TIDM62YN
RNS Number : 3522D
HSBC UK Bank PLC
18 February 2020
Financial statements
Page
Consolidated income statement 70
------------------------------------------
Consolidated statement of comprehensive
income 71
------------------------------------------
Consolidated balance sheet 72
------------------------------------------
Consolidated statement of cash
flows 73
------------------------------------------
Consolidated statement of changes
in equity 74
------------------------------------------
HSBC UK Bank plc balance sheet 75
------------------------------------------
HSBC UK Bank plc statement of
cash flows 76
------------------------------------------
HSBC UK Bank plc statement of
changes in equity 77
------------------------------------------ ----
Notes on the financial
statements
Basis of preparation and
1 significant accounting policies 78
2 Net fee income 86
----
Employee compensation and
3 benefits 86
4 Auditors' remuneration 91
5 Tax 91
6 Dividends 93
Fair values of financial
instruments carried at fair
7 value 93
----
Fair values of financial
instruments not carried at
8 fair value 94
----
9 Derivatives 95
---- ----
10 Financial investments 98
----
Assets pledged, collateral
11 received and assets transferred 98
----
12 Interests in joint ventures 99
----
13 Investments in subsidiaries 99
----
14 Structured entities 100
----
15 Goodwill and intangible assets 100
----
Prepayments, accrued income
16 and other assets 102
----
17 Debt securities in issue 102
----
Accruals, deferred income
18 and other liabilities 102
----
19 Provisions 103
----
20 Subordinated liabilities 105
----
Maturity analysis of assets,
liabilities and off-balance
21 sheet commitments 106
----
Offsetting of financial assets
22 and financial liabilities 111
----
Called up share capital and
23 other equity instruments 112
----
Contingent liabilities, contractual
commitments
24 and guarantees 113
----
25 Lease commitments 113
----
Legal proceedings and regulatory
26 matters 114
----
27 Related party transactions 115
----
Events after the balance
28 sheet date 117
----
HSBC UK Bank plc's subsidiaries
29 and joint ventures 118
---- ------------------------------------ ----
Consolidated income statement
for the year ended 31 December
2019(5) 2018
Notes GBPm GBPm
Net interest income 4,752 2,456
* interest income(1,2,3) 5,696 2,805
* interest expense(4) (944) (349)
Net fee income 2 1,230 648
* fee income 1,456 831
* fee expense (226) (183)
Net income from financial instruments held for trading
or managed on a fair value basis 400 198
Changes in fair value of other financial instruments
mandatorily measured at fair value through profit
or loss 2 -
Gains less losses from financial investments 48 22
Other operating income 52 33
Total operating income 6,484 3,357
Net operating income before change in expected credit
losses and other credit impairment charges 6,484 3,357
Change in expected credit losses and other credit
impairment charges (613) (305)
Net operating income 5,871 3,052
Employee compensation and benefits 3 (934) (611)
General and administrative expenses (3,601) (1,267)
Depreciation and impairment of property, plant and
equipment and right-of-use assets (170) (46)
Amortisation and impairment of intangible assets (156) (64)
Total operating expenses (4,861) (1,988)
Operating profit 1,010 1,064
Profit before tax 1,010 1,064
Tax expense 5 (494) (301)
-------------------------------------------------------- ------ ------ ------
Profit for the year 516 763
-------------------------------------------------------- ------ ------ ------
Attributable to:
--------------------------------------------------------
* ordinary shareholders of the parent company 512 763
* non-controlling interests 4 -
-------------------------------------------------------- ------ ------ ------
1 Interest income recognised on financial assets measured at
amortised cost is GBP5,459m (2018: GBP2,722m).
2 Interest income recognised on financial assets measured at FVOCI is GBP237m (2018: GBP81m).
3 Interest revenue calculated using the effective interest
method comprises interest recognised on financial assets measured
at either amortised cost or fair value through other comprehensive
income.
4 Interest expense on financial instruments, excluding interest
on trading liabilities designated or otherwise mandatorily measured
at fair value is GBP943m (2018: GBP349m).
5 HSBC UK's banking operations commenced on 1 July 2018. To
provide better comparative information, the summary income
statement is presented for the six months to 30 June 2019 and 31
December 2019 on Page 10 in the Strategic Report.
Consolidated statement of comprehensive income
for the year ended 31 December
2019 2018
GBPm GBPm
----- -------
Profit for the year 516 763
------------------------------------------------------------- ---- ----
Other comprehensive income
-------------------------------------------------------------
Items that will be reclassified subsequently to profit
or loss when specific conditions are met:
-------
Debt instruments at fair value through other comprehensive
income (4) 10
- fair value gains 42 34
- fair value gains transferred to the income statement
on disposal (48) (21)
- expected credit losses recognised in the income statement 1 -
- income taxes 1 (3)
---- ----
Cash flow hedges 34 (17)
- fair value gains/(losses) 39 (107)
-------------------------------------------------------------
- fair value losses reclassified to the income statement 7 84
-------------------------------------------------------------
- income taxes (12) 6
------------------------------------------------------------- ---- ----
Exchange differences 1 (2)
- other exchange differences 1 (2)
------------------------------------------------------------- ----
Items that will not be reclassified subsequently to
profit or loss:
Remeasurement of defined benefit asset/liability (207) (364)
----
- before income taxes (268) (485)
-------------------------------------------------------------
- income taxes 61 121
------------------------------------------------------------- ---- ----
Other comprehensive expense for the year, net of tax (176) (373)
------------------------------------------------------------- ----
Total comprehensive income for the year 340 390
------------------------------------------------------------- ---- ----
Attributable to:
- ordinary shareholders of the parent company 336 390
---- ----
- non-controlling interests 4 -
------------------------------------------------------------- ---- ----
Total comprehensive income for the year 340 390
------------------------------------------------------------- ---- ----
Consolidated balance sheet
at 31 December
2019 2018
Notes GBPm GBPm
------------------------------------------------------- ------ ------- ---------
Assets
Cash and balances at central banks 37,030 33,193
Items in the course of collection from other banks 504 603
Financial assets designated and otherwise mandatorily
measured at fair value through profit or loss 7 66 35
------ ------- -------
Derivatives 9 121 66
Loans and advances to banks 1,389 1,263
Loans and advances to customers 183,056 174,807
Reverse repurchase agreements - non-trading 3,014 3,422
Financial investments 10 19,737 13,203
Prepayments, accrued income and other assets 16 8,203 8,528
Interests in joint ventures 12 9 9
Goodwill and intangible assets 15 3,973 3,810
Total assets 257,102 238,939
------------------------------------------------------- ------ ------- -------
Liabilities and equity
Liabilities
Deposits by banks 529 1,027
Customer accounts 216,214 204,837
Repurchase agreements - non-trading 98 639
Items in the course of transmission to other banks 343 233
Derivatives 9 201 346
Debt securities in issue 17 3,142 -
Accruals, deferred income and other liabilities 18 1,834 2,409
Current tax liabilities 409 359
Provisions 19 1,325 630
Deferred tax liabilities 5 1,223 1,189
Subordinated liabilities 20 9,533 4,937
Total liabilities 234,851 216,606
------------------------------------------------------- ------ ------- -------
Equity
Called up share capital 23 - -
Share premium account 23 9,015 9,015
------
Other equity instruments 23 2,196 2,196
Other reserves 7,688 7,657
Retained earnings 3,292 3,405
Total shareholders' equity 22,191 22,273
------------------------------------------------------- ------ ------- -------
Non-controlling interests 60 60
------------------------------------------------------- ------ ------- -------
Total equity 22,251 22,333
Total liabilities and equity 257,102 238,939
------------------------------------------------------- ------ ------- -------
The accompanying notes on pages 78 to 118, and the audited
sections in: the 'Financial Summary' on pages 10 to 15 and the
'Report of the Directors' on pages 17 to 60 form an integral part
of these financial statements.
These financial statements were approved by the Board of
Directors on 17 February 2020 and signed on its behalf by:
John David Stuart
Director
Consolidated statement of cash flows
for the year ended 31 December
2019 2018
GBPm GBPm
-------------------------------------------------------------- -------- ---------
Profit before tax 1,010 1,064
------- ------
Adjustments for non-cash items:
--------
Depreciation and amortisation(1) 326 110
-------
Net gain from investing activities (49) -
-------
Change in expected credit losses gross of recoveries
and other credit impairment charges 697 364
------- ------
Provisions including pensions 1,248 184
-------
Share-based payment expense 17 -
-------
Elimination of exchange differences(2) 255 (190)
-------
Changes in operating assets and liabilities
-------------------------------------------------------------- --------
Change in net trading securities and derivatives (161) (33)
Change in loans and advances to banks and customers (8,306) (7,346)
Change in reverse repurchase agreements - non-trading 408 (3,422)
Change in financial assets designated and otherwise
mandatorily measured at fair value (31) (27)
Change in other assets 511 1,941
Change in deposits by banks and customer accounts 10,879 4,102
Change in repurchase agreements - non-trading (541) 639
Change in debt securities in issue 3,142 -
Change in other liabilities (1,621) (4,576)
-------
Contributions paid to defined benefit plans (115) (80)
-------
Tax paid (360) (74)
-------
Net cash from operating activities 7,309 (7,344)
-------------------------------------------------------------- ------- ------
Purchase of financial investments (19,300) (5,369)
-------
Proceeds from the sale and maturity of financial investments 12,629 3,292
-------
Net cash flows from the purchase and sale of property,
plant and equipment (69) (57)
-------
Net investment in intangible assets (319) (164)
-------
Net cash flow on acquisition of subsidiaries, businesses
and joint venture(3) - 29,410
-------
Net cash from investing activities (7,059) 27,112
-------------------------------------------------------------- ------- ------
Issue of ordinary share capital and other equity instruments - 9,000
-------
Subordinated loan capital issued(4) 4,619 2,020
-------------------------------------------------------------- ------- ------
Funds received from the shareholder of the parent company - 3,000
-------------------------------------------------------------- ------- ------
Dividends paid to shareholders of the parent company
and non-controlling interests (455) (1)
-------
Net cash from financing activities 4,164 14,019
-------------------------------------------------------------- ------- ------
Net increase in cash and cash equivalents 4,414 33,787
-------------------------------------------------------------- ------- ------
Cash and cash equivalents at 1 Jan 33,817 2
------- ------
Exchange differences in respect of cash and cash equivalents (145) 28
-------
Cash and cash equivalents at 31 Dec(5) 38,086 33,817
-------------------------------------------------------------- ------- ------
Cash and cash equivalents comprise:
--------
- cash and balances at central banks 37,030 33,193
-------
- items in the course of collection from other banks 504 603
-------
- loans and advances to banks of one month or less 787 105
-------
- treasury bills, other bills and certificates of deposit
less than three months 23 149
-------
- cash collateral and net settlement accounts 85 -
-------------------------------------------------------------- ------- ------
- less: items in the course of transmission to other
banks (343) (233)
-------------------------------------------------------------- ------- ------
Cash and cash equivalents at 31 Dec(5) 38,086 33,817
-------------------------------------------------------------- ------- ------
Interest received was GBP5,648m (2018: GBP2,574m), interest paid
was GBP987m (2018: GBP228m).
1 The impact of the right-of-use assets recognised under IFRS 16
at the beginning of 2019 is not recognised in 2018.
2 Adjustment to bring changes between opening and closing
balance sheet amounts to average rates. This is not done on a
line-by-line basis, as details cannot be determined without
unreasonable expense.
3 No cash or cash equivalent was paid in consideration of the
investment in subsidiaries and joint venture as it formed part of
the Part VII transfer of asset and liabilities. The aggregate
amount of cash and cash equivalent in the subsidiaries and other
businesses over which control was obtained was GBP29,410m.
4 Subordinated liabilities changes during the year are
attributable to cash flows from issuance of securities of GBP4,619m
(2018: GBP2,020m). Non-cash changes during the year included
foreign exchange (loss) of GBP(23)m (2018: Nil).
5 At 31 December 2019 GBP627m (2018: GBP363m) was not available
for use by the group, all related to mandatory deposits at central
banks (2018: GBP363m).
Consolidated statement of changes in equity
for the year ended 31 December
Other reserves
Called
up
share
capital Financial Cash Total
and Other assets flow Foreign Group share- Non-
share equity Retained at FVOCI hedging exchange re-organisation holders' controlling Total
premium instru-ments earnings reserve reserve reserve reserve equity interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------------------------- ------- ------------ ---------- ----------- --------- ---------- --------------- -------- ------------- ---------
At 1 Jan 2019 9,015 2,196 3,405 14 (46) (2) 7,691 22,273 60 22,333
--------------------------------------------------------
Profit for the
year - - 512 - - - - 512 4 516
--------------------------------------------------------
Other comprehensive
income
(net of tax) - - (207) (5) 34 2 - (176) - (176)
--------------------------------------------------------
* debt instruments at fair value through other
comprehensive income - - - (4) - - - (4) - (4)
--------------------------------------------------------
* cash flow hedges - - - - 34 - - 34 - 34
--------------------------------------------------------
* remeasurement of defined benefit asset/liability - - (207) - - - - (207) - (207)
--------------------------------------------------------
* exchange differences - - - (1) - 2 - 1 - 1
Total comprehensive
income for the
year - - 305 (5) 34 2 - 336 4 340
-------------------------------------------------------- ------- ------------ ------ ---- ---- ---- --- --- ----- --------------- ------- ---- ------- ------
Capital securities
issued - - - - - - - - - -
--------------------------------------------------------
Dividends to shareholders - - (451) - - - - (451) (4) (455)
--------------------------------------------------------
Capital contribution - - - - - - - - - -
-------------------------------------------------------- ------- ------------ ------ ---- ----- ---- --- --- ----- --------------- ------- ---- ------- ------
Transfer - - - - - - - - - -
-------------------------------------------------------- ------- ------------ ------ ---- ----- ---- --- --- ----- --------------- ------- ---- ------- ------
Group Reorganisation
Reserve - - - - - - - - - -
-------------------------------------------------------- ------- ------------ ------ ---- ----- ---- --- --- ----- --------------- ------- ---- ------- ------
Other movements(1) - - 33 - - - - 33 - 33
-------------------------------------------------------- ------- ------------ ------ ---- ----- ---- --- --- ----- --------------- ------- ---- ------- ------
At 31 Dec 2019 9,015 2,196 3,292 9 (12) - 7,691 22,191 60 22,251
-------------------------------------------------------- ------- ------------ ------ ---- ----- ---- --- ----- --------------- ------- ---- ------- ------
At 1 Jan 2018 15 - - - - - - 15 - 15
-------------------------------------------------------- ------- ------------ ------ ---- ----- ---- --- --- ----- --------------- ------- ---- ------- ------
Profit for the
year - - 763 - - - - 763 - 763
-------------------------------------------------------- ------- ------------ ------ ------- ---- ------- ------
Other comprehensive
income
(net of tax) - - (364) 10 (17) (2) - (373) - (373)
--------------------------------------------------------
* debt instruments at fair value through other
comprehensive income - - - 10 - - - 10 - 10
* cash flow hedges - - - - (17) - - (17) - (17)
* remeasurement of defined benefit asset/liability - - (364) - - - - (364) - (364)
* exchange differences - - - - - (2) - (2) - (2)
-------------------------------------------------------- ------- ------------ ------ ---- ----- ---- --- --- ---- --------------- ------- ------
Total comprehensive
income for the
year - - 399 10 (17) (2) - 390 - 390
-------------------------------------------------------- ------- ------------ ------ ---- ----- ---- --- ---- --------------- ------- ---- ------- ------
Capital securities
issued(2) 9,000 - - - - - - 9,000 - 9,000
-------------------------------------------------------- -------
Dividends to shareholders - - - - - - - - (1) (1)
--------------------------------------------------------
Capital contribution(3) - - 3,000 - - - - 3,000 - 3,000
--------------------------------------------------------
Transfer(4,5) - 2,196 - - - - - 2,196 60 2,256
--------------------------------------------------------
Group Reorganisation
Reserve(6) - - - 4 (29) - 7,691 7,666 - 7,666
--------------------------------------------------------
Other movements - - 6 - - - - 6 1 7
-------------------------------------------------------- ------- ------------ ------ ---- ----- ---- --- --- ----- --------------- -------- ---- ------- ---------
At 31 Dec 2018 9,015 2,196 3,405 14 (46) (2) 7,691 22,273 60 22,333
-------------------------------------------------------- ------- ------------ ------ ---- ----- ---- --- ---- --------------- ------- ---- ------- ------
1 Relates primarily to GBP33m pension assets transfer from HSBC
Global Services (UK) Limited in 2019 (2018: Nil).
2 All new capital subscribed during 2018 was issued to HSBC UK Holdings Limited.
3 HSBC UK Holdings Limited injected GBP3,000m of CET1 capital in 2018.
4 Other equity instruments amounting to GBP2,196m consists of
additional Tier 1 capital issued during 2018.
5 Non-controlling interests ('NCI') of GBP60m transferred to the
group relates to Marks and Spencer Financial Services plc.
6 Relates primarily to the recognition of goodwill GBP3,142m and
the pension asset net of deferred tax GBP4,776m for the transfer of
the ring- fenced businesses to HSBC UK Bank plc in 2018.
HSBC UK Bank plc balance sheet
at 31 December
2019 2018
Notes GBPm GBPm
------------------------------------------------------- ------ ------- ---------
Assets
Cash and balances at central banks 37,020 33,187
Items in the course of collection from other banks 355 457
Financial assets designated and otherwise mandatorily
measured at fair value through profit or loss 7 66 35
------
Derivatives 9 118 61
Loans and advances to banks 4,643 3,883
Loans and advances to customers 173,901 165,850
Reverse repurchase agreements - non-trading 3,014 3,422
Financial investments 10 19,737 13,203
Investments in subsidiaries 13 1,600 1,907
------ ------- -------
Prepayments, accrued income and other assets 16 8,216 8,523
Interests in joint ventures 12 5 5
Goodwill and intangible assets 15 881 718
Total assets 249,556 231,251
------------------------------------------------------- ------ ------- -------
Liabilities and equity
Liabilities
Deposits by banks 4,277 4,265
Customer accounts 207,830 196,858
Repurchase agreements - non-trading 98 639
Items in the course of transmission to other banks 336 225
Derivatives 9 197 341
Debt securities in issue 17 2,917 -
Accruals, deferred income and other liabilities 18 2,271 2,274
Current tax liabilities 362 286
Provisions 19 1,114 515
Deferred tax liabilities 5 1,255 1,224
Subordinated liabilities 20 9,454 4,858
Total liabilities 230,111 211,485
------------------------------------------------------- ------ ------- -------
Equity
Called up share capital 23 - -
Share premium account 23 9,015 9,015
------
Other equity instruments 23 2,196 2,196
Other reserves 5,245 5,214
Retained earnings 2,989 3,341
Total equity 19,445 19,766
Total liabilities and equity 249,556 231,251
------------------------------------------------------- ------ ------- -------
Profit after tax for the year was GBP273m (2018: GBP701m)
The accompanying notes on pages 78 to 118, and the audited
sections of the 'Report of the Directors' on pages 17 to 60 form an
integral part of these financial statements.
These financial statements were approved by the Board of
Directors on 17 February 2020 and signed on its behalf by:
John David Stuart
Director
HSBC UK Bank plc statement of cash flows
for the year ended 31 December
2019 2018
GBPm GBPm
-------------------------------------------------------------- -------- ---------
Profit before tax 715 968
-------
Adjustments for non-cash items:
--------
Depreciation and amortisation(1) 289 94
-------
Net loss from investing activities 435 -
------- ------
Change in expected credit losses gross of recoveries
and other credit impairment charges 537 313
------- ------
Provisions including pensions 1,005 124
------- ------
Share-based payment expense 14 (1)
------- ------
Elimination of exchange differences(2) 255 (190)
------- ------
Changes in operating assets and liabilities
--------
Change in net trading securities and derivatives (162) 6
-------
Change in loans and advances to banks and customers (8,392) (9,560)
-------
Change in reverse repurchase agreements - non-trading 408 (3,422)
-------
Change in financial assets designated and otherwise
mandatorily measured at fair value (31) (27)
-------
Change in other assets 322 1,801
-------
Change in deposits by banks and customer accounts 10,984 5,457
-------
Change in repurchase agreements - non-trading (541) 639
-------
Change in debt securities in issue 2,917 -
-------
Change in other liabilities (875) (3,392)
------- ------
Contributions paid to defined benefit plans (115) (80)
------- ------
Tax paid (286) -
------- ------
Net cash from operating activities 7,479 (7,270)
-------------------------------------------------------------- ------- ------
Purchase of financial investments (19,300) (5,369)
------- ------
Proceeds from the sale and maturity of financial investments 12,629 3,290
------- ------
Net cash flows from the purchase and sale of property,
plant and equipment (50) (48)
------- ------
Net investment in intangible assets (306) (154)
------- ------
Net cash outflow on cost of investment in subsidiaries - (48)
------- ------
Net cash flow on acquisition of subsidiaries, businesses
and joint venture(3) - 29,222
-------------------------------------------------------------- ------- ------
Net cash from investing activities (7,027) 26,893
-------------------------------------------------------------- ------- ------
Issue of ordinary share capital and other equity instruments - 9,000
-------
Subordinated loan capital issued(4) 4,619 2,020
-------------------------------------------------------------- ------- ------
Funds received from the shareholder of the parent company - 3,000
-------------------------------------------------------------- ------- ------
Dividends paid to shareholders of the parent company (451) -
-------------------------------------------------------------- ------- ------
Net cash from financing activities 4,168 14,020
Net increase in cash and cash equivalents 4,620 33,643
-------------------------------------------------------------- ------- ------
Cash and cash equivalents at 1 Jan 33,673 2
------- ------
Exchange differences in respect of cash and cash equivalents (145) 28
------- ------
Cash and cash equivalents at 31 Dec(5) 38,148 33,673
-------------------------------------------------------------- ------- ------
Cash and cash equivalents comprise:
-------- ---------
- cash and balances at central banks 37,020 33,187
------- ------
- items in the course of collection from other banks 355 457
------- ------
- loans and advances to banks of one month or less 1,001 105
------- ------
- treasury bills, other bills and certificates of deposit
less than three months 23 149
------- ------
- cash collateral and net settlement accounts 85 -
-------------------------------------------------------------- ------- ------
- less: items in the course of transmission to other
banks (336) (225)
-------------------------------------------------------------- ------- ------
Cash and cash equivalents at 31 Dec(5) 38,148 33,673
-------------------------------------------------------------- ------- ------
Interest received was GBP5,183m (2018: GBP2,454m), interest paid
was GBP971m (2018: GBP212m).
1 The impact of the right-of-use assets recognised under IFRS 16
at the beginning of 2019 is not recognised in 2018.
2 Adjustment to bring changes between opening and closing
balance sheet amounts to average rates. This is not done on
line-by-line basis, as details cannot be determined without
unreasonable expense.
3 No cash or cash equivalent was paid in consideration of the
investment in subsidiaries and joint venture as it formed part of
the Part VII transfer of asset and liabilities. The aggregate
amount of cash and cash equivalent in the businesses over which
control was obtained was GBP29,222m.
4 Subordinated liabilities changes during the year are
attributable to cash flows from issuance of securities of
GBP4,619m, (2018: GBP2,020m). Non-cash changes during the year
included foreign exchange (loss) of GBP(23)m (2018: Nil).
5 At 31 December 2019, GBP617m (2018: GBP350m) was not available
for use by the bank, all related to mandatory deposits at central
banks (2018: GBP350m).
