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HSBC Holdings plc

Annual Report and Accounts 2015

Value of the network

Connecting customers to opportunities

Page 1
Value of the network Connecting customers to opportunities HSBC Holdings plc Annual Report and Accounts 2015

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Connecting customers to opportunities HSBC aims to be where the growth is, enabling businesses to thrive and economies to prosper, and ultimately helping people to fulï¬l their hopes and realise their ambitions.

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... used and a glossary of key terms. Cover image: Tsing Ma Bridge carries road and rail trafï¬c to Hong Kong International Airport and accommodates large container ships. At HSBC, we help customers across the world to trade and invest internationally. HSBC HOLDINGS PLC 1 Shareholder Information...

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... save and invest for the future. Our Insurance and Asset Management businesses support all our global businesses in meeting their customers' needs. Further details on page 30 We support more than two million business customers in 55 countries with banking products and services to help them operate...

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... Key metrics 7.2% Return on equity -3.7% Adjusted jaws $0.51 Dividends per ordinary share in respect of 2015 Geographical regions We operate in 71 countries and territories around the world. Our operating entities represent HSBC to customers, regulators, employees and other stakeholders. Market...

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Strategic Report Who we are 150 years of helping customers 'We seek to build trusting and lasting relationships with our many stakeholders' We are more than 250,000 employees working around the world to provide over 47 million customers with a broad range of banking products and services to meet ...

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...100 550 regulatory relationships HSBC HOLDINGS PLC 5 Corporate Governance Our heritage, diversity and scale make us unique Our network of businesses connects customers to opportunities... ...and we are mindful of our responsibilities to multiple stakeholders Financial Review Strategic Report

Page 8
...Board noted that prospective dividend growth remained dependent upon the long-term overall proï¬tability of the Group and delivering further release of less efï¬ciently deployed capital. Actions to address these points are core elements of the Investor Update provided last June. HSBC HOLDINGS PLC...

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... frameworks; however, this international agreement is an important step forward towards ï¬nally settling the capital base against which we can assess our target returns. HSBC HOLDINGS PLC 7 Shareholder Information Financial Statements Corporate Governance Financial Review Strategic Report

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... that having our headquarters in the UK and our signiï¬cant business in Asia Paciï¬c led from Hong Kong, delivers the best of both worlds to our stakeholders. The completion of this review closes out one of the 10 strategic actions set out at our Investor Update last June. HSBC HOLDINGS PLC 8

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... and digital businesses. Douglas Flint Group Chairman 22 February 2016 HSBC HOLDINGS PLC 9 Shareholder Information Financial Statements Corporate Governance Financial Review Strategic Report There is a real possibility of meaningful stimulus for the global economy to come from further trade...

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...to adapt HSBC to new operating conditions. Completing these plans will refocus the business to achieve stronger, sustainable growth and we are acting on them quickly and efï¬ciently. On an adjusted basis, we grew revenue over the course of the year. Global Banking and Markets performed strongly and...

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... securities business in the country. We remain the world's number one bank for offshore renminbi services and increased revenue by 3% year-on-year in this vitally important growth market. Strategic Report Shareholder Information Financial Statements Corporate Governance Financial Review 'The plans...

Page 14
... and developed markets. We seek to develop our wealth and retail banking businesses in markets where we can achieve proï¬table scale. Our strategy is built around long-term trends and reï¬,ects our distinctive advantages. Long-term trends Increasing global connectivity The international ï¬,ow...

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... commitment to, our strategic markets. We aim to develop our network of businesses to support future growth and increasing global connectivity. Our global reach and range of services place us in a strong position to connect customers to opportunities, helping both businesses and individuals to grow...

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... help clients participate in global trade and capital ï¬,ows. We are an industry leader in: global trade and receivables ï¬nance, payments and cash management, and foreign exchange. We also provide securities services to help ï¬nancial institutions access international markets. HSBC HOLDINGS PLC...

Page 17
... of the other six corridors. These corridors represent nearly 50% of global trade. Five of the 15 corridors are within Asia and six connect countries between two geographic regions. Financial Statements Corporate Governance Tailored ï¬nancing - Cosmosupplylab Financial Review Strategic Report

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... insure risks for individuals and corporations alike. We aim to develop long-term relationships that lead to us supplying products and services from across our global businesses. Many of our private banking clients, for example, own companies that are Commercial Banking or Global Banking and Markets...

Page 19
.... We also help Jardine Matheson manage part of its group pension portfolio with our asset management products. Number of markets served 17 12 Number of products provided HSBC HOLDINGS PLC 17 Shareholder Information Financial Statements Corporate Governance Financial Review Strategic Report

Page 20
... help achieve our medium-term ï¬nancial targets. These are: increasing our return on equity to above 10; achieving positive jaws, as described on page 27; and maintaining a progressive dividend. The strategic actions are set out in the table opposite, which also shows our progress in 2015. 35% Key...

Page 21
... against strategic actions Strategic Report Shareholder Information Financial Statements Corporate Governance Financial Review Strategic actions Targeted outcome by 2017 Progress during 2015 Key performance indicators Actions to resize and simplify the Group Reduce Group risk-weighted assets ('RWAs...

Page 22
... faster than the market in cards, mortgages and personal loans. We increased revenue from business synergies in 2015, including an 18% increase in revenue from Global Trade and Receivables Finance products provided to GB&M clients. Management of positions, processes and calculations We have re...

Page 23
... and sanctions compliance programme. We increased productivity in our UK branches through online customer support and appointment booking. In CMB, we simpliï¬ed our processes and are using technology better to open new accounts globally. We signiï¬cantly reduced the time taken to approve personal...

Page 24
... Finance Agency; broadly offset by - settlements and provisions in connection with legal matters ($0.5bn higher than in 2014); and - costs-to-achieve relating to business transformation of $0.9bn in 2015 (for further details, see page 58). Reported LICs Loan impairment charges and other credit risk...

Page 25
... Adjusted performance Financial Review Shareholder Information Financial Statements Corporate Governance Our reported results are prepared in accordance with IFRSs as detailed in the Financial Statements on page 347. We also present adjusted performance measures as we believe these help explain...

Page 26
...1bn or 6% reï¬,ecting lower brokerage and account services fee income from a managed reduction in client assets. However, revenue increased in Asia, notably in the ï¬rst half of 2015, due to higher client activity as a result of stock market performance. - Other: Revenue was $0.3bn or 4% lower, re...

Page 27
... Our share of proï¬t from associates and joint-ventures was broadly unchanged in 2015. The majority of this proï¬t was from our investments in Bank of Communications Co. ('BoCom') and The Saudi British Bank. HSBC HOLDINGS PLC 25 Shareholder Information Financial Statements Costs up year-onyear...

Page 28
... provides capacity for growth in higher returning business areas and regions. For example, in GB&M, we have reduced trading assets by decreasing holdings of debt securities in our Rates business in Europe and North America. Loans and advances to customers ($bn) 2015 2014 2013 924 975 992 $924bn...

Page 29
.... HSBC HOLDINGS PLC 27 Shareholder Information Financial Statements Corporate Governance Positive Financial Review Strategic Report The strategic actions set out on page 18 have been undertaken to support our aim of achieving our medium-term ï¬nancial targets. For detailed information on...

Page 30
... $6bn of business synergy revenue in 2015. For example, it provides trade ï¬nance, working capital and liquidity management solutions to GB&M clients. It also provides Capital Finance expertise, and Insurance and Asset Management capabilities from across the Group to beneï¬t customers. Areas of...

Page 31
... of transaction banking, ï¬nancing, advisory, capital markets and risk management services. In 2015, our product strengths were recognised by numerous Adjusted proï¬t before tax +14% HSBC HOLDINGS PLC 29 Strategic Report Best Overall Global Trade Finance Bank Most Innovative Investment Bank

Page 32
... programmes and compliance. Proï¬t before tax - total RBWM ($bn) 2015 2014 Reported Adjusted 5.0 5.6 6.8 7.6 Customers RBWM serves close to 45 million customers worldwide through four main business areas: Retail Banking, Wealth Management, Asset Management and Insurance. Since 2012, we have taken...

Page 33
... activity as a result of a strong stock market performance, which more than offset the weaker investor sentiment in the second half of the year. - We attracted positive net new money of $14bn in 2015 in the parts of the business that ï¬t our target model, mainly in Hong Kong, the UK, Singapore...

Page 34
... was notably in Foreign Exchange, Equities, Capital Financing and Securities Services. Revenue in RBWM also rose, mainly in Hong Kong from investment distribution income notably in the ï¬rst half of 2015, which more than offset weaker market sentiment in the second half of the year, and a rise in...

Page 35
... charges in relation to legal matters, which totalled $0.6bn and $0.7bn in 2014 and 2015, respectively. Latin America Financial Review Shareholder Information Financial Statements Corporate Governance Revenue growth driven by RBWM and CMB We are focusing on growing our business in Mexico, where we...

Page 36
... our customers, people and communities. We see investment in our capabilities, employees and processes as a source of long-term competitive advantage. How we do business strengthens the durability of our earnings and our ability to return value to shareholders. Led by our values Our values underpin...

Page 37
... Information - Equipping our employees - Valuing diversity - Encouraging ownership - Rewarding positive behaviours - Managing environmental and social impacts - Respecting human rights - Investing in our communities HSBC HOLDINGS PLC 35 Corporate Governance Financial Review Strategic Report

Page 38
... climate business, see page 37. Complaint types (RBWM) 28% 29% 12% 31% Key Product - features and policy Product - fees and charges Other product-related complaints Service complaints HSBC Global Research 1st Increasing quality of service We seek feedback from customers in order to assess how...

Page 39
... 466 efï¬cient buses in 2015, in countries including Ghana and South Africa. Since the team was created in 2005, it has helped ï¬nance 4,500 HSBC HOLDINGS PLC 37 Shareholder Information Financial Statements Number of products provided Corporate Governance Financial Review Strategic Report

Page 40
... on page 179. Key Asia Europe Middle East and North Africa North America Latin America Exchange meeting participation (% of employees that attended a 2015 meeting) 53% Employee retention 84.1% Gender diversity statistics Male Female Holdings Board 11 (58%) 8 (42%) (93%) Group Management 13 Board...

Page 41
...setting up an additional fund of $150m to support causes selected by our employees. It will support 140 charities across the world over three years. We also made a one-off $62m donation to charities in Hong Kong from the sale of commemorative HK$150 bank notes. HSBC HOLDINGS PLC 39 Strategic Report

Page 42
... RBWM new product review process to assess against fair exchange of value criteria Revised incentives structure in RBWM and CMB to remove formulaic link with sales volumes, and instead focus on customer needs Established Board-level Conduct & Values Committee to promote and oversee activities...

Page 43
...timely, open and transparent manner Financial Statements 2015 3 3 2 3 3 5 2 HSBC HOLDINGS PLC 41 Shareholder Information Introduced a tone-of-voice communications toolkit to simplify and improve clarity of interactions with customers Reviewed all RBWM products to assess fair value for customers...

Page 44
... decisions. Key risk appetite metrics Component Measure Risk appetite 2015 Returns Capital Liquidity Loan impairment charges 1 Return on average ordinary shareholders' equity in excess of our estimated cost of equity of 9% Common equity tier 1 ratio - CRD IV end point basis HSBC consolidated...

Page 45
...-party risk management Model risk Data management Risk heightened during 2015 Risk remained at the same level as 2014 HSBC HOLDINGS PLC 43 Shareholder Information Financial Statements Corporate Governance We continuously assess the impact of the geopolitical outlook on our country limits and...

Page 46
... but how it is achieved in line with HSBC Values - Operate a thorough performance management and HSBC Values assessment process - Recognise and reward our employees for outstanding positive behaviour - Design our policy to align compensation with long-term shareholder interests - Apply consequence...

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Remuneration Policy for executive Directors Financial Review Shareholder Information Financial Statements Corporate Governance We are making changes to our Directors' remuneration policy Our current remuneration policy was approved by shareholders at the 2014 Annual General Meeting ('AGM') and ...

Page 48
... of countries. Our global footprint gives us a strong position in transaction banking products, which support global trade and capital ï¬,ows. The scale of our network means we can offer these products to a larger number of customers, including companies that operate in many countries. Details can...

Page 49
...are unaudited unless otherwise stated. Disclosures marked as audited should be considered audited in the context of ï¬nancial statements taken as a whole. HSBC HOLDINGS PLC 47 Shareholder Information Financial Statements Corporate Governance Financial Review Strategic Report Financial Review

Page 50
... â€¢ costs incurred to achieve the productivity and cost reduction targets outlined in the Investor Update of June 2015; and â€¢ credit spread movements on our long-term debt designated at fair value. We consider adjusted performance provides useful information for investors by aligning internal and...

Page 51
... a Group level. Strategic Report Shareholder Information Financial Statements Corporate Governance Financial Review 2015 $m Revenue1 Reported Currency translation Own credit spread2 Acquisitions, disposals and dilutions Other significant items Adjusted Loan impairment charges and other credit risk...

Page 52
...) 17,944 16,797 1,147 Five-year financial information 2015 $ Basic earnings per share Diluted earnings per share Dividends per ordinary share3 Dividend payout ratio4 Post-tax return on average total assets Return on average ordinary shareholders' equity Average foreign exchange translation rates to...

Page 53
... Total equity and other non-interest bearing 785,928 liabilities Year ended 31 December For footnotes, see page 99. 2,593,771 HSBC HOLDINGS PLC 51 Shareholder Information Financial Statements Corporate Governance Financial Review Summary of interest income by type of asset Strategic Report

Page 54
... to central bank rate reductions, although yields in Hong Kong marginally increased. In Latin America, the increase was primarily in Argentina, driven by growth in average balances. Interest income on short-term funds and financial investments in Balance Sheet Management marginally decreased. This...

Page 55
... Securities Services in GB&M, and in Hong Kong from increased funds under management in GPB. Fee expenses were marginally higher by $101m due to a rise in brokerage fees, notably in Germany. HSBC HOLDINGS PLC 53 Shareholder Information Financial Statements Corporate Governance Financial Review...

Page 56
... designated at fair value 2015 $m Net income/(expense) arising from: - financial assets held to meet liabilities under insurance and investment contracts - liabilities to customers under investment contracts - HSBC's long-term debt issued and related derivatives - change in own credit spread on long...

Page 57
.... The disposal of these assets reflects our continued efforts to manage down low-returning assets to maximise returns. HSBC HOLDINGS PLC 55 Corporate Governance 2015 $m 2014 $m 2013 $m Financial Review On an adjusted basis, which excludes changes in our own credit spread and the net adverse...

Page 58
..., intangible assets and non-financial investments Gains/(losses) arising from dilution of interest in Industrial Bank and other associates and joint ventures Gain on disposal of HSBC Bank (Panama) S.A. Change in present value of in-force long-term insurance business Other Year ended 31 December...

Page 59
...force ('PVIF') long-term insurance business, partly offset by lower disposal and revaluation gains on investment properties, mainly in Asia. The higher favourable movement in the PVIF balance was driven by changes in interest rates and investment return assumptions, notably in France and Hong Kong.

Page 60
... related to higher LICs on food wholesalers, while in North America LICs rose in the oil and gas sector. In 2015, there were lower net releases of credit risk provisions than in 2014, down by $0.3bn, mainly on available-for-sale asset-backed securities ('ABS's) in our UK GB&M business. â€¢ in North...

Page 61
...Finance Authority Costs-to-achieve Cost to establish UK ring-fenced bank Regulatory provisions in GPB Restructuring and other related costs Settlements and provisions in connection with legal matters UK customer redress programmes Acquisitions, disposals and dilutions Currency translation Year ended...

Page 62
Report of the Directors: Financial summary (continued) Group performance by income and expense item / Consolidated balance sheet Staff numbers (full-time equivalents) 2015 Geographical regions Europe Asia Middle East and North Africa North America Latin America At 31 December 67,509 120,144 8,066 ...

Page 63
... Financial statistics Loans and advances to customers as a percentage of customer accounts Average total shareholders' equity to average total assets Net asset value per ordinary share at year-end21 ($) Number of $0.50 ordinary shares in issue (millions) Closing foreign exchange translation rates...

Page 64
...was a fall in trading assets which reflects our ongoing focus on the efficient use of the balance sheet in the context of new prudential regulations. Our ratio of customer advances to customer accounts was 71.7%. Both customer loans and customer accounts fell on a reported basis with these movements...

