TIDMHSBA
RNS Number : 2729H
HSBC Holdings PLC
02 August 2021
Treasury risk
Page
Overview 91
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Treasury risk management 91
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Capital risk in the first half
of 2021 93
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Liquidity and funding risk in
the first half of 2021 96
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Sources of funding 98
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Interest rate risk in the banking
book in the first half of 2021 98
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Overview
Treasury risk is the risk of having insufficient capital,
liquidity or funding resources to meet financial obligations and
satisfy regulatory requirements, together with the financial risks
arising from the provision of pensions and other post-employment
benefits to staff and their dependants. Treasury risk also includes
the risk to our earnings or capital due to non-trading book foreign
exchange exposures and changes in market interest rates.
Treasury risk arises from changes to the respective resources
and risk profiles driven by customer behaviour, management
decisions or the external environment.
Approach and policy
Our objective in the management of treasury risk is to maintain
appropriate levels of capital, liquidity, funding, foreign exchange
and market risk to support our business strategy, and meet our
regulatory and stress testing-related requirements.
Our approach to treasury management is driven by our strategic
and organisational requirements, taking into account the
regulatory, economic and commercial environment. We aim to maintain
a strong capital and liquidity base to support the risks inherent
in our business and invest in accordance with our strategy, meeting
both consolidated and local regulatory requirements at all
times.
Our policy is underpinned by our risk management framework, our
internal capital adequacy assessment process ('ICAAP') and our
internal liquidity adequacy assessment process ('ILAAP'). The risk
framework incorporates a number of measures aligned to our
assessment of risks for both internal and regulatory purposes.
These risks include credit, market, operational, pensions,
non-trading book foreign exchange risk and interest rate risk in
the banking book.
A summary of our current policies and practices regarding the
management of treasury risk is set out on pages 169 to 173 of the
Annual Report and Accounts 2020.
Treasury risk management
Key developments in the first half of 2021
-- We continued to develop the Treasury Risk Management
function, which was established in 2020. This function is a
dedicated second line of defence, providing independent oversight
of treasury activities across capital risk, liquidity and funding
risk, non-trading book foreign exchange risk (including structural
and other banking book foreign exchange risk), and interest rate
risk in the banking book, together with pension risk.
-- We announced the next phase of our strategic plan on 23
February 2021. We intend to maintain a common equity tier 1
('CET1') ratio above 14%, managing in the range of 14% to 14.5% in
the medium term. Our dividend policy aims to deliver sustainable
cash dividends, while retaining the flexibility to invest and grow
the business in the future, supplemented by additional shareholder
distributions, if appropriate. Reflecting the current improved
economic outlook and operating environment in many of our markets,
we now expect to move to within our target dividend payout ratio
range of 40% to 55% of reported earnings per ordinary share ('EPS')
in 2021. In line with our dividend policy, we will retain the
flexibility to adjust EPS for non-cash significant items.
-- We continued to build our recovery and resolution
capabilities in line with the Group's resolution strategy to meet
requirements from the Bank of England ('BoE') under its
Resolvability Assessment Framework ahead of 1 January 2022. We met
our compliance deadline of 31 March 2021 for valuation in
resolution requirements, and continue to enhance our capabilities
in preparation for the submission of a resolvability
self-assessment report to the BoE in October 2021.
-- The BoE's Financial Policy Committee reconfirmed its guidance
on the path for the UK countercyclical capital buffer rate. It
expects to maintain the rate at 0% until at least December 2021
and, due to the usual 12--month implementation lag, any subsequent
increase would therefore not be expected to take effect until the
end of 2022 at the earliest. The Hong Kong Monetary Authority
('HKMA') has maintained the countercyclical capital buffer rate at
1% for Hong Kong, but it will continue to monitor credit and
economic conditions closely. The countercyclical capital buffer
rate will be reviewed on a quarterly basis or more frequently.
-- The Group's CET1 ratio was 15.6% and the leverage ratio,
calculated in accordance with the Capital Requirements Regulation,
was 5.3% at 30 June 2021. All of the Group's material operating
entities were above capital risk appetite levels. The Group
continues to maintain and plan for the appropriate resources
required to manage its risks and deliver its strategic objectives,
including the potential sale of the retail banking business in
France, while supporting local economies.
-- All of the Group's material operating entities were above
regulatory minimum levels of liquidity and funding at 30 June 2021.
The Group and all entities had significant surplus liquidity, and
maintained heightened liquidity coverage ratios throughout the
first half of 2021.
-- We revised the approach to calculate the Group liquidity
coverage ratio ('LCR'). The new methodology better reflects free
transferability of liquidity from third countries (comprising
countries other than the UK and those in the EEA) in consideration
with currency convertibility and regulatory intra-Group limits.
Based on the consolidation methodology, the Group LCR was 134% at
30 June 2021. A risk appetite has been set against the Group
LCR.
-- Central bank interest rates remain at historically low
levels, although a vaccine-led economic recovery and rising
inflation indicators have contributed to an increase in interest
rate yields and a steepening of yield curves in our major markets
in the first half of 2021. Against a backdrop of high and rising
asset valuations, monetary policies have generally remained
accommodative, but rising inflation is posing a policy dilemma for
some central banks. We continued to monitor our risk profile
closely in the context of a possible tightening in monetary
policy.
-- We maintained a significant focus on the switchover from Ibor
index curves to RFRs for in-scope currencies. Despite considerable
complexity, we are on track to complete changes to our funds
transfer pricing, external issuance and hedging by the end of the
year across the Group.
For quantitative disclosures on capital ratios, own funds and
RWAs, see pages 87 to 88. For quantitative disclosures on liquidity
and funding metrics, see pages 90 to 92. For quantitative
disclosures on interest rate risk in the banking book, see pages 92
to 93.
Capital, liquidity and funding risk management processes
Assessment and risk appetite
Our capital management policy is underpinned by a global capital
management framework and our ICAAP. The framework incorporates key
capital risk appetites for CET1, total capital, minimum
requirements for own funds and eligible liabilities ('MREL'), and
double leverage. The ICAAP is an assessment of the Group's capital
position, outlining both regulatory and internal capital resources
and requirements resulting from HSBC's business model, strategy,
risk profile and management, performance and planning, risks to
capital, and the implications of stress testing. Our assessment of
capital adequacy is driven by an assessment of risks. These risks
include credit, market, operational, pensions, insurance,
structural foreign exchange and interest rate risk in the banking
book. Climate risk is also considered as part of the ICAAP, and we
are continuing to develop our approach. The Group's ICAAP supports
the determination of the consolidated capital risk appetite and
target ratios, as well as enables the assessment and determination
of capital requirements by regulators. Subsidiaries prepare ICAAPs
in line with global guidance while considering their local
regulatory regimes to determine their own risk appetites and
ratios.
HSBC Holdings is the provider of equity capital and
MREL-eligible debt to its subsidiaries and also provides them with
non-equity capital where necessary. These investments are funded by
HSBC Holdings' own equity capital and MREL-eligible debt.
HSBC Holdings seeks to maintain a prudent balance between the
composition of its capital and its investments in subsidiaries,
including management of double leverage. Double leverage reflects
the extent to which equity investments in operating entities are
funded by holding company debt. Where Group capital requirements
are less than the aggregate of operating entity capital
requirements, double leverage can be used to improve Group capital
efficiency provided it is managed appropriately and prudently in
accordance with risk appetite. Double leverage is a constraint on
managing our capital position, given the complexity of the Group's
subsidiary structure and the multiple regulatory regimes under
which we operate. As a matter of long-standing policy, the holding
company retains a substantial portfolio of high-quality liquid
assets ('HQLA'), which at 30 June 2021 was in excess of $13bn. The
portfolio of HQLA helps to mitigate holding company cash flow risk,
and underpins the strength of support the holding company can offer
its subsidiaries in times of stress. Further mitigation is provided
by additional tier 1 ('AT1') securities issued in excess of the
regulatory requirements
of our subsidiaries.
We aim to ensure that management at Group and entity level have
oversight of our liquidity and funding risks by maintaining
comprehensive policies, metrics and controls. We manage liquidity
and funding risk at an operating entity level to make sure that
obligations can be met in the jurisdiction where they fall due,
generally without reliance on other parts of the Group. Operating
entities are required to meet internal minimum requirements and any
applicable regulatory requirements at all times. These requirements
are assessed through the ILAAP, which ensures that operating
entities have robust strategies, policies, processes and systems
for the identification, measurement, management and monitoring of
liquidity risk over an appropriate set of time horizons, including
intra-day. The ILAAP informs the validation of risk tolerance and
the setting of risk appetite. It also assesses the capability to
manage liquidity and funding effectively in each major entity.
These metrics are set and managed locally but are subject to robust
global review and challenge to ensure consistency of approach and
application of the Group's policies and controls.
Planning and performance
Capital and risk-weighted asset ('RWA') plans form part of the
annual operating plan that is approved by the Board. Capital and
RWA forecasts are submitted to the Group Executive Committee on a
monthly basis, and capital and RWAs are monitored and managed
against the plan. The responsibility for global capital allocation
principles rests with the Group Chief Financial Officer supported
by the Group Capital Management Meeting. This is a specialist forum
addressing capital management, reporting into the HSBC Holdings
Asset and Liability Management Committee ('Holdings ALCO').
Through our internal governance processes, we seek to strengthen
discipline over our investment and capital allocation decisions,
and to ensure that returns on investment meet management's
objectives. Our strategy is to allocate capital to businesses and
entities to support growth objectives where returns above internal
hurdle levels have been identified and in order to meet their
regulatory and economic capital needs. We evaluate and manage
business returns by using a return on average tangible equity
measure.
Funding and liquidity plans form part of the annual operating
plan that is approved by the Board. The Board-level appetite
measures are the LCR and net stable funding ratio ('NSFR'). An
internal liquidity metric ('ILM') was introduced in January 2021 to
supplement the LCR and NSFR metrics. In addition, we use a wider
set of measures to manage an appropriate funding and liquidity
profile, including legal entity depositor concentration limits,
intra-day liquidity, forward-looking funding assessments and other
key measures.
Risks to capital and liquidity
Outside the stress testing framework, other risks may be
identified that have the potential to affect our RWAs and/or
capital position. Downside and Upside scenarios are assessed
against our capital management objectives and mitigating actions
are assigned as necessary. We closely monitor future regulatory
changes and continue to evaluate the impact of these upon our
capital requirements. These include the UK's implementation of
amendments to the Capital Requirements Regulation, the Basel III
Reforms, and the regulatory impact from the UK's withdrawal from
the EU, as well as other regulatory statements including changes to
IRB modelling requirements.
Regulatory developments
The Prudential Regulation Authority ('PRA') has confirmed that
software assets will need to be deducted in full from CET1 capital
from 1 January 2022. This will reverse the beneficial changes to
the treatment of software assets that were implemented as part of
the EU's response to the Covid-19 pandemic. This change was
anticipated and is expected to reduce capital resources and RWAs by
$2.6bn.
In parallel with regulatory developments in the EU, the PRA is
reviewing the requirements for the capitalisation of structural
foreign exchange risk to align to a Pillar 1 approach. There
remains a significant degree of uncertainty in the impact of the
regulatory changes due to the number of national discretions and
the need for further supporting technical standards to be
developed. Furthermore, the impact does not take into consideration
the possibility of offsets against Pillar 2, which may arise as
shortcomings within Pillar 1 are addressed.
Overall we expect RWAs to increase by up to 5% as a result of
these developments during 2022 and 2023.
Further impacts will occur with the introduction of a modelled
RWA output floor under the Basel III reforms that will commence in
2023 with a five-year transitional provision. We estimate that
there will be an additional RWA impact as a result of the output
floor with effect from 2027.
Potential disposal of retail banking business in France
In relation to the potential sale of our retail banking business
in France, we expect a reduction in the Group's CET1 ratio in the
range of 15bps to 20bps, driven by the estimated loss on sale
partly offset by the reduction in RWAs upon the estimated
completion in 2023.
Regulatory reporting processes and controls
There is an ongoing focus on the quality of regulatory reporting
by the PRA and other regulators globally. We continue to strengthen
our processes and controls, following the commissioning of
independent external reviews of various aspects of regulatory
reporting, including at the request of our regulators. As part of
the strengthening of our control environment, we are improving
global consistency and control standards across a number of our
processes. There may be an impact on some of our regulatory ratios
such as the CET1 and LCR as a result. We are keeping the PRA and
other relevant regulators informed of adverse findings from
external and internal reviews.
