and Markets fair value adjustments At 31 December 2012 2011 US$m US$m Type of adjustment Risk-related ...Bid-offer ...Uncertainty ...Credit valuation ...

  • Page 443
    ... of certain central clearing parties, HSBC includes all third-party counterparties in the CVA and DVA calculations and does not net these calculations across HSBC Group entities. 441 Shareholder Information Financial Statements Corporate Governance Operating & Financial Review Overview

  • Page 444
    ...US$m Liabilities Designated at fair value Held for through trading profit or loss Derivatives US$m US$m US$m Available for sale US$m At 31 December 2012 Private equity including strategic investments ...Asset-backed securities ...Loans held for securitisation ...Structured notes ...Derivatives with...

  • Page 445
    ...- Financial Statements Corporate Governance Operating & Financial Review Overview Trading liabilities valued using a valuation technique with significant unobservable inputs principally comprised equity-linked structured notes, which are issued by HSBC and provide the counterparty with a return...

  • Page 446
    ... investments: Fair value gains/losses' and 'Exchange differences' in the consolidated statement of comprehensive income. Available-for-sale securities: Purchases of Level 3 AFS assets relate principally to Emerging Market corporate bonds. Sales of Level 3 AFS assets relate principally to private...

  • Page 447
    ...for-sale securities reflects greater liquidity in the ABS market. Sensitivity of fair values to reasonably possible alternative assumptions by Level 3 instrument type Reflected in profit or loss Favourable Unfavourable changes changes US$m US$m At 31 December 2012 Private equity investments ...Asset...

  • Page 448
    ... HSBC Holdings' financial assets and liabilities measured at fair value Valuation techniques With Using significant observable unobservable inputs inputs Level 2 Level 3 US$m US$m Quoted market price Level 1 US$m At 31 December 2012 Assets Derivatives ...Available for sale ...Liabilities Designated...

  • Page 449
    ... in Note 2. Fair values of financial instruments which are not carried at fair value on the balance sheet At 31 December 2012 Carrying amount US$m Assets and liabilities not held for sale Assets Loans and advances to banks ...Loans and advances to customers ...Financial investments: debt securities...

  • Page 450
    ... pricing discount from HSBC's intrinsic value. There was a modest decrease year on year in the fair value of loans and advances to customers in Europe relative to their carrying amount, largely in the UK mortgage portfolio which is sensitive to changes in market pricing between the balance sheet...

  • Page 451
    ...equivalent quoted securities. Deposits by banks and customer accounts For the purpose of estimating fair value, deposits by banks and customer accounts are grouped by remaining contractual maturity. Fair values are estimated using discounted cash flows, applying current rates offered for deposits of...

  • Page 452
    ... - Financial assets designated at fair value Fair values of HSBC Holdings' financial instruments not carried at fair value on the balance sheet At 31 December 2012 Carrying amount US$m Assets Loans and advances to HSBC undertakings ...Liabilities Amounts owed to HSBC undertakings ...Debt securities...

  • Page 453
    ...Loans and advances to banks ...Loans and advances to customers ...54 12,551 20,868 33,473 55 54 33,582 30,738 118 30,856 123 11,834 17,930 30,856 Securities designated at fair value1 At 31 December 2012 2011 US$m US$m Fair value US Treasury and US Government agencies2 ...UK Government ...Hong Kong...

  • Page 454
    HSBC HOLDINGS PLC Notes on the Financial Statements (continued) 19 - Derivatives 19 Derivatives Fair values of derivatives by product contract type held by HSBC Trading US$m At 31 December 2012 Foreign exchange ...Interest rate ...Equity ...Credit ...Commodity and other ...Gross total fair values ...

  • Page 455
    ... credit risk management framework to assess and approve potential credit exposures that is used for traditional lending. Overview Shareholder Information Financial Statements Corporate Governance Operating & Financial Review Trading derivatives Most of HSBC's derivative transactions relate to sales...

  • Page 456
    ... value of transactions outstanding at the balance sheet date; they do not represent amounts at risk. Notional contract amounts of derivatives held for hedge accounting purposes by product type At 31 December 2012 Cash flow Fair value hedge hedge US$m US$m Foreign exchange ...Interest rate ...16,716...

  • Page 457
    ... hedged risk ...(898) 871 (27) 2011 US$m (4,082) 3,858 (224) 2010 US$m (830) 868 38 The gains and losses on ineffective portions of fair value hedges are recognised immediately in 'Net trading income'. Cash flow hedges HSBC's cash flow hedges consist principally of interest rate swaps, futures and...