HSBC UK Bank plc statement of changes in equity
for the year ended 31 December
Other reserves
Called
up
share
capital Financial Total
and Other assets Cash flow Foreign Group share-
share equity Retained at FVOCI hedging exchange re-organisation holders'
premium instruments earnings reserve reserve reserve reserve equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------------------------------
At 1 Jan 2019 9,015 2,196 3,341 14 (46) (2) 5,248 19,766
Profit for the
year - - 273 - - - - 273
--------------------------------------------------------
Other comprehensive
income
(net of tax) - - (207) (5) 34 2 - (176)
--------------------------------------------------------
* debt instruments at fair value through other
comprehensive income - - - (4) - - - (4)
--------------------------------------------------------
* cash flow hedges - - - - 34 - - 34
--------------------------------------------------------
* remeasurement of defined benefit asset/liability - - (207) - - - - (207)
--------------------------------------------------------
* exchange differences - - - (1) - 2 - 1
-------------------------------------------------------- ------- ----------- ------ ---- ---- ---- --- --- ----- --------------- -------
Total comprehensive
income for the
year - - 66 (5) 34 2 - 97
-------------------------------------------------------- ------- ----------- ------ ---- ---- ---- --- --- ----- --------------- -------
Capital securities
issued - - - - - - - -
-------------------------------------------------------- -------
Dividends to shareholders - - (451) - - - - (451)
--------------------------------------------------------
Capital contribution - - - - - - - -
-------------------------------------------------------- ------- ----------- ------ ---- ----- ---- --- --- ----- --------------- -------
Transfer - - - - - - - -
-------------------------------------------------------- ------- ----------- ------ ---- ----- ---- --- --- ----- --------------- -------
Group Reorganisation
Reserve - - - - - - - -
-------------------------------------------------------- ------- ----------- ------ ---- ----- ---- --- --- ----- --------------- -------
Other movements(1) - - 33 - - - - 33
-------------------------------------------------------- ------- ----------- ------ ---- ----- ---- --- --- ----- --------------- -------
At 31 Dec 2019 9,015 2,196 2,989 9 (12) - 5,248 19,445
-------------------------------------------------------- ------- ----------- ------ ---- ----- ---- --- ----- --------------- -------
At 1 Jan 2018 15 - - - - - - 15
-------------------------------------------------------- ------- ----------- ------ ---- ----- ---- --- --- ----- --------------- -------
Profit for the
year - - 701 - - - - 701
-------------------------------------------------------- ------- ----------- ------ -------
Other comprehensive
income
(net of tax) - - (364) 10 (17) (2) - (373)
-------------------------------------------------------- ------- ----------- ------ ---- ----- ---- --- ---- --------------- -------
* debt instruments at fair value through other
comprehensive income - - - 10 - - - 10
--------------------------------------------------------
* cash flow hedges - - - - (17) - - (17)
--------------------------------------------------------
* remeasurement of defined benefit asset/liability - - (364) - - - - (364)
--------------------------------------------------------
* exchange differences - - - - - (2) - (2)
-------------------------------------------------------- ------- ----------- ------ ---- ----- ---- --- --- ---- --------------- -------
Total comprehensive
income for the
year - - 337 10 (17) (2) - 328
-------------------------------------------------------- ------- ----------- ------ ---- ----- ---- --- ---- --------------- -------
Capital securities
issued(2) 9,000 - - - - - - 9,000
--------------------------------------------------------
Dividends to shareholders - - - - - - - -
--------------------------------------------------------
Capital contribution(3) - - 3,000 - - - - 3,000
--------------------------------------------------------
Transfer(4) - 2,196 - - - - - 2,196
--------------------------------------------------------
Group Reorganisation
Reserve(5) - - - 4 (29) - 5,248 5,223
--------------------------------------------------------
Other movements - - 4 - - - - 4
-------------------------------------------------------- ------- ----------- ------ ---- ----- ---- --- --- ----- --------------- -------
At 31 Dec 2018 9,015 2,196 3,341 14 (46) (2) 5,248 19,766
-------------------------------------------------------- ------- ----------- ------ ---- ----- ---- --- ---- --------------- -------
1 Relates primarily to GBP33m pension assets transfer from HSBC
Global Services (UK) Limited in 2019 (2018: Nil).
2 All new capital subscribed during 2018 was issued to HSBC UK Holdings Limited.
3 HSBC UK Holdings Limited injected GBP3,000m of CET1 capital in 2018.
4 Other equity instruments amounting to GBP2,196m consists of
additional Tier 1 capital issued during 2018.
5 Relates primarily to the recognition of the pension asset net
of deferred tax GBP4,776m for the transfer of the ring- fenced
businesses to HSBC UK Bank plc in 2018 .
Notes on the financial statements
1 Basis of preparation and significant accounting policies
---------------------------------------------------------
1.1 Basis of preparation
(a) Compliance with International Financial Reporting Standards
The consolidated financial statements of HSBC UK and the
separate financial statements of the bank have been prepared in
accordance with International Financial Reporting Standards
('IFRSs') as issued by the International Accounting Standards Board
('IASB'), including interpretations issued by the IFRS
Interpretations Committee, and as endorsed by the European Union
('EU'). 'Interest Rate Benchmark Reform: Amendments to IFRS 9 and
IAS 39 'Financial Instruments', was endorsed in January 2020 and
has been early adopted as set out below. Therefore, there were no
unendorsed standards effective for the year ended 31 December 2019
affecting these consolidated and separate financial statements, and
the group's application of IFRSs results in no differences between
IFRSs as issued by the IASB and IFRSs as endorsed by the EU.
Standards adopted during the year ended 31 December 2019
IFRS 16 'Leases'
On 1 January 2019, we adopted the requirements of IFRS 16
retrospectively. The cumulative effect of initially applying the
standard was recognised as an adjustment to the opening balance of
retained earnings at that date. Comparatives were not restated. The
adoption of the standard increased assets by GBP0.4bn and increased
financial liabilities by the same amount with no effect on net
assets or retained earnings.
On adoption of IFRS 16, we recognised lease liabilities in
relation to leases that had previously been classified as
'operating leases' in accordance with IAS 17 'Leases'. These
liabilities were recognised in 'other liabilities' and measured at
the present value of the remaining lease payments, discounted at
the lessee's incremental borrowing rate at 1 January 2019. The
associated right of use ('ROU') assets were recognised in 'other
assets' and measured at the amount equal to the lease liability,
adjusted by the amount of any prepaid or accrued lease payments or
provisions for onerous leases recognised on the balance sheet at 31
December 2018. In addition, the following practical expedients
permitted by the standard were applied:
-- reliance was placed on previous assessments on whether leases were onerous;
-- operating leases with a remaining lease term of less than 12
months at 1 January 2019 were treated as short-term leases; and
-- initial direct costs were not included in the measurement of
ROU assets for leases previously accounted for as operating
leases.
The differences between IAS 17 and IFRS 16 are summarised in the
table below:
Leases were Leases are recognised as an ROU asset and a corresponding
classified liability at the date at which the leased asset is made available
as either for use. Lease payments are allocated between the liability
finance or and finance cost. The finance cost is charged to profit or
operating loss over the lease term so as to produce a constant period
leases. Payments rate of interest on the remaining balance of the liability.
made under The ROU asset is depreciated over the shorter of the ROU asset's
operating useful economic life and the lease term on a straight-line
leases were basis.
charged to In determining the lease term, we consider all facts and circumstances
profit or that create an economic incentive to exercise an extension
loss on a option or not exercise a termination option over the planning
straight-line horizon of five years.
basis over In general, it is not expected that the discount rate implicit
the period in the lease is available so the lessee's incremental borrowing
of the lease. rate is used. This is the rate that the lessee would have
to pay to borrow the funds necessary to obtain an asset of
a similar value in a similar economic environment with similar
terms and conditions. The rates are determined for each economic
environment in which we operate and for each term by adjusting
swap rates with funding spreads (own credit spread) and cross-currency
basis where appropriate.
------------------ ------------------------------------------------------------------------
Interest Rate Benchmark Reform: Amendments to IFRS 9 and IAS 39
'Financial Instruments'
Amendments to IFRS 9 and IAS 39 issued in September 2019 modify
specific hedge accounting requirements so that entities apply those
hedge accounting requirements assuming that the interest rate
benchmark on which the hedged cash flows and cash flows of the
hedging instrument are based is not altered as a result of interest
rate benchmark reform. These amendments replace the need for
specific judgements to determine whether certain hedge accounting
relationships that hedge the variability of cash flows or interest
rate risk exposures for periods after the interest rate benchmarks
are expected to be reformed or replaced continue to qualify for
hedge accounting as at 31 December 2019. For example, in the
context of cash flow hedging, the amendments require the interest
rate benchmark on which the hedged cash flows are based, or on
which the cash flows of the hedging instrument are based, to be
assumed to be unaltered over the period of the documented hedge
relationship, while uncertainty over the interest rate benchmark
reform exists. The IASB is expected to provide further guidance on
the implication for hedge accounting during the reform process and
after the reform uncertainty is resolved.
These amendments apply from 1 January 2020 with early adoption
permitted. The group has adopted the amendments that apply to IAS
39 from 1 January 2019 and has made the additional disclosures as
required by the amendments. Further information is included in
Note 9.
Amendment to IAS 12 'Income Taxes' and other changes
An amendment to IAS 12 was issued in December 2017 as part of
the annual improvement cycle. The amendment clarifies that an
entity should recognise the tax consequences of dividends where the
transactions or events that generated the distributable profits are
recognised. This amendment was applied on 1 January 2019 and had no
material impact. Comparatives have not been restated.
In addition, the group has adopted a number of interpretations
and amendments to standards, which have had an insignificant effect
on the consolidated group and the separate financial statements of
the bank.
(b) Future accounting developments
Minor amendments to IFRSs
The IASB has published a number of minor amendments to IFRSs
which are effective from 1 January 2020, some of which have been
endorsed for use in the EU. The group expects they will have an
insignificant effect, when adopted, on the consolidated financial
statements of the group and the separate financial statements of
the bank.
Major new IFRSs
The IASB has published IFRS 17 'Insurance Contracts'. IFRS 17
has not yet been endorsed but is not expected to have a significant
impact on the consolidated financial statements of the group and
the separate financial statements of the bank.
(c) Foreign currencies
The functional currency of the bank is sterling, which is also
the presentational currency of the consolidated financial
statements of
the group.
Transactions in foreign currencies are recorded at the rate of
exchange on the date of the transaction. Assets and liabilities
denominated in foreign currencies are translated at the rate of
exchange at the balance sheet date except non-monetary assets and
liabilities measured at historical cost, which are translated using
the rate of exchange at the initial transaction date. Exchange
differences are included in other comprehensive income or in the
income statement depending on where the gain or loss on the
underlying item is recognised.
(d) Presentation of information
Certain disclosures required by IFRSs have been included in the
audited sections of this Annual Report and Accounts 2019 as
follows:
-- disclosures concerning the nature and extent of risks
relating to financial instruments are included in the 'Report of
the Directors: Risk' on pages 17 to 51; and
-- capital disclosures are included in the 'Report of the Directors: Capital' on pages 52 to 53.
In publishing the parent company financial statements together
with the group financial statements, the bank has taken advantage
of the exemption in Section 408(3) of the Companies Act 2006 not to
present its individual income statement and related notes.
(e) Critical accounting estimates and judgements
The preparation of financial information requires the use of
estimates and judgements about future conditions. In view of the
inherent uncertainties and the high level of subjectivity involved
in the recognition or measurement of items highlighted as the
critical accounting estimates and judgements in section 1.2 below,
it is possible that the outcomes in the next financial year could
differ from those on which management's estimates are based. This
could result in materially different estimates and judgements from
those reached by management for the purposes of these financial
statements. Management's selection of the group's accounting
policies that contain critical estimates and judgements reflects
the materiality of the items to which the policies are applied and
the high degree of judgement and estimation uncertainty
involved.
(f) Segmental analysis
HSBC UK's chief operating decision-maker is the group Chief
Executive, supported by the group Executive Committee, and
operating segments are reported in a manner consistent with the
internal reporting provided to the group Chief Executive and the
group Executive Committee.
Measurement of segmental assets, liabilities, income and
expenses is in accordance with the group's accounting policies.
Segmental income and expenses include transfers between segments
and these transfers are conducted at arm's length. Shared costs are
included in segments on the basis of the actual recharges made.
The types of products and services from which each reportable
segment derives its revenue are discussed in the 'Strategic Report
- Products and services'.
(g) Going concern
The financial statements are prepared on a going concern basis,
as the Directors are satisfied that the group and bank 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
resources.
1.2 Summary of significant accounting policies
(a) Consolidation and related policies
Investments in subsidiaries
Where an entity is governed by voting rights, the group
consolidates when it holds, directly or indirectly, the necessary
voting rights to pass resolutions by the governing body. In all
other cases, the assessment of control is more complex and requires
judgement of other factors, including having exposure to
variability of returns, power to direct relevant activities and
whether power is held as agent or principal.
Business combinations are accounted for using the acquisition
method. The amount of non-controlling interest is measured either
at fair value or at the non-controlling interest's proportionate
share of the acquiree's identifiable net assets. The election is
made for each business combination.
The bank's investments in subsidiaries are stated at cost less
impairment losses.
Goodwill
Goodwill is allocated to cash-generating units ('CGUs') for the
purpose of impairment testing, which is undertaken at the lowest
level at which goodwill is monitored for internal management
purposes. The group's CGUs are based on the business lines
described in the Strategic Report. Impairment testing is performed
once a year, or whenever there is an indication of impairment, by
comparing the recoverable amount of a CGU with its carrying
amount.
Goodwill is included in a disposal group if the disposal group
is a CGU to which goodwill has been allocated or it is an operation
within such a CGU. The amount of goodwill included in a disposal
group is measured on the basis of the relative values of the
operation disposed of and the portion of the CGU retained.
Critical accounting estimates and judgements
The review of goodwill for impairment reflects management's best estimate
of the future cash flows of the CGUs and the rates used to discount
these cash flows, both of which are subject to uncertain factors as
follows:
* The accuracy of forecast cash flows is subject to a * The future cash flows of the CGUs are sensitive to
high degree of uncertainty in volatile market the cash flows projected for the periods for which
conditions. Where such circumstances are determined detailed forecasts are available and to assumptions
to exist, management re-tests goodwill for impairment regarding the long-term pattern of sustainable cash
more frequently than once a year when indicators of flows thereafter. Forecasts are compared with actual
impairment exist. This ensures that the assumptions performance and verifiable economic data, but they
on which the cash flow forecasts are based continue reflect management's view of future business
to reflect current market conditions and management's prospects at the time of the assessment
best estimate of future business prospects
* The rates used to discount future expected cash flows
can have a significant effect on their valuation, and
are based on the costs of capital assigned to
individual CGUs. The cost of capital percentage is
generally derived from a capital asset pricing model,
which incorporates inputs reflecting 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
* Key assumptions used in estimating goodwill
impairment are described in Note 15
============================================================ ============================================================
Interests in associates and joint arrangements
Joint arrangements are investments in which the group, together
with one or more parties, has joint control. Depending on the
group's rights and obligations, the joint arrangement is classified
as either a joint operation or a joint venture. The group
classifies investments in entities over which it has significant
influence, and that are neither subsidiaries nor joint
arrangements, as associates.
The group recognises its share of the assets, liabilities and
results in a joint operation. Investments in associates and
interests in joint ventures are recognised using the equity method.
The attributable share of the results and reserves of joint
ventures and associates are included in the consolidated financial
statements of the group based on either financial statements made
up to 31 December or pro-rated amounts adjusted for any material
transactions or events occurring between the date the financial
statements are available and
31 December.
Investments in associates and joint ventures are assessed at
each reporting date and tested for impairment when there is an
indication that the investment may be impaired. Goodwill on
acquisition of interests in joint ventures and associates is not
tested separately for impairment, but is assessed as part of the
carrying amount of the investment.
(b) Income and expense
Operating income
Interest income and expense
Interest income and expense for all financial instruments,
excluding those classified as held for trading or designated at
fair value, are recognised in 'Interest income' and 'Interest
expense' in the income statement using the effective interest
method. However, as an exception to this, interest on debt
instruments issued by the group for funding purposes that are
designated under the fair value option to reduce an accounting
mismatch and on derivatives managed in conjunction with those debt
instruments is included in interest expense.
Interest on credit-impaired financial assets is recognised using
the rate of interest used to discount the future cash flows for the
purpose of measuring the impairment loss.
Critical accounting estimates and judgements
The effective interest rate applied to interest income recognised on
credit card lending includes significant estimates and judgements related
to their behavioural life. This life is estimated based on internal
models and is reviewed regularly to reflect actual experience. The
application of the effective interest rate method to credit card lending
has resulted in the recognition of GBP147m (2018: GBP138m) within loans
and advances to customers as at 31 December 2019.
Management has assessed the
* The estimated life is reviewed annually and sensitivity of balance and
management has assessed seven years as continuing to interest assumptions by considering
be the most appropriate life. the impact of changes as
follows:
* a decrease in the closing balance stick rate
* A key metric is the stick rate, being the proportion assumption of 5% would decrease the asset value by
of acquired balances which remain on book after the GBP7.7m (2018:GBP3.8m);
end of promotional period. Where actual experience
differs from forecasts, an adjustment to the carryin
g * similarly, a decrease in the assumed interest yiel
value of the asset is required to be recognised in d
the financial statements. of 5% would decrease the asset value by GBP17.0m
(2018: GBP14.6m). (The interest yield assumption i
s
the amount of interest receivable over the life of
the account).
=========================================================== =========================================================
Non-interest income and expense
The group generates fee income from services provided at a fixed
price over time, such as account service and card fees, or when it
delivers a specific transaction at a point in time, such as broking
services and import/export services. With the exception of certain
performance fees, all other fees are generated at a fixed price.
Fund management and performance fees can be variable depending on
the size of the customer portfolio and the group's performance as
fund manager. Variable fees are recognised when all uncertainties
are resolved. Fee income is generally earned from short-term
contracts with payment terms that do not include a significant
financing component.
The group acts as principal in the majority of contracts with
customers, with the exception of broking services. For most
brokerage trades, the group acts as agent in the transaction and
recognises broking income net of fees payable to other parties in
the arrangement.
The group recognises fees earned on transaction-based
arrangements at a point in time when it has fully provided the
service to the customer. Where the contract requires services to be
provided over time, income is recognised on a systematic basis over
the life of the agreement.
Where the group offers a package of services that contains
multiple non-distinct performance obligations, such as those
included in account service packages, the promised services are
treated as a single performance obligation. If a package of
services contains distinct performance obligations, such as those
including both account and insurance services, the corresponding
transaction price is allocated to each performance obligation based
on the estimated stand-alone selling prices.
Dividend income is recognised when the right to receive payment
is established. This is the ex-dividend date for listed equity
securities, and usually the date when shareholders approve the
dividend for unlisted equity securities.
The group buys and sells currencies to customers, as principal
and presents the results of this activity, including the related
gains and losses from changes in foreign exchange rates, as
trading.
Net income/(expense) from financial instruments measured at fair
value through profit or loss includes the following:
-- 'Net income from financial instruments held for trading or
managed on a fair value basis': This comprises net trading income,
which includes all gains and losses from changes in the fair value
of financial assets and financial liabilities held for trading and
other financial instruments managed on a fair value basis, together
with the related interest income, expense and dividends, excluding
the effect of changes in the credit risk of liabilities managed on
a fair value basis. It also includes all gains and losses from
changes in the fair value of derivatives that are managed in
conjunction with financial assets and liabilities measured at fair
value through profit or loss.
-- 'Changes in fair value of other financial instruments
mandatorily measured at fair value through profit or loss': This
includes interest on instruments that fail the solely payments of
principal and interest ('SPPI') test, see (d).
(c) Valuation of financial instruments
All financial instruments are initially recognised at fair
value. Fair value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The fair value
of a financial instrument on initial recognition is generally its
transaction price (that is, the fair value of the consideration
given or received). However, if there is a difference between the
transaction price and the fair value of financial instruments whose
fair value is based on a quoted price in an active market or a
valuation technique that uses only data from observable markets,
the group recognises the difference as a trading gain or loss at
inception (a 'day 1 gain or loss'). In all other cases, the entire
day 1 gain or loss is deferred and recognised in the income
statement over the life of the transaction either until the
transaction matures or is closed out or the valuation inputs become
observable.
The fair value of financial instruments is generally measured on
an individual basis. Financial instruments are classified into one
of three fair value hierarchy levels, described in Note 7, 'Fair
values of financial instruments carried at fair value'.
(d) Financial instruments measured at amortised cost
Financial assets that are held to collect the contractual cash
flows and which contain contractual terms that give rise on
specified dates to cash flows that are solely payments of principal
and interest are measured at amortised cost. Such financial assets
include most loans and advances to banks and customers and some
debt securities. In addition, most financial liabilities are
measured at amortised cost. The group accounts for regular way
amortised cost financial instruments using trade date accounting.
The carrying value of these financial assets at initial recognition
includes any directly attributable transactions costs. If the
initial fair value is lower than the cash amount advanced, such as
in the case of some leveraged finance and syndicated lending
activities, the difference is deferred and recognised over the life
of the loan through the recognition of interest income.
Non-trading reverse repurchase, repurchase and similar
agreements
When debt securities are sold subject to a commitment to
repurchase them at a predetermined price ('repos'), they remain on
the balance sheet and a liability is recorded in respect of the
consideration received. Securities purchased under commitments to
resell ('reverse repos') are not recognised on the balance sheet
and an asset is recorded in respect of the initial consideration
paid. Non-trading repos and reverse repos are measured at amortised
cost. The difference between the sale and repurchase price or
between the purchase and resale price is treated as interest and
recognised in net interest income over the life of the
agreement.
(e) Financial assets measured at fair value through other comprehensive income
Financial assets held for a business model that is achieved by
both collecting contractual cash flows and selling and which
contain contractual terms that give rise on specified dates to cash
flows that are solely payments of principal and interest are
measured at fair value through other comprehensive income
('FVOCI'). These comprise primarily debt securities. They are
recognised on the trade date when the group enters into contractual
arrangements to purchase and are normally derecognised when they
are either sold or redeemed. They are subsequently remeasured at
fair value and changes therein (except for those relating to
impairment, interest income and foreign currency exchange gains and
losses) are recognised in other comprehensive income until the
assets are sold. Upon disposal, the cumulative gains or losses in
other comprehensive income are recognised in the income statement
as 'Gains less losses from financial instruments'. Financial assets
measured at FVOCI are included in the impairment calculations set
out below and impairment is recognised in profit or loss.
(f) Derivatives
Derivatives are financial instruments that derive their value
from the price of underlying items such as equities, interest rates
or other indices. Derivatives are recognised initially and are
subsequently measured at fair value through profit or loss.
Derivatives are classified as assets when their fair value is
positive or as liabilities when their fair value is negative. This
includes embedded derivatives in financial liabilities, which are
bifurcated from the host contract when they meet the definition of
a derivative on a stand-alone basis.
Where the derivatives are managed with debt securities issued by
the group that are designated at fair value, the contractual
interest is shown in 'Interest expense' together with the interest
payable on the issued debt.
Hedge accounting
When derivatives are not part of fair value designated
relationships, if held for risk management purposes they are
designated in hedge accounting relationships where the required
criteria for documentation and hedge effectiveness are met. The
group uses these derivatives or, where allowed, other
non-derivative hedging instruments in fair value hedges or cash
flow hedges as appropriate to the risk being hedged.
Fair value hedge
Fair value hedge accounting does not change the recording of
gains and losses on derivatives and other hedging instruments, but
results in recognising changes in the fair value of the hedged
assets or liabilities attributable to the hedged risk that would
not otherwise be recognised in the income statement. If a hedge
relationship no longer meets the criteria for hedge accounting,
hedge accounting is
discontinued and the cumulative adjustment to the carrying
amount of the hedged item is amortised to the income statement on a
recalculated effective interest rate, unless the hedged item has
been derecognised, in which case it is recognised in the income
statement immediately.
Cash flow hedge
The effective portion of gains and losses on hedging instruments
is recognised in other comprehensive income and the ineffective
portion of the change in fair value of derivative hedging
instruments that are part of a cash flow hedge relationship is
recognised immediately in the income statement within 'Net income
from financial instruments held for trading or managed on a fair
value basis'. The accumulated gains and losses recognised in other
comprehensive income are reclassified to the income statement in
the same periods in which the hedged item affects profit or loss.
When a hedge relationship is discontinued, or partially
discontinued, any cumulative gain or loss recognised in other
comprehensive income remains in equity until the forecast
transaction is recognised in the income statement. When a forecast
transaction is no longer expected to occur, the cumulative gain or
loss previously recognised in other comprehensive income is
immediately reclassified to the income statement.
(g) Impairment of amortised cost and FVOCI financial assets
Expected credit losses ('ECL') are recognised for loans and
advances to banks and customers, non-trading reverse repurchase
agreements, other financial assets held at amortised cost, debt
instruments measured at FVOCI, and certain loan commitments and
financial guarantee contracts. At initial recognition, allowance
(or provision in the case of some loan commitments and financial
guarantees) is required for ECL resulting from default events that
are possible within the next 12 months, or less, where the
remaining life is less than 12 months ('12-month ECL'). In the
event of a significant increase in credit risk, allowance (or
provision) is required for ECL resulting from all possible default
events over the expected life of the financial instrument
('lifetime ECL'). Financial assets where 12-month ECL is recognised
are considered to be 'stage 1'; financial assets which are
considered to have experienced a significant increase in credit
risk are in 'stage 2'; and financial assets for which there is
objective evidence of impairment so are considered to be in default
or otherwise credit impaired are in 'stage 3'. Purchased or
originated credit-impaired financial assets ('POCI') are treated
differently, as set out below.
Credit impaired (stage 3)
The group determines that a financial instrument is credit
impaired and in stage 3 by considering relevant objective evidence,
primarily whether:
-- contractual payments of either principal or interest are past due for more than 90 days;
-- there are other indications that the borrower is unlikely to
pay, such as when a concession has been granted to the borrower for
economic or legal reasons relating to the borrower's financial
condition; and
-- the loan is otherwise considered to be in default.
If such unlikeliness to pay is not identified at an earlier
stage, it is deemed to occur when an exposure is 90 days past due,
even where regulatory rules permit default to be defined based on
180 days past due. Therefore, the definitions of credit impaired
and default are aligned as far as possible so that stage 3
represents all loans that are considered defaulted or otherwise
credit impaired.
