HSBC 2012 Annual Report Download - page 350

HSBC HOLDINGS PLC
Directors’ Remuneration Report (continued)
Summary letter from the Group Remuneration Committee Chairman
348
that performance related awards for any global
business, global function, geography or level of
staff are considered in a holistic fashion.
Overall performance summary of 2012
During 2012, management continued to execute the
Board endorsed strategy to simplify, restructure and
grow the Group. The Group announced 26 disposals
or closures exiting non-strategic markets and selling
businesses and non-core investments. The Group
also recorded an additional US$2.0bn in sustainable
cost savings, which takes total annualised savings to
US$3.6bn. This surpasses the cumulative target of
US$2.5bn to US$3.5bn on sustainable savings since
2011. A focus on positioning the business for growth
delivered underlying revenue growth in most priority
markets. The growth in these markets was a factor
in generating a record reported profit before tax in
CMB as HSBC maintained its position as the
world’s largest global trade finance bank, as reported
in the Oliver Wyman Global Transaction Banking
Survey 2012.
The following summarises the Group’s 2012
financial performance:
• reported profit before tax fell compared with
2011, but rose on an underlying basis;
• underlying revenue grew by 7%, led by GB&M
which recorded growth in the majority of its
businesses, most notably in Credit and Rates,
as spreads tightened 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 Europe, lending balances increased, notably
in the UK, despite muted demand for credit. In
addition, RBWM experienced revenue growth
in all faster-growing regions, in particular Hong
Kong and Latin America;
• loan impairment charges and other credit risk
provisions reduced significantly, notably in
North America, primarily reflecting the
continued decline in lending balances and
lower delinquency rates in CML;
• notwithstanding the sustainable savings noted
above, the cost efficiency ratio increased from
57.5% in 2011 to 62.8% in 2012 and remained
outside the Group’s target range. This was
primarily due to fines and penalties paid as
part of the settlement of the investigations into
our past inadequate compliance with anti-
money laundering and sanctions laws,
additional provisions in respect of UK customer
redress programmes and a credit in 2011
relating to defined benefit pension obligations
in the UK which did not recur. The increase also
reflected inflationary pressures on wages and
salaries in certain of our Latin American and
Asian markets, 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;
• we maintained a strong balance sheet, with a
ratio of customer advances to customer accounts
of 74.4%;
• return on average ordinary shareholders’
equity was 8.4%, down from 10.9% in 2011,
primarily reflecting adverse movements in the
fair value of our own debt attributable to credit
spreads, a higher tax charge and higher average
shareholders’ equity;
• dividends in respect of 2012 to our shareholders
were increased from US$0.41 per ordinary
share in 2011 to US$0.45 per ordinary share;
and
• core tier 1 capital increased during 2012
through capital generation and the reduction
of risk-weighted assets following business
disposals.
Group variable pay pool
(Unaudited)
The 2012 Group variable pay pool was considered in
the context of the Group’s underlying profit before
tax. This calculation of profit excludes movements
in the fair value of own debt attributable to credit
spread and the impact of acquisitions and disposals
and includes the costs of the US regulatory and law
enforcement fines and penalties and other items of
redress arising in 2012. For the purposes of
considering the variable pay pool the normal profits
from the disposed businesses up to their actual
disposal are included in the calculation.
Specific actions taken in respect of 2012
• In addition to the cost of fines and penalties and
redress being taken into account in the initial
determination of the variable pay pool through
their impact on underlying profits, a further
reduction was made to the overall 2012 pool by
the Committee to reflect the reputational damage
incurred from the US legal and regulatory fines
and penalties and to shift a higher proportion of
the impact to the variable pay pool.