  • Page 458
    HSBC HOLDINGS PLC Notes on the Financial Statements (continued) 20 - Financial investments The gains and losses on ineffective portions of such derivatives are recognised immediately in 'Net trading income'. During the year to 31 December 2012 a gain of US$35m (2011: gain of US$26m; 2010: loss of ...

  • Page 459
    ... market. 457 Shareholder Information Financial Statements Corporate Governance 1 Represents the amortised cost or cost basis of the financial investment. 2 Included within these figures are debt securities issued by banks and other financial institutions of US$59,908m (2011: US$68,334m; 2010...

  • Page 460
    HSBC HOLDINGS PLC Notes on the Financial Statements (continued) 20 - Financial investments / 21 - Transfers of financial assets Maturities of investments in debt securities at their carrying amount At 31 December 2012 2011 US$m US$m Remaining contractual maturity of total debt securities: 1 year ...

  • Page 461
    ...to be recorded as loans and advances. Third party funds received by HSBC Bank Canada under the programme are accounted for as secured borrowings and presented as debt securities in issue on the consolidated balance sheet. In a small number of securitisation transactions, HSBC has neither transferred...

  • Page 462
    ...,487 At 31 December 2011 Carrying Fair amount value US$m US$m 8,507 2,214 6,373 1,886 18,980 8,234 2,743 8,110 3,256 22,343 At 31 December 2012 HSBC's Country of interest in incorporation equity capital Listed Bank of Communications Co., Limited ...Industrial Bank Co., Limited ...The Saudi British...

  • Page 463
    ... in the short- and medium-term, and also to the key assumptions regarding the long-term sustainable cash flows thereafter. The key assumptions are consistent with external sources of information. HSBC's investment in Industrial Bank Co., Limited ('Industrial Bank') was equity accounted with effect...

  • Page 464
    ... capital Investment banking Cash management Insurance manufacturing Insurance manufacturing Issued equity capital Country of incorporation HSBC Saudi Arabia Limited ...Vaultex UK Limited ...Hana HSBC Life Insurance Co., Ltd ...Canara HSBC Oriental Bank of Commerce Life Insurance Company Limited...

  • Page 465
    ... (6,857) 21,338 Impairment testing Timing of impairment testing 463 Shareholder Information HSBC's impairment test in respect of goodwill allocated to each cash-generating unit ('CGU') is performed as at 1 July each year. In line with the accounting policy set out in Note 2(p), goodwill is also...

  • Page 466
    ...respective testing date for 2011 and 2012. For each significant CGU, the VIU is calculated by discounting management's cash flow projections for the CGU. The discount rate used is based on the cost of capital HSBC allocates to investments in the countries within which the CGU operates. The long-term...

  • Page 467
    ... Shareholder Information Financial Statements Corporate Governance Discount rate ...Increase by 64 basis points Nominal growth rate beyond initial cash flow projection ...Decrease by 69 basis points Revenue compound annual growth rate ...Decrease from 10.3% to 8.3% Operating & Financial Review...

  • Page 468
    HSBC HOLDINGS PLC Notes on the Financial Statements (continued) 23 - Goodwill and intangible assets / 24 - Property, plant and equipment Movement of intangible assets excluding goodwill and the PVIF (continued) Mortgage servicing rights US$m (369) (78) - 123 - (2) - - (326) 172 Internally ...

  • Page 469
    ... for the year ...Disposals ...Reclassified to held for sale ...Transfers ...Impairment losses recognised ...Exchange differences ...Other changes ...At 31 December 2012 ...Net carrying amount at 31 December 2012 ...Cost or fair value At 1 January 2011 ...Additions at cost4 ...Fair value adjustments...

  • Page 470
    HSBC HOLDINGS PLC Notes on the Financial Statements (continued) 24 - Property, plant and equipment / 25 - Investments in subsidiaries Leasehold land and buildings 2012 Cost US$m At 1 January ...Additions ...Disposals ...Depreciation charge for the year ...Impairment loss recognised ...Exchange ...

  • Page 471
    ...to the Group are included in the Notes 29 'Debt securities in issue', 33 'Subordinated liabilities' and 37 'Non-controlling interests', respectively. All the above subsidiaries are included in the HSBC consolidated financial statements. 469 Shareholder Information Financial Statements Corporate...