Interest income is recognised by applying the effective interest
rate to the amortised cost amount, i.e. gross carrying amount less
ECL allowance.
Write-off
Financial assets (and the related impairment allowances) are
normally written off, either partially or in full, when there is no
realistic prospect of recovery. Where loans are secured, this is
generally after receipt of any proceeds from the realisation of
security. In circumstances where the net realisable value of any
collateral has been determined and there is no reasonable
expectation of further recovery, write-off may be earlier.
Renegotiation
Loans are identified as renegotiated and classified as credit
impaired when we modify the contractual payment terms due to
significant credit distress of the borrower. Renegotiated loans
remain classified as credit impaired until there is sufficient
evidence to demonstrate a significant reduction in the risk of
non-payment of future cash flows and retain the designation of
renegotiated until maturity or derecognition.
A loan that is renegotiated is derecognised if the existing
agreement is cancelled and a new agreement is made on substantially
different terms or if the terms of an existing agreement are
modified such that the renegotiated loan is a substantially
different financial instrument. Any new loans that arise following
derecognition events in these circumstances are considered to be
POCI and will continue to be disclosed as renegotiated loans.
Other than originated credit-impaired loans, all other modified
loans could be transferred out of stage 3 if they no longer exhibit
any evidence of being credit impaired and, in the case of
renegotiated loans, there is sufficient evidence to demonstrate a
significant reduction in the risk of non-payment of future cash
flows over the minimum observation period, and there are no other
indicators of impairment. These loans could be transferred to stage
1 or 2 based on the mechanism as described below by comparing the
risk of a default occurring at the reporting date (based on the
modified contractual terms) and the risk of a default occurring at
initial recognition (based on the original, unmodified contractual
terms). Any amount written off as a result of the modification of
contractual terms would not be reversed.
Loan modifications that are not credit impaired
Loan modifications that are not identified as renegotiated are
considered to be commercial restructuring. Where a commercial
restructuring results in a modification (whether legalised through
an amendment to the existing terms or the issuance of a new loan
contract) such that the group's rights to the cash flows under the
original contract have expired, the old loan is derecognised and
the new loan is recognised at fair value. The rights to cash flows
are generally considered to have expired if the commercial
restructure is at
market rates and no payment-related concession has been
provided.
Significant increase in credit risk (stage 2)
An assessment of whether credit risk has increased significantly
since initial recognition is performed at each reporting period by
considering the change in the risk of default occurring over the
remaining life of the financial instrument. The assessment
explicitly or
implicitly compares the risk of default occurring at the
reporting date with that at initial recognition, taking into
account reasonable and supportable information, including
information about past events, current conditions and future
economic conditions. The assessment is unbiased,
probability-weighted, and to the extent relevant, uses
forward-looking information consistent with that used in the
measurement of ECL. The analysis of credit risk is multifactor. The
determination of whether a specific factor is relevant and its
weight compared with other factors depends on the type of product,
the characteristics of the financial instrument and the borrower.
Therefore, it is not possible to provide a single set of criteria
that will determine what is considered to be a significant increase
in credit risk and these criteria will differ for different types
of lending, particularly between retail and wholesale. However,
unless identified at an earlier stage, all financial assets are
deemed to have suffered a significant increase in credit risk when
30 days past due. In addition, wholesale loans that are
individually assessed, which are typically corporate and commercial
customers, and included on a watch or worry list, are included in
stage 2.
For wholesale portfolios, the quantitative comparison assesses
default risk using a lifetime probability of default ('PD'), which
encompasses a wide range of information including the obligor's
customer risk rating ('CRR'), macroeconomic condition forecasts and
credit transition probabilities. For origination CRRs up to 3.3,
significant increase in credit risk is measured by comparing the
average PD for the remaining term estimated at origination with the
equivalent estimation at the reporting date. The quantitative
measure of significance varies depending on the credit quality at
origination as follows:
0.1-1.2 15bps
2.1-3.3 30 bps
-------- -------
For CRRs greater than 3.3 that are not impaired, a significant
increase in credit risk is considered to have occurred when the
origination PD has doubled. The significance of changes in PD was
informed by expert credit risk judgement, referenced to historical
credit migrations and to relative changes in external market
rates.
For loans originated prior to the implementation of IFRS 9, the
origination PD does not include adjustments to reflect expectations
of future macroeconomic conditions since these are not available
without the use of hindsight. In the absence of this data,
origination PD must be approximated assuming through-the-cycle
('TTC') PDs and TTC migration probabilities, consistent with the
instrument's underlying modelling approach and the CRR at
origination. For these loans, the quantitative comparison is
supplemented with additional
CRR deterioration-based thresholds, as set out in the table
below:
0.1 5 notches
1.1-4.2 4 notches
4.3-5.1 3 notches
5.2-7.1 2 notches
7.2-8.2 1 notch
8.3 0 notch
-------- ----------
Further information about the 23-grade scale used for CRR can be
found on page 25 - Risk rating scales.
For certain portfolios of debt securities where external market
ratings are available and credit ratings are not used in credit
risk management, the debt securities will be in stage 2 if their
credit risk increases to the extent they are no longer considered
investment grade. Investment grade is where the financial
instrument has a low risk of incurring losses, the structure has a
strong capacity to meet its contractual cash flow obligations in
the near term and adverse changes in economic and business
conditions in the longer term may, but will not necessarily, reduce
the ability of the borrower to fulfil their contractual cash flow
obligations.
For retail portfolios, default risk is assessed using a
reporting date 12-month PD derived from credit scores, which
incorporates all available information about the customer. This PD
is adjusted for the effect of macroeconomic forecasts for periods
longer than 12 months and is considered to be a reasonable
approximation of a lifetime PD measure. Retail exposures are first
segmented into homogeneous portfolios, generally by country,
product and brand. Within each portfolio, the stage 2 accounts are
defined as accounts with an adjusted 12-month PD greater than the
average 12-month PD of loans in that portfolio 12 months before
they become 30 days past due. The expert credit risk judgement is
that no prior increase in credit risk is significant. This
portfolio-specific threshold identifies loans with a PD higher than
would be expected from loans that are performing as originally
expected, and higher than what would have been acceptable at
origination. It therefore approximates a comparison of origination
to reporting date PDs.
Unimpaired and without significant increase in credit risk
(stage 1)
ECL resulting from default events that are possible within the
next 12 months ('12-month ECL') are recognised for financial
instruments that remain in stage 1.
Purchased or originated credit impaired
Financial assets that are purchased or originated at a deep
discount that reflects the incurred credit losses are considered to
be POCI. This population includes the recognition of a new
financial instrument following a renegotiation where concessions
have been granted for economic or contractual reasons relating to
the borrower's financial difficulty that otherwise would not have
been considered. The amount of change-in-lifetime ECL is recognised
in profit or loss until the POCI is derecognised, even if the
lifetime ECL are less than the amount of ECL included in the
estimated cash flows on initial recognition.
Movement between stages
Financial assets can be transferred between the different
categories (other than POCI) depending on their relative increase
in credit risk since initial recognition. Financial instruments are
transferred out of stage 2 if their credit risk is no longer
considered to be significantly increased since initial recognition
based on the assessments described above. Except for renegotiated
loans, financial instruments are
transferred out of stage 3 when they no longer exhibit any
evidence of credit impairment as described above. Renegotiated
loans that are not POCI will continue to be in stage 3 until there
is sufficient evidence to demonstrate a significant reduction in
the risk of non-payment of future cash flows, observed over a
minimum one-year period and there are no other indicators of
impairment. For loans that are assessed for impairment on a
portfolio basis, the evidence typically comprises a history of
payment performance against the original or revised terms, as
appropriate to the circumstances. For loans that are assessed for
impairment on an individual basis, all available evidence is
assessed on a case-by-case basis.
Measurement of ECL
The assessment of credit risk and the estimation of ECL are
unbiased and probability-weighted, and incorporate all available
information that is relevant to the assessment including
information about past events, current conditions and reasonable
and supportable forecasts of future events and economic conditions
at the reporting date. In addition, the estimation of ECL should
take into account the time value of money.
In general, the group calculates ECL using three main
components: a probability of default, a loss given default ('LGD')
and the exposure at default ('EAD').
The 12-month ECL is calculated by multiplying the 12-month PD,
LGD and EAD. Lifetime ECL is calculated using the lifetime PD
instead. The 12-month and lifetime PDs represent the probability of
default occurring over the next 12 months and the remaining
maturity of the instrument respectively.
The EAD represents the expected balance at default, taking into
account the repayment of principal and interest from the balance
sheet date to the default event together with any expected
drawdowns of committed facilities. The LGD represents expected
losses on the EAD given the event of default, taking into account,
among other attributes, the mitigating effect of collateral value
at the time it is expected to be realised and the time value of
money.
The group leverages the Basel II IRB framework where possible,
with recalibration to meet the differing IFRS 9 requirements as set
out in the following table:
PD Through the cycle (represents Point in time (based on current
long-run average PD throughout conditions, adjusted to take
a full economic cycle). into account estimates of future
conditions that will impact PD).
The definition of default includes
a backstop of 90+ days past due, Default backstop of 90+ days
although this has been modified past due for all portfolios.
to 180+ days past due for some
portfolios, particularly UK and
US mortgages.
EAD Cannot be lower than current Amortisation captured for term
balance products
LGD Downturn LGD (consistent losses Expected LGD (based on estimate
expected to be suffered during of loss given default including
a severe but plausible economic the expected impact of future
downturn). economic conditions such as changes
in value of collateral).
Regulatory floors may apply to
mitigate risk of underestimating No floors.
downturn LGD due to lack of historical
data. Discounted using the original
effective interest rate of the
Discounted using cost of capital. loan.
All collection costs included. Only costs associated with obtaining/selling
collateral included.
------ ---------------------------------------- ----------------------------------------------
Discounted back from point of
Other default to balance sheet date.
------ ---------------------------------------- ----------------------------------------------
While 12-month PDs are recalibrated from Basel II models where
possible, the lifetime PDs are determined by projecting the
12-month PD using a term structure. For the wholesale methodology,
the lifetime PD also takes into account credit migration, i.e. a
customer migrating through the CRR bands over its life.
The ECL for wholesale stage 3 is determined on an individual
basis using a discounted cash flow ('DCF') methodology. The
expected future cash flows are based on the credit risk officer's
estimates as at the reporting date, reflecting reasonable and
supportable assumptions and projections of future recoveries and
expected future receipts of interest. Collateral is taken into
account if it is likely that the recovery of the outstanding amount
will include realisation of collateral based on the estimated fair
value of collateral at the time of expected realisation, less costs
for obtaining and selling the collateral. The cash flows are
discounted at a reasonable approximation of the original effective
interest rate. For significant cases, cash flows under four
different scenarios are probability-weighted by reference to the
economic scenarios applied more generally by the group and the
judgement of the credit risk officer in relation to the likelihood
of the workout strategy succeeding or receivership being required.
For less significant cases, the effect of different economic
scenarios and work-out strategies is approximated and applied as an
adjustment to the most likely outcome.
Period over which ECL is measured
Expected credit loss is measured from the initial recognition of
the financial asset. The maximum period considered when measuring
ECL (be it 12-month or lifetime ECL) is the maximum contractual
period over which the group is exposed to credit risk. For
wholesale overdrafts, credit risk management actions are taken no
less frequently than on an annual basis and therefore this period
is to the expected date of the next substantive credit review. The
date of the substantive credit review also represents the initial
recognition of the new facility. However, where the financial
instrument includes both a drawn and undrawn commitment and the
contractual ability to demand repayment and cancel the undrawn
commitment does not serve to limit the group's exposure to credit
risk to the contractual notice period, the contractual period does
not determine the maximum period considered. Instead, ECL is
measured over the period the group remains exposed to credit risk
that is not mitigated by credit risk management actions. This
applies to retail overdrafts and credit cards, where the period is
the average time taken for stage 2 exposures to default or close as
performing accounts, determined on a portfolio basis and ranging
from between two and six years. In addition, for these facilities
it is not possible to identify the ECL on the loan commitment
component separately from the financial asset component. As a
result, the total ECL is recognised in the loss allowance for the
financial asset unless the total ECL exceeds the gross carrying
amount of the financial asset, in which case the ECL is recognised
as a provision.
Forward-looking economic inputs
The group applies multiple forward-looking global economic
scenarios determined with reference to external forecast
distributions representative of our view of forecast economic
conditions. This approach is considered sufficient to calculate
unbiased expected loss in
most economic environments. In certain economic environments,
additional analysis and may be necessary and result in additional
scenarios or adjustments, to reflect a range of possible economic
outcomes sufficient for an unbiased estimate. The detailed
methodology is disclosed in 'Measurement uncertainty and
sensitivity analysis of ECL estimates' on page 31.
Critical accounting estimates and judgements
The calculation of the group's ECL under IFRS 9 requires the Group
to make a number of judgements, assumptions and estimates. The most
significant are set out below:
* Defining what is considered to be a significant * The sections marked as audited on pages 31 to 34,
increase in credit risk. 'Measurement uncertainty and sensitivity analysis of
ECL estimates' set out the assumptions used in
determining ECL and provide an indication of the
* Determining the lifetime and point of initial sensitivity of the result to the application of
recognition of overdrafts and credit cards. different weightings being applied to different
economic assumptions.
* Selecting and calibrating the PD, LGD and EAD mode
ls,
which support the calculations, including making
reasonable and supportable judgements about how
models react to current and future economic
conditions.
* Selecting model inputs and economic forecasts,
including determining whether sufficient and
appropriately weighted economic forecasts are
incorporated to calculate unbiased expected loss.
========================================================= ===========================================================
(h) Employee compensation and benefits
Share-based payments
The group enters into both equity-settled and cash-settled
share-based payment arrangements with its employees as compensation
for the provision of their services.
The vesting period for these schemes may commence before the
legal grant date if the employees have started to render services
in respect of the award before the legal grant date, where there is
a shared understanding of the terms and conditions of the
arrangement. Expenses are recognised when the employee starts to
render service to which the award relates.
Cancellations result from the failure to meet a non-vesting
condition during the vesting period, and are treated as an
acceleration of vesting recognised immediately in the income
statement. Failure to meet a vesting condition by the employee is
not treated as a cancellation, and the amount of expense recognised
for the award is adjusted to reflect the number of awards expected
to vest.
Post-employment benefit plans
The group operates a pension plan which provides defined benefit
and defined contribution pensions.
Payments to defined contribution schemes are charged as an
expense as the employees render service.
Defined benefit pension obligations are calculated using the
projected unit credit method. The net charge to the income
statement mainly comprises the service cost and the net interest on
the net defined benefit asset or liability, and is presented in
operating expenses.
Remeasurements of the net defined benefit asset or liability,
which comprise actuarial gains and losses, return on plan assets
(excluding interest) and the effect of the asset ceiling (if any,
excluding interest), are recognised immediately in other
comprehensive income. The net defined benefit asset or liability
represents the present value of defined benefit obligations reduced
by the fair value of plan assets, after applying the asset ceiling
test, where the net defined benefit surplus is limited to the
present value of available refunds and reductions in future
contributions to the plan.
The cost of obligations arising from other post-employment plans
are accounted for on the same basis as defined benefit pension
plans.
Critical accounting estimates and judgements
The most significant critical accounting judgements and estimates relate
to the determination of key assumptions applied in calculating the
defined benefit pension obligation.
* A range of assumptions could be applied, and
different assumptions could significantly alter the
defined benefit obligation and the amounts recognised
in profit or loss or OCI.
* The calculation of the defined benefit pension
obligation includes assumptions with regard to the
discount rate, inflation rate, pension payments and
deferred pensions, pay and mortality. Management
determines these assumptions in consultation with the
plan's actuaries.
* Key assumptions used in calculating the defined
benefit pension obligation and the sensitivity of the
calculation to different assumptions are described in
Note 3
=========================================================================
(i) Tax
Income tax comprises current tax and deferred tax. Income tax is
recognised in the income statement except to the extent that it
relates to items recognised in other comprehensive income or
directly in equity, in which case the tax is recognised in the same
statement in which the related item appears.
Current tax is the tax expected to be payable on the taxable
profit for the year and on any adjustment to tax payable in respect
of previous years. The group provides for potential current tax
liabilities that may arise on the basis of the amounts expected to
be paid to the tax authorities.
Deferred tax is recognised on temporary differences between the
carrying amounts of assets and liabilities in the balance sheet,
and the amounts attributed to such assets and liabilities for tax
purposes. Deferred tax is calculated using the tax rates expected
to apply in the periods as the assets will be realised or the
liabilities settled.
Current and deferred tax are calculated based on tax rates and
laws enacted, or substantively enacted, by the balance sheet
date.
(j) Provisions, contingent liabilities and guarantees
Provisions
Provisions are recognised when it is probable that an outflow of
economic benefits will be required to settle a present legal or
constructive obligation that has arisen as a result of past events
and for which a reliable estimate can be made.
Critical accounting estimates and judgements
The recognition and measurement of provisions requires the group to
make a number of judgements, assumptions and estimates. The most significant
are set out below:
* Determining whether a present obligation exists. * Provisions for legal proceedings and regulatory
Professional advice is taken on the assessment of matters remain very sensitive to the assumptions used
litigation and similar obligations. in the estimate. There could be a wider range of
possible outcomes for any pending legal proceedings,
investigations or inquiries. As a result it is often
* Provisions for legal proceedings and regulatory not practicable to quantify a range of possible
matters typically require a higher degree of outcomes for individual matters. It is also not
judgement than other types of provisions. When practicable to meaningfully quantify ranges of
matters are at an early stage, accounting judgements potential outcomes in aggregate for these types of
can be difficult because of the high degree of provisions because of the diverse nature and
uncertainty associated with determining whether a circumstances of such matters and the wide range of
present obligation exists, and estimating the uncertainties involved.
probability and amount of any outflows that may
arise. As matters progress, management and legal
advisers evaluate on an ongoing basis whether * Provisions for customer remediation also require
provisions should be recognised, revising previous significant levels of estimation. The amounts of
estimates as appropriate. At more advanced stages, it provisions recognised depend on a number of different
is typically easier to make estimates around a better assumptions, such as the volume of inbound complaints
defined set of possible outcomes. ,
the projected period of inbound complaint volumes,
the decay rate of complaint volumes, the populations
identified as systemically mis-sold and the number of
policies per customer complaint. More information
about these assumptions is included in Note 19.
============================================================ ============================================================
Contingent liabilities, contractual commitments and
guarantees
Contingent liabilities
Contingent liabilities, which include certain guarantees and
letters of credit pledged as collateral security, and contingent
liabilities related to legal proceedings or regulatory matters, are
not recognised in the financial statements but are disclosed unless
the probability of settlement is remote.
Financial guarantee contracts
Liabilities under financial guarantee contracts that are not
classified as insurance contracts are recorded initially at their
fair value, which is generally the fee received or present value of
the fee receivable.
2 Net fee income
---------------
Year ended
31 Dec 31 Dec
2019 2018
Net fee income by product GBPm GBPm
-------------------------------------- ------
Account services 583 362
-------------------------------------- ----- -----
Funds under management 88 46
----- -----
Cards 281 145
----- -----
Credit facilities 103 72
-------------------------------------- ----- -----
Imports/exports 49 21
-------------------------------------- ----- -----
Insurance agency commission 47 27
-------------------------------------- ----- -----
Receivables finance 85 37
-------------------------------------- ----- -----
Other 220 121
-------------------------------------- ----- -----
Fee income 1,456 831
-------------------------------------- ----- -----
Less: fee expense (226) (183)
-------------------------------------- ----- -----
Net fee income 1,230 648
-------------------------------------- ----- -----
Net fee income by global business
-------------------------------------- ------ --------
Retail Banking and Wealth Management 660 341
-------------------------------------- ----- -----
Commercial Banking 725 378
-------------------------------------- ----- -----
Global Banking and Markets (180) (98)
-------------------------------------- ----- -----
Private Banking 35 12
-------------------------------------- ----- -----
Corporate Centre (10) 15
-------------------------------------- ----- -----
Net fee income includes GBP1,125m of fees earned on financial
assets that are not at fair value through profit or loss (other
than amounts included in determining the effective interest rate)
(2018: GBP636m), GBP174m of fees payable on financial liabilities
that are not at fair value through profit of loss (other than
amounts included in determining the effective interest rate) (2018:
GBP117m), GBP69m of fees earned on trust and other fiduciary
activities (2018: GBP50m) and Nil fees payable relating to trust
and other fiduciary activities (2018: GBP2m).
3 Employee compensation and benefits
-----------------------------------
2019 2018
GBPm GBPm
----------------------------- ---- ------
Wages and salaries 887 400
--- ----
Social security costs 89 44
--- ----
Post-employment benefits(1) (42) 167
--- ----
Year ended 31 Dec 934 611
----------------------------- --- ----
1 Includes a GBP187m past service cost in respect of GMP equalisation in 2018.
Average number of persons employed by the group during the year
2019 2018 (1)
-------------------------------------------------- -------- ----------
Retail Banking and Wealth Management 17,356 8,739
-------- --------
Commercial Banking 5,058 2,424
-------- --------
Global Banking and Markets 54 26
-------- --------
Private Banking 294 137
-------- --------
Corporate Centre 273 151
-------- --------
Year ended 31 Dec 23,035 11,477
-------------------------------------------------- -------- --------
1 In October 2017, 21,571 employees were transferred from HSBC
Bank plc to the group, and were seconded back to HSBC Bank plc
until 30 June 2018. Numbers exclude staff seconded to HSBC Bank plc
until 30 June 2018.
Share-based payments
The share-based payment income statement charge is recognised in
wages and salaries as follows:
2019 2018
GBPm GBPm
------------------------------------------------------ ------- ---------
Restricted share awards 6 -
-------
Savings-related and other share award option plans 10 7
------- -------
Year ended 31 Dec 16 7
------------------------------------------------------ ------- -------
HSBC Group share awards
Deferred share
awards (including * An assessment of performance over the relevant period
annual incentive ending on 31 December is used to determine the amount
awards, LTI awards of the award to be granted.
delivered in
shares) and GPSP
* Deferred awards generally require employees to remain
in employment over the vesting period and are not
subject to performance conditions after the grant
date.
* Deferred share awards generally vest over a period of
three, five or seven years.
* Vested shares may be subject to a retention
requirement post-vesting. GPSP awards are retained
until cessation of employment.
* Awards granted from 2010 onwards are subject to a
malus provision prior to vesting.
* Awards granted to Market Risk Takers from 2015
onwards are subject to clawback post vesting.
-------------------- -------------------------------------------------------------
International
Employee Share * The plan was first introduced in Hong Kong in 2013
Purchase Plan and now includes employees based in 27 jurisdictions.
('ShareMatch')
* Shares are purchased in the market each quarter up to
a maximum value of GBP750, or the equivalent in local
currency.
* Matching awards are added at a ratio of one free
share for every three purchased.
* Matching awards vest subject to continued employment
and the retention of the purchased shares for a
maximum period of two years and nine months.
-------------------- -------------------------------------------------------------
Movement on HSBC share awards
2019 2018
Number Number
(000s) (000s)
---------------------------------------------------------- ------ --------
Restricted share awards outstanding at 1 Jan 999 -
----- -----
Transfer from HSBC Bank plc and other Group subsidiaries N/A 1,126
---------------------------------------------------------- ------ -----
Additions during the year 1,156 20
----- -----
Released in the year (831) (143)
----- -----
Forfeited in the year (36) (4)
----- -----
Restricted share awards outstanding at 31 Dec 1,288 999
---------------------------------------------------------- ----- -----
Weighted average fair value of awards granted (GBP) 5.98 1.33
---------------------------------------------------------- ----- -----
HSBC Group share option plans
Savings-related
share option * Eligible employees can save up to GBP500 per month
plans ('Sharesave') with the option to use the savings to acquire shares.
* Exercisable within six months following either the
third or fifth anniversary of the commencement of a
three-year or five-year contract, respectively.
* The exercise price is set at a 20% (2018: 20%)
discount to the market value immediately preceding
the date of invitation.
--------------------- -------------------------------------------------------------
Calculation of 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 Group share option plans
Savings-related
share option
plans
Number WAEP(1)
(000s) GBP
-----------------------------------------------------
Outstanding at 1 Jan 2019 24,463 4.97
--------- -------
Granted during the year 14,125 4.69
--------- -------
Exercised during the year (5,152) 4.43
--------- -------
Expired during the year (37) 4.24
--------- -------
Forfeited during the year (4,929) 5.45
----------------------------------------------------- --------- -------
Outstanding at 31 Dec 2019 28,470 4.84
----------------------------------------------------- --------- -------
Of which exercisable 891 4.53
----------------------------------------------------- --------- -------
Weighted average remaining contractual life (years) 2.78
----------------------------------------------------- --------- ---------
Outstanding at 1 Jan 2018 - 0.00
Transfer from HSBC Bank plc and other Group subsidiaries 27,064 4.51
Granted during the year 8,803 5.45
Exercised during the year (10,294) 4.15
Expired during the year (879) 5.37
----------------------------------------------------------
Forfeited during the year (231) 4.70
------- ----
Outstanding at 31 Dec 2018 24,463 4.97
---------------------------------------------------------- ------- ----
Of which exercisable 1,218 4.10
---------------------------------------------------------- -------
Weighted average remaining contractual life (years) 2.59
---------------------------------------------------------- ------- ------
1 Weighted average exercise price.
Post-employment benefit plans
We operate a pension plan for our employees called the HSBC Bank
(UK) Pension Scheme ('the plan'), which has both defined benefit
and defined contribution sections. To meet the requirements of the
Banking Reform Act, from 1 July 2018, the main employer of the plan
changed from HSBC Bank plc to HSBC UK Bank plc, with additional
support from HSBC Holdings plc. At that time, the non-ring fenced
entities including HSBC Bank plc exited the section of the plan for
ring-fenced entities (the 'HSBC UK section') and joined a newly
created section for the future defined benefit and defined
contribution pension benefits of their employees.