Stress testing and recovery and resolution planning
The Group uses stress testing to evaluate the robustness of
plans and risk portfolios, and to meet the requirements for stress
testing set by supervisors. Stress testing also informs the ICAAP
and ILAAP and supports recovery planning in many jurisdictions. It
is an important output used to evaluate how much capital and
liquidity the Group requires in setting risk appetite for capital
and liquidity risk. It is also used to re-evaluate business plans
where analysis shows capital, liquidity and/or returns do not meet
their target.
In addition to a range of internal stress tests, we are subject
to supervisory stress testing in many jurisdictions. These include
the programmes of the Bank of England, the US Federal Reserve
Board, the European Banking Authority, the European Central Bank
and the Hong Kong Monetary Authority, as well as stress tests
undertaken in other jurisdictions. The results of regulatory stress
testing and our internal stress tests are used when assessing our
internal capital requirements through the ICAAP. The outcomes of
stress testing exercises carried out by the PRA and other
regulators feed into the setting of regulatory minimum ratios and
buffers.
The Group and subsidiaries have established recovery plans,
which set out potential options management could take in a range of
stress scenarios that could result in a breach of our internal
capital buffers. This is to help ensure that our capital and
liquidity position can be recovered even in an extreme stress
event. All entities monitor internal and external triggers that
could threaten their capital, liquidity or funding positions.
Entities have established recovery plans providing detailed actions
that management would consider taking in a stress scenario should
their positions deteriorate and threaten to breach risk appetite
and regulatory minimum levels.
Recovery and resolution plans form part of the integral
framework safeguarding the Group's financial stability. The Group
is committed to developing its recovery and resolution capabilities
further in line with the BoE's Resolvability Assessment Framework
requirements.
Measurement of interest rate risk in the banking book
processes
Assessment and risk appetite
Interest rate risk in the banking book is the risk of an adverse
impact to earnings or capital due to changes in market interest
rates. It is generated by our non-traded assets and liabilities,
specifically loans, deposits and financial instruments that are not
held for trading intent or held in order to hedge positions held
with trading intent. Interest rate risk that can be economically
hedged may be transferred to the Markets Treasury business. Hedging
is generally executed through interest rate derivatives or
fixed-rate government bonds. Any interest rate risk that Markets
Treasury cannot economically hedge is not transferred and will
remain within the global business where the risks originate.
The Asset, Liability and Capital Management ('ALCM') function
uses a number of measures to monitor and control interest rate risk
in the banking book, including:
-- net interest income sensitivity;
-- economic value of equity sensitivity; and
-- hold-to-collect-and-sell stressed value at risk.
Net interest income sensitivity
A principal part of our management of non-traded interest rate
risk is to monitor the sensitivity of expected net interest income
('NII') under varying interest rate scenarios (i.e. simulation
modelling), where all other economic variables are held constant.
This monitoring is undertaken at an entity level by local ALCOs,
where entities forecast both one-year and five-year NII
sensitivities across a range of interest rate scenarios.
Projected NII sensitivity figures represent the effect of pro
forma movements in projected yield curves based on a static balance
sheet size and structure. The exception to this is where the size
of the balances or repricing is deemed interest rate sensitive, for
example, non-interest-bearing current account migration and
fixed-rate loan early prepayment. These sensitivity calculations do
not incorporate actions that would be taken by Markets Treasury or
in the business that originates the risk to mitigate the effect of
interest rate movements.
The NII sensitivity calculations assume that interest rates of
all maturities move by the same amount in the 'up-shock' scenario.
The sensitivity calculations in the 'down-shock' scenarios reflect
no floors to the shocked market rates. However, customer
product-specific interest rate floors are recognised where
applicable.
Economic value of equity sensitivity
Economic value of equity ('EVE') represents the present value of
the future banking book cash flows that could be distributed to
equity providers under a managed run-off scenario. This equates to
the current book value of equity plus the present value of future
NII in this scenario. EVE can be used to assess the economic
capital required to support interest rate risk in the banking book.
An EVE sensitivity represents the expected movement in EVE due to
pre-specified interest rate shocks, where all other economic
variables are held constant. Operating entities are required to
monitor EVE sensitivities as a percentage of capital resources.
Hold-to-collect-and-sell stressed value at risk
Hold-to-collect-and-sell stressed value at risk ('VaR') is a
quantification of the potential losses to a 99% confidence level of
the portfolio of securities held under a held-to-collect-and-sell
business model in the Markets Treasury business. The portfolio is
accounted for at fair value through other comprehensive income
together with the derivatives held in designated hedging
relationships with these securities. This is quantified based on
the worst losses over a one-year period going back to the beginning
of 2007 with an assumed holding period of 60 days.
Hold-to-collect-and-sell stressed VaR uses the same models as
those used for trading book capitalisation and covers only the
portfolio managed by Markets Treasury under this business
model.
Capital risk in the first half of 2021
Capital overview
Capital adequacy metrics
At
30 Jun 31 Dec
2021 2020
Risk-weighted assets
('RWAs') ($bn)
-------------------------- ------ --------
Credit risk 702.9 691.9
-------------------------- ------ ------
Counterparty credit
risk 39.3 42.8
-------------------------- ------ ------
Market risk 25.5 28.5
-------------------------- ------ ------
Operational risk 94.6 94.3
-------------------------- ------ ------
Total RWAs 862.3 857.5
-------------------------- ------ ------
Capital on a transitional
basis ($bn)
-------------------------- ------ --------
Common equity tier
1 capital 134.6 136.1
-------------------------- ------ ------
Tier 1 capital 158.3 160.2
-------------------------- ------ ------
Total capital 181.1 184.4
-------------------------- ------ ------
Capital ratios on a
transitional basis
(%)
-------------------------- ------ --------
Common equity tier
1 ratio 15.6 15.9
-------------------------- ------ ------
Tier 1 ratio 18.4 18.7
-------------------------- ------ ------
Total capital ratio 21.0 21.5
-------------------------- ------ ------
Capital on an end point
basis ($bn)
-------------------------- ------ --------
Common equity tier
1 capital 134.6 136.1
-------------------------- ------ ------
Tier 1 capital 157.0 158.5
-------------------------- ------ ------
Total capital 170.7 173.2
-------------------------- ------ ------
Capital ratios on an
end point basis (%)
-------------------------- ------ --------
Common equity tier
1 ratio 15.6 15.9
-------------------------- ------ ------
Tier 1 ratio 18.2 18.5
-------------------------- ------ ------
Total capital ratio 19.8 20.2
-------------------------- ------ ------
Liquidity coverage
ratio ('LCR')
-------------------------- ------ --------
Total high-quality
liquid assets ($bn) 659.3 677.9
-------------------------- ------ ------
Total net cash outflow
($bn) 493.7 487.3
-------------------------- ------ ------
LCR ratio (%) 133.5 139.1
-------------------------- ------ ------
Following the end of the transition period following the UK's
withdrawal from the EU, any reference to EU regulations and
directives (including technical standards) should be read as a
reference to the version onshored into UK law under the European
Union (Withdrawal) Act 2018, as amended. Capital figures and ratios
in the table above are calculated in accordance with the revisions
to the Capital Requirements Regulation and Directive, as
implemented ('CRR II'). The table presents them under the
transitional arrangements in CRR II for capital instruments and
after their expiry, known as the end point. The end point figures
in the table above include the benefit of the regulatory
transitional arrangements in CRR II for IFRS 9, which are more
fully described below.
Where applicable, they also reflect government relief schemes
intended to mitigate the impact of the Covid-19 outbreak.
Regulatory transitional arrangements for IFRS 9 'Financial
Instruments'
We have adopted the regulatory transitional arrangements in CRR
II for IFRS 9, including paragraph four of article 473a. Our
capital and ratios are presented under these arrangements
throughout the table above, including in the end point figures.
Without their application, our CET1 ratio would be 15.5%.
The IFRS 9 regulatory transitional arrangements allow banks to
add back to their capital base a proportion of the impact that
IFRS 9 has upon their loan loss allowances during the first five
years of use. The impact is defined as:
-- the increase in loan loss allowances on day one of IFRS 9 adoption; and
-- any subsequent increase in ECL in the non-credit-impaired book thereafter.
Any add-back must be tax affected and accompanied by a
recalculation of deferred tax, exposure and RWAs. The impact is
calculated separately for portfolios using the standardised ('STD')
and internal ratings-based ('IRB') approaches. For IRB portfolios,
there is no add-back to capital unless loan loss allowances exceed
regulatory 12-month expected losses.
The EU's CRR 'Quick Fix' relief package enacted in June 2020
increased from 70% to 100% the relief that banks may take for loan
loss allowances recognised since 1 January 2020 on the
non-credit-impaired book.
In the current period, the add-back to CET1 capital amounted to
$1.0bn under the STD approach with a tax impact of $0.2bn. At 31
December 2020, the add-back to the capital base under the STD
approach was $1.6bn with a tax impact of $0.4bn.
Own funds
Own funds disclosure
At
30 Jun 31 Dec
2021 2020
Ref(*) $m $m
------ ------------------------------------------------------------- ---------- ----------
6 Common equity tier 1 capital before regulatory adjustments(1) 163,705 163,128
------ ------------------------------------------------------------- -------- --------
28 Total regulatory adjustments to common equity tier (29,099) (27,078)
1(1)
------ ------------------------------------------------------------- -------- --------
29 Common equity tier 1 capital 134,606 136,050
------ ------------------------------------------------------------- -------- --------
36 Additional tier 1 capital before regulatory adjustments 23,789 24,183
------ ------------------------------------------------------------- -------- --------
43 Total regulatory adjustments to additional tier 1 capital (60) (60)
------ ------------------------------------------------------------- -------- --------
44 Additional tier 1 capital 23,729 24,123
------ ------------------------------------------------------------- -------- --------
45 Tier 1 capital 158,335 160,173
------ ------------------------------------------------------------- -------- --------
51 Tier 2 capital before regulatory adjustments 24,238 25,722
------ ------------------------------------------------------------- -------- --------
57 Total regulatory adjustments to tier 2 capital (1,451) (1,472)
------ ------------------------------------------------------------- -------- --------
58 Tier 2 capital 22,787 24,250
------ ------------------------------------------------------------- -------- --------
59 Total capital 181,122 184,423
------ ------------------------------------------------------------- -------- --------
60 Total risk-weighted assets 862,292 857,520
------ ------------------------------------------------------------- -------- --------
Capital ratios % %
------ ------------------------------------------------------------- ---------- ----------
61 Common equity tier 1 ratio 15.6 15.9
------ ------------------------------------------------------------- -------- --------
62 Tier 1 ratio 18.4 18.7
------ ------------------------------------------------------------- -------- --------
63 Total capital ratio 21.0 21.5
------ ------------------------------------------------------------- -------- --------
* The references identify the lines prescribed in the EBA template.
1 The figures for 31 December 2020 have been restated to reflect
the reclassification of the IFRS 9 transitional adjustment from
retained earnings (within row 6) to 'Total regulatory adjustments
to common equity tier 1' (row 28).
At 30 June 2021, our common equity tier 1 ('CET1') capital ratio
decreased to 15.6% from 15.9% at 31 December 2020, reflecting an
increase in RWAs and a decrease in CET1 capital of $1.5bn including
the impact of foreseeable dividends of $3.5bn. The decrease in CET1
capital was mainly a result of:
-- a $1.4bn decrease in the fair value through other comprehensive income reserve;
-- a $1.3bn higher threshold deduction for investment in financial sector entities;
-- a $1.2bn decline in IFRS 9 transitional add-back; and
--
$0.6bn unfavourable foreign currency translation
differences.
These decreases were partly offset by:
-- $2.8bn capital generation through profits, net of foreseeable
dividend and dividend paid on other equity instruments.
At 30 June 2021, our Pillar 2A requirement, in accordance with
the PRA's Individual Capital Requirement based on a point-in-time
assessment, was equivalent to 2.9% of RWAs, of which 1.7% was met
by CET1 capital.
Throughout the first half of 2021, we complied with the PRA's
regulatory capital adequacy requirements.