  • Page 472
    .... In October 2012, HSBC acquired the onshore retail and commercial banking business of Lloyds Banking Group in the United Arab Emirates for a total consideration of US$0.1bn. As a result of the transaction HSBC acquired net assets of US$0.2bn. SPEs consolidated by HSBC where HSBC owns less than...

  • Page 473
    ...and other assets Assets held for sale Overview Shareholder Information Financial Statements Corporate Governance Operating & Financial Review 2012 US$m Disposal groups ...Non-current assets held for sale: - property, plant and equipment ...- investment in Ping An ...- loans and advances to customers...

  • Page 474
    ...US$553m. Loans and advances to customers Loans and advances to customers held for sale at 31 December 2012 include US personal loan balances of US$3.4bn, net of impairment allowances. Other assets At 31 December 2012 US$m Bullion ...Reinsurers' share of liabilities under insurance contracts (Note 31...

  • Page 475
    ...,705 2011 US$m 70,151 6,909 1,774 44,510 123,344 28 Financial liabilities designated at fair value HSBC At 31 December 2012 US$m Deposits by banks and customer accounts ...Liabilities to customers under investment contracts ...Debt securities in issue (Note 29) ...Subordinated liabilities (Note 33...

  • Page 476
    ... in issue are managed on a fair value basis as part of HSBC's interest rate risk management policies. The debt securities being hedged are presented within the balance sheet caption 'Financial liabilities designated at fair value', with the remaining debt securities included within 'Trading...

  • Page 477
    ... ...Structured notes Interest rate, equity, equity index or credit-linked ...148,522 7,139 155,661 148,187 3,180 151,367 HSBC Holdings At 31 December 2012 2011 US$m US$m Debt securities ...Of which debt securities in issue reported as: - financial liabilities designated at fair value (Note 28...

  • Page 478
    HSBC HOLDINGS PLC Notes on the Financial Statements (continued) 31 - Liabilities under insurance contracts Liabilities under insurance contracts (continued) Gross US$m Brought forward ...Life insurance liabilities to policyholders Life (non-linked) ...Investment contracts with discretionary ...

  • Page 479
    ...) (1,393) 26,277 (1,406) 6,079 (1,204) 29,746 21,488 (2,525) 3,645 1,766 24,374 10,307 (1,129) 4,207 (784) 12,601 66,721 477 Shareholder Information Financial Statements Corporate Governance Operating & Financial Review Overview

  • Page 480
    HSBC HOLDINGS PLC Notes on the Financial Statements (continued) 32 - Provisions Life insurance liabilities to policyholders (continued) Gross US$m 2011 Life (non-linked) At 1 January ...Benefits paid ...Increase in liabilities to policyholders ...Exchange differences and other movements ...At 31 ...

  • Page 481
    ... on the total premiums paid by the customer plus simple interest of 8% per annum (or the rate inherent in the related loan product where higher). The basis for calculating the redress liability is the same for single premium and regular premium policies. Future estimated redress levels are based on...

  • Page 482
    ... by the bank of open derivative contracts balances, and US$72m covers estimated project costs. Following an FSA review of the sale of interest rate derivatives, HSBC agreed to pay redress to customers where mis-selling of these products has occurred under the FSA's criteria. On 31 January 2013, the...

  • Page 483
    ... two issues of preferred securities are outstanding in April 2049 or November 2048, respectively, or (ii) the total capital ratio of HSBC Bank on a solo and 481 Shareholder Information Financial Statements Corporate Governance Apr 2020 Nov 2031 480 1,131 Operating & Financial Review Overview

  • Page 484
    HSBC HOLDINGS PLC Notes on the Financial Statements (continued) 33 - Subordinated liabilities consolidated basis falls below the regulatory minimum ratio required, or (iii) in view of the deteriorating financial condition of HSBC Bank, the Directors expect (ii) to occur in the near term, then the ...

  • Page 485
    ... capital base of HSBC in accordance with FSA's GENPRU. 11 Approximately US$60m of the subordinated obligations are held by HSBC Holdings. Financial Statements Corporate Governance HSBC Bank Brazil S.A. BRL383m Subordinated certificates of deposit ...BRL500m Subordinated floating rate certificates...