The Pension Risk section on page 46 contains details about the
policies and practices associated with the plan.
The defined benefit section was closed to future benefit accrual
in 2015, with Group defined benefits earned by employees at that
date continuing to be linked to their salary while they remain
employed by HSBC. The plan is overseen by an independent corporate
trustee, who has a fiduciary responsibility for the operation of
the plan. Its assets are held separately from the assets of the
group.
The investment strategy of the plan is to hold the majority of
assets in bonds, with the remainder in a diverse range of
investments. It also includes some interest rate swaps to reduce
interest rate risk and inflation swaps to reduce inflation
risk.
The latest funding valuation of the plan at 31 December 2016 was
carried out by Colin G Singer, at Willis Towers Watson Limited, who
is a Fellow of the UK Institute and Faculty of Actuaries, using the
projected unit credit method. At that date, the market value of the
plan's assets was GBP28.8bn and this exceeded the value placed on
its liabilities on an ongoing basis by GBP1.4bn, giving a funding
level of 105%. These figures relate only to the HSBC UK section of
the plan and include defined contribution assets amounting to
GBP2.0bn. The main differences between the assumptions used for
assessing the liabilities for this funding valuation and those used
for IAS 19 are more prudent assumptions for discount rate,
inflation rate and life expectancy. The next funding valuation will
have an effective date of
31 December 2019.
Although the plan was in surplus at the valuation date, further
contributions will be made to the plan to support a lower-risk
investment strategy over the longer term. The remaining
contributions are GBP160m in each of 2020 and 2021.
The actuary also assessed the value of the liabilities the HSBC
UK section of the plan were to be stopped and an insurance company
asked to secure all future pension payments. This is generally
larger than the amount needed on the ongoing basis described above
because an insurance company would use more prudent assumptions and
include an explicit allowance for the future administrative
expenses of the plan. Under this approach, the amount of assets
needed was estimated to be GBP37bn at 31 December 2016.
The Trust Deed gives the ability for HSBC UK to take a refund of
surplus assets after the plan has been run down such that no
further beneficiaries remain. On this basis, any net surplus in the
HSBC UK section of the plan is recognised in the group's financial
statements.
Guaranteed Minimum Pension Equalisation
Following a judgement issued by the High Court of Justice of
England and Wales in 2018, we estimated the financial effect of
equalising benefits in respect of guaranteed minimum pensions
('GMP') equalisation, and any potential conversion of GMPs into
non-GMP benefits, to be an approximate 0.9% increase in the plan's
liabilities, or GBP187m. This was recognised in the Income
Statement in 2018. We continue to assess the impact of GMP
equalisation, however no further amounts have been recognised in
2019.
Income statement charge
2019 2018
GBPm GBPm
------------------------------------ ----- ------
Defined benefit pension plans(1) (115) 122
----
Defined contribution pension plans 73 44
------------------------------------ ----
Pension plans (42) 166
------------------------------------ ---- ----
Year ended 31 Dec (42) 166
------------------------------------ ---- ----
1 Includes a GBP187m past service cost in respect of GMP equalisation in 2018.
Defined benefit pension plans
Net asset/(liability) under defined benefit pension plans
Fair value Net defined
of plan Present value of benefit
assets defined benefit obligations assets/(liabilities)
GBPm GBPm GBPm
---------------------------------------------
At 1 Jan 2019 26,687 (20,846) 5,841
--------- ------------------------- ------------------ ---
Service cost - (26) (26)
--------------------------------------------- --------- ------------------------- ------------------
Current service cost - (7) (7)
---------------------------------------------
Past service cost and gains/(losses) from
settlements - (19) (19)
--------- ------------------------- ------------------
Net interest income/(cost) on the net
defined benefit asset/(liability) 736 (571) 165
--------------------------------------------- --------- ------------------------- ------------------ ---
Remeasurement effects recognised in other
comprehensive income 1,729 (1,998) (269)
---------------------------------------------
- return on plan assets (excluding interest
income) 1,729 - 1,729
- actuarial losses - (2,392) (2,392)
- other changes 394 394
---------- ------------------------- --- ------------------ ---
Exchange differences 195 (162) 33
---------------------------------------------
Benefits paid (795) 795 -
--------------------------------------------- --------- ------------------------- --- ------------------ ---
Other movements(1) 95 (3) 92
--------------------------------------------- --------- ------------------------- ------------------ ---
At 31 Dec 2019 28,647 (22,811) 5,836
--------------------------------------------- --------- ------------------------- ------------------ ---
At 1 Jan 2018 - - -
Transfer in from HSBC Bank plc on 1 July
2018 26,948 (20,580) 6,368
Service cost - (189) (189)
Current service cost - (2) (2)
Past service cost and gains/(losses) from
settlements - (187) (187)
Net interest income/(cost) on the net
defined benefit asset/(liability) 358 (279) 79
--------------------------------------------- ------ ------- -----
Remeasurement effects recognised in other
comprehensive income (279) (206) (485)
- return on plan assets (excluding interest
income) (279) - (279)
- actuarial losses - (186) (186)
- other changes - (20) (20)
------ ------- -----
Exchange differences - - -
Benefits paid (405) 405 -
Other movements(1) 65 3 68
At 31 Dec 2018 26,687 (20,846) 5,841
--------------------------------------------- ------ ------- -----
1 Other movements include contributions by HSBC UK,
contributions by employees, administrative costs and taxes paid by
plan.
HSBC UK expects to make GBP160m of contributions to defined
benefit pension plans during 2020. Benefits expected to be paid
from the HSBC UK Pension Scheme to retirees over each of the next
five years, and in aggregate for the five years thereafter, are as
follows:
Benefits expected to be paid from plan
2020 2021 2022 2023 2024 2025-2029
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- ------ ------ ------ ------ ------ -----------
The plan(1) 818 842 866 891 917 5,000
----------------------------- ------ ------ ------ ------ ------ ---------
1 The duration of the defined benefit obligation is 18.1 years
under the disclosure assumptions adopted (2018:17.0 years).
Fair value of plan assets by asset classes
------ -------------- ---------------
31 Dec 2019 31 Dec 2018
No quoted No quoted
Quoted market market price Quoted market market price
price in in active price in in active
Value active market market Value active market market
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ -------- -------------- ------------- ------ -------------- ---------------
The plan
------------------------ -------- -------------- ------------- ------ -------------- ---------------
Fair value of plan
assets 28,647 25,658 2,989 26,687 23,710 2,977
------ -------------- -------------
- equities 501 236 265 2,468 2,101 367
- bonds 23,976 23,976 - 20,763 20,763 -
------------------------
- derivatives 1,551 - 1,551 1,618 - 1,618
------------------------
- other 2,619 1,446 1,173 1,838 846 992
------------------------ -------- -------------- ------------- ------ -------------- -------------
Post-employment defined benefit plan actuarial financial
assumptions
The group determines the discount rates to be applied to its
obligations in consultation with the plans' local actuaries, on the
basis of current average yields of high quality (AA-rated or
equivalent) debt instruments with maturities consistent with those
of the defined benefit obligations.
Key actuarial assumptions for the plan
Rate of
Discount Inflation increase Rate of
rate rate for pensions pay increase
% % % %
-------------------- -------- --------- ------------- ---------------
UK
At 31 Dec 2019 2.00 3.10 2.90 3.65
-------------------- -------- --------- ------------- -------------
At 31 Dec 2018 2.80 3.40 3.10 3.65
-------------------- -------- --------- ------------- -------------
Mortality tables and average life expectancy at age 60 for the plan
Life expectancy Life expectancy
at age 60(3) at age 60(3)
for for
Mortality a male member a female member
table currently: currently:
Aged 60 Aged 40 Aged 60 Aged 40
-------------------- -------------- --------- --------- --------- ---------
UK
-------------------- -------------- --------- --------- --------- ---------
At 31 Dec 2019 SAPS S2(1) 28.0 29.4 28.2 29.8
--------------------- ------------- --------- --------- --------- ---------
At 31 Dec 2018 SAPS S2(2) 28.1 29.6 28.4 30.0
--------------------- ------------- --------- --------- --------- ---------
1 Self-administered pension scheme ('SAPS') S2 table (males:
'Normal Health Pensioners' version; females: 'All Pensioners'
version) with a multiplier of 0.94 for males and 1.15 for females.
Improvements are projected in accordance with the Continuous
Mortality Investigation ('CMI') 2018 core projection model with an
initial addition to improvements of 0.25% per annum and a long-term
rate of improvement of 1.25% per annum. Separate tables have been
applied to lower paid pensioners and dependant members.
2 Self-administered pension scheme ('SAPS') S2 table (males:
'Normal Health Pensioners' version; females: 'All Pensioners'
version) with a multiplier of 0.94 for males and 1.15 for females.
Improvements are projected in accordance with the Continuous
Mortality Investigation ('CMI') 2017 core projection model with a
long-term rate of improvement of 1.25% per annum. Separate tables
have been applied to lower paid pensioners and dependant
members.
3 The presentation of the mortality table has been updated to
show life expectancies at the age of 60 rather than 65 as presented
in prior years to better reflect market disclosure practices. The
prior year data has been updated accordingly.
The effect of changes in key assumptions on the plan
Impact on HSBC Bank (UK)
Pension Scheme Obligation
Financial impact Financial impact
of increase of decrease
2019 2018 2019 2018
GBPm GBPm GBPm GBPm
---------------------------------------------
Discount rate - increase/decrease of 0.25% (987) (844) 1,055 900
Inflation rate - increase/decrease of 0.25% 590 569 (559) (562)
Pension payments and deferred pensions -
increase/decrease of 0.25% 639 926 (776) (870)
Pay - increase/decrease of 0.25% 54 22 (55) (23)
--------------------------------------------- ------- ------- -------- ------
Change in mortality - increase of 1 year 958 771 N/A N/A
--------------------------------------------- ------- ------- ------------ ---------
Directors' emoluments
The aggregate emoluments of the Directors of the bank, computed
in accordance with the Companies Act 2006 as amended by statutory
instrument 2008 No.410, were:
2019 2018
GBP000 GBP000
-------------------------------------- ------ --------
Fees paid to non-executive Directors 1,793 1,262
--------------------------------------
Salaries and other emoluments(1,2) 3,459 1,366
Annual incentives(2,3) 901 495
Long-term incentives(2,4) 253 295
Year ended 31 Dec 6,406 3,418
-------------------------------------- ------ ------
1 Salaries and other emoluments include Fixed Pay Allowances.
2 During the first six months of 2018 the banks' Executive
Directors provided services to other companies within the HSBC
Group and their services to the bank were incidental. Therefore the
Executive Directors remuneration for 2018 disclosed represents the
period from 1 July to 31 December 2018.
3 Discretionary annual incentives for the Executive Directors
are based on a combination of individual and corporate performance
and are determined by the Remuneration Committee of the bank's
ultimate parent company, HSBC Holdings plc. Incentive awards made
to Executive Directors are delivered in the form of cash and HSBC
Holdings plc shares. The total amount shown is comprised of
GBP450,576 (2018: GBP247,275) in cash and GBP450,576 (2018:
GBP247,275) in Restricted Shares, which is the upfront portion of
the annual incentive granted in respect of performance year
2019.
4 The amount shown is comprised of GBP125,505 (2018: GBP120,000)
in deferred cash and GBP127,395 (2018: GBP175,358) in deferred
Restricted Shares. These amounts relate to the portion of the
awards that will vest following the substantial completion of the
vesting condition attached to these awards in 2019. The total
deferral period of deferred cash and share awards is no less than 5
years up to a maximum of 7 years. Grants with a 5 year deferral
vest in 5 equal tranches on each anniversary of the grant date on a
pro-rate basis. Grants with a 7 year deferral vest in 5 equal
tranches on each anniversary from the 3rd anniversary of the grant
date on a pro-rata basis.. The deferral periods and pro-rata
calculations are in line with the requirements set out in the
Remuneration rules applicable to Material Risk Takers. The share
awards are subject to a retention period of 6 months to 1 year upon
vesting. Details of the Plans are contained within the Directors'
Remuneration Report of HSBC Holdings plc.
No Directors exercised share options over HSBC Holdings plc
ordinary shares during the year (2018: 1).
Awards were made to three Directors under long-term incentive
plans in respect of qualifying services rendered in 2019 (2018: 3).
During 2019, three Directors received shares in respect of awards
under long-term incentive plans that vested during the year (2018:
3).
No retirement benefits accrued to Directors during the year in
respect of their qualifying services (2018: no Directors). Three
Directors received cash in lieu of pension contributions during the
year in respect of their qualifying services. Cash received in lieu
of pension is included in the salary and other emoluments
disclosure in the table above.
Of these aggregate figures, the following amounts are
attributable to the highest paid Director:
2019 2018
GBP000 GBP000
---------------------------------- ------ --------
Salaries and other emoluments(3) 2,104 776
Annual incentives(1,3) 503 274
Long-term incentives(2,3) 124 176
Year ended 31 Dec 2,731 1,226
---------------------------------- ------ ------
1 Awards made to the highest paid Director are delivered in the
form of cash and HSBC Holdings plc shares. The amount shown is
comprised of GBP251,721 (2018: GBP136,805) in cash and
GBP251,721(2018: GBP136,805) in Restricted Shares.
2 The amount shown is comprised of GBP60,472 (2018: GBP66,575)
in deferred cash and GBP63,902 (2018: GBP109,145) in deferred
Restricted Shares. These amounts relate to a portion of the awards
that will vest following the substantial completion of the vesting
condition attached to these awards in 2019. The total deferral
period of deferred cash and share awards is 7 years with the
deferred awards subject to pro-rata vesting in five equal tranches
between the third and seventh anniversary of grant. The share
awards are subject to a one year retention period upon vesting.
3 During the first six months of 2018 the bank's Executive
Directors provided services to other companies within the HSBC
Group and their services to the bank were incidental. Therefore the
Executive Directors remuneration disclosed represents the period
from 1 July to 31 December 2018.
The highest paid Director received shares in respect of
qualifying services under a long-term incentive scheme.
Pension contributions of GBPnil were made by the bank in respect
of services by the highest paid Director during the year (2018:
GBPnil).
4 Auditors' remuneration
-----------------------
2019 2018
GBPm GBPm
Audit fees payable to PwC 5.1 4.3
Other audit fees payable 1.8 0.7
---------------------------
Year ended 31 Dec 6.9 5.0
--------------------------- ---- ----
Fees payable by the group to PwC
2019 2018
GBPm GBPm
------------------------------------------------------ ---- ------
Audit fees for HSBC UK Bank plc's statutory audit(1) 4.0 3.6
----
Fees for other services provided to the group 2.9 1.4
----
- audit of the group's subsidiaries(2) 1.1 0.7
------------------------------------------------------
- audit-related assurance services(3) 1.8 0.7
------------------------------------------------------ ----
Year ended 31 Dec 6.9 5.0
------------------------------------------------------ ---- ----
1 Fees payable to PwC for the statutory audit of the
consolidated financial statements of the group and the separate
financial statements of HSBC UK Bank plc. They exclude amounts
payable for the statutory audit of the bank's subsidiaries which
have been included in 'Fees for other services provided to the
group'.
2 Including fees payable to PwC for the statutory audit of the bank's subsidiaries.
3 Including services for assurance and other services that
relate to statutory and regulatory filings, including comfort
letters and interim and quarter reviews.
No fees were payable to PwC as principal auditor for the
following types of services: internal audit services and services
related to litigation, recruitment and remuneration.
Fees payable for non-audit services for HSBC UK Bank plc are not
disclosed separately because such fees are disclosed on a
consolidated basis for the group.
5 Tax
----
Tax expense
2019 2018
GBPm GBPm
----------------------------------------------------- ---- ------
Current tax 429 321
- for this year 452 323
- adjustments in respect of prior years (23) (2)
--- ---
Deferred tax 65 (20)
- origination and reversal of temporary differences 71 (21)
-----------------------------------------------------
- effect of changes in tax rates (4) 2
-----------------------------------------------------
- adjustments in respect of prior years (2) (1)
----------------------------------------------------- --- ---
Year ended 31 Dec 494 301
----------------------------------------------------- --- ---
The tax rate applying to HSBC UK Bank plc and its banking
subsidiaries was 27%, comprising 19% UK corporation tax rate plus
8% surcharge tax rate on UK banking profits. The tax rate
applicable for non-banking entities is 19% (2018: 19%).
Tax reconciliation
The tax charged to the income statement differs from the tax
expense that would apply if all profits had been taxed at the UK
corporation tax rate as follows:
2019 2018
GBPm % GBPm %
Profit before tax 1,010 1,064
Tax expense
Taxation at UK corporation tax of 19.00%
(2018: 19.00%) 192 19.0 202 19.0
Items increasing the tax charge in 2019:
* non-deductible UK customer redress 301 29.8 15 1.3
* UK banking surcharge 73 7.2 80 7.6
Items reducing tax charge in 2019:
* deductions for AT1 coupon payments (36) (3.6) - -
* adjustments in respect of prior period liabilities (25) (2.4) (3) (0.2)
* other permanent disallowables (7) (0.7) 5 0.5
* change in tax rates (4) (0.4) 2 0.1
Year ended 31 Dec 494 48.9 301 28.3
----------------------------------------------------------- ----- ---- ----- ----
The effective tax rate for the year was 48.9% (2018: 28.3%),
reflecting the UK rate of corporation tax for banking entities of
27% (2018: 27%), the tax impact of non-deductible redress
provisions of GBP301m (2018: GBP15m) offset by the tax impact of
deductions for additional tier 1 coupon payments of GBP36m
recognised in the income statement tax charge, following a change
to IAS 12 effective from 1 January 2019. 2018 was not restated for
this change.
Redress provisions associated with PPI and certain other
customer redress are not deductible for tax in the UK and,
additionally, give rise to an increase in taxable profit equal to
10% of the redress incurred.
Movement of deferred tax assets and liabilities
Loan Defined Fixed
impairment Cash flow FVOCI benefit and intangible
provisions hedges reserves pension assets Other Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------- ----------- -------- ----------------- ----- ---------
The group
--------------------- ------------- ----------- ----------- -------- ----------------- ----- ---------
At 1 Jan 2019 147 16 (4) (1,460) 99 13 (1,189)
--------------------- --------- ------- ------ ------- ---------- ----- ---- ------
Income statement (17) - - (41) (1) (6) (65)
--------- ------- ------ --- ------- ---------- ---- ---- ------
Other comprehensive
income - (12) 1 42 - 31
------ --- ------- ---------- ----- ----- ------
At 31 Dec 2019 130 4 (3) (1,459) 98 7 (1,223)
Assets 130 4 - - 98 7 239
--------------------- --------- ------- ------ --- ------- ---------- ----- ---- ------
Liabilities - - (3) (1,459) - - (1,462)
--------------------- --------- ------- ------ ------- ---------- ----- ---- ------
At 1 Jan 2018 - - - - - - -
--------------------------- --- ------ ------
Transfer from HSBC Bank
plc and its subsidiaries 156 10 (1) (1,592) 87 6 (1,334)
--------------------------- ------ ------
Income statement (9) - - 11 12 7 21
------ ------
Other comprehensive
income - 6 (3) 121 - - 124
------ ------
At 31 Dec 2018 147 16 (4) (1,460) 99 13 (1,189)
Assets 147 16 - - 99 13 275
--------------------------- --- ------ ------
Liabilities - - (4) (1,460) - - (1,464)
--------------------------- --- ------ ------
Movement of deferred tax assets and liabilities
Loan Defined Fixed
impairment Cash flow FVOCI benefit and intangible
provisions hedges reserves pension assets Other Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
The bank
At 1 Jan 2019 137 16 (4) (1,460) 81 6 (1,224)
Income statement (16) - - (41) (1) (4) (62)
Other comprehensive
income - (12) 1 42 - - 31
At 31 Dec 2019 121 4 (3) (1,459) 80 2 (1,255)
--------------------- --------- ------- ------ ------- ---------- ----- ---- ------
Assets 121 4 - - 80 2 207
Liabilities - - (3) (1,459) - - (1,462)
--------------------- --------- ------- ------ ------- ---------- ----- ---- ------
At 1 Jan 2018 - - - - - - -
------------------------- --- ------ ------
Transfer from HSBC Bank
plc 145 10 (1) (1,592) 70 -(1,368)
--- ------ ------
Income statement (8) - - 11 11 6 20
--- ------ ------
Other comprehensive
income - 6 (3) 121 - - 124
------------------------- --- ------ ------
At 31 Dec 2018 137 16 (4) (1,460) 81 6(1,224)
------------------------- --- ------ ------
Assets 137 16 - - 81 6 240
-------------------------
Liabilities - - (4) (1,460) - -(1,464)
------------------------- --- ------ ------
Based on the enacted law at 31 December 2019, the UK corporation
tax rate is due to reduce from 19% to 17% on 1 April 2020. The
Conservative Party (now in Government) has indicated its intention
to reverse this rate reduction as part of the UK Budget on 11 March
2020, which, if enacted, will result in a GBP98m increase to the
group's (GBP100m increase to the bank's) net deferred tax
liability, as at 31 December 2019.
6 Dividends
----------
Dividends to the shareholder of the parent company
------- ------
2019 2018
GBP per GBP per
share GBPm share GBPm
------- ---- ------- ------
Dividends paid on ordinary shares
------- ---- ------- ------
Interim dividend in respect of the
previous year 4,000 200 - -
------------------------------------------- ---- ------- ----
Interim dividend in respect of the
current year 2,400 120 - -
------------------------------------------- ------- ---- ------- ----
Total 6,400 320 - -
------------------------------------------- ------- ---- ------- ----
On 13 February 2020, the Directors declared an interim dividend
to the ordinary shareholder of GBP100m in respect of the financial
year ending 31 December 2019 which will be payable on 19 March
2020. No liability is recognised in the financial statements in
respect of this dividend.
Total coupons on capital securities classified as equity
2019 2018
First call
date GBPm GBPm
Undated Subordinated Additional Tier 1 instruments
- GBP1,096m Dec 2019 65 -
----
- GBP1,100m Dec 2024 66 -
---------------------------------------------------- ------------ ---- ----
Total 131 -
------------------------------------------------------------------ ---- ----
7 Fair values of financial instruments carried at fair value
-----------------------------------------------------------
Control framework
Fair values are subject to a control framework designed to
ensure that they are either determined or validated by a function
independent of the risk taker.
Where fair values are determined by reference to externally
quoted prices or observable pricing inputs to models, independent
price determination or validation is used.
For fair values determined using valuation models, the control
framework includes development or validation by independent support
functions of the model logic, inputs, model outputs and
adjustments. Valuation models are subject to a process of due
diligence before becoming operational and are calibrated against
external market data on an ongoing basis.
Changes in fair value are generally subject to a profit and loss
analysis process and are disaggregated into high-level categories
including portfolio changes, market movements and other fair value
adjustments.
Fair value hierarchy
Fair values of financial assets and liabilities are determined
according to the following hierarchy:
-- Level 1 - valuation technique using quoted market price:
financial instruments with quoted prices for identical instruments
in active markets that can be accessed at the measurement date.
-- Level 2 - valuation technique using observable inputs:
financial instruments with quoted prices for similar instruments in
active markets or quoted prices for identical or similar
instruments in inactive markets and financial instruments valued
using models where all significant inputs are observable.
-- Level 3 - valuation technique with significant unobservable
inputs: financial instruments valued using valuation techniques
where one or more significant inputs are unobservable.
