HSBC 2015 Annual Report Download - page 237

HSBC HOLDINGS PLC
235
Strategic Report Financial Review Corporate Governance Financial Statements Shareholder Information
Reconciliation of regulatory capital from transitional basis to an estimated CRD IV end point basis
At 31 December
2015 2014
$m $m
Common equity tier 1 capital on a transitional basis 130,863 133,200
Unrealised gains arising from revaluation of property 1,375
Unrealised gains in available-for-sale debt and equities 1,378
Common equity tier 1 capital on an end point basis 130,863 135,953
Additional tier 1 capital on a transitional basis 22,440 19,539
Grandfathered instruments:
Preference share premium (1,015)
(1,160)
Preference share non-controlling interests (1,711) (1,955)
Hybrid capital securities (9,088) (10,007)
Transitional provisions:
Allowable non-controlling interest in AT1 (1,377) (487)
Unconsolidated investments11 121 148
Additional tier 1 capital end point basis 9,370 6,078
Tier 1 capital on an end point basis 140,233 142,031
Tier 2 capital on a transitional basis 36,530 37,991
Grandfathered instruments:
Perpetual subordinated debt (1,941) (2,218)
Term subordinated debt (19,034) (21,513)
Transitional provisions:
Non-controlling interest in tier 2 capital
–
(240)
Allowable non-controlling interest in tier 2 21 396
Unconsolidated investments11 (121) (148)
Tier 2 capital on an end point basis 15,455 14,268
Total regulatory capital on an end point basis 155,688 156,299
For footnote, see page 243.
The capital position presented on a CRD IV transitional
basis follows the Group’s interpretation of CRD IV
legislation and the PRA’s rules as set out in the PRA
Rulebook.
The effects of draft EBA technical standards are not
generally captured in our numbers.
While CRD IV allows for the majority of regulatory
adjustments and deductions from CET1 to be implemented
on a gradual basis from 1 January 2014 to 1 January 2018,
the PRA has largely decided not 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, the PRA has followed
the transitional provisions timing as set out in CRD IV to
apply the necessary regulatory adjustments and deductions.
The effect of these adjustments is being phased in at 20%
per annum from 1 January 2014 to 1 January 2018.
Non-CRD IV compliant additional tier 1 and tier 2
instruments also benefit from a grandfathering period. This
progressively reduces the eligible amount by 10% annually,
following an initial reduction of 20% on 1 January 2014,
until they are fully phased out by 1 January 2022.
Under CRD IV, as implemented in the UK, banks are
required to meet a minimum CET1 ratio of 4.5% of RWAs,
a minimum tier 1 ratio of 6% of RWAs and a total capital
ratio of 8% of RWAs. In addition to the Pillar 1 minimum
ratios, the PRA sets Pillar 2A capital requirements, which
together are considered the minimum level of regulatory
capital to be maintained at all times. Pillar 2A is to be met
with at least 56% CET1 capital and the remaining with non-
common equity capital.
In addition to minimum requirements, CRD IV establishes a
number of capital buffers to be met with CET1 capital,
which largely phase-in from 1 January 2016. To the extent
our CET1 capital is insufficient to meet these buffer
requirements, the Group would suffer automatic
restrictions on capital distributions.
Going forward, as the grandfathering provisions fall away,
we intend to meet our overall regulatory minima in an
economically efficient manner by issuing non-common
equity capital as necessary. At 31 December 2015, the
Group had $25.1bn of CRD IV compliant non-common
equity capital instruments, of which $3.2bn of tier 2 and
$3.6bn of additional tier 1 were issued during the year (for
details on the additional tier 1 instruments issued during
the year see Note 35 on the Financial Statements). At
31 December 2015, the Group also had $32.8bn of non-
common equity capital instruments qualifying as eligible
capital under CRD IV by virtue of the application of the
grandfathering provisions, after applying a 30% reduction
as outlined above.