  • Page 486
    HSBC HOLDINGS PLC Notes on the Financial Statements (continued) 33 - Subordinated liabilities / 34 - Maturity analysis HSBC Holdings At 31 December 2012 2011 US$m US$m Subordinated liabilities: - at amortised cost ...- designated at fair value (Note 28) ...11,907 14,618 26,525 12,450 15,398 27,848...

  • Page 487
    ..., repos and debt securities in issue, trading assets and liabilities (including trading derivatives) are included in the 'Due less than one month' time bucket, and not by contractual maturity because trading balances are typically held for short periods of time; financial assets and liabilities with...

  • Page 488
    ... HSBC HOLDINGS PLC Due less than 1 month US$m Financial assets Cash and balances at central banks ...Items in the course of collection from other banks ...Hong Kong Government certificates of indebtedness ...Trading assets ...- Reverse repos ...- Other trading assets ...Financial assets designated...

  • Page 489
    ... notes in circulation ...Deposits by banks ...- Repos ...- Other deposits by banks ...Customer accounts1 ...- Personal ...- Corporate and commercial ...- Financial ...Of which: repos ...Items in the course of transmission to other banks ...Trading liabilities ...- Repos ...- Debt securities in issue...

  • Page 490
    ... HSBC HOLDINGS PLC Due less than 1 month US$m Financial assets Cash and balances at central banks ...Items in the course of collection from other banks ...Hong Kong Government certificates of indebtedness ...Trading assets ...- Reverse repos ...- Other trading assets ...Financial assets designated...

  • Page 491
    ... notes in circulation ...Deposits by banks ...- Repos ...- Other deposits by banks ...Customer accounts1 ...- Personal ...- Corporate and commercial ...- Financial ...Of which: repos ...Items in the course of transmission to other banks ...Trading liabilities ...- Repos ...- Debt securities in issue...

  • Page 492
    ... US$m Due over 5 years US$m HSBC HOLDINGS PLC Total US$m 2,455 3 8 5 8 25 75 98 2,677 5,280 2 36 3 6 19 508 143 5,997 Maturity analysis of off-balance sheet commitments given Due less than 1 month US$m At 31 December 2012 Loan and other credit-related commitments ...Of which...

  • Page 493
    ... 2 and 5 years US$m Due less than 1 month US$m Financial assets Cash at bank and in hand: - balances with HSBC undertakings ...Derivatives ...Loans and advances to HSBC undertakings ...Financial investments ...Other financial assets ...Total financial assets ...Non financial assets ...Total assets...

  • Page 494
    ... and 5 years US$m HSBC HOLDINGS PLC Due less than 1 month US$m Financial assets Cash at bank and in hand: - balances with HSBC undertakings ...Derivatives ...Loans and advances to HSBC undertakings ...Financial investments ...Other financial assets ...Total financial assets ...Non financial assets...

  • Page 495
    ... Structural foreign exchange exposures Overview Shareholder Information Financial Statements Corporate Governance Operating & Financial Review HSBC's structural foreign exchange exposures are represented by the net asset value of its foreign exchange equity and subordinated debt investments...

  • Page 496
    HSBC HOLDINGS PLC Notes on the Financial Statements (continued) 37 - Non-controlling interests / 38 - Called up share capital and other equity instruments relevant pool of assets. This is also the case where financial assets are placed with a custodian or settlement agent, which has a floating ...

  • Page 497
    ... Shareholder Information Financial Statements Corporate Governance Operating & Financial Review At 31 December 2012 2011 US$m US$m HSBC Holdings ordinary shares1 ...9,238 Number HSBC Holdings ordinary shares of US$0.50 each At 1 January 2012 ...Shares issued under HSBC employee share plans ...Shares...

  • Page 498
    ... capital securities, Series 2 ...Apr 2013 Dec 2015 Shares under option Details of the options outstanding to subscribe for HSBC Holdings ordinary shares under the HSBC Holdings Group Share Option Plan, the HSBC Share Plan and HSBC Holdings savings-related share option plans are given in Note...

  • Page 499
    ... Information Financial Statements Corporate Governance Operating & Financial Review At 31 December 2012, The CCF Employee Benefit Trust 2001 (Private Banking France) held 989,502 (2011: 989,502) HSBC Holdings ordinary shares. HSBC France options outstanding over HSBC Holdings ordinary shares Number...

  • Page 500
    ... operating assets 2012 US$m Change in loans to HSBC undertakings ...Change in prepayments and accrued income ...Change in net trading securities and net derivatives ...Change in loans and advances to banks ...Change in loans and advances to customers ...Change in financial assets designated at fair...

