HSBC 2012 Annual Report Download - page 87

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Overview Operating & Financial Review Corporate Governance Financial Statements Shareholder Information
2011 on the disposal of a property fund did not
recur.
Net insurance claims incurred and movement
in liabilities to policyholders increased by 40%,
driven by net investment gains on the fair value of
the assets held to support policyholder contracts,
compared with net losses in 2011. This was partly
offset by lower reserves established for new
business, reflecting the decline in premiums in
France.
Loan impairment charges and other credit
risk provisions decreased by 22% to US$1.9bn.
GB&M reported lower credit risk provisions, mainly
in the UK, on available-for-sale ABSs, driven by an
improvement in underlying asset prices, as well as
lower charges on Greek sovereign debt. These were
coupled with a reduction in loan impairment charges
in RBWM, notably in the UK, as we continued to
pro-actively identify and monitor customers facing
financial hardship and focused on growing higher
quality lending. As a result, delinquency rates
improved across both the secured and unsecured
lending portfolios. This was partly offset by an
increase in loan impairment charges in RBWM in
Turkey, reflecting business expansion. In addition,
there were higher individually assessed provisions in
CMB reflecting, mainly, the challenging economic
conditions in the UK, Greece, Spain and Turkey.
Operating expenses increased by 15%, driven
by higher charges relating to UK customer redress
programmes with US$2.3bn reported in 2012,
compared with a charge of US$890m (US$898m as
reported) in 2011. In 2012 we included an additional
charge of US$1.7bn for estimated redress for the
possible mis-selling of PPI policies and US$598m in
relation to the possible mis-selling of interest rate
protection products in previous years, of which
US$268m related to the estimated redress to be paid
to customers and the remainder to costs of closing
out these positions and related administration costs.
A charge relating to the US Office of Foreign Asset
Control (‘OFAC’) investigation of US$375m was
also incurred in HSBC Holdings, along with the UK
bank levy of US$571m. This was partly offset by an
adjustment of US$99m in the 2011 bank levy charge
of US$570m as the basis of calculation was clarified.
In addition, 2011 included a credit of US$570m
(US$587m as reported) arising from the defined
benefit pension obligations in the UK which did
not recur. Restructuring costs of US$299m were
US$92m lower than in 2011, as the review initiated
in 2011 to improve cost efficiency continued to be
implemented and we completed disposals and exits
in Europe.
Excluding these items, operating expenses
marginally increased compared with 2011. Our
organisational effectiveness initiatives progressed,
delivering sustainable cost savings of approximately
US$770m in 2012. This enabled us to reinvest in,
and reallocate capital, to our designated growth
businesses such as our mortgage offering, our
international CMB business and our home and
priority growth markets (UK, France, Germany
and Turkey), as well as launching the M&S Bank in
the UK.
Operating expenses in Europe
2012 2011
US$m US$m
HSBC Holdings .................... 2,063 1,664
UK ......................................... 11,993 9,989
Continental Europe ............... 5,237 5,563
Intra-region eliminations ...... (198) (147)
Total operating expenses ...... 19,095 17,069