Page 65
..., at which point we will transfer the fair value gains to the income statement. Customer accounts by country Risk-weighted assets Strategic Report Shareholder Information Financial Statements Corporate Governance Financial Review Risk-weighted assets ('RWA's) totalled $1,103bn at 31 December 2015...

Page 66
...we are best placed to achieve capital strength and business profitability combined with regulatory capital efficiency objectives. We targeted a return on average RWAs of 2.3% in 2015. In addition to the return on average risk-weighted assets ('RoRWA') we measure our performance internally using the...

Page 67
... geographical region. All tables are on a reported basis unless stated otherwise. Basis of preparation The results of global businesses are presented in accordance with the accounting policies used in the preparation of HSBC's consolidated financial statements. Our operations are closely integrated...

Page 68
... costs of Brazilian operations - costs-to-achieve - costs to establish UK ring-fenced bank - regulatory provisions in GPB - restructuring and other related costs - settlements and provisions in connection with legal matters - UK customer redress programmes Adjusted31 Share of profit in associates...

Page 69
... other related costs - settlements and provisions in connection with legal matters - UK customer redress programmes - trading results from disposals and changes in ownership levels Adjusted31 Share of profit in associates and joint ventures Reported Currency translation Adjusted Profit/(loss) before...

Page 70
... Directors: Global businesses (continued) RBWM Retail Banking and Wealth Management RBWM provides banking and wealth management services for our personal customers to help them secure their future prosperity and realise their ambitions. Principal RBWM consists of Banking Insurance Asset operations...

Page 71
Principal RBWM performance Principal RBWM: management view of adjusted revenue 2015 $m Net operating income1 Current accounts, savings and deposits Wealth management products - investment distribution36 - life insurance manufacturing - asset management Personal lending - mortgages - credit cards - ...

Page 72
...9 (1,242) 14,515 Management view of adjusted revenue 2015 $m Net operating income1 Global Trade and Receivables Finance Credit and Lending Payments and Cash Management, current accounts and savings deposits Markets products, Insurance and Investments and Other39 Year ended 31 December For footnotes...

Page 73
... 822 18,172 (37) 18,135 (10,731) 7,404 Management view of adjusted revenue Strategic Report Shareholder Information Financial Statements 9,350 (1,896) 2015 $m Total operating income Markets41 - Legacy credit - Credit - Rates - Foreign Exchange - Equities 1 2014 $m 5,775 (16) 532 1,419 2,722 1,118...

Page 74
... targeted for growth Value change Disposals Exchange and other At 31 December 365 1 14 1 - (18) 349 2014 $bn 382 (3) 14 8 (11) (11) 365 (206) 2015 2014 Operating expenses ($m) 1,832 1,626 (100) (71) 1,778 1,607 Reported client assets by geography 2015 $bn Europe Asia North America Latin America...

Page 75
... ($m) Strategic Report Shareholder Information HSBC HOLDINGS PLC 'Other' contains the results of HSBC's holding company and financing operations, central support and functional costs with associated recoveries, unallocated investment activities, centrally held investment companies, certain property...

Page 76
Report of the Directors: Group businesses (continued) Analysis by global business Analysis by global business HSBC profit/(loss) before tax and balance sheet data 2015 Retail Banking and Wealth Management $m Commercial Banking $m 9,859 4,190 571 (16) 555 âˆ' Global Banking and Markets $m 6,931 ...

Page 77
... HOLDINGS PLC 75 Shareholder Information Financial Statements Share of HSBC's profit before tax Cost efficiency ratio 29.9 71.7 100.0 67.3 Corporate Governance Financial Review Strategic Report Retail Banking and Wealth Commercial Management28 Banking28 $m $m Global Banking and Markets...

Page 78
... The results of the geographical regions are presented in accordance with the accounting policies used in the preparation of HSBC's consolidated financial statements. Our operations are closely integrated, and accordingly, the presentation of the geographical data includes internal allocation...

Page 79
... costs of Brazilian operations - costs-to-achieve - costs to establish UK ring-fenced bank - regulatory provisions in GPB - restructuring and other related costs - settlements and provisions in connection with legal matters - UK customer redress programmes Adjusted31 Share of profit in associates...

Page 80
... and other related costs - settlements and provisions in connection with legal matters - UK customer redress programmes - trading results from disposals and changes in ownership levels Adjusted 31 Asia $m 23,677 (680) (48) 69 4 - (428) 271 4 MENA $m 2,548 (50) (3) 5 - - - - 6 Total $m 61,248...

Page 81
...42 118 596 1,160 750 302 (287) (100) 1,825 UK France23 Germany Switzerland Other Year ended 31 December 2015 UK France23 Germany Switzerland Other Year ended 31 December 2014 UK France23 Germany Switzerland Other Year ended 31 December 2013 HSBC HOLDINGS PLC 79 Financial Review Strategic Report

Page 82
...352 24,176 (3,118) 21,058 (690) 20,368 (19,733) 635 8 643 % 3.4 93.7 Share of HSBC's profit before tax Cost efficiency ratio 6.3 80.1 Balance sheet data30 $m Loans and advances to customers (net) Total assets Customer accounts 156,156 205,866 200,437 $m 110,617 124,105 132,928 $m 101,568 804,373...

Page 83
...007 25,390 (3,819) 21,571 (764) 20,807 (20,217) 590 6 596 % 3.2 93.7 Share of HSBC's profit before tax Cost efficiency ratio 1.7 91.9 Balance sheet data30 $m Loans and advances to customers (net) Total assets Customer accounts For footnotes, see page 99. 165,112 221,679 202,413 $m 106,342 120,819...

Page 84
... offer a wide range of banking and financial services in mainland China through our local subsidiaries, HSBC Bank (China) Company Limited and Hang Seng Bank (China) Limited. We also participate indirectly in mainland China through our associate, Bank of Communications Co., Ltd. Outside Hong Kong and...

Page 85
... 1,360 176 - - 1,536 âˆ' 135 135 1 174 175 (38) 40 1,089 553 1,644 2,009 1,051 3,060 1,973 978 2,951 1,853 746 1,089 553 4,241 HSBC HOLDINGS PLC 83 Shareholder Information Financial Statements Commercial Banking $m Other $m Total $m Corporate Governance Financial Review Strategic Report

Page 86
... credit risk provisions Net operating income 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 23.2 49.5 Balance sheet data30 $m Loans and advances to customers (net) Total assets...

Page 87
...761) 23,677 (647) 23,030 (10,427) 12,603 2,022 14,625 % 78.3 44.0 Share of HSBC's profit before tax Cost efficiency ratio 23.9 48.3 Balance sheet data30 $m Loans and advances to customers (net) Total assets Customer accounts For footnotes, see page 99. 115,643 166,577 286,670 $m 132,509 158,747...

Page 88
... largest bank by total assets. 2015 $m Net interest income Net fee income Net trading income Other income Net operating income1 LICs34 Net operating income Total operating expenses Operating profit Income from associates35 Profit before tax Cost efficiency ratio RoRWA24 Year-end staff numbers For...

Page 89
... income Total operating 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 1.4 66.8 Balance sheet data30 $m Loans and advances to customers (net) Total assets Customer accounts 6,374...

Page 90
... (1,216) 1,338 488 1,826 % 9.8 47.7 Share of profit in associates and joint ventures Profit/(loss) before tax Share of HSBC's profit before tax Cost efficiency ratio 1.7 69.2 Balance sheet data30 $m Loans and advances to customers (net) Total assets Customer accounts For footnotes, see page 99...

Page 91
...4 57 Commercial Banking $m 302 259 12 573 400 514 (1) 913 296 506 (16) 786 Other $m 55 (21) âˆ' 34 (60) (23) (18) (101) (350) (3) 9 (344) Total $m 41 485 88 614 532 829 56 1,417 274 914 33 1,221 HSBC HOLDINGS PLC 89 Shareholder Information Financial Statements Corporate Governance Strategic...

Page 92
... income Total operating 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 (3.4) 118.8 Balance sheet data30 $m Loans and advances to customers (net) Total assets Customer accounts 53...

Page 93
... operating income Total operating 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 3.4 77.1 Balance sheet data30 Loans and advances to customers (net) Total assets Customer accounts...

Page 94
Report of the Directors: Geographical regions (continued) Latin America Latin America Our operations in Latin America principally comprise HSBC Bank Brasil S.A.-Banco MÃºltiplo and HSBC MÃ©xico, S.A. In addition to banking services, we operate insurance 2015 Total Latin America $m Net interest ...

Page 95
... 52 (144) 525 560 Other $m (3) (4) (18) (55) (80) (22) (33) (20) (2) (77) (1) (11) 11 (85) (86) Total $m 317 5 32 (44) 310 384 (247) 51 28 408 351 117 1,096 1,972 HSBC HOLDINGS PLC 93 Shareholder Information Financial Statements Corporate Governance Financial Review 216 Strategic Report

Page 96
...the Directors: Geographical regions (continued) Latin America Profit/(loss) before tax and balance sheet data - Latin America 2015 Retail Banking Global and Wealth Commercial Banking and Management28 Banking28 Markets $m $m $m Global Private Banking $m Intersegment elimination44 $m Other $m Total...

Page 97
...) Total assets Customer accounts For footnotes, see page 99. $m 19,118 28,070 12,789 $m 10,642 55,827 8,219 $m 96 298 2,188 $m - 1,155 âˆ' (851) $m 43,122 115,354 48,588 13,266 30,855 25,392 HSBC HOLDINGS PLC 95 Shareholder Information Financial Statements Balance sheet data30 Corporate...

Page 98
.... This was partly offset by favourable market movements, principally in Europe, and from positive net new money in areas targeted for growth. Other FuM, of which the main element is a corporate trust business in Asia, decreased by 7% to $212bn, primarily due to net outflows. HSBC HOLDINGS PLC 96

Page 99
...HSBC Values and our required global conduct outcomes, and the Remuneration Committee, which HSBC HOLDINGS PLC 97 Shareholder Information Financial Statements Corporate Governance Financial Review Strategic Report Taxes paid by region and country Conduct-related matters Conduct-related costs...

Page 100
...since the Judicial Review ruling in the first half of 2011 totalled $4.7bn, of which $3.6bn had been paid as at 31 December 2015 (see Note 29 on the Financial Statements). To incorporate all of the operations over which we have financial (management) control, the calculated carbon dioxide emissions...

Page 101
... the assets and liabilities of subsidiaries and associates for the previous year-end at the rates of exchange applicable at the current year-end. Global businesses and geographical regions 28 In the first half of 2015, a portfolio of customers was transferred from CMB to RBWM in Latin America in...

Page 102
... the rates of exchange applicable for their respective period-ends, with the effects of currency translation reported separately. The main components of client assets were funds under management ($261bn at 31 December 2015) which were not reported on the Group's balance sheet, and customer deposits...

Page 103
...management Risk management of insurance operations Other material risks Reputational risk Fiduciary risk Pension risk Sustainability risk 1 Appendix to Risk - risk policies and practices. Page 101 101 102 104 105 108 App1 Managing risk Strategic Report Shareholder Information Financial Statements...

Page 104
... of our risk management policies resides with the RMM, the Risk Management Meeting of the Group Management Board ('GMB'). Day-to-day risk management activities are the responsibility of senior managers of individual businesses, supported by global functions as described under 'Three lines of defence...

Page 105
... management, measurement and control of risk by detailing the processes, governance and other features of how risk appetite is cascaded to drive day-to-day decision-making through policies, limits and the control framework. Risk appetite informs the strategic and financial planning process, defining...

Page 106
... responsibility for risk management in support of HSBC's global businesses and regions through its Risk subfunctions, which are independent from the sales and trading functions of the Group's businesses. This independence ensures the necessary balance in risk/return decisions. HSBC HOLDINGS PLC...

Page 107
... 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 (page 180). Market risk is: â€¢ measured in terms of value at risk, which is used to...

Page 108
Report of the Directors: Risk (continued) Managing risk Risks Operational risk (page 176) The risk of loss resulting from inadequate or failed internal processes, people and systems or from external events, including legal risk. Arising from Measurement, monitoring and management of risk ...

Page 109
... future service of active members, and the risk that the performance of assets held in pension funds is insufficient to cover existing pension liabilities. Arising from Measurement, monitoring and management of risk Strategic Report Shareholder Information Financial Statements Corporate Governance...

Page 110
... Account services Credit and lending Investment management Financial advisory Broking Corporate finance (via GB&M) Alternative investments Trusts and estate planning Insurance $bn 81 80 $bn 16 3 âˆ' HSBC holding company and central operations Balance sheet1 âˆ' Assets âˆ' Customer accounts...

Page 111
... to insurance claim rates and changes in insurance customer behaviour. â€¢ HSBC Holdings is a holding company and, as a result, is dependent on loan payments and dividends from its subsidiaries to meet its obligations, including obligations with respect to its debt securities, and to provide profits...

Page 112
... market currencies. Oil and gas prices fell further during 2015 and early 2016 as a result of continuing global supply and demand imbalances, raising the risk that any recovery in oil prices over the medium term will be even more gradual than currently expected. Although oil importers benefit...

Page 113
...Act, the EU's European Market Infrastructure Regulation ('EMIR') and similar local measures being progressed in Hong Kong, Singapore and Canada; HSBC HOLDINGS PLC 111 Shareholder Information Financial Statements Corporate Governance Financial Review Strategic Report â€¢ Physical conflicts or...

Page 114
... Effective Financial Markets Review undertaken by the Bank of England, which include changes to market conduct rules and forward looking supervision in the operation of wholesale financial markets in the UK; â€¢ continued focus in the UK and elsewhere on matters relating to management accountability...

Page 115
... the operating results, financial condition and prospects of the Group. Mitigating actions â€¢ We have taken a number of steps including introduction of new global policies, enhancement to the product governance processes, establishment of a global conduct programme and review of sale processes and...

Page 116
..., cyber attacks. â€¢ We have realigned the responsibilities and accountabilities for cyber and information risk management to align with the operational risk lines of defence operational model and instigated a number of security improvement programmes within IT. presents significant challenges for...

Page 117
... support of internal controls and external financial reporting. â€¢ A number of key initiatives and projects to implement our data strategy and work towards meeting our Basel Committee data obligations are in progress. HSBC HOLDINGS PLC 115 Shareholder Information Financial Statements Corporate...

Page 118
... policies and allegations of pressure selling in the UK, investigations in relation to conduct in the foreign exchange market, and benchmark interest rate and commodity price setting. Details of these investigations and legal proceedings may be found in Note 40 on the Financial Statements. The work...

Page 119
... mainland China's growth rate slows further. HSBC HOLDINGS PLC 117 Shareholder Information Financial Statements Corporate Governance Financial Review Strategic Report Other entities in the Group, including The Hongkong and Shanghai Banking Corporation Limited and HSBC Bank plc, continue to...

Page 120
... losses as a percentage of average gross loans and advances to customers by geographical region Movement in impairment allowances by industry sector and geographical region Movement in impairment allowances on loans and advances to customers and banks Total wholesale lending Commercial real estate...

Page 121
... and other structured products 1 Appendix to Risk - risk policies and practices. 152 152 152 153 203 HSBC HOLDINGS PLC 119 Shareholder Information Financial Statements Corporate Governance 150 150 151 Financial Review Total personal lending UK interest-only mortgage loans HSBC Finance US...

Page 122
... principally from direct lending, trade finance and leasing business, but also from other products such as guarantees and credit derivatives and from holding assets in the form of debt securities. There have been no material changes to the policies and practices for the management of credit risk...

Page 123
... value at 31 December 2015 of loans and advances to banks and customers classified as held for sale. 25% 2.9 2015 4.6 2014 6.6 2013 Personal 8.2 2012 9.8 2011 6.7 2015 7.8 2014 8.6 2013 Wholesale 8.0 2012 7.9 2011 HSBC HOLDINGS PLC 121 Shareholder Information 30% Financial Statements...

Page 124
... of the Directors: Risk (continued) Credit risk Gross loans and impairment allowances on loans and advances to customers and banks reported in 'Assets held for sale' (Audited) Brazil $m Gross loans Loans and advances to customers - personal - corporate and commercial Financial - non-bank financial...

Page 125
... wide range of issuers and geographical regions in 2015, with 14% invested in securities issued by banks and other financial institutions and 75% in government or HSBC HOLDINGS PLC 123 Shareholder Information 651,380 Financial Statements Corporate Governance Financial Review Strategic Report

Page 126
... sector and by geographical region (Audited) Europe $m Personal - first lien residential mortgages - other personal3 Wholesale Corporate and commercial - manufacturing - international trade and services - commercial real estate - other property-related - government - other commercial4 Financial...