Risk-
weighted assets
RWAs by global business
Corporate
WPB CMB GBM Centre Total
$bn $bn $bn $bn $bn
------------------------- ----- ----- ----- --------- -------
Credit risk 148.3 303.5 166.3 84.8 702.9
------------------------- ----- ----- ----- --------- -----
Counterparty credit risk 0.9 0.6 36.6 1.2 39.3
------------------------- ----- ----- ----- --------- -----
Market risk 1.3 0.6 20.3 3.3 25.5
------------------------- ----- ----- ----- --------- -----
Operational risk 34.5 27.4 32.0 0.7 94.6
------------------------- ----- ----- ----- --------- -----
At 30 Jun 2021 185.0 332.1 255.2 90.0 862.3
------------------------- ----- ----- ----- --------- -----
At 31 Dec 2020 172.8 327.7 265.1 91.9 857.5
------------------------- ----- ----- ----- --------- -----
RWAs by geographical region
North Latin
Europe Asia MENA America America Total
$bn $bn $bn $bn $bn $bn
-------------------- ------ ----- ---- -------- -------- -------
Credit risk 206.0 326.3 49.9 94.0 26.7 702.9
-------------------- ------ ----- ---- -------- -------- -----
Counterparty credit
risk 20.6 10.7 1.3 4.8 1.9 39.3
-------------------- ------ ----- ---- -------- -------- -----
Market risk(1) 17.1 24.7 2.1 4.6 1.2 25.5
-------------------- ------ ----- ---- -------- -------- -----
Operational risk 26.1 45.4 6.2 11.8 5.1 94.6
-------------------- ------ ----- ---- -------- -------- -----
At 30 Jun 2021 269.8 407.1 59.5 115.2 34.9 862.3
-------------------- ------ ----- ---- -------- -------- -----
At 31 Dec 2020 284.3 384.2 60.2 117.8 35.2 857.5
-------------------- ------ ----- ---- -------- -------- -----
1 Market risk RWAs are non-additive across geographical regions
due to diversification effects within the Group.
RWA movement by global businesses by key driver
Credit risk, counterparty credit
risk and operational risk
---------------------------------------
Corporate Market Total
WPB CMB GBM Centre risk RWAs
$bn $bn $bn $bn $bn $bn
------------------- -------- -------- -------- --------- ------ -------
RWAs at 1 Jan 2021 171.2 326.8 242.2 88.8 28.5 857.5
------------------- -------- -------- -------- --------- ------ -----
Asset size 10.3 6.7 (5.7) 3.3 (1.7) 12.9
------------------- -------- -------- -------- --------- ------ -----
Asset quality (1.8) (3.0) 4.9 (0.6) - (0.5)
------------------- -------- -------- -------- --------- ------ -----
Model updates 1.9 (0.3) (0.1) - (1.2) 0.3
--------------------------- ----- ----- ----- ----- ----- -----
Methodology and policy 2.6 2.0 (5.2) (4.5) (0.1) (5.2)
--------------------------- ----- ----- ----- ----- ----- -----
Foreign exchange movements (0.5) (0.7) (1.2) (0.3) - (2.7)
--------------------------- ----- ----- ----- ----- ----- -----
Total RWA movement 12.5 4.7 (7.3) (2.1) (3.0) 4.8
--------------------------- ----- ----- ----- ----- ----- -----
RWAs at 30 Jun 2021 183.7 331.5 234.9 86.7 25.5 862.3
--------------------------- ----- ----- ----- ----- ----- -----
RWA movement by geographical region by key driver
Credit risk, counterparty credit risk
and operational risk
-----------------------------------------------
North Latin Market Total
Europe Asia MENA America America risk RWAs
$bn $bn $bn $bn $bn $bn $bn
--------------------------- --------- ------- ------- -------- -------- ------ -------
RWAs at 1 Jan 2021 260.8 363.3 57.8 113.1 34.0 28.5 857.5
--------------------------- --------- ------- ------- -------- -------- ------ -----
Asset size (11.7) 24.9 0.8 - 0.6 (1.7) 12.9
--------------------------- --------- ------- ------- -------- -------- ------ -----
Asset quality 5.7 (1.7) (0.4) (3.9) (0.2) - (0.5)
--------------------------- --------- ------- ------- -------- -------- ------ -----
Model updates - 1.7 (0.1) (0.1) - (1.2) 0.3
--------------------------- --------- ------- ------- -------- -------- ------ -----
Methodology and policy (2.2) (3.6) - 0.7 - (0.1) (5.2)
--------------------------- --------- ------- ------- -------- -------- ------ -----
Foreign exchange movements 0.1 (2.2) (0.7) 0.8 (0.7) - (2.7)
--------------------------- --------- ------- ------- -------- -------- ------ -----
Total RWA movement (8.1) 19.1 (0.4) (2.5) (0.3) (3.0) 4.8
--------------------------- --------- ------- ------- -------- -------- ------ -----
RWAs at 30 Jun 2021 252.7 382.4 57.4 110.6 33.7 25.5 862.3
--------------------------- --------- ------- ------- -------- -------- ------ -----
At 30 June 2021, our cumulative risk-weighted asset ('RWA')
saves as part of our reduction programme were $84.5bn. This
included accelerated reductions of $9.6bn in 4Q19. As explained on
page 12, we have increased our RWA reduction target to $110bn by
2022, reflecting methodology changes around the tracking and
reporting of reductions.
RWAs rose by $4.8bn during the first half of the year, including
a decrease of $2.7bn due to foreign currency translation
differences. The $7.5bn increase (excluding foreign currency
translation differences) comprised the movements described by the
following comments.
Asset size
The $12.9bn increase in RWAs due to asset size movements
comprised growth in WPB, CMB and Corporate Centre, partly offset by
reductions in GBM and market risk RWAs.
The $10.3bn increase in WPB RWAs was mostly in Asia, primarily
due to short-term lending and mortgage growth in Hong Kong. CMB
RWAs grew by $6.7bn, predominantly due to corporate loan growth in
mainland China, Hong Kong and India, partly offset by lower lending
in Europe.
The $3.3bn rise in Corporate Centre RWAs was across all major
regions, and included increases in sovereign exposures, short-term
exposures to other banks, Markets Treasury debt securities and
loans, and the value of material holdings.
The $5.7bn fall in GBM RWAs included a $3.6bn reduction in
counterparty credit risk RWAs, largely due to management actions in
Europe and North America, and mark-to-market movements. A further
$2.1bn decrease in credit risk RWAs was driven by management
actions in Europe, Latin America, North America and
Asia, partly offset by lending growth in Asia.
Market risk RWAs decreased by $1.7bn, largely due to the effects
of risk mitigation on the emerging markets bond portfolio and a
fall in foreign exchange risk, partly offset by an increase in
stressed value at risk.
Asset quality
Changes in asset quality led to an RWA decrease of $0.5bn. The
reduction in CMB, WPB and Corporate Centre RWAs was mostly the
result of favourable portfolio mix changes in Asia, North America
and Europe, partly offset by credit migration in Asia. The $4.9bn
rise in GBM RWAs was primarily due to portfolio changes in the UK
and credit migration in Asia and Europe.
Model updates
The $0.3bn increase due to model updates included a $1.9bn rise
in WPB, mostly as a result of an update to our Australian mortgages
model. This was partly offset by a $1.2bn reduction in Market Risk,
largely from the implementation of an options risk model, and RWA
decreases in CMB and GBM, predominantly due to corporate model
updates.
Methodology and policy
The $5.2bn decrease in RWAs from methodology and policy changes
was primarily due to risk parameter refinements in GBM and CMB,
mainly in Europe and Asia. These movements were partly offset in
CMB by a $1.0bn increase relating to updates to the treatment of
SMEs, and a $0.7bn increase following an enhancement in the
calculation of operational risk RWAs.
Changes to real estate, Markets Treasury and other allocation
methodologies were the main cause of the $2.6bn increase in WPB
RWAs, with offsets across Corporate Centre, CMB and GBM.
Leverage ratio(1)
At
30 Jun 31 Dec
2021 2020
Ref* $bn $bn
----- ------------------------------------------------------ ----------------- -----------------
20 Tier 1 capital 157.0 158.5
----- ------------------------------------------------------ --------------- ---------------
21 Total leverage ratio exposure 2,968.5 2,897.1
----- ------------------------------------------------------ --------------- ---------------
% %
----- ------------------------------------------------------ ----------------- -----------------
22 Leverage ratio 5.3 5.5
----- ------------------------------------------------------ --------------- ---------------
EU-23 Choice of transitional arrangements for the definition Fully phased-in Fully phased-in
of the capital measure
----- ------------------------------------------------------ ----------------- -----------------
UK leverage ratio exposure - quarterly average(2) 2,535.1 2,555.5
----- ------------------------------------------------------ --------------- ---------------
% %
----- ------------------------------------------------------ ----------------- -----------------
UK leverage ratio - quarterly average(2) 6.3 6.1
----- ------------------------------------------------------ --------------- ---------------
UK leverage ratio - quarter end(2) 6.2 6.2
----- ------------------------------------------------------ --------------- ---------------
* The references identify the lines prescribed in the EBA template.
1 The CRR II regulatory transitional arrangements for IFRS 9 are applied in both leverage ratio calculations.
2 UK leverage ratio denotes the Group's leverage ratio
calculated under the PRA's UK leverage framework. This measure
excludes from the calculation of exposure qualifying central bank
balances and loans under the UK Bounce Back Loan Scheme.
Our leverage ratio calculated in accordance with the Capital
Requirements Regulation was 5.3% at 30 June 2021, down from 5.5% at
31 December 2020, due to a decrease in tier 1 capital and an
increase in leverage exposure, primarily due to growth in cash and
balances at central banks, customer lending and trading assets,
offset by a decrease in financial investments.
At 30 June 2021, our UK minimum leverage ratio requirement of
3.25% was supplemented by an additional leverage ratio buffer of
0.7% and a countercyclical leverage ratio buffer of 0.1%. These
additional buffers translated into capital values of $17.7bn and
$2.5bn respectively. We exceeded these leverage requirements.
Regulatory disclosures
Pillar 3 disclosure requirements
Pillar 3 of the Basel regulatory framework is related to market
discipline and aims to make financial services firms more
transparent by requiring publication of wide-ranging information on
their risks, capital and management. Our Pillar 3 Disclosures at 30
June 2021 is expected to be published on or around 9 August 2021 at
www.hsbc.com/investors.
Liquidity and funding risk in the first half of 2021
Liquidity metrics
At 30 June 2021, all of the Group's material operating entities
were above regulatory minimum levels.
Each entity maintains sufficient unencumbered liquid assets to
comply with local and regulatory requirements. The liquidity value
of these liquidity assets for each entity is shown in the following
table along with the individual LCR levels on a European Commission
('EC') basis. This basis may differ from local LCR measures due to
differences in the way non-EU regulators have implemented the Basel
III standards.
Each entity maintains a sufficient stable funding profile and it
is assessed by using the net stable funding ratio ('NSFR') or other
appropriate metrics.
In addition to regulatory metrics, HSBC enhanced its liquidity
framework in 2021 to include an 'internal liquidity metric', which
is being used to monitor and manage liquidity risk via a low-point
measure across a 270-day horizon, taking into account recovery
capacity.
The Group liquidity and funding position at 30 June 2021 is
analysed in the following sections.
Operating entities' liquidity
At 30 June 2021
---------------------------------
LCR HQLA Net outflows NSFR
% $bn $bn %
---------------------------------------------- ----- ---- ------------ ------
HSBC UK Bank plc (ring-fenced bank)(1) 223 145 65 177
---------------------------------------------- ----- ---- ------------ ----
HSBC Bank plc (non-ring-fenced bank)(2) 145 141 97 116
---------------------------------------------- ----- ---- ------------ ----
The Hongkong and Shanghai Banking Corporation
- Hong Kong branch(3) 172 120 70 134
---------------------------------------------- ----- ---- ------------ ----
The Hongkong and Shanghai Banking Corporation
- Singapore branch(3) 212 14 6 137
---------------------------------------------- ----- ---- ------------ ----
Hang Seng Bank 187 41 22 143
---------------------------------------------- ----- ---- ------------ ----
HSBC Bank China 198 24 12 149
---------------------------------------------- ----- ---- ------------ ----
HSBC Bank USA 126 104 83 145
---------------------------------------------- ----- ---- ------------ ----
HSBC Continental Europe(4) 146 58 40 133
---------------------------------------------- ----- ---- ------------ ----
HSBC Middle East - UAE branch 215 11 5 158
---------------------------------------------- ----- ---- ------------ ----
HSBC Canada(4) 129 22 17 125
---------------------------------------------- ----- ---- ------------ ----
HSBC Mexico 186 9 5 135
---------------------------------------------- ----- ---- ------------ ----
Operating entities' liquidity (continued)
At 31 December 2020
----------------------------------
LCR HQLA Net outflows NSFR
% $m $m %
---------------------------------------------- ----- ----- ------------ ------
HSBC UK Bank plc (ring-fenced bank)(1) 198 121 61 164
---------------------------------------------- ----- ----- ------------ ----
HSBC Bank plc (non-ring-fenced bank)(2) 136 138 102 124
---------------------------------------------- ----- ----- ------------ ----
The Hongkong and Shanghai Banking Corporation
- Hong Kong branch(3) 195 146 75 146
---------------------------------------------- ----- ----- ------------ ----
The Hongkong and Shanghai Banking Corporation
- Singapore branch(3) 162 16 10 135
---------------------------------------------- ----- ----- ------------ ----
Hang Seng Bank 212 50 24 151
---------------------------------------------- ----- ----- ------------ ----
HSBC Bank China 232 24 10 158
---------------------------------------------- ----- ----- ------------ ----
HSBC Bank USA 130 106 82 130
---------------------------------------------- ----- ----- ------------ ----
HSBC Continental Europe(4) 143 48 34 130
---------------------------------------------- ----- ----- ------------ ----
HSBC Middle East - UAE branch 280 11 4 164
---------------------------------------------- ----- ----- ------------ ----
HSBC Canada(4) 165 30 18 136
---------------------------------------------- ----- ----- ------------ ----
HSBC Mexico 198 10 5 139
---------------------------------------------- ----- ----- ------------ ----
1 HSBC UK Bank plc refers to the HSBC UK liquidity group, which
comprises four legal entities: HSBC UK Bank plc, Marks and Spencer
Financial Services plc, HSBC Private Bank (UK) Ltd and HSBC Trust
Company (UK) Limited, managed as a single operating entity, in line
with the application of UK liquidity regulation as agreed with the
PRA.