Financial instruments carried at fair value and bases of valuation
2019 2018
Level Level Level Level Level Level
1 2 3 Total 1 2 3 Total
The group GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Recurring fair value measurements
at 31 Dec
------------------------------------ ------ ----- ----- ------ ------ ----- ----- --------
Assets
------------------------------------ ------ ----- ----- ------ ------ ----- ----- --------
Financial assets designated
and otherwise mandatorily
measured at fair value
through profit or loss 65 1 - 66 34 1 - 35
------------------------------------
Derivatives 2 119 - 121 2 64 - 66
------------------------------------ ------ ----- ----- ------
Financial investments 19,285 452 - 19,737 12,613 590 - 13,203
------ ----- ----- ------
Liabilities
------------------------------------ ------ ----- ----- ------ ------ ----- ----- --------
Derivatives 4 197 - 201 1 345 - 346
------------------------------------ ------ ----- ----- ------ ------ ----- ----- ------
The bank
------ --- ------
Recurring fair value measurements
at 31 Dec
----------------------------------- ------ --- ------ ------ --- --------
Assets
----------------------------------- ------ --- ------ ------ --- --------
Financial assets designated
and otherwise mandatorily
measured at fair value
through profit or loss 65 1 - 66 34 1 - 35
-----------------------------------
Derivatives 2 116 - 118 2 59 - 61
----------------------------------- ------ --- ------
Financial investments 19,285 452 -19,737 12,613 590 -13,203
Liabilities
----------------------------------- ------ --- ------ ------ --- --------
Derivatives 3 194 - 197 1 340 - 341
----------------------------------- ------ --- ------ ------ --- ------
Transfers between levels of the fair value hierarchy are deemed
to occur at the end of each quarterly reporting period. Transfers
into and out of levels of the fair value hierarchy are primarily
attributable to observability of valuation inputs and price
transparency. There were no transfers between Level 1 and Level 2
during 2019 and 2018.
Fair value adjustments
Fair value adjustments are adopted when the group determines
there are additional factors considered by market participants that
are not incorporated within the valuation model. Movements in the
level of fair value adjustments do not necessarily result in the
recognition of profits or losses within the income statement, such
as when models are enhanced and therefore fair value adjustments
may no longer be required.
8 Fair values of financial instruments not carried at fair value
---------------------------------------------------------------
Fair values of financial instruments not carried at fair value and
bases of valuation
Fair value
Significant
Quoted market Observable unobservable
Carrying price Level inputs Level inputs Level
amount 1 2 3 Total
GBPm GBPm GBPm GBPm GBPm
The group
At 31 Dec 2019
Assets
Loans and advances to
banks 1,389 - 1,389 - 1,389
------------- ------------- -------
Loans and advances to
customers 183,056 - 531 183,744 184,275
------------------------------------ -------- ------------- ------------- -------
Reverse repurchase agreements
- non-trading 3,014 - 3,014 - 3,014
------------------------------------ -------- ------------- ------------- ------------- -------
Liabilities
Deposits by banks 529 - 529 - 529
------------------------------------ ------------- ------------- -------
Customer accounts 216,214 - 216,214 - 216,214
------------------------------------ ------------- ------------- -------
Repurchase agreements
- non-trading 98 - 98 - 98
------------------------------------ ------------- ------------- -------
Debt securities in issue 3,142 - 3,142 - 3,142
------------------------------------ ------------- ------------- -------
Subordinated liabilities 9,533 - 10,094 - 10,094
------------------------------------ -------- ------------- ------------- ------------- -------
At 31 Dec 2018
------------------------------------ -------- ------------- ------------- ------------- ---------
Assets
Loans and advances to
banks 1,263 - 1,263 - 1,263
------------------------------------
Loans and advances to
customers 174,807 - 631 176,229 176,860
------------------------------------
Reverse repurchase agreements
- non-trading 3,422 - 3,422 - 3,422
------------------------------------ -------- ------------- ------------- ------------- -------
Liabilities
Deposits by banks 1,027 - 1,027 - 1,027
------------------------------------
Customer accounts 204,837 - 204,818 - 204,818
------------------------------------
Repurchase agreements
- non-trading 639 - 639 - 639
------------------------------------
Debt securities in issue - - - - -
------------------------------------
Subordinated liabilities 4,937 - 5,040 - 5,040
------------------------------------ -------- ------------- ------------- ------------- -------
The bank
At 31 Dec 2019
-------------------------------
Assets
Loans and advances to
banks 4,643 - 4,643 - 4,643
------- ------- -------
Loans and advances to
customers 173,901 - 531 174,480 175,011
------------------------------- ------- ------- -------
Reverse repurchase agreements
- non-trading 3,014 - 3,014 - 3,014
------------------------------- ------- ------- ------- -------
Liabilities
Deposits by banks 4,277 - 4,277 - 4,277
------------------------------- ------- ------- -------
Customer accounts 207,830 -207,830 - 207,830
------------------------------- ------- ------- -------
Repurchase agreements
- non-trading 98 - 98 - 98
------------------------------- ------- ------- -------
Debt securities in issue 2,917 - 2,917 - 2,917
------------------------------- ------- ------- -------
Subordinated liabilities 9,454 - 10,015 - 10,015
------------------------------- ------- ------- ------- -------
At 31 Dec 2018
------------------------------- ------- ------- ------- ---------
Assets
Loans and advances to
banks 3,883 - 3,883 - 3,883
-------------------------------
Loans and advances to
customers 165,850 - 631 167,468 168,099
-------------------------------
Reverse repurchase agreements
- non-trading 3,422 - 3,422 - 3,422
------------------------------- ------- ------- ------- -------
Liabilities
Deposits by banks 4,265 - 4,265 - 4,265
-------------------------------
Customer accounts 196,858 -196,858 - 196,858
-------------------------------
Repurchase agreements
- non-trading 639 - 639 - 639
-------------------------------
Debt securities in issue - - - - -
-------------------------------
Subordinated liabilities 4,858 - 4,961 - 4,961
------------------------------- ------- ------- ------- -------
Other financial instruments not carried at fair value are
typically short-term in nature and reprice to current market rates
frequently. Accordingly, their carrying amount is a reasonable
approximation of fair value. They include cash and balances at
central banks and items in the course of collection from and
transmission to other banks, all of which are measured at amortised
cost.
Valuation
Fair value is an estimate of the price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. It
does not reflect the economic benefits and costs that the group
expects to flow from an
instrument's cash flow over its expected future life. Our
valuation methodologies and assumptions in determining fair values
for which no observable market prices are available may differ from
those of other companies.
Loans and advances to banks and customers
To determine the fair value of loans and advances to banks and
customers, loans are segregated into portfolios of similar
characteristics. Where applicable fair value is measured using
quoted price for similar assets in and active market, where not
applicable the fair value of the portfolios is determined using
internal pricing models using external market data, and discounting
future cash flows to present value.
The fair value of loans reflects expected credit losses at the
balance sheet date and estimates of market participants'
expectations of credit losses over the life of the loans, and the
fair value effect of repricing between origination and the balance
sheet date. For credit impaired loans, fair value is estimated by
discounting the future cash flows over the time period they are
expected to be recovered.
Deposits by banks and customer accounts
The fair values of on-demand deposits are approximated by their
carrying value. For deposits with longer-term maturities, fair
values are estimated using discounted cash flows, applying current
rates offered for deposits of similar remaining maturities.
Debt securities in issue and subordinated liabilities
Fair values are determined using quoted market prices at the
balance sheet date where available, or by reference to quoted
market prices for similar instruments.
Repurchase and reverse repurchase agreements - non-trading
Fair values approximate carrying amounts as balances are
generally short dated.
9 Derivatives
------------
Notional contract amounts and fair values of derivatives by product
contract type held
Notional contract
amount Fair value - Assets Fair value - Liabilities
Trading Hedging Trading Hedging Total Trading Hedging Total
The group GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------
Foreign exchange 7,733 803 64 2 66 65 14 79
Interest rate 9,405 20,250 340 288 628 342 353 695
Gross total fair
values 17,138 21,053 404 290 694 407 367 774
-------------------- ---------- -------- --------- ------- ----- ----------- ------- -------
Offset (Note 22) (573) (573)
-------------------- ---------- -------- --------- ------- ----- ----------- ------- -------
At 31 Dec 2019 17,138 21,053 404 290 121 407 367 201
-------------------- ---------- -------- --------- ------- ----- ----------- ------- -------
Foreign exchange 5,740 2,222 42 5 47 44 79 123
Interest rate 15,587 12,522 142 79 221 133 292 425
------------------
Gross total fair
values 21,327 14,744 184 84 268 177 371 548
------------------ ------ ------ --- ---- --- --- ----
Offset (Note 22) (202) (202)
------------------ ------ ------ --- ---- --- --- ----
At 31 Dec 2018 21,327 14,744 184 84 66 177 371 346
------------------ ------ ------ --- ---- --- --- ----
Notional contract
amount Fair value - Assets Fair value - Liabilities
Trading Hedging Trading Hedging Total Trading Hedging Total
The bank GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------
Foreign exchange 7,355 803 60 2 62 61 14 75
Interest rate 9,385 20,251 341 288 629 342 353 695
Gross total fair
values 16,740 21,054 401 290 691 403 367 770
------------------ ---------- -------- ---------- ------- ----- ------------ ------- ------
Offset (Note 22) (573) (573)
------------------ ---------- -------- ---------- ------- ----- ------------ ------- ------
At 31 Dec 2019 16,740 21,054 401 290 118 403 367 197
------------------ ---------- -------- ---------- ------- ----- ------------ ------- ------
Foreign exchange 5,189 2,222 37 5 42 38 79 117
Interest rate 15,567 12,522 142 79 221 133 293 426
Gross total fair
values 20,756 14,744 179 84 263 171 372 543
------------------ ------ ------ --- ---- --- --- ----
Offset (Note 22) (202) (202)
------------------ ------ ------ --- ---- --- --- ----
At 31 Dec 2018 20,756 14,744 179 84 61 171 372 341
------------------ ------ ------ --- ---- --- --- ----
The notional contract amounts of derivatives held for trading
purposes and derivatives designated in qualifying hedge accounting
indicate the nominal value of transactions outstanding at the
balance sheet date; they do not represent amounts at risk.
Use of derivatives
We undertake derivative activity for two primary purposes: to
create risk management solutions for clients and to manage and
hedge our own risks.
Trading derivatives
Most of the group's derivative transactions relate to sales and
trading activities. Sales activities include marketing of
derivative products to customers to enable them to take, transfer,
modify or reduce current or expected risks. Trading activities
principally includes risk management. Risk management activity is
undertaken to manage the risks arising from client transactions,
with the principal purpose of retaining client margin. Other
derivatives classified as held for trading include non-qualifying
hedging derivatives.
Hedge accounting derivatives
The group applies hedge accounting to manage interest rate risk
and foreign exchange risk. The 'Report of the Directors Risk'
presents more details on how these risks arise and how they are
managed by the group.
Fair value hedges
The group enters into fixed-for-floating-interest-rate swaps to
manage the exposure to changes in fair value due to movements in
market interest rates on certain fixed rate financial instruments
which are not measured at fair value through profit or loss.
Hedging instrument by hedged risk
Hedging Instrument
Carrying amount
------------------
Change in
Notional amount(1) Assets Liabilities Balance sheet fair value(2)
Hedged risk GBPm GBPm GBPm presentation GBPm
Interest rate(3) 17,740 280 350 Derivatives 62
------------------ ------------------ ----------- ----------- ------------- --------------
At 31 Dec 2019 17,740 280 350 62
------------------ ------------------ ----------- ----------- ------------- --------------
Interest rate(3) 8,762 63 278 Derivatives (38)
------------------ ----- --- ----------- ---
At 31 Dec 2018 8,762 63 278 (38)
------------------ ----- --- ----------- ---
1 The notional contract amounts of derivatives designated in
qualifying hedge accounting relationships indicate the nominal
value of transactions outstanding at the balance sheet date; they
do not represent amounts at risk.
2 Used in effectiveness testing; comprising the full fair value
change of the hedging instrument not excluding any component.
3 The hedged risk 'interest rate' includes inflation risk.
Hedged item by hedged risk
Hedged item Ineffectiveness
------------------------
Accumulated fair value
hedge adjustments included
Carrying amount in carrying amount (2)
------------
Change Recognised Profit and
in fair in profit loss
Assets Liabilities Assets Liabilities value(1) and loss presentation
------------
Hedged Balance sheet
risk GBPm GBPm GBPm GBPm presentation GBPm GBPm
---------- ------------
Financial
assets
designated
and otherwise
mandatorily
measured at
fair value
through other
Interest comprehensive
rate(4) 12,289 133 income 148 4
------------
Net income
from
financial
instruments
held for
trading
or managed
Subordinated on a fair
6,292 219 Liabilities(3) (206) value basis
-------- ---------- ------------
At 31 Dec
2019 12,289 6,292 133 219 (58) 4
---------- --------- ----------- ------- ----------- -------------- -------- ---------- ------------
Financial
assets designated
and otherwise Net income
mandatorily from financial
measured at instruments
fair value held for trading
through other or managed
Interest comprehensive on a fair
rate(4) 7,161 166 income 57 (2) value basis
-----------------
Subordinated
2,033 21 Liabilities(3) (21)
--- --- -----------------
At 31 Dec
2018 7,161 2,033 166 21 36 (2)
---------- ----- ----- --- ------------------ --- -----------------
1 Used in effectiveness assessment; comprising amount
attributable to the designated hedged risk that can be a risk
component.
2 The accumulated amount of fair value adjustments remaining in
the statement of financial position for hedged items that have
ceased to be adjusted for hedging gains and losses were liabilities
of GBP26m (2018: GBP1.3m) for FVOCI.
3 The notional amount of non-dynamic fair value hedges is equal
to GBP6,019m (2018: GBP2,000m), of which the weighted-average
maturity date is June 2028 and the weighted average swap rate is
1.78% (2018: 1.45%). These hedges are all internal to HSBC Group
and composed by internal funding between Group and HSBC UK.
4 The hedged risk 'interest rate' includes inflation risk.
The hedged item is either the benchmark interest rate risk
portion within the fixed rate of the hedged item or the full fixed
rate and it is hedged for changes in fair value due to changes in
the benchmark interest rate risk.
Sources of hedge ineffectiveness may arise from basis risk
including but not limited to the discount rates used for
calculating the fair value of derivatives, hedges using instruments
with a non-zero fair value and notional and timing differences
between the hedged items and hedging instruments.
The disclosures for the group are materially the same as the
disclosures for the bank.
Cash flow hedges
The group's cash flow hedging instruments consist principally of
interest rate swaps and cross-currency swaps that are used to
manage the variability in future interest cash flows of non-trading
financial assets and liabilities, arising due to changes in market
interest rates and foreign-currency basis.
The group applies macro cash flow hedging for interest-rate risk
exposures on portfolios of replenishing current and forecasted
issuances of non-trading assets and liabilities that bear interest
at variable rates, including rolling such instruments. The amounts
and timing of future cash flows, representing both principal and
interest flows, are projected for each portfolio of financial
assets and liabilities on the basis of their contractual terms and
other relevant factors, including estimates of prepayments and
defaults. The aggregate cash flows representing both principal
balances and interest cash flows across all portfolios are used to
determine the effectiveness and ineffectiveness. Macro cash flow
hedges are considered to be dynamic hedges.
The group also hedges the variability in future cash-flows on
foreign-denominated financial assets and liabilities arising due to
changes in foreign exchange market rates with cross-currency swaps,
these are considered dynamic hedges.
Hedging instrument by hedged risk
Hedged
Hedging Instrument Item Ineffectiveness
------------------------
Carrying amount Change Change Recognised
in fair in fair in profit
value(2) value(3) and loss
---------- ------------ ------------
Notional
amount(1) Assets Liabilities
Balance Profit and
Hedged sheet loss
risk GBPm GBPm GBPm presentation GBPm GBPm GBPm presentation
--------- ----------- --------- ---------- ------------
Foreign
currency 803 2 14 Derivatives 16 16 -
------------
Net income
from
financial
instruments
held for
trading or
managed on
Interest a fair value
rate 2,510 8 3 Derivatives 24 23 1 basis
---------- --------- ----------- ------------ --------- --------- ---------- ------------
At 31 Dec
2019 3,313 10 17 40 39 1
---------- ---------- --------- ----------- ------------ --------- --------- ---------- ------------
Net income
from financial
instruments
held for
trading or
managed on
a fair value
Foreign currency 2,222 5 79 Derivatives (110) (110) - basis
------------------ ---------------
Interest rate 3,760 16 14 Derivatives 2 3 (1)
----- ----------- ---- ---- ---------------
At 31 Dec 2018 5,982 21 93 (108) (107) (1)
------------------ ----- ----------- ---- ---- ---------------
1 The notional contract amounts of derivatives designated in
qualifying hedge accounting relationships indicate the nominal
value of transactions outstanding at the balance sheet date; they
do not represent amounts at risk.
2 Used in effectiveness testing; comprising the full fair value
change of the hedging instrument not excluding any component.
3 Used in effectiveness assessment; comprising amount
attributable to the designated hedged risk that can be a risk
component.
Sources of hedge ineffectiveness may arise from basis risk,
including but not limited to timing differences between the hedged
items and hedging instruments and hedges using instruments with a
non-zero fair value.
During the year to 31 December 2019, a profit of GBP1m (2018:
Loss of GBP1m) was recognised due to hedge ineffectiveness.
The disclosures for the group are materially the same as the
disclosures for the bank.
Reconciliation of equity and analysis of other comprehensive income
by risk type
Interest Foreign
rate Currency
GBPm GBPm
-----------
Cash flow hedging reserve at 1 Jan 2019 (24) (22)
-------------------------------------------------------------
Fair value gains/(losses) 23 16
------------------------------------------------------------- ------ -------
Fair value (gains)/losses reclassified from the cash
flow hedge reserve to the income statement in respect
of:
- hedged items that have affected profit or loss (2) 9
Income taxes (12) -
Cash flow hedging reserve at 31 Dec 2019 (15) 3
------------------------------------------------------------- ------ -------
Cash flow hedging reserve at 1 Jan 2018 - -
Fair value gains/(losses) 3 (110)
-------------------------------------------------------- --- ----
Fair value (gains)/losses reclassified from the cash
flow hedge reserve to the income statement in respect
of:
- hedged items that have affected profit or loss (7) 91
Income taxes 6 -
Transfer in from HSBC Bank plc (26) (3)
-------------------------------------------------------- --- ----
Cash flow hedging reserve at 31 Dec 2018 (24) (22)
-------------------------------------------------------- --- ----
Interest Rate Benchmark Reform: Amendments to IFRS 9 and IAS 39
'Financial Instruments'
Following the request received by the Financial Stability Board
from the G20, a fundamental review and reform of the major interest
rate benchmarks is under way across the world's largest financial
markets. This reform was not contemplated when the standard was
published, and consequently the IASB has published a set of
temporary exceptions from applying specific hedge accounting
requirements to provide clarification on how the standard should be
applied in these circumstances.
Amendments to IFRS 9 and IAS 39 were endorsed in January 2020
and modify specific hedge accounting requirements. Under these
temporary exceptions, IBORs are assumed to continue for the
purposes of hedge accounting until such time as the uncertainty is
resolved.
The application of this set of temporary exceptions is mandatory
for accounting periods starting on or after 1 January 2020, but
early adoption is permitted and the group has elected to apply
these exceptions for the year ended 31 December 2019. Significant
judgement will be
required in determining when uncertainty is expected to be
resolved and therefore when the temporary exceptions will cease to
apply, however at 31 December 2019 the uncertainty exists and
therefore the temporary exceptions apply to all of the group's
hedge accounting relationships that reference Ibors.
The group has cash flow and fair value hedge accounting
relationships that are exposed to different Ibors, predominantly US
Dollar Libor, Sterling Libor, Eonia, and Euribor. Existing
derivatives, loans, bonds, and other financial instruments
designated in these relationships referencing Ibors will transition
to new Risk-Free Rates ('RFRs') in different ways and at different
times. External progress on the transition to RFRs is being
monitored, with the objective of ensuring a smooth transition for
the group's hedge accounting relationships. The specific issues
arising will vary with the details of each hedging relationship,
but may arise due to the transition of existing products included
in the designation, a change in expected volumes of products to be
issued, a change in contractual terms of new products issued, or a
combination of these factors. Some hedges may need to be
de-designated and new relationships entered into, while others may
survive the transition.
The hedge accounting relationships that are affected by the
adoption of the temporary exceptions hedge items presented in the
Balance Sheet as 'Financial assets designated and otherwise
mandatorily measured at fair value through other comprehensive
income', 'Loans and advances to customers', 'Debt securities in
issue', and 'Deposits by banks'.
The notional amounts of Interest Rate derivatives designated in
hedge accounting relationships represent the extent of the risk
exposure managed by the group that is directly affected by Ibor
reform and impacted by the temporary exceptions. Although HSBC UK
has designated hedge accounting relationships which involve cross
currency swaps, these are not significant and have not been
presented below:
Hedging instrument impacted by IBOR reform held by the group
Hedging instrument
Not impacted
by Ibor Notional
Impacted by IBOR reform reform amount(1)
EUR GBP $ Total
GBPm GBPm GBPm GBPm GBPm GBPm
Fair value
hedges 675 4,243 2,523 7,441 10,299 17,740
Cash flow hedges - 2,210 - 2,210 300 2,510
------- ------ -------------
At 31 Dec 2019 675 6,453 2,523 9,651 10,599 20,250
------------------------ ---- ------- ------- ------ ------------- -----------
1 The notional contract amounts of Interest Rate derivatives
designated in qualifying hedge accounting relationships indicate
the nominal value of transactions outstanding at the balance sheet
date; they do not represent amounts at risk.
For further risks and governance regarding the impact of the
market-wide benchmarks reform, see Risk overview section on page
16.
10 Financial investments
--- ----------------------
Carrying amount of financial investments
------ --------
The group The bank
2019 2018 2019 2018
GBPm GBPm GBPm GBPm
------ ------ ------ --------
Financial investments measured at
fair value through other comprehensive
income 19,737 13,203 19,737 13,203
- treasury and other eligible bills 3,708 1,286 3,708 1,286
- debt securities 16,029 11,917 16,029 11,917
------ ------ ------ ------
At 31 Dec 19,737 13,203 19,737 13,203
----------------------------------------- ------ ------ ------ ------
11 Assets pledged, collateral received and assets transferred
--- -----------------------------------------------------------
Assets pledged
Financial assets pledged as collateral
The group The bank
2019 2018 2019 2018
GBPm GBPm GBPm GBPm
----- ----- ----- -------
Debt securities 3,238 4,324 3,238 4,324
Other 107 95 107 95
Assets pledged at 31 Dec 3,345 4,419 3,345 4,419
-------------------------- ----- ----- ----- -----
The amount of assets pledged to secure liabilities may be
greater than the book value of assets utilised as collateral. For
example, where assets are placed with a custodian or a settlement
agent that has a floating charge over all the assets placed to
secure any liabilities under settlement accounts.
These transactions are conducted under terms that are usual and
customary to collateralised transactions including, where relevant,
standard securities lending and borrowing, repurchase agreements
and derivative margining. The group places both cash and non-cash
collateral in relation to derivative transactions.
Financial assets pledged as collateral that the counterparty has the
right to sell or repledge
The group The bank
2019 2018 2019 2018
GBPm GBPm GBPm GBPm
Financial investments 2,950 2,299 2,950 2,299
-------- --------
At 31 Dec 2,950 2,299 2,950 2,299
-------------------------------------- -------- -------- -------- --------
Collateral received
The fair value of assets accepted as collateral, relating
primarily to standard securities lending, reverse repurchase
agreements and derivative margining, that the group is permitted to
sell or repledge in the absence of default was GBP3,691m (2018:
GBP3,422m) The bank: GBP3,691m (2018: GBP3,422m). The group is
obliged to return equivalent securities. These transactions are
conducted under terms that are usual and customary to standard
securities lending, reverse repurchase agreements and derivative
margining.
Assets transferred
The assets pledged include transfers to third parties that do
not qualify for derecognition, notably secured borrowings such as
debt securities held by counterparties as collateral under
repurchase agreements and securities lent under securities lending
agreements. For secured borrowings, the transferred asset
collateral continues to be recognised in full and a related
liability, reflecting the group's obligation to repurchase the
assets for a fixed price at a future date is also recognised on the
balance sheet. Where securities are swapped, the transferred asset
continues to be recognised in full. There is no associated
liability as the non-cash collateral received is not recognised on
the balance sheet. The group is unable to use, sell or pledge the
transferred assets for the duration of these transactions, and
remains exposed to interest rate risk and credit risk on these
pledged assets. The counterparty's recourse is not limited to the
transferred assets.
Transferred financial assets not qualifying for
full derecognition and associated financial liabilities
--------------------------------
2019 2018
------------------------------ --------------------------------
Carrying amount of: Carrying amount of:
Transferred Associated Transferred Associated
assets liabilities assets liabilities
The group and bank GBPm GBPm GBPm GBPm
----------------------------------------------
Repurchase agreements 846 98 727 639
----------------
Securities lending agreements 2,104 - 1,572 -
---------------------------------------------- ---------------- ------------ ---------------- ------------
12 Interests in joint ventures
--- ----------------------------
Interests in joint ventures
Vaultex UK Limited is a joint venture of the bank and the group.
Vaultex UK Limited is incorporated in England and its principal
activity is that of cash management services. At 31 December 2019,
the group had a 50% interest in the GBP10m issued equity capital
(2018: 50%).
For further detail see Note 29.