Page 127
... and commercial - non-bank financial institutions Loans and advances to banks held at amortised cost Reverse repurchase agreements - non-trading Financial investments - treasury and other similar bills - debt securities Assets held for sale - disposal groups - non-current assets held for sale Other...

Page 128
... and commercial - non-bank financial institutions Loans and advances to banks held at amortised cost Reverse repurchase agreements - non-trading Financial investments - treasury and other similar bills - debt securities Assets held for sale - disposal groups - non-current assets held for sale Other...

Page 129
... region (Audited) Loans and advances to customers held at amortised cost - personal - corporate and commercial - non-bank financial institutions Assets held for sale - disposal group - non-current assets held for sale Other financial instruments At 31 December 2015 Loans and advances to customers...

Page 130
... when the bank considers that either the customer is unlikely to pay their credit obligations in full without recourse to security, or when the customer is more than 90 days past due on any material credit obligation to HSBC. â€¢ retail loans and advances classified as Expected Loss ('EL') 9 or...

Page 131
... the Group's holdings of renegotiated loans and advances to customers by industry sector, geography, credit quality classification and by arrangement type. HSBC HOLDINGS PLC 129 Shareholder Information The most significant portfolio of renegotiated loans remained in North America, substantially...

Page 132
... $1bn. Renegotiated loans in personal lending reduced by $3.6bn. Included within 'other' movements is $2.1bn of CML portfolio assets that were transferred to 'Assets held for sale'. Write-offs reduced as a result of improvements in US economic conditions and housing market. HSBC HOLDINGS PLC 130

Page 133
Movement in renegotiated loans and advances to customers by geographical region Strategic Report Shareholder Information Financial Statements Corporate Governance Financial Review Europe $m 7,811 1,929 5,469 413 1,970 471 1,494 5 222 57 156 9 (1,675) (574) (1,054) (47) (294) (45) (249) - (720) (79) ...

Page 134
... real estate and other property-related - other commercial4 Financial Total loan impairment charge for the year ended 31 December 2015 Personal - first lien residential mortgages - other personal3 Corporate and commercial - manufacturing and international trade and services - commercial real estate...

Page 135
...0.32 (0.09) 0.23 0.97 Latin America % 5.37 (0.50) 4.87 3.94 5.00 (0.72) 4.28 3.59 Total % 0.48 (0.09) 0.39 0.37 0.53 (0.10) 0.43 0.58 HSBC HOLDINGS PLC 133 Shareholder Information Financial Statements Corporate Governance Financial Review On a reported basis, loan impairment charges of $3.6bn...

Page 136
... residential mortgages - other personal3 Corporate and commercial - manufacturing and international trade and services - commercial real estate and other property-related - other commercial4 Financial Total recoveries of amounts written off in previous years Charge to income statement Exchange and...

Page 137
..., lending in Latin America increased by $0.6bn, mainly in Argentina. HSBC HOLDINGS PLC 135 Shareholder Information Financial Statements Corporate Governance Financial Review Strategic Report Banks individually assessed $m Customers Individually Collectively assessed assessed10...

Page 138
Report of the Directors: Risk (continued) Credit risk Total wholesale lending Europe $m Corporate and commercial (A) - manufacturing - international trade and services - commercial real estate - other property-related - government - other commercial4 Financial - non-bank financial institutions (B) ...

Page 139
... on a reported basis. HSBC HOLDINGS PLC 137 Shareholder Information Financial Statements In more developed markets, our exposure mainly comprises the financing of investment assets, the redevelopment of existing stock and the augmentation of both commercial and residential markets to support...

Page 140
Report of the Directors: Risk (continued) Credit risk Commercial real estate loans and advances maturity analysis Europe $m Asia $m 8,811 5,934 11,399 6,227 32,371 MENA $m 252 66 235 137 690 North America $m 2,992 939 2,037 1,064 7,032 Latin America $m 694 102 138 643 1,577 Total $m 19,579 11,408 ...

Page 141
... 132 150 81 243 145 153 Corporate Governance 1,032 555 Financial Review Rated CRR/EL 8 Not collateralised Fully collateralised LTV ratio: - less than 50% - 51% to 75% - 76% to 90% - 91% to 100% 28 668 86 377 174 31 Strategic Report Europe $m Asia $m MENA $m North America $m Latin America...

Page 142
...the Directors: Risk (continued) Credit risk Other corporate, commercial and financial (non-bank) loans are analysed separately below. For financing activities in other corporate and commercial lending, collateral value is not strongly correlated to principal repayment performance. Collateral values...

Page 143
... is taken into account when reporting the fair value of derivative positions. The adjustment to the fair value is known as the credit value adjustment ('CVA'). For an analysis of CVA, see Note 13 on the Financial Statements. â€¢ trading assets include loans and advances held with trading intent...

Page 144
... counterparties and netting agreements. Currently, we do not actively manage our general OTC derivative counterparty exposure in the credit markets, although we may manage individual exposures in certain circumstances. We place strict policy restrictions on collateral types and as a consequence the...

Page 145
... 0.8 HSBC HOLDINGS PLC 143 Shareholder Information Financial Statements Corporate Governance Asia $m MENA $m North America $m Latin America $m Total $m Financial Review Strategic Report See page 122 and Note 32 on the Financial Statements for details regarding legally enforceable right...

Page 146
... ratios are managed at regional and country levels and, although the parameters must comply with Group policy, strategy and risk appetite, they differ in the various locations in which we operate to reflect the local economic and housing market conditions, regulations, portfolio performance, pricing...

Page 147
... lending in France HSBC HOLDINGS PLC 145 Shareholder Information Financial Statements Corporate Governance Financial Review Strategic Report ($0.6bn). In Mexico, other unsecured personal lending grew by $0.6bn mainly in payroll and personal loans as a result of various sales and credit...

Page 148
... mortgages Second lien residential mortgages Credit card Personal non-credit card Total at 31 December 1,954 1,049 905 161 106 55 16 3 2,134 % 5.7 4.4 2.3 0.7 5.4 2014 $m 3,271 2,210 1,061 216 154 62 17 7 3,511 % 8.6 5.0 2.4 1.4 8.1 Gross loan portfolio of HSBC Finance real estate secured balances...

Page 149
... 123,782 Hong Kong $m 61,784 42,589 15,961 2,254 980 97 95 61,881 46 42 3 1 - - - 61,927 HSBC HOLDINGS PLC 147 Shareholder Information 46 Financial Statements Corporate Governance Financial Review HSBC Finance also offers a 're-age' renegotiation programme, which results in the resetting...

Page 150
... sector over five years Currency translation 2015 adjustment18 $m $m Personal - first lien residential mortgages - other personal3 Corporate and commercial - manufacturing - international trade and services - commercial real estate - other property-related - government - other commercial4 Financial...

Page 151
... and constant currency impaired loans, allowances and charges by geographical region Strategic Report Shareholder Information Financial Statements Corporate Governance Financial Review 31 December 2014 at 31 December 2015 exchange rates $m 9,494 1,930 1,962 11,623 2,452 27,461 4,091 1,292 1,395...

Page 152
Report of the Directors: Risk (continued) Credit risk Loan impairment charges by industry sector over five years 2015 $m Loan impairment charge/(release) Personal Corporate and commercial Financial Year ended 31 ...1,175 242 9 11,505 (3,056) 17,636 6,662 10,974 17,636 % 1.2 HSBC HOLDINGS PLC 150

Page 153
Gross loans and advances to customers by country First lien residential mortgages $m Europe UK France Germany Switzerland Other Asia Hong Kong Australia India Indonesia Mainland China Malaysia Singapore Taiwan Other Middle East and North Africa (excluding Saudi Arabia) Egypt UAE Other North America ...

Page 154
... management of credit risks worldwide. HSBC Holdings' maximum exposure to credit risk at 31 December 2015 is shown below. Its financial assets principally represent claims on Group subsidiaries in Europe and North America. All the derivative transactions are with HSBC undertakings that are banking...

Page 155
...holdings of ABSs Strategic Report Shareholder Information HSBC HOLDINGS PLC Trading $m Mortgage-related assets: Sub-prime residential US Alt-A residential US Government agency and sponsored enterprises: MBSs Other residential Commercial property Leveraged finance-related assets Student loan-related...

Page 156
... of financial liabilities Management of cross-currency liquidity and funding risk HSBC Holdings 1 Appendix to Risk - risk policies and practices. 207 207 207 159 159 208 160 162 The Group's contractual undrawn exposures monitored under the contingent liquidity risk limit structure Funding sources...

Page 157
... PLC 155 Shareholder Information Financial Statements Corporate Governance Financial Review Strategic Report HSBC USA recorded a decrease in its ACF ratio to 89% at 31 December 2015 (2014: 100%), mainly because of growth in core funding, which was partially offset by higher loans to customers...

Page 158
... Bank HSBC Canada22 HSBC Bank China For footnotes, see page 191. 19 At 31 December 2015, all the Group's operating entities were individually within the risk tolerance level established by the Board and applicable under the new internal framework which took effect from 1 January 2016. Management...

Page 159
... USA21 Year-end Maximum Minimum Average Total of HSBC's other principal entities24 Year-end Maximum Minimum Average For footnotes, see page 191. 101 101 96 98 97 102 97 100 Stressed coverage ratios Strategic Report Shareholder Information Financial Statements Corporate Governance Financial Review...

Page 160
...the level of liquid assets. Outflows included in the denominator of the stressed coverage ratios include the principal outflows associated with the contractual maturity of wholesale debt securities reported in the table headed 'Wholesale funding cash flows payable by HSBC under financial liabilities...

Page 161
.... The consolidated securities investment conduits include Solitaire Funding Limited ('Solitaire') and Mazarin Funding Limited ('Mazarin'). They issue asset-backed commercial paper secured against the portfolio of securities held by them. At 31 December 2015, the HSBC UK liquidity group had undrawn...

Page 162
...fair value Liabilities under insurance contracts Trading liabilities - repos - stock lending - settlement accounts - other trading liabilities Total equity At 31 December Uses Loans and advances to customers Loans and advances to banks Repurchase agreements - non-trading Assets held for sale Trading...

Page 163
... issued - unsecured CDs and CP - unsecured senior MTNs - unsecured senior structured notes - secured covered bonds - secured asset-backed commercial paper - secured ABS - others Subordinated liabilities - subordinated debt securities - preferred securities At 31 December 2014 HSBC HOLDINGS PLC...

Page 164
Report of the Directors: Risk (continued) Liquidity and funding Wholesale term debt maturity profile The maturity profile of our wholesale term debt obligations is set out in the table on page 161, 'Wholesale funding principal cash flows payable by HSBC under financial liabilities by remaining ...

Page 165
...and advances to banks and customers Derivatives Loans and advances to banks Loans and advances to customers Reverse repurchase agreements - non-trading Financial investments - Treasury and other eligible bills - Debt securities - Equity securities Prepayments, accrued income and other assets Current...

Page 166
... 2015 Deposits by banks Customer accounts Repurchase agreements - non-trading Trading liabilities Financial liabilities designated at fair value Derivatives Debt securities in issue Subordinated liabilities Other financial liabilities Loan and other credit-related commitments Financial guarantees...

Page 167
... risk related to these cash flows is managed by matching external debt obligations with internal loan cash flows and by maintaining an appropriate liquidity buffer that is monitored by HALCO. At 31 December 2015, the Group had new issuance of $6.8bn of CRD IV compliant non-common equity capital...

Page 168
... Defined benefit pension schemes Additional market risk measures applicable only to the parent company Foreign exchange risk Sensitivity of net interest income Interest rate repricing gap table 1 Appendix to Risk - risk policies and practices. App1 211 211 Tables Types of risk by global business...

Page 169
... 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 180). Monitoring and limiting market risk exposures Our objective is to manage and control market risk exposures...

Page 170
... its effect on global markets. There was no evidence of model errors or control failures. The graph below shows the daily trading VaR against hypothetical profit and loss for the Group during 2015. The back-testing result excludes exceptions due from changes in fair value adjustments. Back-testing...

Page 171
...10.7 HSBC HOLDINGS PLC 169 Shareholder Information Financial Statements Corporate Governance Portfolio diversification Financial Review 160 Strategic Report Non-trading VaR also includes the interest rate risk of non-trading financial instruments held in portfolios managed by Balance Sheet...

Page 172
... Loans and advances to customers Reverse repurchase agreements - non-trading Financial investments Liabilities Deposits by banks Customer accounts Repurchase agreements - non-trading Trading liabilities Financial liabilities designated at fair value Derivatives Debt securities in issue Balances...

Page 173
...relate to interest rate and foreign exchange risks. Loans and advances to customers The primary risk on assets within loans and advances to customers is the credit risk of the borrower. The risk of these assets is treated as non-trading risk for market risk management purposes. Financial investments...

Page 174
... in the global businesses is reported to ALCO. This risk is not reflected in non-trading VaR, but is captured by our net interest income or EVE sensitivity. A typical example would be a managed rate savings product transfer-priced using a Libor-based interest rate curve; and â€¢ model risks which...

Page 175
..., using a 99% confidence level and an assumed holding period of one quarter. At December 2015, the stressed VaR of the portfolio was $2.8bn. Financial Review US dollar bloc $m Rest of Hong Kong Americas dollar bloc bloc $m $m Rest of Asia bloc $m Sterling bloc $m Euro bloc $m Strategic Report

Page 176
...(2014: decrease of $539m). Additional market risk measures applicable only to the parent company 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...

Page 177
... rate risk on the fixed-rate securities issued by HSBC Holdings is not included within the Group VaR but is Repricing gap analysis of HSBC Holdings Total $m Cash at bank and in hand: - balances with HSBC undertakings Derivatives Loans and advances to HSBC undertakings Financial investments in HSBC...

Page 178
... 178 Operational risk is the risk to achieving our strategy or objectives as a result of inadequate or failed internal processes, people and systems or from external events. Responsibility for minimising operational risk lies with HSBC's management and staff. All regional, global business, country...

Page 179
... our risk appetite; HSBC HOLDINGS PLC 177 Shareholder Information Financial Statements Corporate Governance Financial Review â€¢ information security: the security of our information and technology infrastructure is crucial for maintaining our banking services and protecting our customers and...

Page 180
... of applicable anti-bribery legislation in all markets and jurisdictions in which we operate. We have implemented a strategic programme to address bribery and corruption risks and are embedding a new global suite of policies that make it clear to all staff that Group members, employees or other...

Page 181
...HSBC HOLDINGS PLC 179 Shareholder Information Financial Statements Corporate Governance Financial Review To make whistleblowing simpler for our employees, we launched HSBC Confidential across the Group in August 2015 to provide a global platform offering telephone, email, web and mail options...

Page 182
... our point-of-sale contacts and customer knowledge. The majority of sales are of savings and investment products and term and credit life contracts. By focusing largely on personal and SME lines of business we are able to optimise volumes and diversify individual insurance risks. HSBC HOLDINGS PLC...

Page 183
... the planned disposal of our operations in Brazil. structured to support these projected liabilities, with limits set to control the duration mismatch. Strategic Report Shareholder Information Financial Statements Corporate Governance Financial Review The tables below show the composition of assets...

Page 184
Report of the Directors: Risk (continued) Risk management of insurance operations Balance sheet of insurance manufacturing subsidiaries by type of contract (continued) Insurance contracts Investment contracts Other assets and liabilities37 $m 5,732 - 1,713 73 2,494 1,318 134 2 5,307 7,383 18,424 - ...

Page 185
... such as interest rates, credit spreads, foreign exchange rates and equity prices; â€¢ credit risk - the risk of financial loss following the failure of third parties to meet their obligations; and 183 Corporate Governance Total equity 2015 $m 2014 $m Financial Review Strategic Report 84,941...

Page 186
...and maturities give rise to interest rate risk. The proceeds from insurance and investment products are primarily invested in bonds. A proportion is also allocated to other asset classes, such as equities, property, private equity and hedge funds to provide customers with the HSBC HOLDINGS PLC 184

Page 187
...was a closed portfolio in Hong Kong with a guaranteed rate of 5.0% compared with the current yield of 4.1%. Strategic Report Shareholder Information Financial Statements Corporate Governance Financial Review 2015 Investment returns implied by guarantee % Capital Nominal annual return Nominal annual...