2 HSBC Bank plc includes overseas branches and special purpose
entities consolidated by HSBC for financial statements
purposes.
3 The Hongkong and Shanghai Banking Corporation - Hong Kong
branch and The Hongkong and Shanghai Banking Corporation -
Singapore branch represent the material activities of The Hongkong
and Shanghai Banking Corporation. Each branch is monitored and
controlled for liquidity and funding risk purposes as a stand-alone
operating entity.
4 HSBC Continental Europe and HSBC Canada represent the
consolidated banking operations of the Group in France and Canada,
respectively. HSBC Continental Europe and HSBC Canada are each
managed as single distinct operating entities for liquidity
purposes.
At 30 June 2021, all of the Group's principal operating entities
were well above regulatory minimum levels.
The most significant movements in 2021 are explained below:
-- HSBC UK Bank plc retained a strong liquidity position,
reflecting growth in its commercial surplus primarily due to higher
deposits.
-- HSBC Bank plc's liquidity ratio increased to 145%, mainly due
to growth in customer deposits and a decline in loans.
-- The Hongkong and Shanghai Banking Corporation - Hong Kong
branch liquidity position remained strong, although its liquidity
ratio decreased to 172%, mainly due to a growth in loans.
-- Hang Seng Bank's liquidity ratio decreased to 187%, mainly due to growth in loans.
-- The Hongkong and Shanghai Banking Corporation - Singapore
branch increased its liquidity ratio to 212%, mainly due to a
change in the maturity profile of the loans.
-- HSBC Bank China's liquidity ratio decreased to 198%, mainly due to growth in loans.
-- HSBC Bank USA maintained a strong liquidity ratio of 126%.
-- HSBC Continental Europe maintained a strong liquidity
position, reflecting growth in deposits.
-- HSBC Bank Middle East - UAE Branch retained a strong
liquidity position, with a liquidity ratio of 215%.
-- HSBC Canada's liquidity ratio decreased to 129%, mainly
driven by the maturity of the funding raised last year during the
pandemic and growth in loans.
Consolidated liquidity metrics
Liquidity coverage ratio
At 30 June 2021, the total HQLA held at entity level amounted to
$844bn (31 December 2020: $857bn), a decrease of $13bn. During the
first half of 2021, HSBC implemented a revised approach to the
application of the requirements under the EC Delegated Act. This
approach was used to assess the limitations in the fungibility of
entity liquidity around the Group and resulted in an adjustment of
$185bn to LCR HQLA and $4bn to LCR inflows. This reflected an
increase in the adjustment of $42bn compared with the approach used
for the disclosure in the Annual Report and Accounts 2020. The
change in methodology was designed to better incorporate local
regulatory restrictions on the transferability of liquidity.
As a consequence, the Group LCR was 134% at 30 June 2021 (31
December 2020:139%). The $185bn of HQLA and $4bn of inflows remains
available to cover liquidity risk in relevant entities.
At
------------------------------
30 Jun 30 Jun 31 Dec
2021 2020(1) 2020(1)
$bn $bn $bn
---------------------------- -------- --------- ---------
High-quality liquid
assets (in entities) 844 784 857
---------------------------- -------- --------- ---------
EC Delegated Act adjustment (189) (130) (179)
---------------------------- -------- --------- ---------
Group LCR HQLA 659 654 678
---------------------------- -------- --------- ---------
Net outflows 494 443 487
---------------------------- -------- --------- ---------
Liquidity coverage
ratio 134% 148% 139%
---------------------------- ---- ----- -----
1 Group LCR numbers above for 30 June 2020 and 31 December 2020
are based on the approach used before the methodology was
revised.
Liquid assets
After the $185bn adjustment, the Group LCR HQLA of $659bn (31
December 2020: $678bn) was held in a range of asset classes and
currencies. Of these, 94% were eligible as level 1 (31 December
2020: 90%).
The following tables reflect the composition of the liquidity
pool by asset type and currency at 30 June 2021:
Liquidity pool by asset type
Liquidity Level Level
pool Cash 1(1) 2(1)
$bn $bn $bn $bn
-------------------------- --------- ---- ----- -------
Cash and balance
at central bank 377 377 - -
-------------------------- --------- ---- ----- -----
Central and local
government bonds 250 - 220 30
-------------------------- --------- ---- ----- -----
Regional government
and public sector
entities 4 - 3 1
-------------------------- --------- ---- ----- -----
International
organisation and
multilateral development
banks 12 - 12 -
-------------------------- --------- ---- ----- -----
Covered bonds 4 - 1 3
-------------------------- --------- ---- ----- -----
Other 12 - 9 3
-------------------------- --------- ---- ----- -----
Total at 30 Jun
2021 659 377 245 37
-------------------------- --------- ---- ----- -----
Total at 31 Dec
2020 678 307 301 70
-------------------------- --------- ---- ----- -------
1 As defined in EU regulation, level 1 assets means 'assets of
extremely high liquidity and credit quality', and level 2 assets
means 'assets of high liquidity and credit quality'.
Liquidity pool by currency
$ GBP EUR HK$ Other Total
$bn $bn $bn $bn $bn $bn
---------------- ---- ---- ---- ---- ------ --------
Liquidity pool
at 30 Jun 2021 151 207 108 54 139 659
---------------- ---- ---- ---- ---- ------ ------
Liquidity pool
at 31 Dec 2020 218 176 117 74 93 678
---------------- ---- ---- ---- ---- ------ --------
Sources of funding
Our primary sources of funding are customer current accounts and
savings deposits payable on demand or at short notice. We issue
secured and unsecured wholesale securities to supplement customer
deposits, meet regulatory obligations and to change the currency
mix, maturity profile or location of our liabilities.
The following 'Funding sources' and 'Funding uses' tables
provide a view of how our consolidated balance sheet is funded. In
practice, all the principal operating entities are required to
manage liquidity and funding risk on a stand-alone basis.
The tables analyse our consolidated balance sheet according to
the assets that primarily arise from operating activities and the
sources of funding primarily supporting these activities. Assets
and liabilities that do not arise from operating activities are
presented as a net balancing source or deployment of funds.
In 1H21, the level of customer accounts continued to exceed the
level of loans and advances to customers. The positive funding gap
was predominantly deployed in liquid assets.
Funding sources
At
30 Jun 31 Dec
2021 2020
$m $m
-------------------------------- --------- -----------
Customer accounts 1,669,091 1,642,780
-------------------------------- --------- ---------
Deposits by banks 100,448 82,080
-------------------------------- --------- ---------
Repurchase agreements
- non-trading 112,798 111,901
-------------------------------- --------- ---------
Debt securities in issue 84,218 95,492
-------------------------------- --------- ---------
Cash collateral, margin
and settlement accounts 104,215 78,565
-------------------------------- --------- ---------
Subordinated liabilities 20,774 21,951
-------------------------------- --------- ---------
Financial liabilities
designated at fair value 151,686 157,439
-------------------------------- --------- ---------
Liabilities under insurance
contracts 110,572 107,191
-------------------------------- --------- ---------
Trading liabilities 89,637 75,266
-------------------------------- --------- ---------
- repos 14,169 11,728
--------------------------------
- stock lending 5,616 4,597
--------------------------------
- other trading liabilities 69,852 58,941
-------------------------------- --------- ---------
Total equity 206,764 204,995
-------------------------------- --------- ---------
Other balance sheet liabilities 325,802 406,504
-------------------------------- --------- ---------
2,976,005 2,984,164
-------------------------------- --------- ---------
Funding uses
At
30 Jun 31 Dec
2021 2020
$m $m
------------------------------ --------- -----------
Loans and advances to
customers 1,059,511 1,037,987
------------------------------ --------- ---------
Loans and advances to
banks 86,886 81,616
------------------------------ --------- ---------
Reverse repurchase agreements
- non-trading 201,714 230,628
------------------------------ --------- ---------
Cash collateral, margin
and settlement accounts 92,074 76,859
------------------------------ --------- ---------
Assets held for sale 3,640 299
------------------------------ --------- ---------
Trading assets 260,250 231,990
------------------------------ --------- ---------
- reverse repos 19,660 13,990
------------------------------
- stock borrowing 9,213 8,286
------------------------------
- other trading assets 231,377 209,714
------------------------------ --------- ---------
Financial investments 434,576 490,693
------------------------------ --------- ---------
Cash and balances with
central banks 393,559 304,481
------------------------------ --------- ---------
Other balance sheet assets 443,795 529,611
------------------------------ --------- ---------
2,976,005 2,984,164
------------------------------ --------- ---------
Interest rate risk in the banking book in the first half of
2021
Net interest income sensitivity
The following tables set out the assessed impact to a
hypothetical base case projection of our net interest income
('NII'), excluding insurance, under the following scenarios:
-- an immediate shock of 25 basis points ('bps') to the current
market-implied path of interest rates across all currencies on 1
July 2021 (effects over one year and five years); and
-- an immediate shock of 100bps to the current market-implied
path of interest rates across all currencies on 1 July 2021
(effects over one year and five years).
The sensitivities shown represent our assessment of the change
to a hypothetical base case NII, assuming a static balance sheet
and no management actions from Markets Treasury. They incorporate
the effect of interest rate behaviouralisation, managed rate
product pricing assumptions and customer behaviour, including the
prepayment of mortgages or customer migration from
non-interest-bearing to interest-bearing deposit accounts. The
scenarios represent interest rate shocks to the current market
implied path of rates. No floors have been applied to market rates,
although flooring on product rates has been retained where
applicable.
The one-year and five-year NII sensitivities increased in June
2021 at Group level when compared with December 2020. This was
driven by changes in the forecasted yield curves and changes in
balance sheet composition.
Immediate interest rate rises of 25bps and 100bps would increase
projected NII for the 12 months to 30 June 2022 by $1,502m and
$5,772m, respectively. Conversely, falls of 25bps and 100bps would
decrease projected NII for the 12 months to 30 June 2022 by $1,605m
and $5,190 respectively.
The sensitivity of NII for 12 months has increased by $424m in
the plus 100bps and by $336m in the minus 100bps parallel shock
comparing June 2021 with December 2020.
The increase in sensitivity of NII for 12 months was mainly
driven by the general build-up of liquidity throughout the Group,
which has been deployed in short-term investments (predominantly
cash, hold-to-collect-and-sell securities and reverse repos), and
changes in pass-on assumptions in view of the significant drop in
interest rates and changes in portfolio composition.
The change in NII sensitivity for five years is also driven by
the factors above.
The structural sensitivity of NII arising within the three
global businesses, excluding Markets and Securities Services, is
positive in a rising rate environment and negative in a falling
rate environment. Markets Treasury has an NII sensitivity profile
that offsets this to some degree. The tables do not include
potential Markets Treasury management actions or changes in Markets
and Securities Services net trading income that may further limit
the offset.
