HSBC 2010 Annual Report Download - page 85

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Overview Operating & Financial Review Governance Financial Statements Shareholder Information
to estimate reliably the amounts, or range of possible
amounts, of any fines and/or penalties. As matters
progress, it is possible that any fines and/or penalties
could be significant.
For further information see Note 44 on the
Financial Statements.
Foreclosures
US State and federal officials recently announced
investigations into the procedures followed by
mortgage servicing companies and banks, including
HSBC Finance and HSBC Bank USA, relating to
foreclosures. We have responded to all related
inquiries and co-operated with all applicable
investigations, including a joint examination by
staffs of the Federal Reserve Board and the Office
of the Comptroller of the Currency as part of their
broad review of industry foreclosure practices.
Following the examination, our examiners issued
supervisory letters noting certain deficiencies in our
processing, preparation and signing of affidavits and
other documents supporting foreclosures, and in the
governance of and resources devoted to our
foreclosure processes, including the evaluation and
monitoring of third party law firms retained to effect
our foreclosures. Certain other processes were
deemed adequate. Management is reviewing
foreclosures where judgement has not yet been
entered and will correct deficient documentation and
re-file affidavits where necessary. We have
suspended foreclosures until such time as we have
substantially addressed noted deficiencies in our
processes. We are engaged in discussions with the
Federal Reserve Board and the Office of the
Comptroller of the Currency regarding the terms of
consent cease and desist orders, which will prescribe
actions to address the deficiencies noted in the joint
examination. We expect the consent orders will be
finalised shortly. While the impact of the consent
orders depends on the final terms, we believe they
have the potential to increase our operational,
reputational and legal risk profiles and expect
implementation of their provisions will require
significant and managerial resources. In addition,
the consent orders will not preclude further actions
against HSBC Bank USA or HSBC Finance by
bank regulatory or other agencies, including the
imposition of fines and civil money penalties. We
are unable at this time, however, to determine the
likelihood of any further action or the amount of
fines or penalties, if any, that may be imposed by the
regulators or agencies.
Data security
In March 2010 HSBC Private Bank (Suisse) SA
announced that it had been the victim of a significant
data theft. In 2010, HSBC Private Bank (Suisse) SA
conducted a comprehensive review of its information
security procedures, formulated and implemented
major security upgrade programmes and continued a
multi-million franc investment programme in
systems to ensure industry-leading security
standards. It also reviewed and strengthened risk
management and operational controls and will
continue to invest in these areas. In March 2010, the
Swiss Financial Market Supervisory Authority
(‘FINMA’) launched an investigation into the
circumstances of the data theft. On 22 February 2011
a notice of decision with a declaratory ruling was
received from FINMA following such investigation
which found that, because of deficiencies in its
internal organisation and oversight of its IT
activities, HSBC Private Bank (Suisse) SA had
breached various regulatory provisions. HSBC
Private Bank (Suisse) SA is currently considering the
details of the notice of decision and actions required
by FINMA.
Footnotes to Overview and Operating and Financial Review
Financial highlights
1 Dividends recorded in the financial statements are dividends per ordinary share declared in a year and are not dividends in respect of,
or for, that year. The third interim dividend for 2009 of US$0.08 was paid on 13 January 2010. The fourth interim dividend for 2009 of
US$0.10 was paid on 5 May 2010. First, second and third interim dividends for 2010, each of US$0.08 per ordinary share, were paid
on 7 July 2010, 6 October 2010 and 12 January 2011, respectively. Note 11 on the Financial Statements provides more information on
the dividends declared in 2010. On 28 February 2011 the Directors declared a fourth interim dividend for 2010 of US$0.12 per
ordinary share in lieu of a final dividend, which will be payable to ordinary shareholders on 5 May 2011 in cash in US dollars, or in
pounds sterling or Hong Kong dollars at exchange rates to be determined on 27 April 2011, with a scrip dividend alternative. The
reserves available for distribution at 31 December 2010 were US$36,013m.
Quarterly dividends of US$15.50 per 6.2% non-cumulative Series A US dollar preference share, equivalent to a dividend of US$0.3875
per Series A ADS, each of which represents one-fortieth of a Series A US dollar preference share, were paid on 15 March 2010, 15 June
2010, 15 September 2010 and 15 December 2010.
Quarterly coupons of US$0.508 per security were paid with respect to 8.125% capital securities on 15 January 2010, 15 April 2010,
15 July 2010 and 15 October 2010.
Quarterly coupons of US$0.45 and US$0.50 per security were paid with respect to 8% capital securities on 15 September 2010 and on
15 December 2010, respectively.
2 Return on invested capital is based on the profit attributable to ordinary shareholders. Average invested capital is measured as average