Page 188
Report of the Directors: Risk (continued) Risk management of insurance operations included in the table are invested in investments rated as 'strong'. For a definition of the five credit quality classifications, see page 197. Treasury bills, other eligible bills and debt securities in HSBC's ...

Page 189
... values of their policies. These may be significantly lower than the amounts shown. HSBC HOLDINGS PLC 187 Shareholder Information 1,298 151 133 194 766 25,068 - - - - 3,765 389 - - - 30,131 540 133 194 766 Financial Statements Liabilities under investment contracts issued by insurance...

Page 190
Report of the Directors: Risk (continued) Risk management of insurance operations / Other material risks Insurance risk Insurance risk is the risk, other than financial risk, of loss transferred from the holder of the insurance contract to the issuer (i.e. HSBC). It is principally measured in terms...

Page 191
...reduce the level of interest rate risk and inflation risk (see Note 41 in the Financial Statements). The target asset allocation of the principal plan at the yearend is shown in the table below. The principal plan - target asset allocation 2015 % Equities54 Bonds Alternative assets55 Property Cash56...

Page 192
... by the Consumer Price Index ('CPI'), while members are still employees of the bank. To support the establishment of the ServCo group and to ensure that employees transferred retained existing pension benefits, a new section of the principal plan was created with segregated assets and liabilities...

Page 193
... associates for the previous year at the average rates of exchange applicable in the current year. Liquidity and funding 19 The HSBC UK Liquidity Group shown comprises four legal entities; HSBC Bank plc (including all overseas branches, and SPEs consolidated by HSBC Bank plc for Financial Statement...

Page 194
...liabilities under investment contracts. 38 Financial investments held to maturity (HTM) and available for sale (AFS). 39 Comprise mainly loans and advances to banks, cash and intercompany balances with other non-insurance legal entities. 40 Present value of in-force long-term insurance contracts and...

Page 195
... to the HSBC Values HSBC HOLDINGS PLC 193 Shareholder Information Conduct & Values Committee Independent non-executive Directors â€¢ Ensuring that in the conduct of its business, HSBC treats all stakeholders fairly Financial Statements Corporate Governance Financial Review Strategic Report...

Page 196
... the Group Global Risk Management Board Group Chief Risk Officer Chief Risk Officers of HSBC's global businesses and regions Heads of Global Risk sub-functions â€¢ Supporting the RMM and the Group Chief Risk Officer in providing strategic direction for the Global Risk function, setting priorities...

Page 197
... earning streams, delivering consistent returns for shareholders; Strategic Report Shareholder Information Financial Statements Corporate Governance Financial Review â€¢ Reputation risk: we tolerate a limited degree of reputational risk arising from business activities or associations where the risk...

Page 198
... businesses, risk is assessed and managed using a wide range of risk and pricing models to generate portfolio data. Our risk rating system facilitates the internal ratings-based approach under the Basel framework adopted by the Group to support calculation of our minimum credit regulatory capital...

Page 199
... regarding their ability to meet contractual payments, and the loan will be disclosed as impaired, unless the concession granted is insignificant as discussed below. HSBC HOLDINGS PLC 197 Shareholder Information Financial Statements Corporate Governance Financial Review Strategic Report

Page 200
... from an exchange as a result of trading or financial difficulties; â€¢ based on estimates and projections that only encompass current business capabilities, the Group forecasts that the debtor's entity-specific cash flows will be insufficient to service the debt (both interest and principal) in...

Page 201
... the HSBC HOLDINGS PLC 199 Shareholder Information â€¢ the customer is experiencing, or is very likely to experience, difficulty in meeting a payment obligation to the Group (i.e. due to current credit distress); and Financial Statements For retail lending, renegotiated loans are segregated...

Page 202
... any of the customer's credit facilities. The period of performance will vary depending on the underlying structure of payments to be made by the customer under the amended agreement and the extent to which the customer's financial position is considered to have improved. HSBC HOLDINGS PLC 200

Page 203
... the market. The emergence period is assessed empirically on a periodic basis and may vary over time as these factors change. Write-off of loans and advances (Audited) For details of our policy on the write-off of loans and advances, see Note 1j on the Financial Statements. Shareholder Information...

Page 204
...available to the ABS. Loan management unit The HSBC Loan Management Unit ('LMU') is a front line customer contact department within Wholesale Credit and Market Risk that assumes responsibility for managing business customer relationships requiring intensive and close control where the bank's lending...

Page 205
... to commercial property mortgages, leveraged finance loans, student loans, and other assets such as securities with other receivable-related collateral. Definitions and classifications of ABSs and CDOs Categories of ABSs and CDOs Sub-prime Definition Loans to customers who have limited credit...

Page 206
... of our Asset, Liability and Capital Management ('ALCM') structure, we have established ALCOs at Group level, in the regions and in operating entities. The terms of reference of all ALCOs include the monitoring and control of liquidity and funding. The primary responsibility for managing liquidity...

Page 207
... on the operating entity's inherent liquidity risk categorisation; HSBC HOLDINGS PLC 205 Shareholder Information Financial Statements Compliance with operating entity limits is monitored by ALCM teams and reported monthly to the RMM for the main operating entities and to regional ALCOs for...

Page 208
... Group's liquid asset policy sets out the following additional criteria: 1. Central bank and central government exposures: â€¢ denominated in the domestic currency of the related sovereign and held: - onshore in the domestic banking system, qualify as Level 1 liquid assets. HSBC HOLDINGS PLC 206

Page 209
...under the Basel standardised risk weighting methodology to qualify as Level 1 liquid assets. Strategic Report Shareholder Information Financial Statements Corporate Governance Financial Review â€¢ denominated in a currency other than the currency of the related sovereign (i.e. foreign currency) must...

Page 210
...transfer pricing policy seeks to ensure that all market interest rate risk arising structurally from nontrading (banking book) assets and liabilities which is capable of being neutralised externally in the market or neutralised internally by off-setting transfers, is transferred to BSM to be managed...

Page 211
.... As a result, we have reported the majority of our loans and advances to customers and banks in the category 'Other realisable assets' as management would need to perform additional actions in order to make the assets transferable and readily realisable. HSBC HOLDINGS PLC 209 Strategic Report

Page 212
... level. The ability of subsidiaries to pay dividends or advance monies to HSBC Holdings depends on, among other things, their respective local regulatory capital and banking requirements, exchange controls, statutory reserves, and financial and operating performance. During 2015, none of the Group...

Page 213
... MOC. Financial Statements Corporate Governance Market risk is managed and controlled through limits approved by the RMM for HSBC Holdings and our various global businesses. These limits are allocated across business lines and to the Group's legal entities. Financial Review Strategic Report

Page 214
... rates and equity prices, such as the effect of a one basis point change in yield. We use sensitivity measures to monitor the market risk positions within each risk type. Sensitivity limits are set for portfolios, products and risk types, with the depth of the market being one of the principal...

Page 215
... Rule. HSBC HOLDINGS PLC 213 Corporate Governance Financial Review The fair values of Level 3 assets and liabilities in trading portfolios are disclosed on page 382, and represent only a small proportion of the overall trading portfolio. Market risk arising from Level 3 instruments is managed...

Page 216
... rate risk in the banking book is described further in 'Non-trading interest rate risk' below, including the role of BSM. Non-trading VaR excludes equity risk on available-for-sale securities, structural foreign exchange risk, and interest rate risk on fixed-rate securities issued by HSBC Holdings...

Page 217
... balances can be behaviouralised is driven by: â€¢ the amount of the current balance that can be assessed as 'stable' under business-as-usual conditions; and â€¢ for managed rate balances, the historical market interest rate re-pricing behaviour observed; or HSBC HOLDINGS PLC 215 Strategic Report

Page 218
.... HSBC Holdings As a financial services holding company, HSBC Holdings has limited market risk activity. Its activities predominantly involve maintaining sufficient capital resources to support the Group's diverse activities; allocating these capital resources across our businesses; earning dividend...

Page 219
...trading interest rate risk and foreign currency risk. Exposure to these risks arises from short-term cash balances, funding positions held, loans to subsidiaries, investments in long-term financial assets and financial liabilities including debt capital issued. The objective of HSBC Holdings' market...

Page 220
..., North America, Latin America, the Middle East and North Africa and Asia headed by Regional General Counsels, and a Global General Counsel responsible for each of the global businesses. Global security and fraud risk Security and fraud risk issues are managed at Group level by Global Security and...

Page 221
...management processes. The following sections describe how financial risks and insurance risk are managed. HSBC HOLDINGS PLC 219 Shareholder Information Financial Statements Corporate Governance Financial Review Strategic Report continuity teams. It is important that plans are dynamic and meet...

Page 222
... type, quality and concentration of assets that these subsidiaries must maintain to meet insurance liabilities. These requirements complement Group-wide policies. Market risk (Audited) HSBC Holdings Board General measures Market risk is managed through limits approved by the RMM for HSBC Holdings...

Page 223
... the sale of the associated supporting assets, the subsidiary is exposed to market risk. In particular, when customers seek to surrender their policies when asset values are falling, assets may have to be sold at a loss to fund redemptions. A subsidiary holding a portfolio of long-term insurance and...

Page 224
... asset and expected liability cash flows, in total and by currency, to a one basis point parallel shift in the discount curves used to calculate the net present values; â€¢ for equity price risk, the total market value of equity holdings and the market value of equity holdings by region and country...

Page 225
... cost of claims and benefits can be influenced by many factors, including mortality and morbidity experience, lapse and surrender rates. Insurance risks are controlled by high-level policies and procedures set both centrally and locally, taking into account where appropriate local market conditions...

Page 226
..., human rights matters and employee relations. The policy manuals address risk issues in detail and co-operation between Group departments and businesses is required to ensure a strong adherence to our risk management system and our sustainability practices. Fiduciary risk Business activities in...

Page 227
...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 plan. Financial Statements Shareholder Information Corporate Governance HSBC HOLDINGS PLC 225 Financial Review Strategic Report We operate a number...

Page 228
... risks are assessed to be high; and supporting our operating companies to assess similar risks of a lower magnitude; â€¢ building and implementing systems-based processes to ensure consistent application of policies, reduce the costs of sustainability risk reviews and capture management information...

Page 229
... Structural reform and recovery and resolution planning 1 Appendix to Capital. 236 236 239 239 239 241 241 241 242 242 236 239 240 HSBC HOLDINGS PLC 227 Shareholder Information Financial Statements Corporate Governance RWAs by risk type RWAs by global businesses RWAs by geographical regions...

Page 230
... / 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 and stress testing related requirements. Capital highlights â€¢ Our end point common equity tier 1 ('CET1') ratio of 11.9% was up from 11...

Page 231
... customers, principally in Europe, North America and Asia, $23bn; â€¢ our associates, Bank of Communications and The Saudi British Bank, $14bn; and â€¢ GB&M, from higher general lending to corporates which increased RWAs by $10bn, mainly in Europe. Risk-weighted assets RWAs by risk type 2015...

Page 232
... key driver - credit risk - IRB only6 Europe $bn RWAs at 1 January 2015 Foreign exchange movement Acquisitions and disposals Book size Book quality Model updates - portfolios moving onto IRB approach - new/updated models Methodology and policy - internal updates - external updates - regulatory Total...

Page 233
... RWA calculation on defaulted exposures in RBWM increasing RWAs by $2.0bn, the implementation of a risk-weight floor on mortgages in Hong Kong with an RWA impact of $2.0bn, Shareholder Information HSBC HOLDINGS PLC 231 Financial Statements Corporate Governance Financial Review Strategic Report

Page 234
... exchange derivatives, trade compression and portfolio management activities. Further reductions in 'Methodology and policy' were mainly driven by savings from RWA initiatives. Market risk RWAs Counterparty credit risk and market risk RWAs Counterparty credit risk RWAs 2015 $bn Advanced approach...

Page 235
...unrealised gains in available-for-sale debt and equities Opening common equity tier 1 capital on an end point basis1 Contribution to common equity tier 1 capital from profit for the period - consolidated profits attributable to shareholders of the parent company - removal of own credit spread net of...

Page 236
... in own shares through the holding of composite products of which HSBC is a component (exchange traded funds, derivatives and index stock) - negative amounts resulting from the calculation of expected loss amounts Common equity tier 1 capital on an end point basis Tier 1 and tier 2 capital on...

Page 237
... to make use of these transitional provisions. From 1 January 2015, unrealised gains on investment property and available-for-sale securities were recognised in CET1 capital. As a result our end point and transitional CET1 capital and ratios are now aligned. For additional tier 1 and tier 2 capital...

Page 238
... in associates and joint ventures of which: - positive goodwill on acquisition Goodwill and intangible assets Deferred tax assets Total assets at 31 December 2015 Liabilities and equity Hong Kong currency notes in circulation Deposits by banks Customer accounts Repurchase agreements - non-trading...

Page 239
...in tier 2 capital Total liabilities and equity at 31 December 2015 Assets Cash and balances at central banks Items in the course of collection from other banks Hong Kong Government certificates of indebtedness Trading assets Financial assets designated at fair value Derivatives Loans and advances to...

Page 240
... to other banks Trading liabilities Financial liabilities designated at fair value of which: - term subordinated debt included in tier 2 capital - hybrid capital securities included in tier 1 capital Derivatives Debt securities in issue Current tax liabilities Liabilities under insurance contracts...

Page 241
... and current ICG, the overall capital requirements applicable to the Group on an end-point basis (at 1 January 2019) are presented in the table below. HSBC HOLDINGS PLC 239 Shareholder Information Financial Statements banks. This set out the FPC's final expectations in relation to the levels of...

Page 242
.... The Pillar 2A requirement is a point in time assessment of the amount of capital the PRA considers that a bank should hold to meet the overall financial adequacy rule. It is therefore subject to change as part of the PRA's supervisory review process. In November 2015, our Pillar 2A requirement was...

Page 243
... the end of 2016. All of the Basel Committee's consultations will need to be transposed into EU law before coming into effect. This includes the finalised changes that relate to the counterparty risk and securitisation regimes. Strategic Report Shareholder Information Financial Statements Corporate...

Page 244
...companies ('ServCo group'). During 2015, more than 18,000 employees performing shared services in the UK were transferred to the ServCo group. Further transfers of employees, critical shared services and assets in the UK, Hong Kong and other jurisdictions will occur in due course. HSBC HOLDINGS PLC...

Page 245
...Group companies. This comprises common equity tier 1, additional tier 1 and tier 2 capital. Our assessment of capital adequacy is aligned to our assessment of risks, including: credit, market, operational, interest rate risk in the banking book, pensions, insurance, structural foreign exchange risk...

Page 246
... loss amounts under IRB, holdings of capital securities of financial sector entities and surplus defined benefit pension fund assets. â€¢ Additional tier 1 capital comprises eligible non-common equity capital securities and any related share premium; it also includes qualifying securities issued...

Page 247
...carry out internal stress testing of our base capital plan where both the PRA released stress scenario and concurrent scenario in the context of our business and HSBC HOLDINGS PLC 245 Shareholder Information Financial Statements Corporate Governance Financial Review Strategic Report to rated...

Page 248
...related to market discipline and aims to make firms more transparent by requiring publication, at least annually, of wide-ranging information on their risks, capital and management. Our Pillar 3 Disclosures 2015 are published on our website, www.hsbc.com, under Investor Relations. HSBC HOLDINGS PLC...

Page 249
... notes Credit risk drivers - definitions and quantification Strategic Report Shareholder Information Financial Statements Corporate Governance Financial Review The causal analysis of RWA movements splits the total movement in IRB RWAs into six drivers, described below. The first four relate...

Page 250
... represents RWA movements resulting from changes in the underlying credit quality of customers. These are caused by changes to IRB risk parameters which arise from actions such as, but not limited to, model recalibration, change in counterparty external rating, or the influence of new lending on the...

Page 251
... the boards of HSBC and BP plc and his time as a partner of KPMG. He has considerable knowledge of finance and risk management in banking, multinational financial reporting, treasury and securities trading operations and has chaired and been a member of highly influential bodies which set standards...

Page 252
...executive director of HSBC North America Holdings Inc., HSBC Bank USA N.A., HSBC Finance Corporation and HSBC USA Inc. He is also Chairman of Skyonic Corporation. Skills and experience: Laura has extensive regulatory and policy making experience in the finance and securities sector in Hong Kong and...