NII sensitivity to an instantaneous change in yield curves (12 months)
US dollar HK dollar Sterling Euro Other Total
$m $m $m $m $m $m
-------------------------------------- --------- --------- -------- ----- ------- ---------
Change in Jul 2021 to Jun 2022 (based
on balance sheet at
30 Jun 2021)
-------------------------------------- --------- --------- -------- ----- ------- ---------
+25bps 114 340 561 113 374 1,502
-------------------------------------- --------- --------- -------- ----- ------- -------
-25bps (122) (393) (616) (83) (391) (1,605)
-------------------------------------- --------- --------- -------- ----- ------- -------
+100bps 369 1,354 2,053 532 1,464 5,772
-------------------------------------- --------- --------- -------- ----- ------- -------
-100bps (224) (837) (2,257) (330) (1,542) (5,190)
-------------------------------------- --------- --------- -------- ----- ------- -------
Change in Jan 2021 to Dec 2021 (based
on balance sheet at 31 Dec 2020)
-------------------------------------- --------- --------- -------- ----- ------- ---------
+25bps (110) (83) 6 (13) 55 (145)
-------------------------------------- --------- --------- -------- ----- ------- -------
-25bps 105 (50) (67) 5 (90) (97)
-------------------------------------- --------- --------- -------- ----- ------- -------
+100bps (177) 87 242 30 242 424
-------------------------------------- --------- --------- -------- ----- ------- -------
-100bps 341 (88) (351) (31) (207) (336)
-------------------------------------- --------- --------- -------- ----- ------- -------
NII sensitivity to an instantaneous change in yield curves (5 years)
Year Year Year Year Year
1 2 3 4 5 Total
$m $m $m $m $m $m
-------------------------------------- ------- ------- ------- ------- ------- ----------
Change in Jul 2021 to Jun 2026 (based
on balance sheet at
30 Jun 2021)
-------------------------------------- ------- ------- ------- ------- ------- ----------
+25bps 1,502 1,806 1,976 2,098 2,158 9,540
-------------------------------------- ------- ------- ------- ------- ------- --------
-25bps (1,605) (2,085) (2,042) (2,152) (2,235) (10,119)
-------------------------------------- ------- ------- ------- ------- ------- --------
+100bps 5,772 7,118 7,778 8,092 8,179 36,939
-------------------------------------- ------- ------- ------- ------- ------- --------
-100bps (5,190) (6,924) (8,249) (8,892) (9,243) (38,498)
-------------------------------------- ------- ------- ------- ------- ------- --------
Change in Jan 2021 to Dec 2025 (based
on balance sheet at 31 Dec 2020)
-------------------------------------- ------- ------- ------- ------- ------- ----------
+25bps (145) (60) 46 70 58 (31)
-------------------------------------- ------- ------- ------- ------- ------- --------
-25bps (97) (98) 266 (107) (124) (160)
-------------------------------------- ------- ------- ------- ------- ------- --------
+100bps 424 580 696 648 441 2,789
-------------------------------------- ------- ------- ------- ------- ------- --------
-100bps (336) (751) (1,162) (1,232) (918) (4,399)
-------------------------------------- ------- ------- ------- ------- ------- --------
Market risk
Overview
Market risk is the risk that movements in market factors, such
as foreign exchange rates, interest rates, credit spreads, equity
prices and commodity prices, will reduce our income or the value of
our portfolios.
Market risk in the first half of 2021
There were no material changes to the policies and practices for
the management of market risk in the first half of 2021.
A summary of our current policies and practices for the
management of market risk is set out in 'Market risk management' on
page 182 of the Annual Report and Accounts 2020.
Financial markets remained resilient during the first half of
2021, against the backdrop of loose financial conditions, continued
fiscal support and acceleration in the roll-out of Covid-19
vaccination programmes to the general population. As the reopening
of major economies progressed in 1Q21, rising concerns of
inflationary pressures and expectations that the US Federal Reserve
could raise interest rates earlier than previously anticipated led
to a temporary increase in long-term government bond yields and a
pause in the stock market rally. The path of monetary policies
remained uncertain in 2Q21, although central banks continued to
remain cautious and provide liquidity, highlighting the potentially
transitory nature of higher inflation. This provided continued
support to risk assets valuations and led to interest rates
retracing from the high levels in March, while market volatility
remained subdued. In June, major equity markets reached new record
highs and credit markets remained strong, with credit benchmark
indices for investment grade and high-yield debt close to
pre-pandemic levels.
We continued to manage market risk prudently in the first half
of 2021. Sensitivity exposures and VaR remained within appetite as
the business pursued its core market-making activity in support of
our customers. Market risk was managed using a complementary set of
risk measures and limits, including stress and scenario
analysis.
Trading portfolios
Value at risk of the trading portfolios
Trading VaR was predominantly generated by Markets and
Securities Services. Market-making activities in the Global Debt
Markets and Foreign Exchange businesses were the main drivers of
trading VaR at the end of 1H21, with larger contributions compared
with the end of 2020. Trading VaR at 30 June 2021 was lower than at
31 December 2020. The moderate reduction in trading VaR during the
first half of the year was due mainly to larger offsetting gains
from the Equity business, including lower exposures to dividends
and correlation risks. The Group trading VaR for the half-year is
shown in the table below.
Trading VaR, 99% 1 day
Foreign
exchange Interest Credit Portfolio
and commodity rate Equity spread diversification(1) Total
$m $m $m $m $m $m
---------------- -------------- -------- ------ ------- ------------------- -------
Half-year to 30
Jun 2021 13.6 33.5 15.8 18.3 (42.5) 38.7
---------------- -------------- -------- ------ ------- ------------------- -----
Average 15.0 33.4 16.5 18.1 (46.2) 36.8
---------------- -------------- -------- ------ ------- ------------------- -----
Maximum 31.8 50.4 24.3 29.4 48.2
---------------- -------------- -------- ------ ------- ------------------- -----
Minimum 6.9 18.5 12.1 12.2 31.1
---------------- -------------- -------- ------ ------- ------------------- -----
Half-year to 30
Jun 2020 10.4 36.8 26.3 18.7 (47.8) 44.4
---------------- -------------- -------- ------ ------- ------------------- -----
Average 10.6 27.6 25.0 23.1 (36.2) 50.1
---------------- -------------- -------- ------ ------- ------------------- -----
Maximum 19.9 43.5 41.3 44.1 69.3
---------------- -------------- -------- ------ ------- ------------------- -----
Minimum 5.6 19.1 13.6 13.7 33.6
---------------- -------------- -------- ------ ------- ------------------- -----
Half-year to 31
Dec 2020 13.7 20.3 21.5 24.3 (36.4) 43.4
---------------- -------------- -------- ------ ------- ------------------- -----
Average 11.3 25.5 29.0 20.2 (40.2) 45.8
---------------- -------------- -------- ------ ------- ------------------- -----
Maximum 25.7 38.1 40.5 28.6 62.2
---------------- -------------- -------- ------ ------- ------------------- -----
Minimum 7.1 19.8 21.1 12.6 37.2
---------------- -------------- -------- ------ ------- ------------------- -----
1 When VaR is calculated at a portfolio level, natural offsets
in risk can occur when compared with aggregating VaR at the asset
class level. This difference is called portfolio diversification.
The asset class VaR maxima and minima reported in the table
occurred on different dates within the reporting period. For this
reason, we do not report an implied portfolio diversification
measure between the maximum (minimum) asset class VaR measures and
the maximum (minimum) total VaR measures in this table.
The risk not in VaR ('RNIV') framework covers risks from
exposures in our trading book that are not fully captured by the
VaR model. The VaR-based RNIVs are included within the metrics for
each asset class.
Back-testing
In 1H21, the Group experienced one loss exception against
hypothetical profit and loss and no exceptions against actual
profit and loss.
The hypothetical profit and loss reflects the profit and loss
that would be realised if positions were held constant from the end
of one trading day to the end of the next. This measure of profit
and loss does not align with how risk is dynamically hedged, and is
not therefore necessarily indicative of the actual performance of
the business. The loss back-testing exception against hypothetical
profit and loss observed in March was mainly driven by the effect
of lower volatility in the equity markets and by the increase in
some emerging markets foreign exchange forward rates
volatilities.
Non-trading portfolios
Value at risk of the non-trading portfolios
Non-trading portfolios comprise positions that primarily arise
from the interest rate management of our retail and commercial
banking assets and liabilities, financial investments measured at
fair value through other comprehensive income, debt instruments
measured at amortised cost, and exposures arising from our
insurance operations.
The VaR for non-trading activity at 30 June 2021 did not change
materially compared with 31 December 2020. The increase in average
non-trading VaR was driven primarily by the effect of higher
interest rate levels and market volatility observed in February and
March 2021, as the markets adjusted to higher economic growth and
rising inflation expectations. This led to an increase in VaR,
while the size of interest rate exposures remained relatively
stable.
Non-trading VaR includes non-trading financial instruments held
in portfolios managed by Markets Treasury. The management of
interest rate risk in the banking book is described further in 'Net
interest income sensitivity' on page 87.
The Group non-trading VaR for the half-year is shown in the
following table
Non-trading VaR, 99% 1 day
Interest Credit Portfolio
rate spread diversification(1) Total
$m $m $m $m
------------------------- -------- ------- ------------------- -------
Half-year to 30 Jun 2021 193.7 73.8 (18.0) 249.5
------------------------- -------- ------- ------------------- -----
Average 201.1 80.5 (31.2) 250.4
------------------------- -------- ------- ------------------- -----
Maximum 248.7 99.3 298.8
------------------------- -------- ------- ------------------- -----
Minimum 163.3 64.7 193.5
------------------------- -------- ------- ------------------- -----
Half-year to 30 Jun 2020 184.3 83.2 (61.6) 205.9
------------------------- -------- ------- ------------------- -----
Average 122.8 80.9 (60.7) 143.0
------------------------- -------- ------- ------------------- -----
Maximum 190.1 133.4 219.7
------------------------- -------- ------- ------------------- -----
Minimum 59.0 44.2 79.7
------------------------- -------- ------- ------------------- -----
Half-year to 31 Dec 2020 166.6 87.0 (5.7) 247.8
------------------------- -------- ------- ------------------- -----
Average 176.7 84.0 (23.7) 237.0
------------------------- -------- ------- ------------------- -----
Maximum 196.4 102.1 274.6
------------------------- -------- ------- ------------------- -----
Minimum 159.2 67.5 179.7
------------------------- -------- ------- ------------------- -----
1 When VaR is calculated at a portfolio level, natural offsets
in risk can occur when compared with aggregating VaR at the asset
class level. This difference is called portfolio diversification.
The asset class VaR maxima and minima reported in the table
occurred on different dates within the reporting period. For this
reason, we do not report an implied portfolio diversification
measure between the maximum (minimum) asset class VaR measures and
the maximum (minimum) total VaR measures in this table.
Non-trading VaR excludes equity risk on securities held at fair
value, structural foreign exchange risk and interest rate risk on
fixed-rate securities issued by HSBC Holdings. HSBC's management of
market risk in the non-trading book is described in the Treasury
risk section on page 85.
Insurance manufacturing operations
risk
Overview
The majority of the risk in our insurance business derives from
manufacturing activities and can be categorised as financial risk
and insurance risk. Financial risks include market risk, credit
risk and liquidity risk. Insurance risk is the risk, other than
financial risk, of loss transferred from the holder of the
insurance contract to HSBC, the issuer. The cost of claims and
benefits can be influenced by many factors, including mortality and
morbidity experience, as well as lapse and surrender rates.
Insurance manufacturing operations risk in the first half of
2021
There have been no material changes to the policies and
practices for the management of risks arising in our insurance
operations described in the Annual Report and Accounts 2020.
A summary of our policies and practices regarding the risk
management of insurance operations, our insurance model and the
main contracts we manufacture is provided on page 189 of the Annual
Report and Accounts 2020.
The risk profile of our insurance manufacturing operations is
assessed in the Group's ICAAP based on their financial capacity to
support the risks to which they are exposed. Capital adequacy is
assessed on both the Group's economic capital basis, and the
relevant local insurance regulatory basis. The Group's economic
capital basis is largely aligned to European Solvency II
regulations. Risk appetite buffers are set to ensure that the
operations are able to remain solvent on both bases, allowing for
business-as-usual volatility and extreme but plausible stress
events. In addition, the insurance manufacturing operations also
manage their market, liquidity, credit, underwriting and
non-financial risk exposures to Board-approved risk appetite
limits.