13 Investments in subsidiaries
--- ----------------------------
Main subsidiaries of HSBC UK Bank plc
Country of HSBC UK Bank
incorporation plc's interest
or registration in equity capital Share class
%
England and Ordinary
HSBC Equipment Finance (UK) Limited Wales 100.00 GBP1
---------------- ------------------ -----------
England and Ordinary
HSBC Invoice Finance (UK) Limited Wales 100.00 GBP1
England and Ordinary
HSBC Private Bank (UK) Limited Wales 100.00 GBP10
----------------
England and Ordinary
HSBC Trust Company (UK) Limited Wales 100.00 GBP5
----------------
Marks and Spencer Financial Services England and Ordinary
plc Wales 100.00 GBP1
------------------------------------- ---------------- ------------------ -----------
All the above prepare their financial statements up to 31
December.
Details of all group subsidiaries, as required under Section 409
of the Companies Act 2006, are set out in Note 29. The principal
country of operation is the same as the country of
incorporation.
Impairment testing of investments in subsidiaries
At each reporting period end, HSBC UK Bank plc reviews
investments in subsidiaries for indicators of impairment. An
impairment is recognised when the carrying amount exceeds the
recoverable amount for that investment.
The recoverable amount is the higher of the investment's fair
value less costs of disposal and its value in use. The value in use
is calculated by discounting management's cash flow projections for
the investment.
-- The cash flow projections for each investment are based on
the latest approved plans and a long-term growth rate is used to
extrapolate the cash flows in perpetuity.
-- The growth rate reflects inflation and is based on the long-term average for the UK.
-- The rate used to discount the cash flows is based on the cost
of capital assigned to each investment, which is derived using a
capital asset pricing model ('CAPM'). CAPM depends on a number of
inputs reflecting financial and economic variables, including the
risk-free rate and a premium to reflect the inherent risk of the
business being evaluated. These variables are based on the market's
assessment of the economic variables and management's judgement.
The discount rates for each investment are refined to reflect the
UK rate of inflation.
On 9 December 2019, the High Court of Justice formally
sanctioned the Banking Business Transfer Scheme (including the
acceptance of deposits), the provision of financial services and
other related activities from HSBC Private Bank (UK) Limited to
HSBC UK Bank plc under Part VII of the Financial Services and
Markets Act 2000 for an effective date of 1 January 2020. An
impairment of GBP483m was recognised on HSBC UK Bank plc's
investment in HSBC Private Bank (UK) Limited on 31 December 2019,
with there being no outstanding items at 31 December 2019 that
would prevent the transfer occurring. The impairment arose because
the cost of investment was higher than the consideration received
for the net assets being transferred.
No impairment was recognised as a result of the impairment test
performed in 2018.
14 Structured entities
--- --------------------
The group is involved with both consolidated and unconsolidated
structured entities through the securitisation of financial assets
and investment funds, established either by the group or a third
party.
Consolidated structured entities
Total assets of the group's consolidated structured entities,
split by entity type:
Securitisations Total
GBPm GBPm
--------------- -------
At 31 Dec 2019 397 397
----------------- --------------- -----
At 31 Dec 2018 - -
----------------- --------------- -----
Securitisations
In 2019, the group established a structured entity to securitise
customer loans and advances in order to diversify its sources of
funding for asset origination and capital efficiency purposes. The
loans and advances were transferred by the group to the structured
entity synthetically, and the structured entity issued debt
securities to investors.
Unconsolidated structured entities
The term 'unconsolidated structured entities' refers to all
structured entities not controlled by the group. The group enters
into transactions with unconsolidated structured entities in the
normal course of business to facilitate customer transactions and
for specific investment opportunities.
The group's interest in unconsolidated structured entities
consist of unit holdings in four funds managed by a third party
within the wider HSBC Group. The groups unit holdings are held in
order to facilitate customer transactions and are recognised as
Other assets with a carrying value and maximum exposure to loss as
at 31 December 2019 of GBP0.2m (2018: GBP0.2m). The total assets of
the funds as at
31 December 2019 was GBP1.3bn (2018: GBP1.2bn). The group has no
liabilities or commitments in respect of the funds.
15 Goodwill and intangible assets
--- -------------------------------
The group The bank
2019 2018 2019 2018
GBPm GBPm GBPm GBPm
------------------------------- ----- ----- ------ ------
Goodwill 3,285 3,285 223 223
Other intangible assets(1, 2) 688 525 658 495
----- ------
At 31 Dec 3,973 3,810 881 718
------------------------------- ----- ----- ------ ----
1 For 2019, the amortisation and impairment of intangible assets
totalled for the group GBP156m (2018: GBP64m).
2 Included within the group's other intangible assets is
internally generated software with a net carrying value of GBP688m
(2018: GBP518m).
Impairment testing
The group's impairment test in respect of goodwill allocated to
each cash generating unit ('CGU') is performed as at 1 July each
year, with a review for indicators of impairment at 30 June and 31
December. At 31 December 2019, the review identified an indicator
of impairment for PB. As a result, an impairment test has been
performed as at 31 December 2019 for the PB CGU. For all other
CGUs, the annual test performed as at 1 July remains the latest
impairment test and the disclosures given are as at 1 July for CMB
and RBWM, and 31 December for PB. The testing at 1 July and 31
December resulted in no impairment of goodwill.
Basis of the recoverable amount
The recoverable amount of all CGUs to which goodwill has been
allocated was equal to its value in use ('VIU') at each respective
testing date for 2019 and 2018. For each CGU, the VIU is calculated
by discounting management's cash flow projections for the CGU. The
key assumptions used in the VIU calculation for each CGU are
discussed below.
Key assumptions in VIU calculation
Nominal
growth
Nominal rate
Growth growth beyond
Goodwill rate beyond rate beyond Goodwill initial
at 31 initial Goodwill initial at: cash
Dec Discount cash flow at 1 Discount cash flow 1 Jul Discount flow
2019 rate projections Jul 2019 rate projections 2018 rate projections
-------- -------- ----------- -------- -------- ----------- -------- -------- -------------
Cash-generating
unit GBPm % % GBPm % % GBPm % %
-------- -------- ----------- -------- -------- ----------- -------- -------- -------------
RBWM 1,686 N/A N/A 1,686 8.3 3.3 1,686 7.9 3.8
-------- -----------
CMB 1,239 N/A N/A 1,239 9.7 3.3 1,239 9.7 3.8
-------- -----------
PB 360 8.8 1.8 360 9.5 3.3 360 9.4 3.8
Total 3,285 3,285 3,285
----------- -------------
The group's CGUs do not carry on their balance sheets any
significant intangible assets with indefinite useful lives, other
than goodwill.
Management's judgement in estimating the cash flows of a CGU
The cash flow projections for each CGU are based on the latest
plans presented to the Board. The Board challenge and endorse
planning assumptions in light of internal capital allocation
decisions necessary to support HSBC UK's strategy, current market
conditions, and our macro-economic outlook. For the goodwill
impairment tests conducted at 1 July 2019 and 31 December 2019,
management's cash flow projections until the end of 2023 and 2024
were used respectively.
Discount rate
The rate used to discount the cash flows is based on the cost of
capital assigned to each CGU, which is derived using a CAPM. CAPM
depends on a number of inputs reflecting financial and economic
variables, including the risk-free rate and a premium to reflect
the inherent risk of the business being evaluated. These variables
are based on the market's assessment of the economic variables and
management's judgement.
Long-term growth rate
The long-term growth rate is used to extrapolate the cash flows
in perpetuity because of the long-term perspective within the group
of business units making up the CGUs. Prior to the 31 December
impairment test, these growth rates reflected GDP and inflation
(nominal GDP) for the UK. At 31 December 2019, we considered the
extent to which growth rates based on nominal GDP data remained
appropriate given the uncertainty in the macroeconomic environment.
We anticipate that when global growth does stabilise it will be at
a slightly lower level than recent years. As a result, we
considered it appropriate to base the long-term growth rate
assumption on inflation data, moving away from a higher nominal GDP
basis. The rates are based on 20-year forecast rates, as they
represent an objective estimate of likely future trends.
Sensitivities of key assumptions in calculating VIU
At 31 December 2019, the PB CGU was sensitive to reasonably
possible adverse changes in the key assumptions supporting the
recoverable amount. In making an estimate of reasonably possible
changes to assumptions, management considers the available evidence
in respect of each input to the model. These include the external
range of observable discount rates, historical performance against
forecast and risks attaching to the key assumptions underlying cash
flow projections.
A reasonable change in a single key assumption may not result in
impairment. Though taken together a combination of reasonable
changes in key assumptions could result in a recoverable amount
that is lower than the CGUs carrying amount.
The following table presents a summary of the key assumptions
underlying the most sensitive inputs to the model for PB, the key
risks attaching to each, and details of a reasonably possible
change to assumptions where, in the opinion of management, these
could result in an impairment.
Reasonably possible changes in key assumptions
Cash-generating
unit
PB Cash flow -- Level of interest -- Market uncertainty. -- Cash flow
projections rates. -- Low interest projections decrease
-- Global Investment rate environment. by 30%.
and UK Real Estate -- Regulatory
markets. changes.
-- Assets under management
growth from new business
and market performance.
Discount -- Discount rate -- External evidence -- Discount rate
rate used is a reasonable arises to suggest increases by 200
estimate of a suitable that the rate used basis points.
market rate for the is not appropriate
profile of the business. to the business.
Sensitivity of VIU changes to current assumptions to achieve nil headroom
Increase / (decrease)
Cash-generating unit Carrying amount Value in use Discount rate Cash flows
At 31 December 2019 GBPm GBPm bps %
PB 971 1,189 200 (23.4)
Whilst there are no indicators of impairment at 31 December
2019, PB's recoverable amount exceeds the carrying amount by only
GBP218m and therefore, the test is sensitive to the assumptions
used. The reasonably possible changes in assumptions for Cash Flow
projections and Discount Rate, detailed above would result in an
impairment. Thus there is a risk of impairment in the future should
business performance or economic factors diverge from
forecasts.
16 Prepayments, accrued income and other assets
--- ---------------------------------------------
The group The bank
2019 2018 2019 2018
GBPm GBPm GBPm GBPm
----- ----- ----- -------
Prepayments and accrued income 740 650 727 636
----- -----
Settlement accounts 16 56 16 268
--------------------------------------- ----- -----
Cash collateral and margin receivables 107 279 107 279
----- -----
Endorsements and acceptances 71 86 71 86
Employee benefit assets (Note 3) 5,836 5,841 5,836 5,841
--------------------------------------- ----- ----- ----- -----
Right-of-use assets(1) 311 N/A 292 N/A
----- ----- ----- -------
Other accounts 530 1,008 691 921
----- -----
Owned property, plant and equipment 592 608 476 492
--------------------------------------- ----- -----
At 31 Dec 8,203 8,528 8,216 8,523
----- ----- ----- -----
1 Right-of-use assets have been recognised from 1 January 2019
following the adoption of IFRS 16. Comparatives have not been
restated.
Prepayments, accrued income and other assets include GBP1,364m
(2018: GBP2,016m) of financial assets, the majority of which are
measured at amortised cost.
17 Debt securities in issue
-------------------------
During 2019, we have established our Debt Issuance Programme to
diversify our funding sources and ensure we have appropriate access
to markets.
Our Commercial Paper and Certificates of Deposit Programme was
established prior to 31 December 2018 and we commenced issuing
under the programme during 2019.
Debt securities in issue
The group The bank
2019 2018 2019 2018
GBPm GBPm GBPm GBPm
Bonds and medium-term notes(1) 1,225 - 1,000 -
--------- --------
Other debt securities in issue(2) 1,917 - 1,917 -
--------- --------
Total debt securities in issue 3,142 - 2,917 -
--------- ---- -------- ----
1 The group's Bonds and medium-term notes includes GBP225m issued by structured entities.
2 Other debt securities in issue consists of commercial paper
and certificates of deposits issued in 2019.
18 Accruals, deferred income and other liabilities
--- ------------------------------------------------
The group The bank
2019 2018 2019 2018
GBPm GBPm GBPm GBPm
----------------------------------- ----- ----- ----- -------
Accruals and deferred income 562 498 483 438
Settlement accounts 14 31 14 548
----------------------------------- ----- -----
Cash collateral and margin payable 13 4 13 4
-----
Endorsements and acceptances 71 86 71 86
-----
Lease liabilities 326 N/A 307 N/A
----- ----- -----
Other liabilities 848 1,790 1,383 1,198
At 31 Dec 1,834 2,409 2,271 2,274
----------------------------------- ----- ----- ----- -----
For the group, accruals, deferred income and other liabilities
include GBP1,395m (2018: GBP2,208m), and for the bank GBP1,917m
(2018: GBP2,200m) of financial liabilities, the majority of which
are measured at amortised cost.
19 Provisions
--- -----------
Legal proceedings
Restructuring and regulatory Customer Other
costs(2) matters remediation(3) provisions Total
The group GBPm GBPm GBPm GBPm GBPm
----------------- ------------- --------
Provisions (excluding contractual
commitments)
At 1 Jan 2019 - - 540 5 545
--------- ---- ----- ------------- -------- ---
Additions 59 - 1,297 - 1,356
Amounts utilised (8) - (643) - (651)
Unused amounts reversed - (3) (4) (1) (8)
Exchange and Other movements 1 7 - - 8
--------- ---- ----- ------------- -------- ---
At 31 Dec 2019 52 4 1,190 4 1,250
--------- ---- ----- ------------- -------- ---
Contractual commitments(1)
--------------- ----------------- -------------
At 1 Jan 2019 85
--------------- ----------------- -------------
Net change in expected credit
loss provision and other movements (10)
--------------- ----------------- -------------
At 31 Dec 2019 75
--------------- ----------------- -------------
Total provisions
--------------- ----------------- ------------- --------
At 31 Dec 2018 630
--------------- ----------------- -------------
At 31 Dec 2019 1,325
--------------- ----------------- -------------
Provisions (excluding contractual
commitments)
At 1 Jan 2018 - - - - -
----
Transfer from HSBC Bank plc and
its subsidiaries 2 2 742 5 751
----
Additions - - 78 3 81
Amounts utilised - - (283) - (283)
Unused amounts reversed (2) (1) (13) (2) (18)
Unwinding of discounts - - - (1) (1)
Exchange and Other movements - (1) 16 - 15
----
At 31 Dec 2018 - - 540 5 545
----
Contractual commitments(1)
At 1 Jan 2018 -
Transfer from HSBC Bank plc and
its subsidiaries 72
Net change in expected credit
loss provision and other movements 13
At 31 Dec 2018 85
Total provisions
At 31 Dec 2018 630
1 Contractual commitments include the provision for contingent
liabilities measured under IFRS 9 Financial Instruments in respect
of financial guarantees and the expected credit loss provision on
off-balance sheet guarantees and commitments.
2 Restructuring costs include charges received from HSBC Global
Services (UK) Limited, which do not form part of the balance sheet
provision movement.
3 During 2019 the additional provisions of GBP1,297m were
recorded in the consolidated income statement under net income
income (GBP138m), net fee income (GBP44m) and operating expenses
(GBP1,115m).
Legal proceedings
Restructuring and regulatory Customer Other
costs(2) matters remediation(3) provisions Total
The bank GBPm GBPm GBPm GBPm GBPm
----------------- ----------- --------
Provisions (excluding contractual
commitments)
At 1 Jan 2019 - - 427 4 431
--------- ---- ----- ------------- -----------
Additions 58 - 1,054 - 1,112
Amounts utilised (8) - (495) - (503)
Unused amounts reversed - (3) (4) - (7)
--------- ---- ---- ------------- -----------
Exchange and Other movements 1 7 1 - 9
--------- ---- ----- ------------- -----------
At 31 Dec 2019 51 4 983 4 1,042
--------- ---- ----- ------------- -----------
Contractual commitments(1)
--------------- ----------------- -----------
At 1 Jan 2019 84
--------------- ----------------- -----------
Net change in expected credit
loss provision and other movements (12)
--------------- ----------------- -----------
At 31 Dec 2019 72
--------------- ----------------- -----------
Total provisions
--------------- ----------------- -----------
At 31 Dec 2018 515
--------------- ----------------- -----------
At 31 Dec 2019 1,114
--------------- ----------------- -----------
Legal proceedings
Restructuring and regulatory Customer Other
costs(2) matters remediation provisions Total
Provisions (excluding contractual
commitments)
At 1 Jan 2018 - - - - -
--------- ---- ---------- -------- ---
Transfer from HSBC Bank plc and
its subsidiaries 2 - 615 5 622
--------- ---- ---------- -------- ---
Additions - - 18 2 20
--------- ----
Amounts utilised - - (209) - (209)
Unused amounts reversed (2) - (13) (2) (17)
Unwinding of discounts - - - (1) (1)
Exchange and Other movements - - 16 - 16
--------- ---- ---------- -------- ---
At 31 Dec 2018 - - 427 4 431
--------- ---- ---------- -------- ---
Contractual commitments(1)
At 1 Jan 2018 -
Transfer from HSBC Bank plc 71
Net change in expected credit
loss provision and other movements 13
At 31 Dec 2018 84
Total provisions
At 31 Dec 2018 515
1 Contractual commitments include the provision for contingent
liabilities measured under IFRS 9 Financial Instruments in respect
of financial guarantees and the expected credit loss provision on
off-balance sheet guarantees and commitments.
2 Restructuring costs include charges received from HSBC Global
Services (UK) Limited, which do not form part of the balance sheet
provision movement.
3 During 2019 the additional provisions of GBP1,054m were
recorded in the HSBC UK income statement under net income income
(GBP126m), net fee income (GBP32m) and operating expenses
(GBP896m).
Payment Protection Insurance
At 31 December 2019, GBP801m (2018: GBP435m) of the customer
remediation provision relates to the estimated liability for
redress in respect of the possible mis-selling of payment
protection insurance ('PPI') policies in previous years.
Payments totalling GBP567m were made during 2019. An increase in
provisions of GBP932m was recognised during the year, primarily
reflecting the deadline of 29 August 2019 for bringing complaints
announced by the FCA, and leading to:
-- a higher than expected increase in the number of inbound
complaints received prior to 29 August 2019;
-- The effect on the total number of inbound complaints as a
result of treating customer information requests relating to PPI
policies received between 29 June 2019 and 29 August 2019 as
complaints;
-- the additional operational expenses related to the increases
in populations of potential claims;
-- an industry wide exercise by the Official Receiver to pursue
redress amounts in respect of bankrupt and insolvent customers;
and
-- an increased volume of actual or forecast legal claims for
PPI mis-selling which is not affected by the deadline of 29 August
2019.
The estimated liability for redress for both single and regular
premium policies is calculated on the basis of a refund of the
total premiums paid by the customer plus simple interest of 8% per
annum (or the rate inherent in the related loan product where
higher).
Future estimated redress levels are based on historical redress
paid to customers per policy.
At 31 December 2019, contact has been made with customers who
collectively held 3.0 million policies, representing 56% of total
policies sold. A total of 5.4 million PPI policies have been sold
since 2000, generating estimated revenue of GBP2.6bn at 2019. The
gross written premiums on these policies were approximately
GBP3.4bn. Although the deadline for bringing complaints has passed,
customers can still commence litigation for PPI mis-selling.
Provision has been made for the best estimate of any obligation to
pay compensation in respect of an estimated 45,000 claims. However,
given the limited period following the complaints time bar, the
volume and quality of future claims through legal channels, and the
amount of any compensation to be paid, remain uncertain.
The following table summarises the cumulative number of
information requests received between 29 June to 29 August 2019,
and the number of claims expected to be assessed in the future,
excluding claims received through legal channels:
Cumulative PPI complaints received to 31 December 2019
Cumulative
actual to
31 Dec 2019
Information Requests received during Autoconversion period
(000s) 1,889
Information Requests awaiting evaluation (000s) 234
------------
Remaining autoconverted claims anticipated to be worked (000s)(1) 167
------------
Remaining reactive claims anticipated to be worked (000s)(1) 44
------------
Total remaining claims anticipated to be worked (000s)(1) 211
------------
Average uphold rate per claim(2) 86%
Average redress per claim(3) (GBP) 2,440
------------
1 Includes claims where a valid PPI policy had already been
located, and claims which are anticipated to be valid after future
assessment; excludes invalid claims for which no PPI policy
exists.
2 Includes inbound and auto-converted claims, but excludes
Financial Ombudsman Service complaints.
3 Includes inbound and auto-converted claims, but excludes claims from the Official Receiver.
The PPI provision is based upon assumptions and estimates taken
from historic experience. The profile of cases yet to be assessed
could therefore vary leading to different uphold rates or average
redress levels being used to arrive at the provision.
We continued to monitor available information up until the date
of the approval of the financial statements to ensure the provision
estimate was appropriate.
Sensitivity to key assumptions
-- A 10% increase/decrease in the uphold rate for complaints yet
to be worked would increase/decrease the redress provision by
approximately GBP30m.
-- A 10% increase/decrease in the average redress for complaints
yet to be worked would increase/decrease the redress provision by
approximately GBP42m.
-- An increase/decrease in customer redress volumes of 10,000
received through legal channels would increase/decrease the redress
provision by approximately GBP22m.
Collections and recoveries related matters
At 31 December 2019, a provision of GBP220m was held relating to
the estimated liability for redress payable to customers following
a review of collections and recoveries practices in the UK in
respect of various HSBC Group companies, including HSBC UK.
The provision has been estimated based on a number of customer
cohorts who may have been impacted and a number of assumptions
which are highly judgemental, none of which are individually
material. At this early stage, the extraction of all relevant data
is incomplete, and there is significant uncertainty surrounding the
total number of customers affected and the amount of any redress to
be paid. Redress is expected to be completed during 2020.
The table below sets out sensitivities to the assumptions
applied but it is not intended to indicate a range of any final
amount payable.
Assumption GBPm
20% increase/decrease in population of customers impacted 40.4
20% increase/decrease in level of redress to be paid in respect
of interest and fees charged 26.6
Customer fee and mischarging related matters
At 31 December 2019, GBP118m of the customer remediation
provision relates to the estimated liability for redress in respect
of customer fee and mischarging related matters. This follows
internal reviews to identify any issues for which provisions had
not previously been raised and to re-assess provisions in respect
of matters previously provided for.
As a consequence of the matters identified from these reviews,
additional provisions of GBP117m were recognised in the period. The
provision relates to a number of different issues, none of which
are individually material.
The estimated liability for redress is based on sampling and
analysis performed to date for each of the matters, detailed
reviews to identify exact populations requiring redress are ongoing
and expect to be completed in 2020.
Legal proceedings and regulatory matters
Further details of legal proceedings and regulatory matters are
set out in Note 26. Legal proceedings include civil court,
arbitration or tribunal proceedings brought against the group
(whether by way of claim or counterclaim), or civil disputes that
may, if not settled, result in court, arbitration or tribunal
proceedings. Regulatory matters refer to investigations, reviews
and other actions carried out by, or in response to the actions of,
regulatory or law enforcement agencies in connection with alleged
wrongdoing.
20 Subordinated liabilities
--- -------------------------
Subordinated liabilities
The group The bank
2019 2018 2019 2018
GBPm GBPm GBPm GBPm
At amortised cost 9,533 4,937 9,454 4,858
* subordinated liabilities(1) 9,533 4,937 9,454 4,858
At 31 Dec 9,533 4,937 9,454 4,858
----- ----- ----- -----
1 Includes GBP6.5bn of eligible debt issued to meet our Minimum
requirement for own funds and Eligible Liabilities ('MREL')
applicable from 1 January 2020.
Subordinated liabilities rank behind senior obligations and
generally count towards the capital base of the group. Capital
securities may be called and redeemed by the group subject to prior
notification to and consent of the PRA.
The balance sheet amounts disclosed below are presented on an
IFRS basis and do not reflect the amount that the instruments
contribute to regulatory capital principally due to regulatory
amortisation and regulatory eligibility limits.