Page 253
..., New York and London. He is a former Chief Executive Officer of Allianz Global Investors AG and is a member of the management board of Allianz SE. He spent 14 years with Citigroup Inc., holding positions in Trading and Project Finance and as Head of Capital Markets for Europe, North America and...

Page 254
... Holdings Limited. She is also a non-executive director and chairman of the corporate responsibility committee of Serco Group plc. Skills and experience: Irene has over 30 years of finance industry experience. She has held senior positions in investment banking and fund management in the UK, USA...

Page 255
...Limited, Troy Asset Management and is a director of Immodulon Therapeutics Limited. Member of the Group Remuneration Committee. Skills and experience: Paul has extensive international business experience gained as Group Chief Executive of Diageo plc for 12 years, having originally joined the Board...

Page 256
... AG. Patrick Burke, 54 President and Chief Executive of HSBC US Patrick joined HSBC in 1989 and became a Group Managing Director on 1 August 2015. He is Chairman of HSBC Bank USA, N.A., HSBC Finance Corporation, HSBC USA Inc. and HSBC Global Asset Management (USA) Inc. HSBC HOLDINGS PLC 254

Page 257
..., 52 Group Head of Internal Audit Deputy Chairman and Chief Executive, The Hongkong and Shanghai Banking Corporation Limited Stuart Levey, 52 Chief Legal Officer HSBC HOLDINGS PLC 255 Shareholder Information Financial Statements Stuart joined HSBC and became a Group Managing Director in 2012...

Page 258
... www.hsbc.com/abouthsbc/corporate-governance/board-committees. Their key responsibilities are set out below. _____ 1 The Group Risk Committee is responsible for the oversight of internal control (other than internal control over financial reporting) and risk management systems (Hong Kong Corporate...

Page 259
... and controlling operations, 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. Board meetings Seven Board meetings and...

Page 260
Report of the Directors: Corporate Governance (continued) Board of Directors 2015 Board and committee attendance Financial Group System Group Risk Remuneration Nomination Vulnerabilities Committee Committee Committee Committee 10 10 5 7 Philanthropic & Community Conduct & Investment Values ...

Page 261
... of training and development undertaken by each Director during 2015. Corporate Governance Financial Review Strategic Report In accordance with the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited, each non-executive Director determined by the Board to be...

Page 262
... presented a new technology strategy in 2015. Preparations for the Senior Managers' Regime have become a regular Board agenda item. Meetings held with regulators, Board members and shareholders during the period. Allocating time in Board meetings to address the transition processes relating to the...

Page 263
... hold regular meetings with institutional investors. The Board receives a regular investor relations activity report which provides feedback from meetings with institutional shareholders and brokers, analysts' forecasts, information from research reports and share price performance data. The Board...

Page 264
... HSBC Holdings plc Board of Directors Group Risk Committee Non-executive responsibility for high level risk-related matters and risk governance. Group Audit Committee Non-executive responsibility for matters relating to financial reporting and internal controls over financial reporting. Group...

Page 265
... the heading 'Internal Control'. HSBC HOLDINGS PLC 263 Shareholder Information Financial Statements Corporate Governance Financial Review The annual forum for the chairs of the major subsidiary audit and risk committees was held in June 2015 which resulted in an enhanced reporting protocol...

Page 266
...Company Secretary, Chief Operating â€¢ Assisting the Group Chief Executive and Group Finance Officer, Head of Investor Relations, Head of Director to discharge their obligations relating to financial Communications and Head of Strategy and reporting under the Securities Exchange Act of 1934 Planning...

Page 267
... UK customer remediation Bank of Communications Co., Limited ('BoCom') impairment testing Recognition of deferred tax assets HSBC HOLDINGS PLC 265 Shareholder Information Goodwill impairment testing Financial Statements Corporate Governance Quarterly and annual reporting Financial Review...

Page 268
... and global businesses' audit and risk committees was held in June 2015 which resulted in an enhanced reporting protocol, providing clearer lines of accountability at Group, regional, country and business line levels. The operation of this enhanced protocol will be closely monitored during the year...

Page 269
...the course of 2016. Execution risk Legal and regulatory risks IT and data-related risks HSBC HOLDINGS PLC 267 Shareholder Information Financial Statements Corporate Governance Financial Review internal financial control systems, which covered by the GAC) and the developments affecting them...

Page 270
... developments in the information security environment and the sanctions control framework in the light of heightened geopolitical risk. During 2015, the FSVC has taken a more holistic approach to identifying potential financial crime compliance ('FCC') issues. The heads of business units and country...

Page 271
...information security issues. Compliance resourcing Sanctions Technology and data systems Reporting Global Standards Cyber/Information security Reports from adviser members HSBC HOLDINGS PLC 269 Shareholder Information Financial Statements Corporate Governance Financial Review Strategic...

Page 272
...succession planning process for non-executive Director appointments. HSBC has been active in promoting gender diversity, such that women currently make up 33% of the Board although the Committee will continue to focus on initiatives towards achieving a greater gender balance, both at Board level and...

Page 273
...is set out in the table on page 258. Principal activities and significant issues considered Appointments of new Directors The Chairman reports matters of significance to the Board after each meeting. Strategic Report Shareholder Information Financial Statements Corporate Governance Financial Review...

Page 274
... with HSBC's values. In this, the second year of its operation, the Committee has focused particularly on the implementation of the Group's global programme for ensuring that it delivers fair outcomes for customers and upholds market integrity, as the basis for the long-term success of its business...

Page 275
... results of the Group People Survey conducted during 2015. Areas requiring attention were highlighted and the Committee requested that management provide regular updates on plans to address these. Employee engagement HSBC HOLDINGS PLC 273 Shareholder Information Financial Statements Corporate...

Page 276
...process following up on these decisions. The PCIOC received reports from the Global Sustainability function regarding the annual community investment budget and how it is decided, and endorsed the 2016 budget put forward by management. As a result of the 150th Anniversary Fund, the Group's community...

Page 277
... HSBC and accord with the Financial Reporting Council's guidance for directors issued in 2014, internal control and related financial and business reporting. Our procedures have been in place throughout the year and up to 22 February 2016, the date of approval of the Annual Report and Accounts 2015...

Page 278
...business and operational risk assessments; â€¢ regular reports from the Group Chief Risk Officer and the Group Head of Internal Audit; â€¢ reports on the annual reviews of the risk control framework of HSBC Holdings which cover all internal controls, both financial and non-financial; â€¢ half yearly...

Page 279
... and the actions proposed by management to address the issue. assessed the effectiveness of relevant IT, business, monitoring and period-end mitigating controls. Strategic Report Shareholder Information Financial Statements Corporate Governance Financial Review Going concern and viability The...

Page 280
... consolidated income statement and the consolidated balance sheet, is provided in the 'Financial Review'; â€¢ HSBC's objectives, policies and processes for managing credit, liquidity and market risk are described under 'Risk'; and â€¢ the capital position of the Group, regulatory developments, and...

Page 281
....hsbc.com/investor-relations/governance/ share-plans and on the website of The Stock Exchange 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...

Page 282
...to Corporate Governance HSBC Holdings All-employee Share Option Plans Dates of awards from Exercise price from to Exercisable from 1 Aug 2014 At 1 Jan 2015 HSBC Holdings ordinary shares Granted Exercised Lapsed during year during year during year At 31 Dec 2015 to to Savings-Related Share Option...

Page 283
..., under the heading 'Dividends and shareholders' and in Note 9 to the Financial Statements. Share capital changes in 2015 The following events occurred during the year in relation to the ordinary share capital of HSBC Holdings: Scrip dividends HSBC Holdings ordinary shares issued on number 30 April...

Page 284
... are exchanged for ordinary shares in HSBC Holdings in prescribed circumstances. Further details about the issue of contingent convertible securities may be found in Note 35 on the Financial Statements. Other than as disclosed in the table above headed 'Share capital changes in 2015', the Directors...

Page 285
...December 2015 were $46,591m. Shareholder Information HSBC HOLDINGS PLC 283 Financial Statements Corporate Governance 1 Executive Directors' other interests in HSBC Holdings ordinary shares arising from the HSBC Holdings savings-related share option plans and the HSBC Share Plan 2011 are set out...

Page 286
... Hong Kong Limited at least 25% of the total issued share capital has been held by the public at all times during 2015 and up to the date of this report. Dealings in HSBC Holdings listed securities Except for dealings as intermediaries by subsidiaries of HSBC Holdings plc, neither HSBC Holdings plc...

Page 287
... equity (%) 2015 2014 2013 7.2 7.3 9.2 Adjusted profit before tax ($bn) RBWM CMB GB&M GPB Other (3.9) 0.5 6.8 8.2 HSBC HOLDINGS PLC 285 Shareholder Information 8.7 Financial Statements Corporate Governance Financial Review Strategic Report Directors' Remuneration Page Report App1 Annual...

Page 288
... were a number of actions taken, to reduce variable pay proposed for 2015 for Group employees by $11m, including members of senior management on account of certain notable events that took place in the period. The Group's policy is for the vast majority of post-tax profits to be allocated to capital...

Page 289
... for the resolution. Strategic Report Shareholder Information HSBC HOLDINGS PLC 4,171 1,187 588 588 605 Group CEO Group Finance Director Group CRO New remuneration policy for 2016 We will be seeking approval for a new remuneration policy at the AGM on 22 April 2016. The policy on pages 288 to...

Page 290
... shareholders. â€¢ We also took on board views expressed by our shareholders on our remuneration policy at previous annual general meetings. We have changed our approach on the provision of cash in lieu of pension and long-term incentive awards as a result. INTERNAL FACTORS HSBC HOLDINGS PLC 288

Page 291
Remuneration policy - executive Directors Our remuneration policy supports the achievement of our strategic objectives through balancing reward for both short-term and long-term sustainable performance. Our strategy is designed to reward success, and to align employees' remuneration with our Values ...

Page 292
...number of shares to be awarded may be based on a share price discounted based on a historical dividend yield. The maximum opportunity for annual incentive award is up to 215% of base salary. The Committee will assess and judge performance against the targets set to determine the level of achievement...

Page 293
... and long-term alignment with shareholder interests. Operation Maximum opportunity Performance metrics HSBC HOLDINGS PLC 291 Shareholder Information Financial Statements Awards are discretionary and are awarded in shares under the HSBC Share Plan 2011, subject to a forward-looking three-year...

Page 294
... years towards the grant of an option over HSBC shares. The option price can be at a discount, currently of up to 20%, on the share price at the start of the savings period. The number of options determined by maximum savings set by HM Revenue and Customs per month, currently Â£500. HSBC HOLDINGS...

Page 295
...Annual incentive GPSP/long-term incentive Benefits and pension Group Managing Directors Other Employees HSBC HOLDINGS PLC 293 Shareholder Information Financial Statements Corporate Governance The Committee reserves the right to make any remuneration payments and payments for loss of office...

Page 296
... to achievement of our annual operating plan targets and linked to the key Group's key strategic actions. Measures may include but are not limited to: â€¢ profit before tax; â€¢ reduction of Group risk-weighted assets ('RWA's); â€¢ delivery of cost savings; and â€¢ strategic growth. Targets for...

Page 297
... strongly aligned to the business strategy and based on primary long-term financial goals. Measures may include but are not limited to: â€¢ return on equity; â€¢ cost efficiency (jaws); and â€¢ relative TSR against a global financial services peer group. Targets set for threshold and maximum vesting...

Page 298
... how the total value of remuneration (excluding benefits) and its composition would vary under different performance scenarios for executive Directors. 'Previous' models the policy in place prior to shareholder approval in 2014. 'Current' models the policy approved at the 2014 AGM. 'New' models the...

Page 299
... HSBC HOLDINGS PLC 297 Shareholder Information Financial Statements Corporate Governance Service contracts and policy on payments on loss of office - executive Directors Letters setting out the terms of appointment of each of the executive Directors are available for inspection at the Company...

Page 300
...with the terms of an appropriate agreement waiving all claims against the Group. In the event of a change of control, outstanding awards will be treated in line with the provisions set out in the respective plan rules. Post-departure benefits Legal claims Change of control HSBC HOLDINGS PLC 298

Page 301
...for fixed terms not exceeding three years, which may be renewed subject to their re-election by shareholders at annual general meetings. Non-executive Directors do not have service contracts, but are bound by letters of appointment issued for and on behalf of HSBC Holdings plc. Other than as set out...

Page 302
... year that they have not entered into any personal hedging strategies in relation to their unvested awards and holdings of HSBC shares subject to a retention period. Share awards made to incentivise sustainable long-term performance and align to shareholder interests. Only Group Managing Directors...

Page 303
... the context of Group-risk management standards, policies and procedures. HSBC HOLDINGS PLC 301 Shareholder Information Financial Statements Corporate Governance Financial Review Adjustment under the downward override policy Current year variable pay for executive Directors and other senior...

Page 304
... own remuneration. Details of the Committee's key activities Month January Activities 2014 performance year pay review matters Directors' Remuneration report Share Plan - HSBC UK Share Incentive Plan Governance matters Membership The members of the Group Remuneration Committee during 2015 were...

Page 305
... Shareholder Information Financial Statements Corporate Governance â€¢ The variable pay pool takes into account the performance of the Group considered within the context of our risk appetite statement ('RAS') which includes a number of earnings/capital related metrics, such as return on equity...

Page 306
Directors' Remuneration Report (continued) Annual report on remuneration 2015 variable pay pool This year's variable pay pool is established by reference to the Group's reported profit before tax, which is adjusted to exclude movements in the fair value of own debt attributable to credit spread, ...

Page 307
... performance conditions can be found on page 307. Outcomes for the 2014 award can be found in the Directors' Remuneration Report in the Annual Report and Accounts 2014. HSBC HOLDINGS PLC 305 Shareholder Information Financial Statements Corporate Governance Financial Review 6 33 36 Strategic...

Page 308
...Award level based on 2015 and long-term sustainable performance 5-year vesting period Value of GPSP award fluctuates up or down based on share price performance Award made in March 2016 Vesting awards subject to retention Although shares are fully vested, executive Directors must retain the shares...

Page 309
... medium-term returns, it decided to not make an award under this opportunity. HSBC HOLDINGS PLC 307 Shareholder Information 1 Profit before tax, as defined for the Group variable pay pool. 2 Revenue growth less operating expense, on an adjusted basis. 3 Dividend per ordinary share (US dollar) in...

Page 310
... Annual assessment Weighting % Measure Grow both business and dividends Global Standards including risk and compliance Streamline processes and procedures Strategic priorities People Promoting HSBC Values Total 15 50 25 90 10 Over-riding test 100 Judgement - see commentary 72 Target Performance...

Page 311
...lines of defence. HSBC HOLDINGS PLC 309 Shareholder Information People â€¢ The execution of the pay and performance plans, as well as the learning and development plans which were part of the comprehensive people strategy for the Global Risk function were noted. Financial Statements Corporate...

Page 312
... and a reduction in staff numbers. This was achieved through a strong focus on cost management and the initial effect of our cost saving programmes. Grow dividends â€¢ The Group is committed to increasing the dividends we pay to shareholders each year, measured by dividends per ordinary share in...

Page 313
... in Hong Kong and the UK, therefore does not represent any additional remuneration HSBC HOLDINGS PLC 311 Shareholder Information Financial Statements Corporate Governance Financial Review Strategic Report â€¢ There was strong progress in driving reductions in RWAs, with 45% of the targeted...

Page 314
.... The above table does not include details of shares issued as part of the Fixed Pay Allowances, as those shares vest immediately and are not subject to any service or performance conditions. 1 Share price used is the closing mid-market price on the last working day preceding the date of grant...

Page 315
... has been no change in the benefits provided to the Group CEO or any new benefit provided to the Group CEO during 2015. The benefit value of the bank-owned property in Hong Kong is based on the current market rental value as estimated by an external lease service provider. As the market value of the...

Page 316
...the year was Â£5.5620. Market value is the mid-market price derived from the London Stock Exchange Daily Official List on the relevant date. Under the Securities and Futures Ordinance of Hong Kong, the options are categorised as unlisted physically settled equity derivatives. HSBC HOLDINGS PLC 314

Page 317
Shareholder context Strategic Report Shareholder Information Financial Statements Corporate Governance Financial Review The table below shows the outcome of the remuneration-related votes at the AGM held on 24 April 2015 and the last policy vote at the AGM held on 23 May 2014. Number of votes cast ...