Interest rates and equity values, which are the key risk drivers
for the financial strength of the insurance operations, in general
rose during the first half of the year. This had a favourable
impact on capital positions and financial risk exposures. As a
result, at 30 June 2021 the majority of the capital and financial
risk positions of our insurance operations were within risk
appetite. However, we continue to monitor these risks closely, as
lower interest rates impact on margins and increase profit
sensitivity on our insurance products.
The following table shows the composition of assets and
liabilities by contract type.
Balance sheet of insurance manufacturing subsidiaries by type of contract
Shareholder
assets
With Unit- Other and
DPF linked contracts(1) liabilities Total
$m $m $m $m $m
------------------------------------------------------------ ------ ------- ------------ ----------- ---------
Financial assets 87,984 9,134 19,402 9,238 125,758
------------------------------------------------------------ ------ ------- ------------ ----------- -------
- trading assets - - - - -
------------------------------------------------------------
* financial assets designated and otherwise mandatorily
measured at fair value through profit or loss 29,111 8,788 3,651 1,907 43,457
------------------------------------------------------------
- derivatives 146 1 6 2 155
------------------------------------------------------------
- financial investments - at amortised
cost 41,201 93 14,145 4,391 59,830
------------------------------------------------------------
- financial investments - at fair
value through other comprehensive
income 11,851 - 490 1,700 14,041
------------------------------------------------------------
- other financial assets(2) 5,675 252 1,110 1,238 8,275
------------------------------------------------------------ ------ ------- ------------ ----------- -------
Reinsurance assets 2,191 77 1,625 1 3,894
------------------------------------------------------------ ------ ------- ------------ ----------- -------
PVIF(3) - - - 9,449 9,449
------------------------------------------------------------ ------ ------- ------------ ----------- -------
Other assets and investment properties 2,551 3 658 717 3,929
------------------------------------------------------------ ------ ------- ------------ ----------- -------
Total assets at June 2021 92,726 9,214 21,685 19,405 143,030
------------------------------------------------------------ ------ ------- ------------ ----------- -------
Liabilities under investment contracts
designated at fair value - 2,390 3,941 - 6,331
------------------------------------------------------------ ------ ------- ------------ ----------- -------
Liabilities under insurance contracts 87,685 6,726 16,225 - 110,636
------------------------------------------------------------ ------ ------- ------------ ----------- -------
Deferred tax(4) 180 8 19 1,407 1,614
------------------------------------------------------------ ------ ------- ------------ ----------- -------
Other liabilities - - - 8,068 8,068
------------------------------------------------------------ ------ ------- ------------ ----------- -------
Total liabilities 87,865 9,124 20,185 9,475 126,649
------------------------------------------------------------ ------ ------- ------------ ----------- -------
Total equity - - - 16,381 16,381
------------------------------------------------------------ ------ ------- ------------ ----------- -------
Total liabilities and equity at June
2021 87,865 9,124 20,185 25,856 143,030
------------------------------------------------------------ ------ ------- ------------ ----------- -------
Financial assets 84,478 8,802 18,932 8,915 121,127
------------------------------------------------------------ ------ ------- ------------ ----------- -------
- trading assets - - - - -
------------------------------------------------------------
* financial assets designated at fair value 26,002 8,558 3,508 1,485 39,553
------------------------------------------------------------
- derivatives 262 3 13 3 281
------------------------------------------------------------
- financial investments at amortised
cost 39,891 30 13,984 4,521 58,426
------------------------------------------------------------
- financial investments at fair value
through other comprehensive income 12,531 - 459 1,931 14,921
------------------------------------------------------------
- other financial assets(2) 5,792 211 968 975 7,946
------------------------------------------------------------ ------ ------- ------------ ----------- -------
Reinsurance assets 2,256 65 1,447 2 3,770
------------------------------------------------------------ ------ ------- ------------ ----------- -------
PVIF(3) - - - 9,435 9,435
------------------------------------------------------------ ------ ------- ------------ ----------- -------
Other assets and investment properties 2,628 1 227 721 3,577
------------------------------------------------------------ ------ ------- ------------ ----------- -------
Total assets at December 2020 89,362 8,868 20,606 19,073 137,909
------------------------------------------------------------ ------ ------- ------------ ----------- -------
Liabilities under investment contracts
designated at fair value - 2,285 4,100 - 6,385
------------------------------------------------------------ ------ ------- ------------ ----------- -------
Liabilities under insurance contracts 84,931 6,503 15,827 - 107,261
------------------------------------------------------------ ------ ------- ------------ ----------- -------
Deferred tax(4) 145 5 25 1,400 1,575
------------------------------------------------------------ ------ ------- ------------ ----------- -------
Other liabilities - - - 7,244 7,244
------------------------------------------------------------ ------ ------- ------------ ----------- -------
Total liabilities 85,076 8,793 19,952 8,644 122,465
------------------------------------------------------------ ------ ------- ------------ ----------- -------
Total equity - - - 15,444 15,444
------------------------------------------------------------ ------ ------- ------------ ----------- -------
Total liabilities and equity at December
2020 85,076 8,793 19,952 24,088 137,909
------------------------------------------------------------ ------ ------- ------------ ----------- -------
1 Other contracts includes term assurance, credit life
insurance, universal life insurance and certain investment
contracts not included in the 'Unit-linked' or 'With DPF'
columns.
2 Comprise mainly loans and advances to banks, cash and
inter-company balances with other non-insurance legal entities.
3 Present value of in-force long-term insurance business.
4 Deferred tax includes the deferred tax liabilities arising on recognition of PVIF.
Market risk
Description and exposure
Market risk is the risk of changes in market factors affecting
HSBC's capital or profit. Market factors include interest rates,
equity and growth assets, and foreign exchange rates.
Our exposure varies depending on the type of contract issued.
Our most significant life insurance products are contracts with
discretionary participating features ('DPF') issued in France and
Hong Kong. These products typically include some form of capital
guarantee or guaranteed return on the sums invested by the
policyholders, to which discretionary bonuses are added if allowed
by the overall performance of the funds. These funds are primarily
invested in bonds, with a proportion allocated to other asset
classes to provide customers with the potential for enhanced
returns.
DPF products expose HSBC to the risk of variation in asset
returns, which will impact our participation in the investment
performance.
In addition, in some scenarios the asset returns can become
insufficient to cover the policyholders' financial guarantees, in
which case the shortfall has to be met by HSBC. Amounts are held
against the cost of such guarantees, calculated by stochastic
modelling.
Where local rules require, these reserves are held as part of
liabilities under insurance contracts. Any remainder is accounted
for as a deduction from the present value of in-force ('PVIF')
long-term insurance business on the relevant product.
For unit-linked contracts, market risk is substantially borne by
the policyholder, but some market risk exposure typically remains,
as fees earned are related to the market value of the linked
assets.
Sensitivities
Changes in financial market factors, from the economic
assumptions in place at the start of the year, had a positive
impact on reported profit before tax of $413m (1H20: $320m
negative). The following table illustrates the effects of selected
interest rate, equity price and foreign exchange rate scenarios on
our profit for the period and the total equity of our insurance
manufacturing subsidiaries.
Where appropriate, the effects of the sensitivity tests on
profit after tax and equity incorporate the impact of the stress on
the PVIF.
Due in part to the impact of the cost of guarantees and hedging
strategies, which may be in place, the relationship between the
profit and total equity and the risk factors is non-linear,
particularly in a low interest-rate environment.
Therefore, the results disclosed should not be extrapolated to
measure sensitivities to different levels of stress. For the same
reason, the impact of the stress is not necessarily symmetrical on
the upside and downside. The sensitivities are stated before
allowance for management actions, which may mitigate the effect of
changes in the market environment. The sensitivities presented
allow for adverse changes in policyholder behaviour that may arise
in response to changes in market rates. The differences between the
impacts on profit after tax and equity are driven by the changes in
value of the bonds measured at fair value through other
comprehensive income, which are only accounted for in equity.
Sensitivity of HSBC's insurance manufacturing subsidiaries to market
risk factors
At 30 Jun 2021 At 31 Dec 2020
Effect Effect
on Effect on Effect
profit on profit on
after total after total
tax equity tax equity
$m $m $m $m
------------------------------------------------------ --------- ------- --------- ---------
+100 basis point parallel shift in yield
curves (42) (188) (67) (188)
------------------------------------------------------ --------- ------- --------- -------
* 100 basis point parallel shift in yield curves (53) 97 (68) 58
------------------------------------------------------ --------- ------- --------- -------
10% increase in equity prices 366 366 332 332
------------------------------------------------------ --------- ------- --------- -------
10% decrease in equity prices (372) (372) (338) (338)
------------------------------------------------------ --------- ------- --------- -------
10% increase in US dollar exchange rate
compared with all currencies 10 10 84 84
------------------------------------------------------ --------- ------- --------- -------
10% decrease in US dollar exchange rate
compared with all currencies (10) (10) (84) (84)
------------------------------------------------------ --------- ------- --------- -------
Directors' responsibility statement
The Directors(1) are required to prepare the financial
statements on a going concern basis unless it is not appropriate.
They are satisfied that the Group has the resources to continue in
business for the foreseeable future and that the financial
statements continue to be prepared on a going concern basis.
The Directors confirm that to the best of their knowledge:
-- the financial statements have been prepared in accordance
with UK adopted IAS 34 'Interim Financial Reporting', IAS 34
'Interim Financial Reporting' as issued by the International
Accounting Standards Board ('IASB'), IAS 34 'Interim Financial
Reporting' as adopted by the EU and the Disclosure Guidance and
Transparency Rules ('DTR') sourcebook of the UK's Financial Conduct
Authority;
-- this Interim Report 2021 gives a true, fair, balanced and
understandable view of the assets, liabilities, financial position
and profit or loss of the Company; and
-- this Interim Report 2021 includes a fair review of the information required by:
- DTR 4.2.7R, being an indication of: important events that have
occurred during the first six months of the financial year ending
31 December 2021 and their impact on the condensed set of financial
statements; and a description of the principal risks and
uncertainties for the remaining six months of the financial year;
and
- DTR 4.2.8R, being: related party transactions that have taken
place in the first six months of the financial year ending 31
December 2021, which have materially affected the financial
position or performance of HSBC during that period; and any changes
in the related parties transactions described in the Annual Report
and Accounts 2020 that could materially affect the financial
position or performance of HSBC during the first six months of the
financial year ending 31 December 2021.
On behalf of the Board
Mark E Tucker
Group Chairman
2 August 2021
u
1 Mark Tucker*, James Anthony Forese , Steven Guggenheimer , Irene Lee , José Antonio Meade Kuribreña , Eileen K Murray , David Nish , Noel Quinn, Ewen Stevenson, Jackson Tai and Pauline van der Meer Mohr .
*Non-executive Group Chairman Independent non-executive
Director
Independent review report to HSBC Holdings plc
Report on the interim condensed financial statements
Our conclusion
We have reviewed HSBC Holdings plc's interim condensed financial
statements (the 'interim financial statements') in the interim
report of HSBC Holdings plc and its subsidiaries (the 'Group') for
the six month period ended 30 June 2021 (the 'period').
Based on our review, nothing has come to our attention that
causes us to believe that the interim financial statements are not
prepared, in all material respects, in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial
Reporting', International Accounting Standard 34, 'Interim
Financial Reporting', as issued by the IASB, International
Accounting Standard 34 'Interim Financial Reporting' and as adopted
by the European Union, and the Disclosure Guidance and Transparency
Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
What we have reviewed
The interim financial statements comprise:
-- the consolidated balance sheet as at 30 June 2021;
-- the consolidated income statement and consolidated statement
of comprehensive income for the period then ended;
-- the consolidated statement of cash flows for the period then ended;
-- the consolidated statement of changes in equity for the period then ended; and
-- the notes to the interim financial statements and certain other information(1) .
The interim financial statements included in the interim report
have been prepared in accordance with UK adopted International
Accounting Standard 34, 'Interim Financial Reporting',
International Accounting Standard 34 'Interim Financial Reporting'
as issued by the IASB, International Accounting Standard 34
'Interim Financial Reporting' as adopted by the European Union, and
the Disclosure Guidance and Transparency Rules sourcebook of the
United Kingdom's Financial Conduct Authority.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The interim report of the Group, including the interim financial
statements, is the responsibility of, and has been approved by the
directors. The directors are responsible for preparing the interim
report of the Group in accordance with the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the interim report of the Group based on
our review. This report, including the conclusion, has been
prepared for and only for the company for the purpose of complying
with the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority and for no other
purpose. We do not, in giving this conclusion, accept or assume
responsibility for any other purpose or to any other person to whom
this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the interim
report of the Group and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London, United Kingdom
2 August 2021
1 Certain other information comprises the following tables: 'Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers including loan commitments and financial guarantees' and 'Distribution of financial instruments to which the impairment requirements of IFRS 9 are applied, by credit quality and stage allocation'.
