HSBC 2012 Annual Report Download - page 12

HSBC HOLDINGS PLC
Report of the Directors: Overview (continued)
Group Chief Executive’s Business Review
10
and Cash Management products. In addition,
Retail Banking and Wealth Management
experienced revenue growth across all faster-
growing regions, in particular Hong Kong and
Latin America. These factors were partially
offset by lower revenue in Global Private
Banking, as we focused on repositioning our
business model and target client base.
• We achieved growth in reported loans and
advances to customers of more than US$57bn
during the year, notably in residential mortgages
and term and trade-related lending. Customer
deposits increased by over US$86bn, allowing
us to maintain a strong ratio of customer
advances to customer accounts of 74.4%.
• Underlying costs were US$4.3bn higher than in
2011 including payments of US$1.9bn made as
part of the settlement of the investigations into
past inadequate compliance with anti-money
laundering and sanctions laws, additional
provisions in respect of UK customer redress
programmes of US$1.4bn, and a credit in 2011
of US$0.6bn relating to defined benefit pension
obligations in the UK which did not recur.
Operating expenses also increased due to
inflationary pressures, for example, on wages
and salaries, in certain of our Latin American
and Asian markets. Other increases arose from
investment in strategic initiatives including
certain business expansion projects, enhanced
processes and technology capabilities, and
increased investment in regulatory and
compliance infrastructure primarily in the US.
• The reported cost efficiency ratio deteriorated
from 57.5% to 62.8% and from 63.4% to 66.0%
on an underlying basis, as a result of higher
notable cost items, as described above.
• Return on equity was 8.4%, down from
10.9% in 2011, primarily reflecting the adverse
movement in fair value of own debt attributable
to movements in credit spreads, a higher tax
charge and higher average shareholders’ equity.
Similarly, the Group’s pre-tax return on average
risk-weighted assets (‘RoRWA’) for 2012 was
1.8% or 1.5% on an underlying basis. Adjusting
for the negative returns on US consumer finance
business and legacy credit in Global Banking
and Markets, the remainder of the Group
achieved a RoRWA of 1.9% in 2012 and 2.1%
in 2011.
• The core tier 1 ratio increased during the year
from 10.1% at the end of 2011 to 12.3%. This
increase was driven by capital generation and a
reduction in risk-weighted assets following
business disposals.
• The Basel III capital rules began their staged
6-10 year implementation in some parts of the
world in January 2013. Nevertheless, the FSA
has set our 2013 capital target calculation on
a Basel III end point basis. This effectively
accelerates our implementation of Basel III
by several years relative to European regulations
and other global banks. Consistent with this, we
now operate to an internal capital target set on a
Basel III end point basis of 9.5%-10.5%.
• Profit attributable to ordinary shareholders was
US$13.5bn, of which US$8.3bn was declared in
dividends in respect of the year. This compared
with US$2.9bn of variable pay awarded (net of
tax) to our employees for 2012.
• Dividends per ordinary share declared in respect
of 2012 were US$0.45, an increase of 10%
compared with 2011, with a fourth interim
dividend for 2012 of US$0.18 per ordinary share.
Global standards
As a global organisation which trades on its
international connectivity, we recognise that we
have a responsibility to play a part in protecting
the integrity of the financial system. In order to
do this effectively, in April 2012 we committed to
implementing industry-leading controls to increase
our ability to combat financial crime.
The highest compliance standards are being
adopted and enforced across HSBC and our
Compliance function has already been strengthened
considerably. More than 3,500 people are now
employed globally to work on compliance and the
cost of the Compliance function has approximately
doubled since 2010 to more than US$500m. We
have created and recruited externally for two new
Compliance leadership roles – Global Head of
Regulatory Compliance and Head of
Group Financial Crime Compliance – and appointed
a number of senior staff with extensive experience of
handling relevant international legal and financial
issues. A review of ‘Know Your Customer’ files is
under way across the entire Group and an enhanced
global sanctions policy has been devised to ensure
that we do not do business with key illicit actors
anywhere, in any currency. In addition, we have
moved to protect HSBC from the risks inherent in
bearer shares by curtailing the ability of clients using
bearer share companies to open accounts or transact
with HSBC.