Subordinated liabilities of the group
Carrying amount
2019 2018
First Maturity
call date date GBPm GBPm
---------
Capital instruments
Tier 2 instruments
HSBC UK Bank plc Subordinated Floating
GBP550m Loan 2028(1) Jul 2023 Jul 2028 550 550
---------- -------- -------- -------
HSBC UK Bank plc Subordinated Floating
GBP1,000m Loan 2030(2) Jul 2025 Jul 2030 1,000 1,000
---------- -------- -------- -------
HSBC UK Bank plc Subordinated Floating
GBP650m Loan 2033(3) Sep 2028 Sep 2033 650 650
---------- -------- -------- -------
HSBC UK Bank plc Subordinated Floating
$840m Loan 2028(5) Jul 2023 Jul 2028 635 658
---------- -------- -------- -------
HSBC UK Bank plc 2.8594% Subordinated
GBP100m Loan 2029 Mar 2024 Mar 2029 100 -
---------- -------- -------- -------
Other Tier 2 instruments each less that
GBP100m(4) 79 79
-------- -------
Other instruments
Subordinated loan instruments not eligible
for inclusion in regulatory capital
---------
HSBC UK Bank plc 3.2485% MREL eligible
GBP1,000m Subordinated Loan 2026 Nov 2025 Nov 2026 1,000 1,000
---------- -------- -------- -------
HSBC UK Bank plc 3.4602% MREL eligible
GBP1,000m Subordinated Loan 2029 Aug 2028 Aug 2029 1,000 1,000
---------- -------- -------- -------
HSBC UK Bank plc 3.0000% MREL eligible
GBP1,000m Subordinated Loan 2028 Jul 2027 Jul 2028 1,000 -
---------- -------- -------- -------
HSBC UK Bank plc 3.9730% MREL eligible
$3000m Subordinated Loan 2030 May 2029 May 2030 2,269 -
---------- -------- -------- -------
HSBC UK Bank plc 3.0000% MREL eligible
GBP750m Subordinated Loan 2030 May 2029 May 2030 750 -
---------- -------- -------- -------
HSBC UK Bank plc 1.8777% MREL eligible
GBP350m Subordinated Loan 2025 Oct 2024 Oct 2025 350 -
---------- -------- -------- -------
HSBC UK Bank plc 2.1003% MREL eligible
GBP150m Subordinated Loan 2025 Oct 2024 Oct 2025 150 -
---------- -------- -------- -------
At 31
Dec 9,533 4,937
-------- -------
1 The distribution rate is three month sterling Libor plus 1.51%.
2 The distribution rate is three month sterling Libor plus 1.78%.
3 The distribution rate is three month sterling Libor plus 2.03%.
4 Two subordinated notes issued by Marks and Spencer Financial
Services plc, GBP54m maturing 2026 and GBP25m maturing 2027.
5 The distribution rate is three month USD Libor plus 1.51%.
21 Maturity analysis of assets, liabilities and off-balance sheet commitments
--- ---------------------------------------------------------------------------
The following table provides an analysis of consolidated total
assets, liabilities and off-balance sheet commitments by residual
contractual maturity at the balance sheet date. These balances are
included in the maturity analysis as follows:
-- Trading derivatives are included in the 'Due not more than 1
month' time bucket, because trading balances are typically held for
short periods of time.
-- Financial assets and liabilities with no contractual maturity
(such as equity securities) are included in the 'Due over 5 years'
time bucket. Undated or perpetual instruments are classified based
on the contractual notice period which the counterparty of the
instrument is entitled to give. Where there is no contractual
notice period, undated or perpetual contracts are included in the
'Due over 5 years' time bucket.
-- Non-financial assets and liabilities with no contractual
maturity are included in the 'Due over 5 years' time bucket.
-- Loan and other credit-related commitments are classified on
the basis of the earliest date they can be drawn down.
Maturity analysis of assets, liabilities and off-balance sheet commitments
Due Due
Due over over Due
over 3 6 over
1 month months months 9 Due over Due over
but not but not but not months 1 year 2 years
Due not more more more but not but not but not
more than than than more more more
than 3 6 9 than than than Due over
1 month months months months 1 year 2 years 5 years 5 years Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------- ------- ------- ------- ------- -------- -------- --------
The group
Financial
assets
Cash and
balances
at central
banks 37,030 - - - - - - - 37,030
Items in the
course
of collection
from
other banks 504 - - - - - - - 504
Financial
assets
designated or
otherwise
mandatorily
measured
at fair value 57 - - - - - - 9 66
Derivatives 63 1 3 2 - 2 8 42 121
Loans and
advances
to banks 786 - 603 - - - - - 1,389
Loans and
advances
to customers 20,484 10,827 7,576 5,774 5,240 17,685 30,911 84,559 183,056
- personal 5,834 4,776 1,839 1,702 1,636 6,216 16,657 78,271 116,931
- corporate and
commercial 14,073 5,772 5,461 3,906 3,466 11,003 13,753 6,170 63,604
- financial 577 279 276 166 138 466 501 118 2,521
Reverse
repurchase
agreements
- non-trading 1,671 1,260 83 - - - - - 3,014
Financial
investments 317 1,603 2,085 1,471 227 1,309 6,800 5,925 19,737
Accrued income
and
other
financial
assets 1,143 118 27 8 7 39 22 - 1,364
Total financial
assets
at 31 Dec 2019 62,055 13,809 10,377 7,255 5,474 19,035 37,741 90,535 246,281
Non-financial
assets - - - - - - - 10,821 10,821
Total assets at
31
Dec 2019 62,055 13,809 10,377 7,255 5,474 19,035 37,741 101,356 257,102
Financial
liabilities
Deposits by
banks 513 16 - - - - - - 529
Customer
accounts(1) 211,409 2,401 510 428 539 440 487 - 216,214
- personal 136,192 860 440 400 462 435 485 - 139,274
- corporate and
commercial 70,125 1,443 59 27 77 4 2 - 71,737
- financial 5,092 98 11 1 - 1 - - 5,203
Repurchase
agreements
- non-trading 98 - - - - - - - 98
Items in the
course
of
transmission
to
other banks 343 - - - - - - - 343
Derivatives 67 - - 1 1 3 56 73 201
Debt securities
in
issue 483 566 868 1,000 - - - 225 3,142
Accruals and
other
financial
liabilities 1,223 181 25 17 17 64 120 74 1,721
Subordinated
liabilities - - - - - - - 9,533 9,533
Total financial
liabilities
at 31 Dec
2019 214,136 3,164 1,403 1,446 557 507 663 9,905 231,781
Non-financial
liabilities - - - - - - - 3,070 3,070
Total
liabilities
at 31 Dec
2019 214,136 3,164 1,403 1,446 557 507 663 12,975 234,851
Off-balance
sheet
commitments
given
-------- ------- ------- ------- ------- -------- -------- --------
Loan and other
credit-related
commitments 67,118 4 1 2 7 114 41 15 67,302
- personal 37,014 - - - - - - - 37,014
- corporate and
commercial 28,600 4 1 2 7 114 41 15 28,784
- financial 1,504 - - - - - - - 1,504
Maturity analysis of assets, liabilities and off-balance sheet commitments
(continued)
Due
over Due
Due 3 over Due
over months 6 over
1 month but months 9 Due over Due over
but not not but not months 1 year 2 years
Due not more more more but not but not but not
more than than than more more more
than 3 6 9 than than than Due over
1 month months months months 1 year 2 years 5 years 5 years Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------
The group
Financial
assets
Cash and
balances
at central
banks 33,193 - - - - - - - 33,193
-------- ------- ------- ------- --------
Items in the
course
of collection
from
other banks 603 - - - - - - - 603
Financial
assets
designated or
otherwise
mandatorily
measured
at fair value 29 - - - - - - 6 35
Derivatives 50 - 9 - - 6 - 1 66
-------- ------- ------- ------- --------
Loans and
advances
to banks 908 - 351 - - - - 4 1,263
-------- ------- ------- ------- --------
Loans and
advances
to customers 14,085 9,321 7,562 5,918 5,676 18,257 33,511 80,477 174,807
- personal 2,415 1,546 2,164 2,143 2,040 7,363 17,843 74,129 109,643
- corporate and
commercial 10,917 7,566 5,173 3,622 3,396 10,627 15,163 6,167 62,631
- financial 753 209 225 153 240 267 505 181 2,533
Reverse
repurchase
agreements
- non-trading 1,989 1,433 - - - - - - 3,422
Financial
investments 375 444 1,024 518 568 393 6,366 3,515 13,203
-------- ------- ------- ------- --------
Accrued income
and
other
financial
assets 1,805 182 26 2 1 - - - 2,016
-------- ------- ------- ------- --------
Total financial
assets
at 31 Dec 2018 53,037 11,380 8,972 6,438 6,245 18,656 39,877 84,003 228,608
-------- ------- ------- ------- --------
Non-financial
assets - - - - - - - 10,331 10,331
-------- ------- ------- ------- --------
Total assets at
31
Dec 2018 53,037 11,380 8,972 6,438 6,245 18,656 39,877 94,334 238,939
-------- ------- ------- ------- --------
Financial
liabilities
Deposits by
banks 1,018 9 - - - - - - 1,027
-------- ------- ------- ------- --------
Customer
accounts(1) 200,036 2,103 1,023 692 528 312 134 9 204,837
- personal 128,872 873 816 657 477 297 122 7 132,121
- corporate and
commercial 66,700 1,054 188 34 50 15 12 2 68,055
- financial 4,464 176 19 1 1 - - - 4,661
Repurchase
agreements
- non-trading 189 - 450 - - - - - 639
Items in the
course
of
transmission
to
other banks 233 - - - - - - - 233
Derivatives 44 3 - 26 - 134 - 139 346
-------- ------- ------- ------- --------
Debt securities
in
issue - - - - - - - - -
Accruals and
other
financial
liabilities 1,671 399 14 - - - - 94 2,178
Subordinated
liabilities - - - - - - - 4,937 4,937
-------- ------- ------- ------- --------
Total financial
liabilities
at 31 Dec
2018 203,191 2,514 1,487 718 528 446 134 5,179 214,197
Non-financial
liabilities - - - - - - - 2,409 2,409
-------- ------- ------- ------- --------
Total
liabilities
at 31 Dec
2018 203,191 2,514 1,487 718 528 446 134 7,588 216,606
Off-balance
sheet
commitments
given
-------
Loan and other
credit-related
commitments 69,570 13 - 42 - 78 59 44 69,806
- personal 39,389 - - - - - - - 39,389
- corporate and
commercial 29,895 13 - 42 - 78 59 44 30,131
- financial 286 - - - - - - - 286
1 'Customers accounts' includes GBP114,056m (2018: GBP110,226m) insured by guarantee schemes.
Maturity analysis of assets, liabilities and off-balance sheet commitments
Due Due
Due over over Due
over 3 6 over
1 month months months 9 Due over Due over
but not but not but not months 1 year 2 years
Due not more more more but not but not but not
more than than than more more more
than 3 6 9 than than than Due over
1 month months months months 1 year 2 years 5 years 5 years Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------- -------- --------
The bank
Financial
assets
Cash and
balances
at central
banks 37,020 - - - - - - - 37,020
Items in the
course
of collection
from
other banks 355 - - - - - - - 355
Financial
assets
designated or
otherwise
mandatorily
measured
at fair value 57 - - - - - - 9 66
Derivatives 60 1 3 2 - 2 8 42 118
Loans and
advances
to banks 1,001 476 1,308 171 149 532 964 42 4,643
Loans and
advances
to customers 19,016 8,079 8,799 5,428 5,012 16,673 27,475 83,419 173,901
- personal 5,102 2,018 1,496 1,410 1,413 5,514 14,958 77,782 109,693
- corporate and
commercial 11,490 3,910 4,608 3,708 3,307 10,142 11,254 5,459 53,878
- financial 2,424 2,151 2,695 310 292 1,017 1,263 178 10,330
Reverse
repurchase
agreements
- non-trading 1,671 1,260 83 - - - - - 3,014
Financial
investments 317 1,603 2,085 1,471 227 1,309 6,800 5,925 19,737
Accrued income
and
other
financial
assets 1,413 84 20 1 1 - - - 1,519
Total financial
assets at 31
Dec
2019 60,910 11,503 12,298 7,073 5,389 18,516 35,247 89,437 240,373
Non-financial
assets - - - - - - - 9,183 9,183
Total assets at
31 Dec 2019 60,910 11,503 12,298 7,073 5,389 18,516 35,247 98,620 249,556
Financial
liabilities
Deposits by
banks 4,024 36 46 35 32 60 44 - 4,277
Customer
accounts(1) 203,400 2,092 452 428 531 440 487 - 207,830
- personal 130,290 617 391 400 455 436 485 - 133,074
- corporate and
commercial 69,419 1,380 50 27 76 4 2 - 70,958
- financial 3,691 95 11 1 - - - - 3,798
Repurchase
agreements
- non-trading 98 - - - - - - - 98
Items in the
course
of
transmission
to other banks 336 - - - - - - - 336
Derivatives 62 - - 1 1 3 56 74 197
Debt securities
in issue 483 566 868 1,001 - - - - 2,918
Accruals and
other
financial
liabilities 1,778 149 23 16 16 60 109 74 2,225
Subordinated
liabilities - - - - - - - 9,454 9,454
Total financial
liabilities at
31
Dec
2019 210,181 2,843 1,389 1,481 580 563 696 9,602 227,335
Non-financial
liabilities - - - - - - - 2,776 2,776
Total
liabilities
at 31 Dec
2019 210,181 2,843 1,389 1,481 580 563 696 12,378 230,111
Off-balance
sheet
commitments
given
Loan and other
credit-related
commitments 52,875 - - - - - - - 52,875
- personal 25,891 - - - - - - - 25,891
- corporate and
commercial 26,470 - - - - - - - 26,470
- financial 514 - - - - - - - 514
Maturity analysis of assets, liabilities and off-balance sheet commitments
(continued)
Due Due
Due over over Due
over 3 6 over
1 month months months 9 Due over Due over
but not but not but not months 1 year 2 years
Due not more more more but not but not but not
more than than than more more more
than 3 6 9 than than than Due over
1 month months months months 1 year 2 years 5 years 5 years Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------- --------
The bank
Financial
assets
Cash and
balances
at central
banks 33,187 - - - - - - - 33,187
-------- ------- ------- ------- -------- -------
Items in the
course
of collection
from
other banks 457 - - - - - - - 457
Financial
assets
designated or
otherwise
mandatorily
measured
at fair value 29 - - - - - - 6 35
Derivatives 45 - 9 - - 6 - 1 61
-------- ------- ------- ------- -------- -------
Loans and
advances
to banks 1,041 445 1,012 118 121 418 697 31 3,883
-------- ------- ------- ------- -------- -------
Loans and
advances
to customers 14,006 6,634 9,228 5,485 5,259 17,200 29,427 78,611 165,850
- personal 1,652 1,149 1,739 1,722 1,714 6,274 15,636 72,839 102,725
- corporate and
commercial 10,338 3,397 4,353 3,433 3,144 10,021 12,498 5,538 52,722
- financial 2,016 2,088 3,136 330 401 905 1,293 234 10,403
-------
Reverse
repurchase
agreements
- non-trading 1,989 1,433 - - - - - - 3,422
Financial
investments 375 444 1,024 518 568 393 6,367 3,514 13,203
-------- ------- ------- ------- -------- -------
Accrued income
and
other
financial
assets 2,025 76 26 2 1 - - - 2,130
Total financial
assets at 31
Dec
2018 53,154 9,032 11,299 6,123 5,949 18,017 36,491 82,163 222,228
-------- ------- ------- ------- -------- -------
Non-financial
assets - - - - - - - 9,023 9,023
-------- ------- ------- ------- -------- -------
Total assets at
31 Dec 2018 53,154 9,032 11,299 6,123 5,949 18,017 36,491 91,186 231,251
-------- ------- ------- ------- -------- -------
Financial
liabilities
Deposits by
banks 3,956 39 115 50 50 25 30 - 4,265
-------- ------- ------- ------- -------- -------
Customer
accounts(1) 193,037 1,579 810 555 509 264 104 - 196,858
- personal 123,626 480 643 529 465 257 100 - 126,100
- corporate and
commercial 65,326 923 148 25 43 7 4 - 66,476
- financial 4,085 176 19 1 1 - - - 4,282
Repurchase
agreements
- non-trading 189 - 450 - - - - - 639
Items in the
course
of
transmission
to other banks 225 - - - - - - - 225
Derivatives 38 3 - 26 - 134 - 140 341
-------- ------- ------- ------- -------- -------
Debt securities
in issue - - - - - - - - -
Accruals and
other
financial
liabilities 2,015 139 16 - - - - - 2,170
Subordinated
liabilities - - - - - - - 4,858 4,858
-------- ------- ------- ------- -------- -------
Total financial
liabilities at
31
Dec
2018 199,460 1,760 1,391 631 559 423 134 4,998 209,356
Non-financial
liabilities - - - - - - - 2,129 2,129
-------- ------- ------- ------- -------- -------
Total
liabilities
at 31 Dec
2018 199,460 1,760 1,391 631 559 423 134 7,127 211,485
Off-balance
sheet
commitments
given
Loan and other
credit-related
commitments 55,505 - - - - - - - 55,505
- personal 28,009 - - - - - - - 28,009
- corporate and
commercial 27,264 - - - - - - - 27,264
- financial 232 - - - - - - - 232
1 'Customers accounts' includes GBP111,797m (2018: GBP107,993m)
insured by guarantee schemes .
Contractual maturity of financial liabilities
The table below shows, on an undiscounted basis, all cash flows
relating to principal and future coupon payments (except for
derivatives not treated as hedging derivatives). For this reason,
balances in the table below do not agree directly with those in our
consolidated balance sheet and the bank's balance sheet.
Undiscounted cash flows payable in relation to hedging derivative
liabilities are classified according to their contractual
maturities. Derivatives not treated as hedging derivatives are
included in the 'Due not more than 1 month' time bucket and not by
contractual maturity. In addition, loans and other credit-related
commitments, financial guarantees and similar contracts are
generally not recognised on our balance sheet. The undiscounted
cash flows potentially payable under loan and other credit-related
commitments, and financial guarantees are classified on the basis
of the earliest date they can be called.
Cash flows payable under financial liabilities by remaining
contractual maturities
Due over Due over Due over
1 month 3 month 1 year
Due not but not but not but not
more than more than more than more than Due over
1 month 3 month 1 year 5 years 5 years Total
The group GBPm GBPm GBPm GBPm GBPm GBPm
Deposits by banks 505 24 - - - 529
Customer accounts 206,683 7,132 1,488 941 - 216,244
Repurchase agreements -
non-trading - 99 - - - 99
Derivatives 67 27 31 208 255 588
Debt securities in issue - 1,233 1,973 103 277 3,586
Subordinated liabilities - 77 232 1,225 12,595 14,129
Other financial liabilities 1,186 553 58 184 74 2,055
208,441 9,145 3,782 2,661 13,201 237,230
Loan and other credit-related
commitments 67,117 4 10 155 15 67,301
Financial guarantees 1,077 - - - - 1,077
At 31 Dec 2019 276,635 9,149 3,792 2,816 13,216 305,608
Proportion of cash flows
payable in period 91% 3% 1% 1% 4% 100%
Deposits by banks 1,018 8 - - - 1,026
Customer accounts 196,287 5,886 2,250 454 12 204,889
Repurchase agreements -
non-trading - 189 453 - - 642
Derivatives 44 3 26 133 279 485
Debt securities in issue - - - - - -
Subordinated liabilities - 35 105 557 6,329 7,026
Other financial liabilities 1,792 679 13 - - 2,484
199,141 6,800 2,847 1,144 6,620 216,552
Loan and other credit-related
commitments 69,552 29 42 137 44 69,804
Financial guarantees 1,284 - - - - 1,284
At 31 Dec 2018 269,977 6,829 2,889 1,281 6,664 287,640
Proportion of cash flows
payable in period 95% 2% 1% 0% 2% 100%
Cash flows payable under financial liabilities by remaining
contractual maturities
Due over Due over Due over
1 month 3 month 1 year
Due not but not but not but not
more than more than more than more than Due over
1 month 3 month 1 year 5 years 5 years Total
The bank GBPm GBPm GBPm GBPm GBPm GBPm
Deposits by banks 2,645 1,419 115 110 - 4,289
Customer accounts 200,449 5,050 1,417 940 - 207,856
Repurchase agreements -
non-trading - 99 - - - 99
Derivatives 62 27 31 209 255 584
Debt securities in issue - 1,227 1,954 - - 3,181
Subordinated liabilities - 77 232 1,225 12,516 14,050
Other financial liabilities 1,743 520 54 168 74 2,559
204,899 8,419 3,803 2,652 12,845 232,618
Loan and other credit-related
commitments 52,875 - - - - 52,875
Financial guarantees 1,066 - - - - 1,066
At 31 Dec 2019 258,840 8,419 3,803 2,652 12,845 286,559
Proportion of cash flows
payable in period 91% 3% 1% 1% 4% 100%
Deposits by banks 1,214 2,790 217 58 - 4,279
Customer accounts 190,070 4,559 1,879 373 - 196,881
Repurchase agreements -
non-trading - 189 453 - - 642
Derivatives 38 3 26 133 279 479
Debt securities in issue - - - - - -
Subordinated liabilities - 35 105 557 6,250 6,947
Other financial liabilities 2,569 411 13 - - 2,993
193,891 7,987 2,693 1,121 6,529 212,221
Loan and other credit-related
commitments 55,505 - - - - 55,505
Financial guarantees 1,263 - - - - 1,263
At 31 Dec 2018 250,659 7,987 2,693 1,121 6,529 268,989
Proportion of cash flows
payable in period 94% 3% 1% 0% 2% 100%
22 Offsetting of financial assets and financial liabilities
--- ---------------------------------------------------------
The 'Amounts not set off in the balance sheet' include
transactions where:
-- the counterparty has an offsetting exposure with the group
and a master netting or similar arrangement is in place with a
right of set off only in the event of default, insolvency or
bankruptcy, or the offset criteria are not otherwise satisfied;
and
-- in the case of derivatives and reverse repurchase/repurchase,
stock borrowing/lending and similar agreements, cash and non-cash
collateral has been received/pledged.
For risk management purposes, the net amounts of loans and
advances to customers are subject to limits, which are monitored
and the relevant customer agreements are subject to review and
updated, as necessary, to ensure that the legal right of offset
remains appropriate.
Amounts subject to enforceable netting
arrangements
Amounts not set
off in the balance
sheet
Net Amounts
amounts not subject
in the to enforceable
Gross Amounts balance Financial Non-cash Cash Net netting
amounts offset sheet instruments collateral collateral amount arrangements(4) Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Financial
assets
Derivatives(1)
(Note
9) 691 (573) 118 (57) - (7) 54 3 121
Reverse repos,
stock
borrowing and
similar
agreements
classified
as:
- non-trading
assets 3,697 (683) 3,014 - (3,014) - - - 3,014
------ --- -------- -------- --- -----
Loans and
advances
to
customers(2) 5,720 (1,326) 4,394 (3,764) - - 630 4 4,398
------ -------- -------- --- -----
At 31 Dec 2019 10,108 (2,582) 7,526 (3,821) (3,014) (7) 684 7 7,533
------ -------- -------- -----
Derivatives(1) (Note
9) 263 (202) 61 (22) (25) (4) 10 5 66
Reverse repos, stock
borrowing and similar
agreements classified
as:
- non-trading assets 3,422 - 3,422 - (3,422) - - -3,422
------ -----
Loans and advances
to customers(2) 7,768 (2,021) 5,747 (4,177) - - 1,570 -5,747
------ -----
At 31 Dec 2018 11,453 (2,223) 9,230 (4,199) (3,447) (4) 1,580 59,235
------ -----
Financial liabilities
Derivatives(1) (Note
9) 770 (573) 197 (57) - (32) 108 4 201
Repos, stock lending
and similar agreements
classified as:
- non-trading liabilities 781 (683) 98 - (98) - - - 98
------ --- --- -----
Customer accounts(3) 6,936 (1,326) 5,610 (3,764) - - 1,846 45,614
-----
At 31 Dec 2019 8,487 (2,582) 5,905 (3,821) (98) (32) 1,954 85,913
--- -----
Derivatives(1) (Note
9) 543 (202) 341 (22) - (95) 224 5 346
Repos, stock lending
and similar agreements
classified as:
- non-trading liabilities 639 - 639 - (639) - - - 639
------ --- -----
Customer accounts(3) 7,311 (2,021) 5,290 (4,177) - - 1,113 15,291
-----
At 31 Dec 2018 8,493 (2,223) 6,270 (4,199) (639) (95) 1,337 66,276
-----
1 At 31 December 2019, the amount of cash margin paid that had
been offset against the gross derivatives liabilities was GBP168m
(2018: GBP141m).
2 At 31 December 2019, the total amount of 'Loans and advances
to customers' recognised on the balance sheet was GBP183,056m
(2018: GBP174,807m) of which GBP4,394m (2018: GBP5,747m) was
subject to offsetting.
3 At 31 December 2019, the total amount of 'Customer accounts'
recognised on the balance sheet was GBP216,214m (2018: GBP204,837m)
of which GBP5,610m (2018: GBP5,290m) was subject to offsetting.
4 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.
23 Called up share capital and other equity instruments
--- -----------------------------------------------------
Called up share capital and share premium
HSBC UK Bank plc ordinary shares of GBP1.00 each, issued and fully
paid
2019 2018
Number GBPm Number GBPm
At 1 Jan and 31 Dec 50,002 - 50,002 -
HSBC UK Bank plc share premium
2019 2018
GBPm GBPm
At 31 Dec 9,015 9,015
Total called up share capital and share premium
2019 2018
GBPm GBPm
At 31 Dec 9,015 9,015
Other equity instruments
HSBC UK Bank plc additional tier 1 instruments
2019 2018
GBPm GBPm
Undated Subordinated Additional Tier 1 instrument
GBP1,096m issued 2014 (Callable December 2019 onwards) 1,096 1,096
Undated Subordinated Additional Tier 1 instrument
GBP1,100m issued 2014 (Callable December 2024 onwards) 1,100 1,100
At 31
Dec 2,196 2,196
The bank has issued capital instruments that are included in the
group's capital base as fully CRD IV compliant additional tier 1
capital.