  • Page 501
    ... 2012 was US$32,368m (2011: US$39,345m), of which US$20,464m (2011: US$25,819m) related to mandatory deposits at central banks. Disposal of subsidiaries and businesses US cards business US$m Assets Loans and advances to banks ...Loans and advances to customers ...Financial investments ...Prepayments...

  • Page 502
    ... and short-term trade-related transactions ...Forward asset purchases and forward forward deposits placed ...Undrawn formal standby facilities, credit lines and other commitments to lend ...13,359 419 565,691 579,469 2011 US$m 75,672 259 75,931 13,498 87 641,319 654,904 HSBC Holdings 2011 2012 US...

  • Page 503
    ... less than one year. Guarantees with terms of more than one year are subject to HSBC's annual credit review process. Overview Shareholder Information Financial Statements Corporate Governance Operating & Financial Review Financial Services Compensation Scheme At 31 December 2012, HSBC recognised an...

  • Page 504
    ...by balance sheet classification Money market funds US$bn Non-money market investment funds US$bn 0.2 1.5 7.4 0.2 - - - 1.6 10.9 Conduits US$bn At 31 December 2012 Cash ...Trading assets ...Financial assets designated at fair value ...Derivatives ...Loans and advances to banks ...Loans and advances...

  • Page 505
    At 31 December 2011 Cash ...Trading assets ...Financial assets designated at fair value ...Derivatives ...Loans and advances to banks ...Loans and advances to customers ...Financial investments ...Other assets ... 0.8 0.1 0.1 - - 10.5 25.8 1.6 38.9 0.3 0.5 - 0.1 1.2 8.0 - - 10.1 - 0.2 0.2 0.3 ...

  • Page 506
    ... and Malachite HSBC's primary exposure to these SICs is represented by the amortised cost of the debt required to support the non-cash assets of the vehicles. At 31 December 2012, this amounted to US$7.4bn (2011: US$8.4bn). First loss protection is provided through the capital notes issued by these...

  • Page 507
    ...-money market investment funds is represented by its investment in the units of each fund which at 31 December 2012 amounted to US$16.1bn (2011: US$8.6bn). Other HSBC also establishes SPEs in the normal course of business for a number of purposes, for example, structured transactions for customers...

  • Page 508
    ... at 31 December 2012 (see Note 32). Securities litigation As a result of an August 2002 restatement of previously reported consolidated financial statements and other corporate events, including the 2002 settlement with 46 State Attorneys General relating to real estate lending practices, Household...

  • Page 509
    ... certain former employees and the former auditor of Madoff Securities. Various non-US HSBC companies provided custodial, administration and similar services to a number of funds incorporated outside the US whose assets were invested with Madoff Securities. Based on information provided by Madoff...

  • Page 510
    ...related investigations In April 2011, HSBC Bank USA entered into a consent cease and desist order with the Office of the Comptroller of the Currency and HSBC Finance and HSBC North America Holdings Inc. ('HNAH') entered into a similar consent order with the Federal Reserve Board following completion...

  • Page 511
    ... past mortgage servicing and foreclosure-related practices addressed in the consent orders, provided the terms of the agreement are fulfilled. The Office of the Comptroller of the Currency's agreement not to assess civil money penalties is further conditioned on HSBC North America making payments or...

  • Page 512
    ... related to the sale of RMBS to public and private customers in the State of Massachusetts from January 2005 to the present. HSBC expects this level of focus will continue and, potentially, intensify, so long as the US real estate markets continue to be distressed. As a result, HSBC Group companies...

  • Page 513
    ... of New York. The complaints in those actions assert claims against HSBC and other panel banks under various US laws including US antitrust laws, the US Commodities Exchange Act, and 511 Shareholder Information Financial Statements Corporate Governance Operating & Financial Review Overview...

  • Page 514
    ... and Group Managing Directors of HSBC Holdings. Compensation of Key Management Personnel 2012 US$m Short-term employee benefits ...Post-employment benefits ...Other long-term employee benefits ...Share-based payments ...37 1 10 43 91 HSBC 2011 US$m 34 2 7 53 96 2010 US$m 39 3 1 49 92 Transactions...