Interim condensed financial
statements
Page
Consolidated income statement 105
----
Consolidated statement of comprehensive
income 106
----
Consolidated balance sheet 107
----
Consolidated statement of cash
flows 108
----
Consolidated statement of changes
in equity 109
---------------------------------------- ----
Consolidated income statement
Half-year to
30 Jun 30 Jun 31 Dec
2021 2020 2020
Notes* $m $m $m
----------------------------------------------------- ------ -------- -------- ----------
Net interest income 13,098 14,509 13,069
----------------------------------------------------- ------ -------- -------- --------
- interest income 17,960 23,000 18,756
----------------------------------------------------- ------
- interest expense (4,862) (8,491) (5,687)
----------------------------------------------------- ------ -------- -------- --------
Net fee income 2 6,674 5,926 5,948
----------------------------------------------------- ------ -------- -------- --------
- fee income 8,458 7,480 7,571
----------------------------------------------------- ------
- fee expense (1,784) (1,554) (1,623)
----------------------------------------------------- ------ -------- -------- --------
Net income from financial instruments held
for trading or managed on a fair value basis 4,184 5,768 3,814
----------------------------------------------------- ------ -------- -------- --------
Net income/(expense) from assets and liabilities
of insurance businesses, including related
derivatives, measured at fair value through
profit or loss 2,795 (1,290) 3,371
----------------------------------------------------- ------ -------- -------- --------
Change in fair value of designated debt and
related derivatives (67) 197 34
----------------------------------------------------- ------ -------- -------- --------
Changes in fair value of other financial instruments
mandatorily measured at fair value through
profit or loss 548 80 375
----------------------------------------------------- ------ -------- -------- --------
Gains less losses from financial investments 433 466 187
----------------------------------------------------- ------ -------- -------- --------
Net insurance premium income 5,663 5,020 5,073
----------------------------------------------------- ------ -------- -------- --------
Other operating income 155 471 56
----------------------------------------------------- ------ -------- -------- --------
Total operating income 33,483 31,147 31,927
----------------------------------------------------- ------ -------- -------- --------
Net insurance claims and benefits paid and
movement in liabilities to policyholders (7,932) (4,402) (8,243)
----------------------------------------------------- ------ -------- -------- --------
Net operating income before change in expected
credit losses and other credit impairment charges 25,551 26,745 23,684
----------------------------------------------------- ------ -------- -------- --------
Change in expected credit losses and other
credit impairment charges 719 (6,858) (1,959)
----------------------------------------------------- ------ -------- -------- --------
Net operating income 26,270 19,887 21,725
----------------------------------------------------- ------ -------- -------- --------
Employee compensation and benefits (9,610) (8,514) (9,562)
----------------------------------------------------- ------ -------- -------- --------
General and administrative expenses (5,675) (4,918) (6,197)
----------------------------------------------------- ------ -------- -------- --------
Depreciation and impairment of property, plant
and equipment and right-of-use assets (1,160) (1,209) (1,472)
----------------------------------------------------- ------ -------- -------- --------
Amortisation and impairment of intangible assets (642) (1,845) (674)
----------------------------------------------------- ------ -------- -------- --------
Goodwill impairment - (41) -
----------------------------------------------------- ------ -------- -------- --------
Total operating expenses (17,087) (16,527) (17,905)
----------------------------------------------------- ------ -------- -------- --------
Operating profit 9,183 3,360 3,820
----------------------------------------------------- ------ -------- -------- --------
Share of profit in associates and joint ventures 1,656 958 639
----------------------------------------------------- ------ -------- -------- --------
Profit before tax 10,839 4,318 4,459
----------------------------------------------------- ------ -------- -------- --------
Tax expense (2,417) (1,193) (1,485)
----------------------------------------------------- ------ -------- -------- --------
Profit for the period 8,422 3,125 2,974
----------------------------------------------------- ------ -------- -------- --------
Attributable to:
----------------------------------------------------- ------ -------- -------- ----------
- ordinary shareholders of the parent company 7,276 1,977 1,921
----------------------------------------------------- ------
- preference shareholders of the parent company 7 45 45
----------------------------------------------------- ------
- other equity holders 666 617 624
----------------------------------------------------- ------
- non-controlling interests 473 486 384
----------------------------------------------------- ------ -------- -------- --------
Profit for the period 8,422 3,125 2,974
----------------------------------------------------- ------ -------- -------- --------
$ $ $
----------------------------------------------------- ------ -------- -------- ----------
Basic earnings per ordinary share 4 0.36 0.10 0.10
----------------------------------------------------- ------ -------- -------- --------
Diluted earnings per ordinary share 4 0.36 0.10 0.09
----------------------------------------------------- ------ -------- -------- --------
* For Notes on the interim condensed financial statements, see page 105.
Consolidated statement of comprehensive income
Half-year to
30 Jun 30 Jun 31 Dec
2021 2020 2020
$m $m $m
----------------------------------------------------------- ------- ------- ---------
Profit for the period 8,422 3,125 2,974
----------------------------------------------------------- ------- ------- -------
Other comprehensive income/(expense)
----------------------------------------------------------- ------- ------- ---------
Items that will be reclassified subsequently to
profit or loss when specific conditions are met:
----------------------------------------------------------- ------- ------- ---------
Debt instruments at fair value through other comprehensive
income (1,368) 1,747 3
----------------------------------------------------------- ------- ------- -------
- fair value gains/(losses) (1,392) 2,654 293
-----------------------------------------------------------
- fair value gains transferred to the income statement
on disposal (375) (454) (214)
-----------------------------------------------------------
- expected credit recoveries/(losses) recognised
in the income statement (26) 109 (61)
-----------------------------------------------------------
- income taxes 425 (562) (15)
----------------------------------------------------------- ------- ------- -------
Cash flow hedges (238) 476 (5)
----------------------------------------------------------- ------- ------- -------
- fair value gains/(losses) 877 255 (412)
-----------------------------------------------------------
- fair value losses/(gains) reclassified to the
income statement (1,195) 364 405
-----------------------------------------------------------
- income taxes and other movements 80 (143) 2
----------------------------------------------------------- ------- ------- -------
Share of other comprehensive income/(expense) of
associates and joint ventures 104 (115) 42
----------------------------------------------------------- ------- ------- -------
- share for the period 104 (115) 42
-----------------------------------------------------------
Exchange differences (449) (4,552) 9,407
----------------------------------------------------------- ------- ------- -------
Items that will not be reclassified subsequently
to profit or loss:
----------------------------------------------------------- ------- ------- ---------
Remeasurement of defined benefit asset/(liability) (747) 1,182 (348)
----------------------------------------------------------- ------- ------- -------
- before income taxes (775) 1,703 (480)
-----------------------------------------------------------
- income taxes 28 (521) 132
----------------------------------------------------------- ------- ------- -------
Changes in fair value of financial liabilities
designated at fair value upon initial recognition
arising from changes in own credit risk 155 2,354 (2,187)
----------------------------------------------------------- ------- ------- -------
- before income taxes (2) 2,936 (2,746)
-----------------------------------------------------------
- income taxes 157 (582) 559
----------------------------------------------------------- ------- ------- -------
Equity instruments designated at fair value through
other comprehensive income (348) (123) 335
----------------------------------------------------------- ------- ------- -------
- fair value gains/(losses) (345) (122) 334
-----------------------------------------------------------
- income taxes (3) (1) 1
----------------------------------------------------------- ------- ------- -------
Effects of hyperinflation 166 72 121
----------------------------------------------------------- ------- ------- -------
Other comprehensive income/(expense) for the period,
net of tax (2,725) 1,041 7,368
----------------------------------------------------------- ------- ------- -------
Total comprehensive income for the period 5,697 4,166 10,342
----------------------------------------------------------- ------- ------- -------
Attributable to:
----------------------------------------------------------- ------- ------- ---------
- ordinary shareholders of the parent company 4,612 3,043 9,103
-----------------------------------------------------------
- preference shareholders of the parent company 7 45 45
-----------------------------------------------------------
- other equity holders 666 617 624
-----------------------------------------------------------
- non-controlling interests 412 461 570
----------------------------------------------------------- ------- ------- -------
Total comprehensive income for the period 5,697 4,166 10,342
----------------------------------------------------------- ------- ------- -------
Consolidated balance sheet
At
30 Jun 31 Dec
2021 2020
Notes* $m $m
------------------------------------------------------ ------ --------- -----------
Assets
------------------------------------------------------ ------ --------- -----------
Cash and balances at central banks 393,559 304,481
------------------------------------------------------ ------ --------- ---------
Items in the course of collection from other banks 9,406 4,094
------------------------------------------------------ ------ --------- ---------
Hong Kong Government certificates of indebtedness 41,880 40,420
------------------------------------------------------ ------ --------- ---------
Trading assets 260,250 231,990
------------------------------------------------------ ------ --------- ---------
Financial assets designated and otherwise mandatorily
measured at fair value through profit or loss 49,120 45,553
------------------------------------------------------ ------ --------- ---------
Derivatives 8 209,516 307,726
------------------------------------------------------ ------ --------- ---------
Loans and advances to banks 86,886 81,616
------------------------------------------------------ ------ --------- ---------
Loans and advances to customers 1,059,511 1,037,987
------------------------------------------------------ ------ --------- ---------
Reverse repurchase agreements - non-trading 201,714 230,628
------------------------------------------------------ ------ --------- ---------
Financial investments 9 434,576 490,693
------------------------------------------------------ ------ --------- ---------
Prepayments, accrued income and other assets 15 175,155 156,412
------------------------------------------------------ ------ --------- ---------
Current tax assets 405 954
------------------------------------------------------ ------ --------- ---------
Interests in associates and joint ventures 10 28,709 26,684
------------------------------------------------------ ------ --------- ---------
Goodwill and intangible assets 20,703 20,443
------------------------------------------------------ ------ --------- ---------
Deferred tax assets 4,615 4,483
------------------------------------------------------ ------ --------- ---------
Total assets 2,976,005 2,984,164
------------------------------------------------------ ------ --------- ---------
Liabilities and equity
------------------------------------------------------ ------ --------- -----------
Liabilities
------------------------------------------------------ ------ --------- -----------
Hong Kong currency notes in circulation 41,880 40,420
------------------------------------------------------ ------ --------- ---------
Deposits by banks 100,448 82,080
------------------------------------------------------ ------ --------- ---------
Customer accounts 1,669,091 1,642,780
------------------------------------------------------ ------ --------- ---------
Repurchase agreements - non-trading 112,798 111,901
------------------------------------------------------ ------ --------- ---------
Items in the course of transmission to other banks 15,100 4,343
------------------------------------------------------ ------ --------- ---------
Trading liabilities 89,637 75,266
------------------------------------------------------ ------ --------- ---------
Financial liabilities designated at fair value 151,686 157,439
------------------------------------------------------ ------ --------- ---------
Derivatives 8 200,156 303,001
------------------------------------------------------ ------ --------- ---------
Debt securities in issue 84,218 95,492
------------------------------------------------------ ------ --------- ---------
Accruals, deferred income and other liabilities 15 164,800 128,624
------------------------------------------------------ ------ --------- ---------
Current tax liabilities 929 690
------------------------------------------------------ ------ --------- ---------
Liabilities under insurance contracts 110,572 107,191
------------------------------------------------------ ------ --------- ---------
Provisions 11 2,814 3,678
------------------------------------------------------ ------ --------- ---------
Deferred tax liabilities 4,338 4,313
------------------------------------------------------ ------ --------- ---------
Subordinated liabilities 20,774 21,951
------------------------------------------------------ ------ --------- ---------
Total liabilities 2,769,241 2,779,169
------------------------------------------------------ ------ --------- ---------
Equity
------------------------------------------------------ ------ --------- -----------
Called up share capital 10,376 10,347
------------------------------------------------------ ------ --------- ---------
Share premium account 14,600 14,277
------------------------------------------------------ ------ --------- ---------
Other equity instruments 22,414 22,414
------------------------------------------------------ ------ --------- ---------
Other reserves 6,509 8,833
------------------------------------------------------ ------ --------- ---------
Retained earnings 144,319 140,572
------------------------------------------------------ ------ --------- ---------
Total shareholders' equity 198,218 196,443
------------------------------------------------------ ------ --------- ---------
Non-controlling interests 8,546 8,552
------------------------------------------------------ ------ --------- ---------
Total equity 206,764 204,995
------------------------------------------------------ ------ --------- ---------
Total liabilities and equity 2,976,005 2,984,164
------------------------------------------------------ ------ --------- ---------
* For Notes on the interim condensed financial statements, see page 105.
