HSBC 2012 Annual Report Download - page 33

31
Overview Operating & Financial Review Corporate Governance Financial Statements Shareholder Information
experience. The provision in relation to interest rate
protection products reflects an estimate of possible
customer redress requirements following an
independent review carried out at the request of the
Financial Services Authority (‘FSA’). There are many
factors which affect these estimated liabilities and there
remains a high degree of uncertainty as to the eventual
cost of redress for these matters.
Operating expenses also increased due to
inflationary pressures, for example, on wages and
salaries, in certain of our Latin American and Asian
markets. Other increases arose from investment in
strategic initiatives including certain business expansion
projects, enhanced processes and technology
capabilities, and increased investment in regulatory and
compliance infrastructure, primarily in the US. These
factors were partly offset by US$2.0bn of sustainable
cost savings achieved across all regions, as we
continued with our organisational effectiveness
programmes during 2012. The number of full time
equivalent staff numbers (‘FTEs’) fell by more than
27,700, reflecting the planned net reduction of staff
numbers across the Group from organisational
effectiveness initiatives and business disposals.
On a constant currency basis, income from
associates increased, mainly driven by strong results in
our mainland China associates. The contribution from
Bank of Communications Co., Limited (‘BoCom’) and
Industrial Bank rose due to loan growth and higher fee
income. These factors were partially offset by a decline
in income from Ping An due to market valuation losses
on equity securities held by their insurance business,
reflecting volatile domestic equity markets.
The reported profit after tax was US$2.6bn or 15%
lower than in 2011, reflecting a decrease in taxable
profits, and a higher tax charge in 2012. The increased
tax charge included the effect of the non-tax deductible
charge for fines and penalties paid as part of the
settlement of investigations into past inadequate
compliance with anti-money laundering and sanctions
laws, together with the non-recognition of the tax
benefit in respect of the accounting charge associated
with negative fair value movements on own debt. The
lower tax charge in 2011 included the benefit of US
foreign tax credits. The effective tax rate in 2012
was 26% compared with 18% in 2011.
Notable revenue items by geographical region
Europe
Hong
Kong
Rest of
Asia-
Pacific MENA
North
America
Latin
America
Total
US$m US$m US$m US$m US$m US$m US$m
2012
Non-qualifying hedges ................................... (51) (31) (20) – (194) – (296)
Ping An contingent forward sale contract37 ... – – (553) – – – (553)
Gain on sale of non-core investments in India – 314 – – – – 314
Loss recognised following the classification of
businesses to held for sale .......................... – – – – – (96) (96)
2011
Non-qualifying hedges ................................... (291) (14) (20) – (1,067) – (1,392)
Refinement of PVIF calculation ..................... 95 135 11 – – 2 243
2010
Non-qualifying hedges ................................... (691) (17) 4 – (353) – (1,057)
Notable revenue items by global business
Retail
Banking
and Wealth
Management
Commercial
Banking
Global
Banking
and
Markets
Global
Private
Banking Other
Total
US$m US$m US$m US$m US$m US$m
2012
Non-qualifying hedges ....................................... (193) – (42) 4 (65) (296)
Ping An contingent forward sale contract37 ....... – – – – (553) (553)
Gain on sale of non-core investments in India ... – – – – 314 314
Loss recognised following the classification
of businesses to held for sale .......................... (26) (35) (27) – (8) (96)
2011
Non-qualifying hedges ....................................... (1,038) – 90 (5) (439) (1,392)
Refinement of PVIF calculation ......................... 181 62 – – – 243
2010
Non-qualifying hedges ....................................... (310) – (309) 1 (439) (1,057)
For footnote, see page 120.