Page 318
... management framework Progress key milestones on set-up of UK ring-fenced bank People development including diversity Description â€¢ â€¢ â€¢ Group's reported profit before tax Group adjusted cost base Reduction of Group RWAs 1 Weighting 20% 20% 10% 50% 25% Personal objectives 25% Total risk...

Page 319
...,000 HSBC HOLDINGS PLC 317 Shareholder Information Financial Statements Corporate Governance Implementation of remuneration policy in 2016 for non-executive Directors Financial Review Strategic Report As the performance period does not start until 1 January 2017, the performance targets for...

Page 320
...into US dollars based on the average year-to-date exchange rates for the respective year. Emoluments of senior management Set out below are details of emoluments paid to senior management (being executive Directors and Group Managing Directors of HSBC Holdings) for the year ended 31 December 2015 or...

Page 321
... Corporate Governance Shareholder Information Financial Statements Set out below are details of the remuneration of the eight highest paid senior executives (including members of the GMB, but not Directors of HSBC Holdings): 1 Â£000 Fixed Cash based Shares-based Total fixed Annual incentive1...

Page 322
... includes members of the GMB, Group General Managers and non-executive Directors. Variable pay awarded in respect of performance in the years 2014 and 2015. Vested shares, subject to a six-month retention period. In accordance with shareholder approval received on 23 May 2014, for each material risk...

Page 323
... for December of the reported year as published on their website. HSBC HOLDINGS PLC 321 Shareholder Information Financial Statements Corporate Governance 1 Guaranteed variable pay awards granted to new hires and limited to their first year of service. 2 Represents non-standard termination...

Page 324
...financial statements may differ from legislation in other jurisdictions. The Directors consider that the Annual Report and Accounts 2015, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the company's performance, business model...

Page 325
... sites in five countries. Working closely with me, a partner coordinated our audit work on shared service centres, building up an end to end picture of the key processes that supported material balances, classes of transactions and disclosures within the HSBC financial statements. We then evaluated...

Page 326
... for HSBC as the Parent Company. This work included auditing, for example, the consolidation of the Group's results, the preparation of the financial statements, certain disclosures within the Directors remuneration report, litigation provisions and exposures and management's entity level and...

Page 327
... information my responsibilities and my reporting are set out in the table below. HSBC HOLDINGS PLC 325 Shareholder Information Financial Statements The Directors have made a statement on page 277 regarding going concern. This statement is based on their belief that the Group and Parent Company...

Page 328
... to report. Directors' statement (on page 322) that they consider the HSBC Annual Report and Accounts 2015, taken as a whole, to be fair, balanced and understandable and provides the information necessary for you to assess HSBC's performance, business model and strategy. Corporate governance report...

Page 329
... North Asia America Global businesses Latin America ïƒ¼ RBWM CMB GB&M ïƒ¼ ïƒ¼ GPB ïƒ¼ ïƒ¼ ïƒ¼ ïƒ¼ ïƒ¼ HSBC HOLDINGS PLC 327 Shareholder Information Financial Statements Corporate Governance Financial Review Matters discussed IT access management Goodwill and intangible assets Application...

Page 330
... Report and Accounts 2015, a summary of the findings of the audit work was During the year, it was identified that controls over access rights to discussed, together with a consideration of the additional work operating systems, applications, and data used in the financial performed by management...

Page 331
... in HSBC's strategy update to investors on 9 June 2015 impacted that plan. For Global Private Banking Europe and GB&M North America flows in the forecasted 2016 Annual Operating Plan were agreed to the retest of impairment at 31 December; - considering current year performance against plan and...

Page 332
...adjustment it was concluded that the adjustment should be recognised in 2015. The control implications of the findings were also discussed. A project team was established by management, which regularly reported progress and proposed a revised control structure be established. HSBC HOLDINGS PLC 330

Page 333
... discussion considered the appropriate treatment of the Group's exposure within the collective impairment calculation and the additional $0.2bn increase at the year-end. HSBC HOLDINGS PLC 331 Shareholder Information Financial Statements Corporate Governance Financial Review Strategic Report

Page 334
... to the members of HSBC Holdings plc Appendix Litigation and conduct Nature of the area of focus HSBC, like other global banking institutions, is exposed to a significant number of open legal cases and regulatory investigations in a number of its markets. Given the business is geographically...

Page 335
... loan impairment charge ratio and the long term growth rate. These are difficult to substantiate and require management to form a view on future growth in China as well as BoCom's potential future impairment charges. HSBC HOLDINGS PLC 333 Shareholder Information Financial Statements Corporate...

Page 336
... Standards Programme, which aims to address all of the DPA recommendations. The related discussion was observed. â€¢ The papers supporting the Financial System Vulnerabilities Committee meeting at the year-end were reviewed. This meeting discussed the 2015 Monitor report and management's response...

Page 337
...internal strategic plan as well as profits implied by the agreed sales price using the Price/Earnings ratios considered appropriate for Brazilian banks. Whilst performance in 2015 has not been in line with the strategic plan, the implicit profit forecast derived from the sales price provides support...

Page 338
... Net insurance claims and benefits paid and movement in liabilities to policyholders Operating profit Employee compensation and benefits Auditors' remuneration Tax Dividends Earnings per share Segmental analysis Trading assets Fair values of financial instruments carried at fair value Fair values of...

Page 339
... intangible assets Total operating expenses Operating profit Share of profit in associates and joint ventures Profit before tax Tax expense Profit for the year Profit attributable to shareholders of the parent company Profit attributable to non-controlling interests Basic earnings per ordinary share...

Page 340
... to profit or loss: Remeasurement of defined benefit asset/liability - before income taxes - income taxes Other comprehensive income for the year, net of tax Total comprehensive income for the year Attributable to: - shareholders of the parent company - non-controlling interests Total comprehensive...

Page 341
...advances to banks Loans and advances to customers Reverse repurchase agreements - non-trading Financial investments Assets held for sale Prepayments, accrued income and other assets Current tax assets Interests in associates and joint ventures Goodwill and intangible assets Deferred tax assets Total...

Page 342
... capital Net sales/(purchases) of own shares for market-making and investment purposes Issue of other equity instruments Redemption of preference shares and other equity instruments Subordinated loan capital issued Subordinated loan capital repaid Dividends paid to shareholders of the parent company...

Page 343
... Capital securities issued Dividends to shareholders Cost of share-based payment arrangements Other movements At 31 December 2015 At 1 January 2014 Profit for the year Other comprehensive income (net of tax) - available-for-sale investments - cash flow hedges - remeasurement of defined benefit asset...

Page 344
... of changes in equity / HSBC Holdings balance sheet Financial Statements (continued) Consolidated statement of changes in equity (continued) Other reserves Called up share capital $m At 1 January 2013 Profit for the year Other comprehensive income (net of tax) - available-for-sale investments...

Page 345
... to HSBC undertakings Financial liabilities designated at fair value Derivatives Debt securities in issue Accruals, deferred income and other liabilities Deferred tax liabilities Subordinated liabilities Total liabilities Equity Called up share capital Share premium account Other equity instruments...

Page 346
.../(used in) investing activities Cash flows from financing activities Issue of ordinary share capital Issue of other equity instruments Subordinated loan capital issued Subordinated loan capital repaid Debt securities repaid Dividends paid on ordinary shares Dividends paid to holders of other equity...

Page 347
... tax Total comprehensive income for the year Shares issued under employee share plans Shares issued in lieu of dividends and amounts arising thereon Capital securities issued Dividends to shareholders Tax credit on distributions Own shares adjustment Exercise and lapse of share options Cost of share...

Page 348
... the proceeds of the rights issue. 8 Retained earnings include 67,881 ($1m) (2014: 179,419 ($3m)) of own shares held to fund employee share plans. 9 Other paid-in capital arises from the exercise and lapse of share options granted to employees of HSBC Holdings subsidiaries. HSBC HOLDINGS PLC 346

Page 349
... and significant accounting policies Strategic Report Shareholder Information Financial Statements Corporate Governance Financial Review (a) Compliance with International Financial Reporting Standards International Financial Reporting Standards ('IFRSs') comprise accounting standards issued or...

Page 350
...on the Financial Statements (continued) 1 - Basis of preparation and significant accounting policies of financial assets as at 31 December 2014 and expectations around changes to balance sheet composition, HSBC expects that generally: â€¢ loans and advances to banks and to customers and non-trading...

Page 351
...design work has taken place. The Programme is sponsored by the Group Chief Risk Officer and Group Finance Director. A Steering Committee comprising senior management from Risk, Finance and HSBC Operations, Services and Technology has been established. In common with all significant change programmes...

Page 352
... on the Financial Statements (continued) 1 - Basis of preparation and significant accounting policies credit risk reasons. For retail loans, an exception is made for individual loans that are in arrears by more than 90 days but have been individually assessed to have no indications of impairment...

Page 353
... into account estimates of future conditions that will impact PD) â€¢ Default backstop of 90+ days past due for all portfolios Corporate Governance Financial Review Strategic Report aim is to establish the points where the change in credit risk is considered meaningful in risk management terms...

Page 354
... activities and structured products are included in the audited section of 'Report of the Directors: Risk' on pages 101 to 226. In accordance with HSBC's policy to provide disclosures that help investors and other stakeholders understand the Group's performance, financial position and changes...

Page 355
... the Group and parent company have the resources to continue in business for the foreseeable future. In making this assessment, the Directors have considered a wide range of information relating to present and future conditions, including future projections of profitability, cash flows and capital...

Page 356
...geographical concentrations, loan product features, economic conditions such as national and local trends in housing markets, the level of interest rates, portfolio seasoning, account management policies and practices, changes in laws and regulations and other influences on customer payment patterns...

Page 357
... HSBC HOLDINGS PLC 355 Shareholder Information â€¢ when available, the secondary market price of the debt. Financial Statements Corporate Governance Financial Review Strategic Report those which return to performing status following renegotiation. Where collectively assessed loan portfolios...

Page 358
...credit risk characteristics may include country of origination, type of business involved, type of products offered, security obtained or other relevant factors. This assessment captures impairment losses that HSBC has incurred as a result of events occurring before the balance sheet date which HSBC...

Page 359
...statement within 'Loan impairment charges and other credit risk provisions' for debt instruments and within 'Gains less losses from financial investments' for equities. The impairment methodologies for available-for-sale financial assets are set out as follows: â€¢ Available-for-sale debt securities...

Page 360
... from changes in the fair value of financial assets and financial liabilities held for trading, together with the related interest income, expense and dividends. Dividend income is recognised when the right to receive payment is established. This is the ex-dividend date for listed equity securities...

Page 361
... at fair value Accounting policy Strategic Report Shareholder Information Financial Statements Corporate Governance Financial Review Net income from financial instruments designated at fair value includes all gains and losses from changes in the fair value of financial assets and liabilities...

Page 362
Notes on the Financial Statements (continued) 4 - Net insurance claims / 5 - Operating profit / 6 - Employee compensation and benefits Net insurance premium income (continued) Non-linked insurance1 $m Gross insurance premium income Reinsurers' share of gross insurance premium income Year ended 31 ...

Page 363
5 Operating profit Strategic Report Shareholder Information Financial Statements Corporate Governance Financial Review Operating profit is stated after the following items of income, expense, gains and losses, and loan impairment charges and other credit risk provisions: 2015 $m Income Interest ...

Page 364
... statement. Fair value is determined by using appropriate valuation models. Vesting conditions include service conditions and performance conditions; any other features of the arrangement are non-vesting conditions. Market performance conditions and non-vesting conditions are taken into account...

Page 365
...-based payments arrangements, of which $757m were equity settled (2014: $732m; 2013: $630m), as follows: Strategic Report Shareholder Information HSBC HOLDINGS PLC 2015 $m Restricted share awards Savings-related and other share award option plans Year ended 31 December 748 43 791 2014 $m 738 36...

Page 366
... fair values The fair values of share options are calculated using a Black-Scholes model. The fair value of a share award is based on the share price at the date of the grant. Movement on HSBC share option plans Savings-related share option plans Number WAEP1 (000s) Â£ Outstanding at 1 January 2015...

Page 367
... defined benefit plans - covered by HSBC pension plans 66 22 88 2014 % 66 22 88 2013 % 64 23 87 HSBC HOLDINGS PLC 365 Shareholder Information Financial Statements 5,028 Corporate Governance 3,084 (621) Financial Review 54 597 Strategic Report Actuarial gains and losses comprise experience...

Page 368
...changes Exchange differences Contributions by HSBC - normal - special Contributions by employees Benefits paid Administrative costs and taxes paid by plan At 31 December 2015 Present value of defined benefit obligation relating to: - actives - deferreds - pensioners At 1 January 2014 Current service...

Page 369
... make $458m of contributions to defined benefit pension plans during 2016. Benefits expected to be paid from the plans to retirees over each of the next five years, and in aggregate for the five years thereafter, are as follows: Strategic Report Shareholder Information Financial Statements Corporate...

Page 370
... changes in key assumptions on the principal plan HSBC Bank (UK) Pension Scheme 2015 2014 $m $m Discount rate Change in pension obligation at year-end from a 25bps increase Change in pension obligation at year-end from a 25bps decrease Change in 2016 pension cost from a 25bps increase Change in 2016...

Page 371
...fair value gain or loss is recognised in the income statement. HSBC HOLDINGS PLC 369 Shareholder Information Financial Statements Corporate Governance Financial Review 384 Strategic Report HSBC Holdings. They include amounts payable for services relating to the consolidation returns of HSBC...

Page 372
... to the applicability of tax planning strategies, including corporate reorganisations. In previous years the US deferred tax recognition relied on capital support from HSBC Holdings plc due to significant losses in the past. The US has been profitable in recent years and the improved performance is...

Page 373
... equity (paid quarterly) HSBC HOLDINGS PLC 371 Shareholder Information Dividends paid on ordinary shares In respect of previous year: - fourth interim dividend In respect of current year: - first interim dividend - second interim dividend - third interim dividend Financial Statements Corporate...

Page 374
...4 March 2016 on the Principal Register in the UK, the Hong Kong or the Bermuda Overseas Branch registers. No liability was recorded in the financial statements in respect of the fourth interim dividend for 2015. On 15 January 2016, HSBC paid a coupon on the $2,200m subordinated capital securities of...

Page 375
... 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). â€¢ Commercial Banking ('CMB') offers...

Page 376
... on the Financial Statements (continued) 11 - Segmental analysis Profit/(loss) for the year Europe $m 2015 Net interest income Net fee income Net trading income Other income Net operating income1 Loan impairment (charges)/recoveries and other credit risk provisions Net operating income Employee...

Page 377
...) 412 2,949 - - - - 2,330 7,145 (1,228) 1 Net operating income before loan impairment charges and other credit risk provisions, also referred to as revenue. HSBC HOLDINGS PLC 375 Shareholder Information Financial Statements Corporate Governance Financial Review (1,364) Strategic Report

Page 378
... on the Financial Statements (continued) 11 - Segmental analysis / 12 - Trading assets Balance sheet information Europe $m At 31 December 2015 Loans and advances to customers Interests in associates and joint ventures Total assets Customer accounts Total liabilities Capital expenditure incurred1...

Page 379
... bills primarily comprise treasury bills not listed on an exchange but for which there is a liquid market. HSBC HOLDINGS PLC 377 Shareholder Information Financial Statements Trading securities listed on a recognised exchange and unlisted Corporate Governance Financial Review Strategic Report

Page 380
... are quoted in active markets are based on bid prices for assets held and offer prices for liabilities issued. When a financial instrument has a quoted price in an active market, the fair value of the total holding of the financial instrument is calculated as the product of the number of units and...

Page 381
... independent support Provides results Valuation Committee Review Group Chaired by Global Head of Product Control, Overseen by and report all valuations considered to have material subjectivity âˆ' Establishing accounting policies for fair value functions (product control, market risk management...

Page 382
... and bases of valuation Quoted market price Level 1 $m Recurring fair value measurements at 31 December 2015 Assets Trading assets Financial assets designated at fair value Derivatives Financial investments: available for sale Liabilities Trading liabilities Financial liabilities designated at fair...

Page 383
.... As model development progresses, model limitations are addressed within the valuation models and a model limitation adjustment is no longer needed. HSBC HOLDINGS PLC 381 Shareholder Information Financial Statements Debit valuation adjustment Corporate Governance Financial Review Fair value...

Page 384
... investments HSBC's private equity and strategic investments are generally classified as available for sale and are not traded in active markets. In the absence of an active market, an investment's fair value is estimated on the basis of an analysis of the investee's financial position and results...