  • Page 515
    ... ...Number of HSBC Bank 2.875% Notes 2015 held beneficially and non-beneficially ...358 14,713 300 5 15,376 2011 (000s) 545 15,384 300 - 16,229 Transactions with other related parties of HSBC Operating & Financial Review Shareholder Information Financial Statements Corporate Governance Associates...

  • Page 516
    ... of HSBC Holdings' principal subsidiaries are shown in Note 25. Transactions and balances during the year with subsidiaries were as follows: 2012 Highest balance during Balance at the year1 31 December1 US$m US$m Assets Cash at bank ...Derivatives ...Loans and advances ...Financial investments...

  • Page 517
    ... of shares in Ping An was completed on 6 February 2013. A description of this disposal is provided in Note 26. Operating & Financial Review Shareholder Information 515 On 19 February 2013, we announced an agreement to sell HSBC Bank Panama S.A., recorded as part of our Latin America segment, to...

  • Page 518
    ... ...Shares quoted ex-dividend in London, Hong Kong, Paris and Bermuda ...ADSs quoted ex-dividend in New York ...Record date in Hong Kong ...Record date in London, New York, Paris and Bermuda1 ...Mailing of Annual Report and Accounts 2012 and/or Annual Review 2012, Notice of Annual General Meeting...

  • Page 519
    ...Directors to allot shares ...To disapply pre-emption rights (Special Resolution) ...To authorise the Company to purchase its own shares ...To authorise the Directors to offer a scrip dividend alternative...To approve general meetings (other than annual general meetings) being called on 14 clear days...

  • Page 520
    ...1 40 70 22 56 Email: [email protected] Website: www.hsbc.fr If you have been nominated to receive general shareholder communications directly from HSBC Holdings, it is important to remember that your main contact for all matters relating to your investment remains the...

  • Page 521
    [email protected] Head of Investor Relations, Asia-Pacific The Hongkong and Shanghai Banking Corporation Limited 1 Queen's Road Central Hong Kong 852 2822 4908 852 3418 4469 [email protected] Financial Statements Stock symbols Corporate Governance Operating & Financial Review...

  • Page 522
    ... information about HSBC is available This Annual Report and Accounts 2012, and other information on HSBC, may be viewed on HSBC's website: www.hsbc.com. Reports, statements and information that HSBC Holdings files with the Securities and Exchange Commission are available at www.sec.gov. Investors...

  • Page 523
    521 Shareholder Information Financial Statements Corporate Governance Operating & Financial Review Overview

  • Page 524
    ... exchange for shares in The Hongkong and Shanghai Banking Corporation Limited, or acquired subsequent to 1991 in exchange for shares in other companies. For capital gains tax purposes, the acquisition cost for ordinary shares is adjusted to take account of subsequent rights and capitalisation issues...

  • Page 525
    ...one year. A long-term capital gain realised by an individual holder generally will be subject to US tax at preferential rates. 523 Shareholder Information Financial Statements Corporate Governance Operating & Financial Review Paperless transfers of shares within CREST, the UK's paperless share...

  • Page 526
    ... from the sale of shares or ADSs that are paid within the US, or through certain financial intermediaries to US holders, are subject to information reporting and may be subject to a US 'backup' withholding tax unless, in general, the US holder complies with certain certification procedures or is...

  • Page 527
    ... non-bank financial services companies, including securities firms; and Corporate Governance Operating & Financial Review Overview of public or private defined benefit pensions; and consumer perception as to the continuing availability of credit and price competition in the market segments we...

  • Page 528
    ...Act, US Balance Sheet Management Canadian dollar Central counterparty Counterparty credit risk Certificate of deposit Collateralised debt obligation Credit default swap Credit derivative product company Common equity tier 1 ratio Cash-generating unit Swiss franc Commercial Banking, a global business...

  • Page 529
    ... Government National Mortgage Association, US HSBC's treasury and capital markets services in GB&M Group Management Board Global Private Banking, a global business Group Performance Share Plan Group Risk Committee HSBC Holdings together with its subsidiary undertakings Global Systemically Important...

  • Page 530
    ... PRC Payment protection insurance product People's Republic of China See HSBC Premier Present value of in-force long-term insurance business Retail Banking and Wealth Management, a global business Sale and repurchase transaction Awards of Restricted Shares define the number of HSBC Holdings ordinary...

  • Page 531
    ... the group's consolidated liabilities and equity as at 31 December 2011 after deducting certain items the most material of which are those related to insured deposit balances, tier 1 capital, insurance liabilities, high quality liquid assets and items subject to a legally enforceable net settlement...