Interest on these instruments will be due and payable only at
the sole discretion of the bank, and the bank has sole and absolute
discretion at all times and for any reason to cancel (in whole or
in part) any interest payment that would otherwise be payable on
any date. There are limitations on the payment of principal,
interest or other amounts if such payments are prohibited under UK
banking regulations, or other requirements, if the bank has
insufficient distributable items or if the bank fails to satisfy
the solvency condition as defined in the instruments terms.
The instruments are undated and are repayable, at the option of
the bank, in whole at the initial call date, or on any Interest
Payment Date after the initial call date. In addition, the
instruments are repayable at the option of the bank in whole for
certain regulatory or tax reasons. Any repayments require the prior
notification to and consent of the PRA. These instruments rank pari
passu with the bank's most senior class or classes of issued
preference shares and therefore ahead of ordinary shares. These
instruments will be written down in whole, together with any
accrued but unpaid interest if either the group's solo or
consolidated Common Equity Tier 1 Capital Ratio falls below
7.00%.
24 Contingent liabilities, contractual commitments and guarantees
--- ---------------------------------------------------------------
The group The bank
2019 2018 2019 2018
GBPm GBPm GBPm GBPm
Guarantees and other contingent liabilities:
* financial guarantees(1) 1,077 1,284 1,066 1,263
- performance and other guarantees 2,351 2,220 2,351 2,220
At 31 Dec 3,428 3,504 3,417 3,483
Commitments(2) :
- documentary credits and short-term trade-related
transactions 95 83 95 83
- forward asset purchases and forward deposits
placed 184 248 - -
- standby facilities, credit lines and
other commitments to lend 67,023 69,475 52,780 55,422
At 31 Dec 67,302 69,806 52,875 55,505
1 Financial guarantees contracts are contracts that require the
issuer to make specified payments to reimburse the holder for a
loss incurred because a specified debtor fails to make payment when
due, in accordance with the original or modified terms of a debt
instrument. The amounts in the above table are nominal principal
amounts.
2 Includes GBP64bn of commitments at 31 December 2019,
(2018:GBP65bn) to which the impairment requirements in IFRS 9 are
applied where the group has become party to an irrevocable
commitment.
The above table discloses the nominal principal amounts, which
represents the maximum amounts at risk should the contracts be
fully drawn upon and clients default. As a significant portion of
guarantees and commitments is expected to expire without being
drawn upon, the total of the nominal principal amounts is not
indicative of future liquidity requirements. The expected credit
loss provision relating to guarantees and commitments under IFRS 9
is disclosed in Note 19.
The majority of the guarantees have a term of less than one
year, while guarantees of more than one year are subject the
group's annual credit review process.
Contingent liabilities arising from legal proceedings,
regulatory and other matters against group companies are disclosed
in Note 26
Financial Services Compensation Scheme
The Financial Services Compensation Scheme ('FSCS') provides
compensation to customers of financial services firms that have
failed. Following the Financial Crisis, the compensation paid out
to customers was initially funded through loans from HM Treasury
which was fully repaid in 2018 by the FSCS. HSBC UK could be liable
to pay a proportion of any future amounts that the FSCS borrows
from HM Treasury to the extent the industry levies imposed to date
are not sufficient to cover the compensation due to customers in
any future possible collapse. The ultimate FSCS levy to the
industry as a result of a collapse cannot be estimated reliably. It
is dependent on various uncertain factors including the potential
recovery of assets by the FSCS, changes in the level of protected
products (including deposits and investments) and the population of
FSCS members at the time.
The group provides guarantees and similar undertakings on behalf
of third-party customers. These guarantees are generally provided
in the normal course of the group's banking businesses.
25 Lease commitments
--- ------------------
Finance lease receivables
The group leases a variety of assets to third parties under
finance leases, including transport assets, property and general
plant and machinery. At the end of lease terms, assets may be sold
to third parties or leased for further terms. Rentals are
calculated to recover the cost of assets less their residual value,
and earn finance income.
2019 2018
Total Total
future Unearned future Unearned
minimum finance Present minimum finance Present
payments income Value payments income Value
GBPm GBPm GBPm GBPm GBPm GBPm
Lease receivables
* No later than one year 33 (5) 28 588 (35) 553
* Later than one year and no later than 5 years N/A N/A N/A 2,716 (155) 2,561
* One to two years(1) 341 (19) 322 N/A N/A N/A
* Two to three years(1) 607 (32) 575 N/A N/A N/A
* Three to four years(1) 635 (33) 602 N/A N/A N/A
* Four to five years(1) 713 (36) 677 N/A N/A N/A
* Later than 5 years 1,469 (81) 1,388 707 (52) 655
At 31 Dec 3,798 (206) 3,592 4,011 (242) 3,769
1 For 2019 additional maturity bandings have been presented as
required under IFRS 16, 2018 maturity bandings have not been
restated.
26 Legal proceedings and regulatory matters
--- -----------------------------------------
The group is party to legal proceedings and regulatory matters
in a number of jurisdictions arising out of its normal business
operations. Apart from the matters described below, the group
considers that none of these matters are material. The recognition
of provisions is determined in accordance with the accounting
policies set out in Note 1. While the outcome of legal proceedings
and regulatory matters is inherently uncertain, management believes
that, based on the information available to it, appropriate
provisions have been made in respect of these matters at 31
December 2019 (see page 103). Where an individual provision is
material, the fact that a provision has been made is stated and
quantified, except to the extent doing so would be seriously
prejudicial. Any provision recognised does not constitute an
admission of wrongdoing or legal liability. It is not practicable
to provide an aggregate estimate of potential liability for our
legal proceedings and regulatory matters as a class of contingent
liabilities.
Anti-money laundering and sanctions-related matters
In December 2012, among other agreements, HSBC Holdings plc
('HSBC Holdings') agreed to an undertaking with the UK Financial
Service Authority, which was replaced by a Direction issued by the
UK Financial Conduct Authority ('FCA') in 2013, and consented to a
cease-and-desist order with the US Federal Reserve Board ('FRB'),
both of which contained certain forward-looking anti-money
laundering ('AML') and sanctions-related obligations. HSBC also
agreed to retain an independent compliance monitor (who is, for FCA
purposes, a 'Skilled Person' under section 166 of the Financial
Services and Markets Act and, for FRB purposes, an 'Independent
Consultant') to produce periodic assessments of the Group's AML and
sanctions compliance programme (the 'Skilled Person/Independent
Consultant'). In December 2012, HSBC Holdings also entered into an
agreement with the Office of Foreign Assets Control ('OFAC')
regarding historical transactions involving parties subject to OFAC
sanctions. Reflective of HSBC's significant progress in
strengthening its financial crime risk management capabilities,
HSBC's engagement with the current Skilled Person will be
terminated and a new Skilled Person with a narrower mandate will be
appointed to assess the remaining areas that require further work
in order for HSBC to transition fully to business-as-usual
financial crime risk management. The Independent Consultant will
continue to carry out an annual OFAC compliance review at the FRB's
discretion. The role of the Skilled Person/Independent Consultant
is discussed on page 51.
Through the Skilled Person/Independent Consultant's prior
reviews, as well as internal reviews conducted by HSBC Group,
certain potential AML and sanctions compliance issues have been
identified that HSBC Group is reviewing further with the FRB, FCA
and/ or OFAC. The FCA is also conducting an investigation into HSBC
Bank plc's and HSBC UK's compliance with UK money laundering
regulations and financial crime systems and controls requirements.
HSBC is cooperating with this investigation.
Based on the facts currently known, it is not practicable at
this time for HSBC UK to predict the resolution of these matters,
including the timing or any possible impact on HSBC UK, which could
be significant.
Foreign exchange related investigation
In January 2018, HSBC Holdings entered into a three-year
deferred prosecution agreement with the Criminal Division of the US
Department of Justice ('DoJ') (the 'FX DPA'), regarding fraudulent
conduct in connection with two particular transactions in 2010 and
2011. This concluded the DoJ's investigation into HSBC's historical
foreign exchange activities. Under the terms of the FX DPA, the
HSBC Group has a number of ongoing obligations, including
implementing enhancements to its internal controls and procedures
in its Global Markets business, which will be the subject of annual
reports to the DoJ.
In February 2019, various HSBC Group companies were named as
defendants in a claim issued in the High Court of England and Wales
that alleges foreign exchange-related misconduct. This matter is at
an early stage. There are many factors that may affect the range of
outcomes, and the resulting financial impact, of these matters,
which could be significant.
Film finance litigation
In July and November 2015, two actions were brought by
individuals against HSBC Private Bank (UK) Limited ('PBGB') in the
High Court of England and Wales seeking damages on various alleged
grounds, including breach of duty to the claimants, in connection
with their participation in certain Ingenious film finance schemes.
These actions are ongoing.
In December 2018, a separate action was brought against PBGB in
the High Court of England and Wales by multiple claimants seeking
damages for alleged unlawful means conspiracy and dishonest
assistance in connection with lending provided by PBGB to third
parties in respect of certain Ingenious film finance schemes in
which the claimants participated. In June 2019, a similar claim was
issued against PBGB in the High Court of England and Wales by
additional claimants. These actions are ongoing.
In February 2019 and October 2019, PBGB received letters before
claim by two largely separate groups of investors in Eclipse film
finance schemes, each of which asserted various claims against PBGB
in connection with its role in facilitating the design, promotion
and operation of such schemes. These matters are at an early
stage.
It is possible that additional actions or investigations will be
initiated against PBGB as a result of its historical involvement in
the provision of certain film finance related services.
Based on the facts currently known, it is not practicable at
this time for HSBC UK to predict the resolution of these matters,
including the timing or any possible aggregate impact on HSBC UK,
which could be significant.
Collections and recoveries related investigation
Various HSBC Group companies, including HSBC UK, are subject to
an investigation by the FCA in connection with collections and
recoveries operations in the UK. This matter is at a very early
stage.
Based on the facts currently known, it is not practicable at
this time for HSBC UK to predict the resolution of this matter,
including the timing or any possible impact on HSBC UK, which could
be significant.
27 Related party transactions
--- ---------------------------
The immediate parent company of the group is HSBC UK Holdings
Limited and the ultimate parent company is HSBC Holdings plc. Both
are incorporated in England.
Copies of these financial statements may be obtained from the
following address:
HSBC Holdings plc
8 Canada Square
London E14 5HQ
The group's related parties include the parent, fellow
subsidiaries, joint ventures, post-employment benefit plans for
HSBC employees, Key Management Personnel ('KMP') of the bank and
its ultimate parent company, HSBC Holdings plc, close family
members of KMP and entities which are controlled, jointly
controlled or significantly influenced by KMP or their close family
members.
Particulars of transactions between the group and its related
parties are tabulated below in accordance with IAS 24 'Related
party disclosures'. The disclosure of the year-end balance and the
highest amounts outstanding during the year are considered to be
the most meaningful information to represent the amount of the
transactions and outstanding balances during the year.
Key Management Personnel
The KMP of the bank are defined as those persons having
authority and responsibility for planning, directing and
controlling the activities of the bank and the group, and include
the Directors of the bank, and directors and certain Group Managing
Directors of HSBC Holdings plc. The emoluments of those KMP who are
not directors of the bank are paid by other Group companies who
make no recharge to the bank. It is not possible to make a
reasonable apportionment of their emoluments in respect of the
bank. Accordingly, no emoluments in respect of these KMP are
included in the following disclosure.
The table below represents the compensation for Directors of the
bank in exchange for services rendered to the bank for the period
they served during the year.
Compensation of Key Management Personnel
2019 2018(1)
GBP000 GBP000
------
Short-term employee benefits 5,703 2,875
Other long-term employee benefits 125 120
Share-based payments 578 423
Year ended 31 Dec 6,406 3,418
------ -------
1 During the first six months of 2018 the banks' Executive
Directors provided services to other companies within the HSBC
Group and their services to the bank were incidental. Therefore the
Executive Directors remuneration disclosed for 2018 represents the
period from 1 July to
31 December 2018.
Transactions and balances during the year with Key Management Personnel(1)
2019 2018
Highest
Highest amounts
amounts outstanding
Balance outstanding Balance during
at 31 Dec(2) during year(3) at 31 Dec(2) year(3)
GBPm GBPm GBPm GBPm
Advances and credits 17 25 11 12
---------------
Deposits 17 83 27 50
--------------- ------------- ------------
1 Includes close family members and entities which are
controlled or jointly controlled by KMP or their close family
members.
2 Exchange rates applied for non-GBP amounts is as at 31 December 2019 and 2018.
3 Exchange rates applied for non-GBP amounts is the average for the year.
The above transactions were made in the ordinary course of
business and on substantially the same terms, including interest
rates and security, as for comparable transactions with persons of
a similar standing or, where applicable, with other employees. The
transactions did not involve more than the normal risk of repayment
or present other unfavourable features.
In addition to the requirements of IAS 24, particulars of
advances (loans and quasi-loans), credits and guarantees entered
into by the bank and its subsidiaries with Directors of the bank
are required to be disclosed pursuant to section 413 of the
Companies Act 2006. Under the Companies Act, there is no
requirement to disclose transactions with other KMP.
Transactions with Directors: advances, credits and guarantees (Companies
Act 2006)
2019 2018
Balance Balance
at 31 Dec at 31 Dec
GBP000 GBP000
------------
Loans 12,120 5,361
---------- ----------
Other related parties
Transactions and balances during the year with KMP of the bank's ultimate
parent company(1,2)
2019 2018
Highest Highest
amounts amounts
outstanding outstanding
Balance during Balance during
at 31 Dec(3) year(4) at 31 Dec(3) year(4)
GBPm GBPm GBPm GBPm
Advances and credits 6 15 12 12
Deposits - - - -
1 Excludes those who are also KMP of the bank.
2 Includes close family members and entities which are
controlled or jointly controlled by the KMP or their close family
members.
3 Exchange rates applied for non-GBP amounts is as at 31 December 2019 and 2018.
4 Exchange rates applied for non-GBP amounts is the average for the year.
The above transactions were made in the ordinary course of
business and on substantially the same terms, including interest
rates and security, as for comparable transactions with persons of
a similar standing or, where applicable, with other employees. The
transactions did not involve more than the normal risk of repayment
or present other unfavourable features.
Transactions and balances during the year with the joint venture
2019 2018
Highest Highest
balance balance
Balance during the Balance during the
at 31 Dec year at 31 Dec year
GBPm GBPm GBPm GBPm
Unsubordinated amounts due from the
joint venture 83 90 90 100
---------- -----------
Amounts due to joint ventures 21 21 17 17
---------- ----------- ---------- -----------
Guarantees and commitments 300 480 400 480
---------- ----------- ---------- -----------
The group provides certain banking and financial services to its
joint venture, including loans, overdrafts, interest and
non-interest- bearing deposits and current accounts. Details of the
interest in the joint venture are given in Note 12.
The group's transactions and balances during the year with HSBC Holdings
plc and subsidiaries of HSBC Holdings plc
2019 2018
Due to/from Due to/from
Due to/from subsidiaries Due to/from subsidiaries
HSBC Holdings of HSBC Holdings HSBC Holdings of HSBC Holdings
plc plc plc plc
Highest Highest Highest Highest
31 Dec balance 31 Dec balance 31 Dec balance 31 Dec balance
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------- -------- -------- ---------- --------- -------- --------- ----------
Assets
Derivatives - - 45 46 - - 27 38
---------- -------- -------- ---------- --------- --------
Loans and
advances
to banks - - 671 1,526 - - 802 920
---------- -------- -------- ---------- --------- -------- --------- --------
Loans and
advances
to customers - - - - - - - 177
Other assets 2 7 239 462 8 8 416 1,842
---------- -------- -------- ---------- --------- -------- --------- --------
Total related
party assets at
31 Dec 2 7 955 2,034 8 8 1,245 2,977
Liabilities - - - -
Deposits by
banks - - 283 1,293 - - 220 846
---------- -------- -------- ---------- --------- --------
Customer
accounts - - 1 3 - 784 1 61
Derivatives - - 118 197 - - 211 224
---------- -------- -------- ---------- --------- --------
Subordinated
liabilities - 79 9,533 9,745 79 79 4,858 4,859
Total related
party
liabilities
at 31 Dec - 79 9,935 11,238 79 863 5,290 5,990
Due to/from
Due to/from subsidiaries
HSBC Holdings of HSBC Holdings
plc plc
2019 2018 2019 2018
GBPm GBPm GBPm GBPm
Income statement
Interest income - - 10 (3)
Interest expense 2 4 259 59
Fee income - - 64 14
Fee expense - - 43 25
Other operating income - 4 16 15
------------------------------------- ---------- ---- ---------- ------
General and administrative expenses 234 74 1,811 894
------------------------------------- ---------- ---- ---------- ------
The above outstanding balances arose in the ordinary course of
business and on substantially the same terms, including interest
rates and security, as for comparable transactions with third-party
counterparties.
In 2018, all costs relating to the set-up of HSBC UK Bank plc up
to the date of legal separation were incurred by HSBC Bank plc.
These included directors' emoluments and auditors'
remuneration.
The bank's transactions and balances during the year with HSBC UK Bank
plc subsidiaries, HSBC Holdings plc and subsidiaries of
HSBC Holdings plc
2019 2018
Due to/from Due to/from
subsidiaries Due to/from subsidiaries Due to/from
of HSBC subsidiaries of HSBC subsidiaries
UK Bank Due to/from of HSBC UK Bank Due to/from of HSBC
plc HSBC Holdings Holdings plc HSBC Holdings Holdings
subsidiaries plc plc subsidiaries plc plc
31 Highest 31 Highest 31 Highest 31 Highest 31 Highest 31 Highest
Dec balance Dec balance Dec balance Dec balance Dec balance Dec balance
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Assets
Derivatives - - - - 43 46 - - - - 24 37
Loans and
advances
to banks 3,274 3,311 - - 662 1,519 2,729 2,729 - - 706 913
Loans and
advances
to customers 8,417 8,513 - - - - 8,005 8,005 - - - -
Other assets 1,895 2,303 1 6 226 455 2,134 2,134 6 7 412 1,873
Total related
party
assets at 31
Dec 13,586 14,127 1 6 931 2,020 12,868 12,868 6 7 1,142 2,823
Liabilities
Deposits by
banks 3,749 4,135 - - 283 1,292 3,238 3,385 - - 220 846
Customer
accounts 373 373 - - 1 1 357 357 - 784 1 1
Derivatives - - - - 117 192 - - - - 209 217
Subordinated
liabilities - - - - 9,454 9,666 - - - - 4,858 4,859
Total related
party
liabilities
at 31
Dec 4,122 4,508 - - 9,855 11,151 3,595 3,742 - 784 5,288 5,923
The above outstanding balances arose in the ordinary course of
business and on substantially the same terms, including interest
rates and security, as for comparable transactions with third-party
counterparties.
Post-employment benefit plans
The group's pension funds had placed deposits of GBP169m (2018:
GBP104m) with its banking subsidiaries, earning interest of GBP0.2m
(2018: nil).
The above outstanding balances arose from the ordinary course of
business and on substantially the same terms, including interest
rates and security, as for comparable transactions with third-party
counterparties.
28 Events after the balance sheet date
--- ------------------------------------
These accounts were approved by the Board of Directors on 17
February 2020 and authorised for issue.
On 13 February 2020, the Directors declared an interim dividend
to ordinary shareholders of GBP100m in respect of the financial
year ending 31 December 2019. No liability is recognised in the
financial statements in respect of this dividend.
On 1 January 2020, substantially all of HSBC Private Bank (UK)
Limited assets and liabilities were transferred to HSBC UK Bank
plc. This was effected by way of a court sanctioned transfer scheme
under Part VII of the Financial Services and Markets Act 2000.
Further details are given in Note 13.
29 HSBC UK Bank plc's subsidiaries and joint ventures
--- ---------------------------------------------------
In accordance with section 409 of the Companies Act 2006 a list
of HSBC UK Bank plc subsidiaries and joint ventures, the registered
office address and the effective percentage of equity owned at 31
December 2019 is disclosed below.
Unless otherwise stated, the share capital comprises ordinary or
common shares which are held by HSBC UK Bank plc subsidiaries. The
ownership percentage is provided for each undertaking. The
undertakings below are consolidated by HSBC UK Bank plc unless
otherwise indicated.
Subsidiaries
The undertakings below are consolidated by HSBC UK Bank plc.
% of share
class held
by immediate
parent company
(or by HSBC
UK Bank
plc where
Subsidiaries this varies) Footnotes
Assetfinance December
(F) Limited 100.00 4
---------
Assetfinance June (D)
Limited 100.00 4
---------
Assetfinance March
(D) Limited 100.00 4
---------
Assetfinance September
(G) Limited 100.00 4
---------
B&Q Financial Services 1,
Limited 100.00 5
---------
Canada Square Nominees 1,
(UK) Limited 100.00 6
---------
HSBC Branch Nominee
(UK) Limited 100.00 1,4
---------
1,
HSBC Client Share Offer 2,
Nominee (UK) Limited 100.00 7
---------
HSBC Equipment Finance 1,
(UK) Limited 100.00 4
---------
HSBC Executor & Trustee
Company (UK) Limited 100.00 4
1,
HSBC Finance Limited 100.00 6
---------
HSBC Invoice Finance 1,
(UK) Limited 100.00 8
---------
HSBC Private Bank (UK) 1,
Limited 100.00 6
---------
1,
HSBC Stockbrokers Nominee 2,
(UK) Limited 100.00 7
---------
HSBC Trust Company 1,
(UK) Limited 100.00 6
---------
HSBC UK Client Nominee 1,
Limited 100.00 4
---------
HSBC Wealth Client 1,
Nominee Limited 100.00 4
---------
John Lewis Financial 1,
Services Limited 100.00 6
---------
Marks and Spencer Financial 1,
Services plc 100.00 9
---------
Marks and Spencer Unit 1,
Trust Management Limited 100.00 9
Midland Bank (Branch 1,
Nominees) Limited 100.00 4
---------
Midland Nominees Limited 100.00 4
---------
St Cross Trustees Limited 100.00 4
---------
Turnsonic (Nominees)
Limited 100.00 4
---------
Joint ventures
The undertakings below are Joint Ventures and equity
accounted.
% of share
class held
by immediate
parent company
(or by HSBC
UK Bank
plc where
Joint ventures this varies) Footnotes
3,
Vaultex UK Limited 50.00 10
---------
Footnotes
Directly held by HSBC UK Bank
1 plc
2 In Liquidation
Financial year ended 6 October
3 2019
Registered Offices
1 Centenary Square, Birmingham,
4 United Kingdom, B1 1HQ
Camden House West, The Parade,
Birmingham, United Kingdom, B1
5 3PY
8 Canada Square, London, United
6 Kingdom, E14 5HQ
Hill House, 1 Little New Street,
London, United Kingdom, EC4A
7 3TR
21 Farncombe Road, Worthing,
8 United Kingdom, BN11 2BW
Kings Meadow Chester Business
Park, Chester, United Kingdom,
9 CH99 9FB
All Saints Triangle, Caledonian
Road, London, United Kingdom,
10 N1 9UT
Reconciliation of Non-GAAP Financial Measures
Return on equity and return on tangible equity
Return on tangible equity ('RoTE') is computed by adjusting the
reported equity for goodwill and intangibles. The adjustment to
reported results and reported equity excludes amounts attributable
to non-controlling interests. We provide RoTE in addition to return
on equity ('RoE') as a way of assessing our performance, which is
closely aligned to our capital position. The measures are
calculated in USD in line with the standard HSBC Group wide
calculation methodology.
The following table details the adjustments made to the reported
results and equity:
Return on Equity and Return on Tangible Equity
Year ended
31 Dec 31 Dec
2019 2018
$m $m
-------
Profit
Profit attributable to the ordinary shareholders of
the parent company 504 923
------
Significant items (net of tax) 1,544 304
Other - (5)
------ ------
Adjusted profit attributable to the ordinary shareholders
of the parent company 2,048 1,222
Equity
Average shareholders' equity 28,567 28,742
------
Additional Tier 1 (2,813) (2,842)
------
Average ordinary shareholders' equity 25,754 25,900
------
Effect of goodwill and other intangibles (net of deferred
tax) (5,013) (4,899)
------
Other - (23)
------ ------
Average tangible ordinary shareholders' equity 20,741 20,978
------
Ratio % %
-------
Return on equity (annualised) 2.0 6.4
------
Return on average tangible equity (annualised) 2.4 8.8
------ ------
Adjusted return on average tangible equity (annualised)(1) 9.9 11.7
------
1 In the event that the current IAS 19 Pension fund surplus was
zero, additional CET1 capital would be required to be held and
Adjusted RoTE would be 11.3% (2018: 13.7%); we refer to this as
Pension Adjusted RoTE.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
ACSSFDFSAESSELE
(END) Dow Jones Newswires
February 18, 2020 05:46 ET (10:46 GMT)
Hsbc Uk Bk 20 (LSE:62YN)
Historical Stock Chart
From Apr 2024 to May 2024
Hsbc Uk Bk 20 (LSE:62YN)
Historical Stock Chart
From May 2023 to May 2024