Page 385
... models, which incorporate assumptions regarding an appropriate credit spread for the loan, derived from other market instruments issued by the same or comparable entities. Structured notes Financial Review Shareholder Information HSBC HOLDINGS PLC The fair value of structured notes valued using...

Page 386
... income1 - available-for-sale investments: fair value gains - cash flow hedges: fair value gains/(losses) - exchange differences Purchases New issuances Sales Settlements Transfers out Transfers in At 31 December 2015 Unrealised gains/(losses) recognised in profit or loss relating to assets and...

Page 387
... 'Exchange differences' in the consolidated statement of comprehensive income. HSBC HOLDINGS PLC 385 Shareholder Information Financial Statements In 2015 movement of Level 3 available-for-sale assets are driven by ABS activity, predominantly in the securities investment conduits. Transfers out...

Page 388
... a result of the increased Level 3 balance. Sensitivity of fair values to reasonably possible alternative assumptions by Level 3 instrument type Reflected in profit or loss Favourable Unfavourable changes changes $m $m Private equity including strategic investments Asset-backed securities Loans held...

Page 389
... information about significant unobservable inputs in Level 3 valuations Fair value Assets Liabilities Valuation technique $m $m Private equity including strategic investments Asset-backed securities - CLO/CDO1 Other ABSs Loans held for securitisation Structured notes - equity-linked notes - fund...

Page 390
... in Level 3 valuations (continued) Fair value Assets Liabilities Valuation technique $m $m Private equity including strategic investments Asset-backed securities - CLO/CDO1 Other ABSs Loans held for securitisation Structured notes - equity-linked notes - fund-linked notes - FX-linked notes - other...

Page 391
... future cash flows, thereby reducing the value of an asset. Credit spreads may be implied from market prices. Credit spreads may not be observable in more illiquid markets. Shareholder Information HSBC HOLDINGS PLC 389 Financial Statements Corporate Governance Financial Review Strategic Report

Page 392
...for sale at 31 December 2015 Assets Loans and advances to banks Loans and advances to customers Reverse repurchase agreements - non-trading Financial investments: debt securities Liabilities Deposits by banks Customer accounts Repurchase agreements - non-trading Debt securities in issue Subordinated...

Page 393
... below: Loans and advances to banks and customers HSBC HOLDINGS PLC 391 Shareholder Information The fair value of loans and advances is based on observable market transactions, where available. In the absence of observable market transactions, fair value is estimated using valuation models that...

Page 394
... unlisted financial investments are determined using valuation techniques that take into consideration the prices and future earnings streams of equivalent quoted securities. Deposits by banks and customer accounts Fair values are estimated using discounted cash flows, applying current rates offered...

Page 395
...Equity securities $m 11,690 7,305 18,995 Total $m 14,148 9,584 23,732 HSBC HOLDINGS PLC 393 Shareholder Information Securities listed on a recognised exchange and unlisted Financial Statements 8 140 40 4,088 18 4,653 20,006 Corporate Governance 28,357 680 Financial Review Strategic Report

Page 396
...181m of investments listed on a recognised exchange in Hong Kong (2014: $1,361m). 16 Derivatives Accounting policy Derivatives Derivatives are financial instruments that derive their value from the price of underlying items such as equities, bonds, interest rates, foreign exchange, credit spreads...

Page 397
... held for trading purposes indicate the nominal value of transactions outstanding at the balance sheet date; they do not represent amounts at risk. HSBC HOLDINGS PLC 395 Shareholder Information Financial Statements Corporate Governance Financial Review Strategic Report Net investment hedge...

Page 398
... to a small number of offices within the major centres which have the control infrastructure and market skills to manage effectively the credit risk inherent in the products. Credit derivatives are also deployed to a limited extent for the risk management of the Group's loan portfolios. The notional...

Page 399
... 1,477 3,150 572 684 1,256 HSBC HOLDINGS PLC 397 Shareholder Information 2015 Assets $m Liabilities $m 2014 Assets $m Liabilities $m Financial Statements Corporate Governance Gains or losses arising from fair value hedges Financial Review 2015 Assets $m 2014 Assets $m Strategic Report

Page 400
... at fair value plus any directly attributable transaction costs, and are subsequently measured at amortised cost, less any impairment losses. The accounting policy relating to impairments of available-for-sale securities is presented in Note 1. Available-for-sale financial assets are reclassified...

Page 401
...amortised cost and fair value Financial Review Shareholder Information HSBC HOLDINGS PLC Amortised cost1 $m US Treasury US Government agencies3 US Government sponsored entities3 UK Government Hong Kong Government Other government Asset-backed securities4 Corporate debt and other securities Equities...

Page 402
...Within one year Amount Yield $m % Available for sale US Treasury US Government agencies US Government-sponsored agencies UK Government Hong Kong Government Other governments Asset-backed securities Corporate debt and other securities Total amortised cost at 31 December 2015 Total carrying value Held...

Page 403
... 2,768 2 Fair value of transferred assets $m Fair value of associated liabilities $m Net position $m 2,720 5 2,726 2 (6) 3 78,541 13,177 3,775 17,427 11 79,141 10,643 4,049 5 4,007 11 4,018 5 (11) 6 HSBC HOLDINGS PLC 401 Shareholder Information Financial Statements Corporate Governance...

Page 404
... stock exchanges. The fair values are based on the quoted market prices of the shares held (Level 1 in the fair value hierarchy). At 31 December 2015 HSBC's interest Principal in equity activity capital 19.03% 40.00% Country of incorporation and principal place of business Bank of Communications Co...

Page 405
... used on its own in the VIU calculation would reduce the headroom to nil. Key assumption Long-term growth rate Long-term asset growth rate Discount rate Loan impairment charge as a percentage of customer advances Risk-weighted assets as a percentage of total assets Cost-income ratio Changes to key...

Page 406
... rate VIU Increase/(decrease) in VIU Loan impairment charge as a percentage of customer advances VIU Increase/(decrease) in VIU Risk-weighted assets as a percentage of total assets VIU Increase/(decrease) in VIU Cost income ratio VIU Increase/(decrease) in VIU Current model $bn Unfavourable change...

Page 407
...September 2015 $m HSBC's share of total shareholders' equity Add: Goodwill and other intangible assets Carrying amount 14,824 520 15,344 2014 $m 14,040 550 14,590 Selected income statement information of BoCom Corporate Governance Shareholder Information Financial Statements For the 12 months ended...

Page 408
... a number of financial and economic variables, including the risk-free interest rate in the country concerned and a premium for the risk of the business being evaluated. These variables are subject to fluctuations in external market rates and economic conditions beyond management's control, are...

Page 409
... until the end of 2019 were used. For the goodwill impairment test conducted at 31 December 2015, management's cash flow projections until the end of 2020 were used. HSBC HOLDINGS PLC 407 Shareholder Information Financial Statements Corporate Governance Financial Review Strategic Report

Page 410
... for impairment, management supplements this process by comparing the discount rates derived using the internally generated CAPM with cost of capital rates produced by external sources for businesses operating in similar markets. For 2014 and 2015, internal cost of capital rates were consistent with...

Page 411
... Management projections - Latin America â€¢ Growth in lending and deposit volumes; and â€¢ Credit quality of loan portfolios. â€¢ Unfavourable economic conditions; and â€¢ Competitive pricing constraining margins. HSBC HOLDINGS PLC 409 Shareholder Information Long-term â€¢ Business growth...

Page 412
... value of in-force long-term insurance business and long-term investment contracts with discretionary participating features ('PVIF'), computer software, trade names, mortgage servicing rights, customer lists, core deposit relationships, credit card customer relationships and merchant or other loan...

Page 413
... are set on an active basis with reference to market risk-free yields. HSBC HOLDINGS PLC 411 Shareholder Information Financial Statements â€¢ unwind of the discount rate less the reversal of expected cash flows for the period ('expected return'); Corporate Governance 1 'Value of new business...

Page 414
...70 UK % 1.65 2.15 4.67 2014 Hong Kong % 1.86 7.42 3.00 France1 % 1.21 1.73 2.00 1 For 2015, the calculation of France's PVIF assumes a risk discount rate of 2.55% (2014: 1.73%) plus a risk margin of $51m (2014: $63m). Sensitivity to changes in economic assumptions The Group sets the risk discount...

Page 415
Other intangible assets Movement of intangible assets excluding goodwill and the PVIF Strategic Report Shareholder Information HSBC HOLDINGS PLC Internally generated software $m Cost At 1 January 2015 Additions Disposals Amount written off Reclassified to held for sale Other changes At 31 December ...

Page 416
...Principal subsidiaries of HSBC Holdings At 31 December 2015 HSBC's interest in Issued equity capital equity % capital 100 Â£797m Country of incorporation or registration Europe HSBC Bank plc England Share class Ordinary Â£1 Preferred Ordinary Â£1 Series 2 Third Dollar Preference $0.01 Third Dollar...

Page 417
...dividends or repaying loans and advances. The amount of guarantees by HSBC Holdings in favour of other HSBC Group entities is set out in Note 37. Structured entities consolidated by HSBC where HSBC owns less than 50% of the voting rights Carrying value of total consolidated assets Nature of SPE 2015...

Page 418
...disposal groups / 24 - Trading liabilities 22 Prepayments, accrued income and other assets 2015 $m Prepayments and accrued income Bullion Endorsements and acceptances Reinsurers' share of liabilities under insurance contracts (Note 28) Employee benefit assets (Note 6) Other accounts Property, plant...

Page 419
... in HSBC's credit risk was a gain of $122m (2014: loss of $79m). HSBC HOLDINGS PLC 417 Shareholder Information 1 'Deposits by banks' and 'Customer accounts' include repos, settlement accounts, stock lending and other amounts. 2 Structured deposits placed at HSBC Bank USA and HSBC Trust Company...

Page 420
...the investment management services are provided. Financial liabilities designated at fair value - HSBC 2015 $m Deposits by banks and customer accounts Liabilities to customers under investment contracts Debt securities in issue (Note 26) Subordinated liabilities (Note 30) Preferred securities (Note...

Page 421
... that its recoverability is highly probable. Movements in the liabilities arising from realised gains and losses on relevant assets are recognised in the income statement. HSBC HOLDINGS PLC 419 Shareholder Information Financial Statements Corporate Governance Financial Review Strategic Report

Page 422
... and other movements2 At 31 December 2015 Linked life insurance contracts At 1 January 2015 Claims and benefits paid Increase in liabilities to policyholders Disposals/transfers to held-for-sale Exchange differences and other movements3 At 31 December 2015 Total liabilities to policyholders at 31...

Page 423
... of the possible mis-selling of payment protection insurance ('PPI') policies in previous years. An increase in provisions of $549m was recognised during the year, primarily reflecting an increase in inbound complaints by claims management HSBC HOLDINGS PLC 421 Financial Review Strategic Report

Page 424
... ruling in the first half of 2011 amounted to $4.7bn of which $3.6bn had been paid as at 31 December 2015. The estimated liability for redress is calculated on the basis of total premiums paid by the customer plus simple interest of 8% per annum (or the rate inherent in the related loan product...

Page 425
...981 25,277 24,704 49,981 HSBC's subordinated liabilities Corporate Governance Shareholder Information Financial Statements Subordinated liabilities rank behind senior obligations and generally count towards the capital base of HSBC. Where applicable, capital securities may be called and redeemed by...

Page 426
... issued by The Hongkong and Shanghai Banking Corporation Ltd $400m Primary capital undated floating rate notes7 $400m Primary capital undated floating rate notes (second series)8 $400m Primary capital undated floating rate notes (third series) Tier 2 securities issued by HSBC Bank Australia Limited...

Page 427
..., and the two capital securities guaranteed by HSBC Bank also qualify as additional tier 1 capital for HSBC Bank (on a solo and a consolidated basis) under CRD IV by virtue of the same grandfathering process. HSBC HOLDINGS PLC 425 Shareholder Information Financial Statements 1 Amounts owed to...

Page 428
... 2 capital securities These capital securities are included within HSBC's regulatory capital base as tier 2 capital under CRD IV by virtue of the application of grandfathering provisions (with the exception of identified HSBC Holding securities which are compliant with CRD IV end point rules). Tier...

Page 429
... - corporate and commercial - financial Reverse repurchase agreements - non-trading Financial investments Assets held for sale Accrued income and other financial assets Financial assets at 31 December 2015 Non-financial assets Total assets at 31 December 2015 HSBC HOLDINGS PLC Due over 5 years...

Page 430
... in issue - covered bonds - otherwise secured - unsecured Liabilities of disposal groups held for sale Accruals and other financial liabilities Subordinated liabilities Total financial liabilities at 31 December 2015 Non-financial liabilities Total liabilities at 31 December 2015 HSBC HOLDINGS PLC...

Page 431
... advances to banks Loans and advances to customers - personal - corporate and commercial - financial Reverse repurchase agreements - non-trading Financial investments Assets held for sale Accrued income and other financial assets Financial assets at 31 December 2014 Non-financial assets Total assets...

Page 432
... Customer accounts1 - personal - corporate and commercial - financial Repurchase agreements - non-trading Items in the course of transmission to other banks Trading liabilities - repos - debt securities in issue - other trading liabilities HSBC HOLDINGS PLC Due over 5 years $m âˆ' 263 310 125 150...

Page 433
... 5 years $m âˆ' âˆ' Total $m 5,732 3,313 4,312 607 âˆ' 8,232 Maturity analysis of off-balance sheet commitments given HSBC HOLDINGS PLC Due not more than 1 month $m At 31 December 2015 Loan and other credit-related commitments Of which: - personal - corporate and commercial - financial At...

Page 434
... - trading - non-trading Loans and advances to HSBC undertakings Financial investments in HSBC undertakings Accrued income and other financial assets Total financial assets at 31 December 2015 Non-financial assets Total assets at 31 December 2015 HSBC HOLDINGS PLC Due over 5 years $m Total $m 242...

Page 435
...Cash at bank and in hand: - balances with HSBC undertakings Derivatives - trading - non-trading Loans and advances to HSBC undertakings Financial investments in HSBC undertakings Accrued income and other financial assets Total financial assets at 31 December 2014 Non-financial assets Total assets at...

Page 436
... cost recognised in the balance sheet, see the 'Funding sources and uses' table on page 160. 6 These exposures continue to be secured by financial collateral, but we may not have sought or been able to obtain a legal opinion evidencing enforceability of the right of offset. HSBC HOLDINGS PLC...

Page 437
... non-trading assets Loans and advances to customers at amortised cost3 At 31 December 2014 Financial liabilities Derivatives (Note 16)1 Repos, stock lending and similar agreements4 Classified as: - trading liabilities - non-trading liabilities Customer accounts at amortised cost5 At 31 December 2015...

Page 438
.../ 35 - Share capital 33 Foreign exchange exposures Structural foreign exchange exposures HSBC's structural foreign exchange exposures are represented by the net asset value of its foreign exchange equity and subordinated debt investments in subsidiaries, branches, joint ventures and associates with...

Page 439
... in full, or set aside an amount to provide for payment in full, the dividends on the dollar preference shares for the then current dividend HSBC HOLDINGS PLC 437 Shareholder Information Financial Statements 9,415 60 134 Corporate Governance Financial Review 1 In May 2015, HSBC redeemed its...

Page 440
... into ordinary shares of HSBC Holdings and no rights to attend and vote at general meetings of shareholders of HSBC Holdings. HSBC Holdings may redeem it in whole at any time at the option of the Company. Other equity instruments HSBC has included three types of additional tier 1 capital securities...

Page 441
... rate of exchange on the issuance date subject to certain antidilution adjustments. Strategic Report Shareholder Information Financial Statements Corporate Governance Financial Review HSBC's additional tier 1 capital - contingent convertible securities in issue which are accounted for in equity...

Page 442
... - 7 1,854 Change in operating liabilities 2015 $m Change in deposits by banks Change in customer accounts Change in repurchase agreements - non-trading Change in debt securities in issue Change in financial liabilities designated at fair value Change in other liabilities Year ended 31 December (21...

Page 443
...management policies and procedures. Approximately half the above guarantees have a term of less than one year. Guarantees with terms of more than one year are subject to HSBC's annual credit review process. HSBC HOLDINGS PLC 441 Shareholder Information Financial Statements 2015 2014 Corporate...