  • Page 532
    .... The SICs hold predominantly asset-backed securities referencing such items as commercial and residential mortgages, vehicle loans and credit card receivables funded through the issuance of both long-term and short-term debt. A non-GAAP financial measure that adjusts for the year-on-year effects of...

  • Page 533
    ... certificates have been issued. Debt securities Debt securities in issue Deed-in-lieu Defined benefit obligation Delinquency Deposits by banks E Economic capital Economic profit Economic value of equity ('EVE') sensitivity Encumbered assets Equity risk Eurozone The internally calculated capital...

  • Page 534
    ... residential mortgage borrowing segment are Freddie Mac and Fannie Mae. GSEs carry the implicit backing, but are not direct obligations, of the US Government. Awards that define the number of HSBC Holdings ordinary shares to which the employee will become entitled, generally five years from the date...

  • Page 535
    ... Directors and Group Managing Directors of HSBC Holdings. A separately identifiable, discretely managed business comprising Solitaire Funding Limited, the securities investment conduits, the asset-backed securities trading portfolios and credit correlation portfolios, derivative transactions...

  • Page 536
    ... management of our retail and commercial banking assets and liabilities, financial investments designated as available for sale and held to maturity, and exposures arising from our insurance operations. The market risk arising from non-trading portfolios. Net principal exposure Net stable funding...

  • Page 537
    ... CML businesses and commercial operations in run-off. Origination of new business in the run-off portfolios has been discontinued and balances are being managed down through attrition and sale. Residential mortgage Restricted Shares Retail loans Return on equity Risk appetite Risk-weighted assets...

  • Page 538
    ... or liquidation. A US description for customers with high credit risk, for example those who have limited credit histories, modest incomes, high debt-to-income ratios, high loan-to-value ratios (for real estate secured products) or have experienced credit problems caused by occasional delinquencies...

  • Page 539
    ... policy 405 consolidated statement 375 HSBC Holdings 380 notes 498 Cautionary statement regarding forward-looking statements 525 Client assets 118 Collateral and credit enhancements 163, 493 management 212 Commercial Banking 60, 65 204, 432 constant currency/reported profit 26 Commercial real estate...

  • Page 540
    HSBC HOLDINGS PLC Shareholder Information (continued) Index Debt securities in issue 474 accounting policy 404 Defined terms inside front cover Deposits 449 accounting policy 404 average balances and average rates 33 Derivatives 145, 167, 179, 189, 452 accounting policy 395 Directors annual ...

  • Page 541
    ..., 91, 428 review of performance 88 risk-weighted assets 79 HSBC Finance foreclosures 151 funding 211 loan modifications 158 share plans 338 HSBC Holdings plc balance sheet 379 cash flow 216, 380 credit risk 184 deferred tax 424 dividends 425 employee compensation 419 financial assets and liabilities...

  • Page 542
    .../(loss) by country 100 review of performance 99 risk-weighted assets 79 Model risk 136 Money market funds 505 Monoline insurers 189 Mortgages lending 148, 150 mortgage-backed securities 184, 259 US mortgage-related investigations 508 R Ratios advances to core funding 23, 205 capital 2, 287 core...

  • Page 543
    ...326 Structural banking reform 292 Structural foreign exchange exposure 222, 268 Subsidiaries 469 accounting policy 398 Supplier payment policy 344 Sustainability committee governance risk 330 risk 126, 249, 280 Systemically important banks 291 Systems risk 272 Operating & Financial Review Overview

  • Page 544
    ... under the UK Companies Act Registered in England: number 617987 REGISTERED OFFICE AND GROUP HEAD OFFICE 8 Canada Square London E14 5HQ United Kingdom Telephone: 44 020 7991 8888 Facsimile: 44 020 7992 4880 Web: www.hsbc.com REGISTRARS Principal Register Computershare Investor Services PLC The...

  • Page 545
    ... pages designed by Group Finance, HSBC Holdings plc, London, and by Communications (Asia), The Hongkong and Shanghai Banking Corporation Limited, Hong Kong Printed by Park Communications Limited, London, on Revive 100 White Offset paper using vegetable oilbased inks. Made in the UK (cover board) and...

  • Page 546
    HSBC Holdings plc 8 Canada Square London E14 5HQ United Kingdom Telephone: 44 020 7991 8888 www.hsbc.com