Page 444
...a narrow and well defined objective. Structured entities are assessed for consolidation in accordance with the accounting policy set out in Note 1. HSBC is mainly involved with structured entities through the securitisation of financial assets, conduits and investment funds. HSBC HOLDINGS PLC 442

Page 445
... investors. HSBC managed funds HSBC has established a number of money market and non-money market funds. Where it is deemed to be acting as principal rather than agent in its role as investment manager, HSBC controls and hence consolidates these funds. HSBC HOLDINGS PLC 443 Strategic Report HSBC...

Page 446
... Total assets of the entities Total assets in relation to HSBC's interests in the unconsolidated structured entities - trading assets - financial assets designated at fair value - derivatives - loans and advances to banks - loans and advances to customers - financial investments - other assets Total...

Page 447
... facilitate risk management solutions for non-HSBC managed funds. Note 16 provides information on derivatives entered into by HSBC. Other HSBC has established structured entities in the normal course of business, such as structured credit transactions for customers, to provide finance to public and...

Page 448
... in New York District Court by two investors in the Madoff-invested fund Hermes International Fund Limited ('Hermes'), asserting various common law claims against HSBC and seeking to recover damages lost to Madoff Securities' fraud. HSBC's motion to dismiss the action was filed in January 2016 and...

Page 449
... in such proceedings. Based upon the information currently available, management's estimate of possible aggregate damages that might arise as a result of all claims in the Strategic Report Shareholder Information Financial Statements Corporate Governance Financial Review HSBC HOLDINGS PLC 447

Page 450
...Orders. HSBC Bank USA, HSBC Finance and HNAH continue to work with the OCC and the FRB to align their processes with the requirements of the Servicing Consent Orders and to implement operational changes as required; however, as set forth in a June 2015 amended consent order between HSBC Bank USA and...

Page 451
...management programme across HSBC's US businesses, including risk management related to the Bank Secrecy Act ('BSA') and AML compliance. Steps continue to be taken to address the requirements of the Orders. Strategic Report Financial Statements Corporate Governance Financial Review HSBC HOLDINGS PLC...

Page 452
... action was filed by a shareholder of HSBC Holdings purportedly on behalf of HSBC Holdings, HSBC Bank USA, HNAH and HSBC USA Inc. (the 'Nominal Corporate Defendants') in New York state court against certain current and former directors and officers of those HSBC companies (the 'Individual Defendants...

Page 453
.... Strategic Report Shareholder Information Financial Statements Corporate Governance Financial Review Tax-related investigations HSBC continues to cooperate in ongoing investigations by the DoJ and the US Internal Revenue Service regarding whether certain HSBC companies and employees, including...

Page 454
... HSBC Bank plc with HSBC Bank USA. A motion to dismiss that complaint was filed in April 2015, and a decision is pending. There are many factors that may affect the range of possible outcomes, and the resulting financial impact, of these lawsuits. Based upon the information currently available...

Page 455
...to close the case against all 13 banks, including all of the HSBC entities; however, the Commission's investigation relating to Markit and ISDA is ongoing. HSBC HOLDINGS PLC 453 Shareholder Information Financial Statements Corporate Governance Financial Review As at 31 December 2015, HSBC has...

Page 456
... exchange rate between the USD and the BRL as at 31 December 2015), although the upper end of this range is considered unlikely. Regulatory review of consumer 'enhancement services products' HSBC Finance, through its legacy Cards and Retail Services business, offered or participated in the marketing...

Page 457
... 2015 with Directors, disclosed pursuant to section 413 of the Companies Act 2006, are shown below: 2015 $m Advances and credits at 31 December 4 2014 $m 5 Transactions and balances during the year with Key Management Personnel Corporate Governance Shareholder Information HSBC HOLDINGS PLC 2015...

Page 458
... Statements (continued) 41 - Related party transactions / 42 - Events after the balance sheet date / 43 - HSBC's subsidiaries Shareholdings, options and other securities of Key Management Personnel 2015 (000s) Number of options held over HSBC Holdings ordinary shares under employee share plans...

Page 459
...the ordinary course of business and on substantially the same terms, including interest rates and security, as for comparable transactions with third-party counterparties. Some employees of HSBC Holdings are members of the HSBC Bank (UK) Pension Scheme, which is sponsored by a separate Group company...

Page 460
...Property Participations Limited Canada Water Nominees (UK) Limited Capco/Cove, Inc. Capital Financial Services Inc. Card-Flo #1, Inc. Card-Flo #3, Inc. Castlewood Limited Cayman International Finance Limited Cayman Nominees Limited CBS/Holdings, Inc. CC&H Holdings LLC CCF & Partners Asset Management...

Page 461
... Meadow Management, Inc. Hilaga Investments Limited HITG Administration GmbH HITG, Inc. Honey Green Enterprises Ltd. Hongkong International Trade Finance (Holdings) Limited Hongkong International Trade Finance (U.S.A.) Inc. Household Capital Markets LLC Household Commercial Financial Services, Inc...

Page 462
...LP1 HSBC Bank Capital Funding (Sterling 2) LP HSBC Bank International Limited HSBC Bank Malaysia Berhad HSBC Bank Middle East Limited HSBC Bank Nominee (Jersey) Limited HSBC Bank Pension Trust (UK) Limited HSBC Bank plc 1 England and Wales England and Wales England and Wales England and Wales India...

Page 463
... Holdings HSBC Client Holdings Nominee (UK) Limited HSBC Client Share Offer Nominee (UK) Limited HSBC Columbia Funding, LLC HSBC Consumer Lending (USA) Inc. HSBC Corporate Advisory (Malaysia) Sdn Bhd HSBC Corporate Finance (Hong Kong) Limited HSBC Corporate Trustee Company (UK) Limited HSBC Credit...

Page 464
...) Limited HSBC Global Services Limited HSBC Global Shared Services (India) Private Limited HSBC Group Management Services Limited HSBC Group Nominees UK Limited HSBC Guyerzeller Trust Company HSBC Holdings B.V. HSBC Home Equity Loan Corporation I HSBC Home Equity Loan Corporation II HSBC IM Pension...

Page 465
... Funds (Holding) Limited HSBC Property Funds Investment Limited HSBC Property Investments Limited HSBC Provident Fund Trustee (Hong Kong) Limited HSBC QUEST Trustee (UK) Limited HSBC Rail (UK) Limited HSBC Real Estate Leasing (France) HSBC Realty Credit Corporation (USA) HSBC REIM (France) Country...

Page 466
...Assets) Nominees Limited HSBC Stockbrokers Nominee (UK) Limited HSBC Structured Funds (Asia) Limited HSBC Taxpayer Financial Services Inc. HSBC Technology & Services (China) Limited HSBC Technology & Services (USA) Inc. HSBC TFS I 2005 LLC HSBC TKM Limited HSBC Trust Company (BVI) Limited HSBC Trust...

Page 467
... Corporate Services Limited Lion International Management Limited Lion Management (Hong Kong) Limited Lyndholme Limited MAGIM Client HSBC GIS Nominee (UK) Limited Marks and Spencer Financial Services plc Marks and Spencer Retail Financial Services Holdings Limited Marks and Spencer Savings...

Page 468
Notes on the Financial Statements (continued) 43 - HSBC Holdings' subsidiaries, joint ventures and associates Subsidiaries (continued) Promocion en Bienes Raices, S.A. de C.V. Prudential Client HSBC GIS Nominee (UK) Limited PTC New LLC R/CLIP Corp. Real Estate Collateral Management Company Republic...

Page 469
...shares â,¬1.00 Ordinary shares â,¬1.00 GmbH Anteil shares Direct (%) Total (%) 100 100 100 100 100 100 100 100 100 The Venture Catalysts Limited Third Corporate Director Inc. Timberlink Settlement Services (USA) Inc. TKM International Limited Tooley Street View Limited Tower Investment Management...

Page 470
... Financial Information Limited Hang Seng Futures Limited Hang Seng Indexes Company Limited Hang Seng Insurance Company Limited Hang Seng Investment Management Limited Hang Seng Investment Services Limited Hang Seng Life Limited Hang Seng Real Estate Management Limited Hang Seng Securities Limited...

Page 471
... in the Group accounts as these entities do not meet the definition of subsidiaries in accordance with IFRSs. HSBC's consolidation policy is described in Note 1(g). HSBC HOLDINGS PLC 469 Shareholder Information Financial Statements Corporate Governance Financial Review Strategic Report

Page 472
... to shareholders on or about 18 March 2016. The timetable for the dividend is: Announcement ADSs quoted ex-dividend in New York Shares quoted ex-dividend in London, Hong Kong, Paris and Bermuda Record date - London, Hong Kong, New York, Paris, Bermuda1 Mailing of Annual Report and Accounts 2015 and...

Page 473
... resolution. HSBC HOLDINGS PLC 471 Shareholder Information Financial Statements Corporate Governance Financial Review Strategic Report All resolutions considered at the 2015 Annual General Meeting held at 11.00am on 24 April 2015 at the Queen Elizabeth II Conference Centre, London SW1P 3EE...

Page 474
...United Kingdom For those in Asia-Pacific: Communications (Asia) The Hongkong and Shanghai Banking Corporation Limited 1 Queen's Road Central Hong Kong For those in the Americas: Global Publishing Services HSBC - North America SC1 Level, 452 Fifth Avenue New York, NY 10018 USA HSBC HOLDINGS PLC 472

Page 475
...Stock symbols HSBC Holdings ordinary shares trade under the following stock symbols: London Stock Exchange Hong Kong Stock Exchange New York Stock Exchange (ADS) HSBA 5 HSBC Euronext Paris Bermuda Stock Exchange HSB HSBC.BH Investor relations Enquiries relating to HSBC's strategy or operations may...

Page 476
... of shares and dividends HSBC HOLDINGS PLC 474 This simplified Group structure of principal subsidiaries is at 31 December 2015. Not all intermediate holding companies are shown. Unless shown otherwise, all subsidiaries are wholly owned. A complete list of all of the Group's related undertakings...

Page 477
... Paperless transfers of shares within CREST, the UK's paperless share transfer system, are liable to stamp duty reserve tax at the rate of 0.5% of the consideration. In CREST transactions, the tax is calculated and payment made automatically. Strategic Report Financial Review HSBC HOLDINGS PLC 475

Page 478
... at 1.5% on the issue of shares to a depositary receipt issuer or a clearance service is prohibited. holder generally will be subject to US taxation at preferential rates. Based on the company's audited financial statements and relevant market and shareholder data, HSBC Holdings does not anticipate...

Page 479
... establish that they are not US persons in order to avoid the application of such information reporting requirements or backup withholding tax to payments received within the US or through certain financial intermediaries. HSBC HOLDINGS PLC Shareholder Information Financial Statements Corporate...

Page 480
... Region of the People's Republic of China is referred to as 'Hong Kong'. When used in the terms 'shareholders' equity' and 'total shareholders' equity', 'shareholders' means holders of HSBC Holdings ordinary shares and those preference shares and capital securities issued by HSBC Holdings...

Page 481
... dollar Capital Asset Pricing Model Consumer Credit Act (UK) Capital conservation buffer Counterparty credit risk Countercyclical capital buffer Credit default swap Commodities Exchange Act (US) Common equity tier 1 Cash-generating unit Commercial Banking, a global business Consumer and Mortgage...

Page 482
... GPSP GRC Group G-SIB1 G-SII Generally accepted accounting principles Group Audit Committee Global Banking and Markets, a global business Gross domestic product Group Management Board Global Private Banking, a global business Group Performance Share Plan Group Risk Committee HSBC Holdings together...

Page 483
... Loan Management Unit, part of Wholesale Credit and Market Risk Loan-to-value ratio Bernard L. Madoff Investment Securities LLC People's Republic of China excluding Hong Kong Malachite Funding Limited, a term-funding vehicle HSBC's treasury and capital markets services in Global Banking and Markets...

Page 484
... Taxpayer Financial Services businesses and insurance, commercial, corporate and treasury activities in HSBC Finance on an IFRSs management basis Value at risk Value in use U UAE UK $ US US DPA US run-off portfolio V VaR1 VIU 1 Full definition included in Glossary on page 483. HSBC HOLDINGS PLC...

Page 485
... or commercial mortgages. Definition Strategic Report Shareholder Information Financial Statements Corporate Governance Financial Review Alt-A Arrears Asset-backed securities ('ABS's) B Back-testing Bail-inable debt A statistical technique used to monitor and assess the accuracy of a model, and...

Page 486
... within 50 basis points of its market value. Commercial real estate Common equity tier 1 capital ('CET1') CET 1 ratio Compliance risk Comprehensive Capital Analysis and Review ('CCAR') Conduits Constant currency Constant net asset value fund ('CNAV') Consumer and Mortgage Lending In the US...

Page 487
... the return on financial capital invested by shareholders and the cost of that capital. Economic profit may be expressed as a whole number or as a percentage. Considers all re-pricing mismatches in the current balance sheet and calculates the change in market value that would result from a set of...

Page 488
... credit risk. A method of calculating credit risk capital requirements using internal, rather than supervisory, estimates of risk parameters. Insurance risk Internal Capital Adequacy Assessment Process Internal Model Method Internal ratings-based approach ('IRB') HSBC HOLDINGS PLC 486

Page 489
...into. K Key management personnel 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...

Page 490
... 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. The market risk arising from non-trading portfolios. A flexible type of mortgage where...

Page 491
... securitisation. HSBC HOLDINGS PLC 489 Shareholder Information A federal tax imposed monthly on gross revenue earned by legal entities in Brazil. It is a contribution to finance the social security system. Financial Statements A transaction or scheme whereby the credit risk associated with an...

Page 492
... VaR Structured entities ('SE's) Structured finance/notes Student loan-related assets Subordinated liabilities Sub-prime Sustainability risk Systemic Risk Buffer ('SRB') Systems risk T Tier 1 capital Tier 2 capital Total Loss Absorbing Capacity ('TLAC') Trading portfolios Trading risk Troubled...

Page 493
... credit enhancements 138, 147, 162 management 202, 209 Commercial Banking 70 adjusted performance 2, 24 adjusted/reported reconciliation 66 areas of focus 28 business synergies 28 customers 28 products and services 28 HSBC HOLDINGS PLC 491 Shareholder Information Financial Statements Corporate...

Page 494
... profit/(loss) by country 79 renegotiated loans 130 reverse repos 143 risk-weighted assets 3 staff numbers 60, 79 total assets 76 wholesale lending 136 Events after the balance sheet date 457 D Dealings in HSBC Holdings plc securities 284 Debit valuation adjustment 382 Debt securities in issue 418...

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...region 132, 134 charges 22, 25, 49, 57, 121, 122 constant currency/reported reconciliation 149 critical accounting estimates and judgements 354 five years 150 goodwill 407 impaired loans 128, 331 HSBC HOLDINGS PLC 493 Shareholder Information Financial Statements Corporate Governance accounting...

Page 496
... rate derivatives 422 Interim results 472 Internal control 275 effectiveness 277 Internet crime 43 IFRSs and Hong Kong Financial Reporting Standards comparison 347 Investor relations 473 J Jaws 27 Joint ventures 405 K Key management personnel 455 Key performance indicators 19 L Latin America...

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... 38 risk 43, 114 Performance 285 adjusted 23, 48 reported 22 Perpetual subordinated capital securities 372 HSBC HOLDINGS PLC 495 Shareholder Information Financial Statements Corporate Governance Financial Review Strategic Report risk-weighted assets 3 staff numbers 60, 86 total assets 76...

Page 498
... policy 362 Share capital 281, 437 accounting policy 437 five years 61 in 2015 281 notifiable interests 284 rights and obligations 281 treasury shares 282 Share options 364, 439 Share plans for directors 282, 314 for employees 279, 282, 363 Shareholder (communications with) 284, 472 numbers...

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... 370 tax-related investigations 451 Technology systems access 328 Three lines of defence 104, 177 Tier 1 securities 438 Tier 2 securities 426 Total loss absorbing capacity 242 Total shareholder return 312 Trade corridors 14 Trading assets 124, 377 accounting policy 377 Trading income (net...

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HSBC HOLDINGS PLC Incorporated in England on 1 January 1959 with limited liability 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....

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... of HSBC Holdings plc. Published by Group Finance, HSBC Holdings plc, London Designed by Addison Group, London (Strategic Report) and by Group Finance, HSBC Holdings plc, London (rest of Annual Report and Accounts) Printed by Park Communications Limited, London, on Revive 100 Offset board and...

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

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