Consolidated statement of cash flows
Half-year to
---------------------------------
30 Jun 30 Jun 31 Dec
2021 2020 2020
$m $m $m
------------------------------------------------------- --------- --------- -----------
Profit before tax 10,839 4,318 4,459
------------------------------------------------------- --------- --------- ---------
Adjustments for non-cash items:
------------------------------------------------------- --------- --------- -----------
Depreciation, amortisation and impairment 1,802 3,095 2,146
------------------------------------------------------- --------- --------- ---------
Net gain from investing activities (485) (405) (136)
------------------------------------------------------- --------- --------- ---------
Share of profits in associates and joint ventures (1,656) (958) (639)
------------------------------------------------------- --------- --------- ---------
Change in expected credit losses gross of recoveries
and other credit impairment charges (484) 6,875 2,221
------------------------------------------------------- --------- --------- ---------
Provisions including pensions 301 277 887
------------------------------------------------------- --------- --------- ---------
Share-based payment expense 254 195 238
------------------------------------------------------- --------- --------- ---------
Other non-cash items included in profit before
tax 205 (718) (188)
------------------------------------------------------- --------- --------- ---------
Change in operating assets (3,811) 11,185 (23,788)
------------------------------------------------------- --------- --------- ---------
Change in operating liabilities 49,015 134,734 68,164
------------------------------------------------------- --------- --------- ---------
Elimination of exchange differences(1) 5,212 3,775 (29,524)
------------------------------------------------------- --------- --------- ---------
Dividends received from associates 10 120 641
------------------------------------------------------- --------- --------- ---------
Contributions paid to defined benefit plans (342) (335) (160)
------------------------------------------------------- --------- --------- ---------
Tax paid (997) (2,373) (1,886)
------------------------------------------------------- --------- --------- ---------
Net cash from operating activities 59,863 159,785 22,435
------------------------------------------------------- --------- --------- ---------
Purchase of financial investments (263,198) (271,830) (224,839)
------------------------------------------------------- --------- --------- ---------
Proceeds from the sale and maturity of financial
investments 298,596 225,733 251,257
------------------------------------------------------- --------- --------- ---------
Net cash flows from the purchase and sale of property,
plant and equipment (375) (447) (999)
------------------------------------------------------- --------- --------- ---------
Net cash flows from purchase of customer and loan
portfolios 1,063 244 1,118
------------------------------------------------------- --------- --------- ---------
Net investment in intangible assets (1,011) (957) (1,107)
------------------------------------------------------- --------- --------- ---------
Net cash flow on (purchase)/disposal of subsidiaries,
businesses, associates and joint ventures (84) (409) (194)
------------------------------------------------------- --------- --------- ---------
Net cash from investing activities 34,991 (47,666) 25,236
------------------------------------------------------- --------- --------- ---------
Issue of ordinary share capital and other equity
instruments 1,996 - 1,497
Net sales/(purchases) of own shares for market-making
and investment purposes 1 (48) (133)
Redemption of preference shares and other equity
instruments (3,450) (398) -
------------------------------------------------------- --------- --------- ---------
Subordinated loan capital repaid (852) (1,538) (2,000)
------------------------------------------------------- --------- --------- ---------
Dividends paid to shareholders of the parent company
and non-controlling interests (4,121) (1,204) (819)
------------------------------------------------------- --------- --------- ---------
Net cash from financing activities (6,426) (3,188) (1,455)
------------------------------------------------------- --------- --------- ---------
Net increase/(decrease) in cash and cash equivalents 88,428 108,931 46,216
------------------------------------------------------- --------- --------- ---------
Cash and cash equivalents at the beginning of the
period 468,323 293,742 395,218
------------------------------------------------------- --------- --------- ---------
Exchange differences in respect of cash and cash
equivalents (4,818) (7,455) 26,889
------------------------------------------------------- --------- --------- ---------
Cash and cash equivalents at the end of the period 551,933 395,218 468,323
------------------------------------------------------- --------- --------- ---------
Interest received was $19,761m (1H20: $25,159m; 2H20: $20,419m),
interest paid was $6,552m (1H20: $10,573m; 2H20: $7,167m) and
dividends received (excluding dividends received from associates,
which are presented separately above) were $801m (1H20: $447m;
2H20: $711m).
1 Adjustments 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.
Consolidated statement of changes in equity
Other reserves
---------------------------------------
Called
up
share
capital Financial Cash Merger
and Other assets flow Foreign and Total Non-
share equity Retained at FVOCI hedging exchange other share-holders' controlling Total
premium instru-ments earnings reserve reserve reserve reserves equity interests equity
$m $m $m $m $m $m $m $m $m $m
At 1 Jan 2021 24,624 22,414 140,572 1,816 457 (20,375) 26,935 196,443 8,552 204,995
------------------------------------------------------------ ------- ------------ -------- ---------- ------- -------- -------- -------------- ----------- -------
Profit for the period - - 7,949 - - - - 7,949 473 8,422
------------------------------------------------------------ ------- ------------ -------- ---------- ------- -------- -------- -------------- ----------- -------
Other comprehensive
income (net of tax) - - (337) (1,629) (234) (464) - (2,664) (61) (2,725)
------------------------------------------------------------ ------- ------------ -------- ---------- ------- -------- -------- -------------- ----------- -------
* debt instruments at fair value through other
comprehensive income - - - (1,351) - - - (1,351) (17) (1,368)
------------------------------------------------------------
* equity instruments designated at fair value through
other comprehensive income - - - (278) - - - (278) (70) (348)
------------------------------------------------------------
- cash flow hedges - - - - (234) - - (234) (4) (238)
------------------------------------------------------------
* changes in fair value of financial liabilities
designated at fair value upon initial recognition
arising from changes in own credit risk - - 155 - - - - 155 - 155
------------------------------------------------------------
* remeasurement of defined benefit asset/liability - - (762) - - - - (762) 15 (747)
------------------------------------------------------------
* share of other comprehensive income of associates and
joint ventures - - 104 - - - - 104 - 104
------------------------------------------------------------
- effects of hyperinflation - - 166 - - - - 166 - 166
------------------------------------------------------------
- exchange differences - - - - - (464) - (464) 15 (449)
------------------------------------------------------------ ------- ------------ -------- ---------- ------- -------- -------- -------------- ----------- -------
Total comprehensive
income for the period - - 7,612 (1,629) (234) (464) - 5,285 412 5,697
------------------------------------------------------------ ------- ------------ -------- ---------- ------- -------- -------- -------------- ----------- -------
Shares issued under
employee remuneration
and share plans 352 - (335) - - - - 17 - 17
Capital securities
issued(1) - 2,000 (4) - - - - 1,996 - 1,996
------------------------------------------------------------ ------- ------------ -------- ---------- ------- -------- -------- -------------- ----------- -------
Dividends to shareholders - - (3,732) - - - - (3,732) (389) (4,121)
------------------------------------------------------------ ------- ------------ -------- ---------- ------- -------- -------- -------------- ----------- -------
Redemption of securities(2) - (2,000) - - - - - (2,000) - (2,000)
------------------------------------------------------------ ------- ------------ -------- ---------- ------- -------- -------- -------------- ----------- -------
Cost of share-based
payment arrangements - - 254 - - - - 254 - 254
------------------------------------------------------------ ------- ------------ -------- ---------- ------- -------- -------- -------------- ----------- -------
Other movements - - (48) 3 - - - (45) (29) (74)
------------------------------------------------------------ ------- ------------ -------- ---------- ------- -------- -------- -------------- ----------- -------
At 30 Jun 2021 24,976 22,414 144,319 190 223 (20,839) 26,935 198,218 8,546 206,764
------------------------------------------------------------ ------- ------------ -------- ---------- ------- -------- -------- -------------- ----------- -------
At 1 Jan 2020 24,278 20,871 136,679 (108) (2) (25,133) 27,370 183,955 8,713 192,668
------------------------------------------------------------ ------- ------------ -------- ---------- ------- -------- -------- -------------- ----------- -------
Profit for the period - - 2,639 - - - - 2,639 486 3,125
------------------------------------------------------------ ------- ------------ -------- ---------- ------- -------- -------- -------------- ----------- -------
Other comprehensive
income (net of tax) - - 3,506 1,654 465 (4,559) - 1,066 (25) 1,041
------------------------------------------------------------ ------- ------------ -------- ---------- ------- -------- -------- -------------- ----------- -------
* debt instruments at fair value through other
comprehensive income - - - 1,735 - - - 1,735 12 1,747
------------------------------------------------------------
* equity instruments designated at fair value through
other comprehensive income - - - (81) - - - (81) (42) (123)
------------------------------------------------------------
- cash flow hedges - - - - 465 - - 465 11 476
------------------------------------------------------------
* changes in fair value of financial liabilities
designated at fair value upon initial recognition
arising from changes in own credit risk - - 2,354 - - - - 2,354 - 2,354
------------------------------------------------------------
* remeasurement of defined benefit asset/liability - - 1,195 - - - - 1,195 (13) 1,182
------------------------------------------------------------
* share of other comprehensive income of associates and
joint ventures - - (115) - - - - (115) - (115)
------------------------------------------------------------
- effects of hyperinflation - - 72 - - - - 72 - 72
------------------------------------------------------------
- exchange differences - - - - - (4,559) - (4,559) 7 (4,552)
------------------------------------------------------------ ------- ------------ -------- ---------- ------- -------- -------- -------------- ----------- -------
Total comprehensive
income for the period - - 6,145 1,654 465 (4,559) - 3,705 461 4,166
------------------------------------------------------------ ------- ------------ -------- ---------- ------- -------- -------- -------------- ----------- -------
Shares issued under
employee remuneration
and share plans 336 - (329) - - - - 7 - 7
Dividends to shareholders - - (662) - - - - (662) (542) (1,204)
------------------------------------------------------------ ------- ------------ -------- ---------- ------- -------- -------- -------------- ----------- -------
Cost of share-based
payment arrangements - - 195 - - - - 195 - 195
------------------------------------------------------------ ------- ------------ -------- ---------- ------- -------- -------- -------------- ----------- -------
Other movements - 43 (219) 12 - - - (164) (447) (611)
------------------------------------------------------------ ------- ------------ -------- ---------- ------- -------- -------- -------------- ----------- -------
At 30 Jun 2020 24,614 20,914 141,809 1,558 463 (29,692) 27,370 187,036 8,185 195,221
------------------------------------------------------------ ------- ------------ -------- ---------- ------- -------- -------- -------------- ----------- -------
Consolidated statement of changes in equity (continued)
Other reserves
--------------------------------------
Called
up
share
capital Other Financial Cash Merger Total
and equity assets flow Foreign and share- Non-
share instru- Retained at FVOCI hedging exchange other holders' controlling Total
premium ments earnings reserve reserve reserve reserves equity interests equity
$m $m $m $m $m $m $m $m $m $m
------------------------------------------------------------ ------- ------- -------- --------- ------- -------- -------- -------- ----------- ---------
At 1 Jul 2020 24,614 20,914 141,809 1,558 463 (29,692) 27,370 187,036 8,185 195,221
------------------------------------------------------------ ------- ------- -------- --------- ------- -------- -------- -------- ----------- -------
Profit for the period - - 2,590 - - - - 2,590 384 2,974
------------------------------------------------------------ ------- ------- -------- --------- ------- -------- -------- -------- ----------- -------
Other comprehensive
income
(net of tax) - - (2,388) 259 (6) 9,317 - 7,182 186 7,368
------------------------------------------------------------ ------- ------- -------- --------- ------- -------- -------- -------- ----------- -------
* debt instruments at fair value through other
comprehensive income - - - 11 - - - 11 (8) 3
------------------------------------------------------------
* equity instruments designated at fair value through
other comprehensive income - - - 248 - - - 248 87 335
------------------------------------------------------------
- cash flow hedges - - - - (6) - - (6) 1 (5)
------------------------------------------------------------
* changes in fair value of financial liabilities
designated at fair value upon initial recognition
arising from changes in own credit risk - - (2,187) - - - - (2,187) - (2,187)
------------------------------------------------------------
* remeasurement of defined benefit asset/liability - - (364) - - - - (364) 16 (348)
------------------------------------------------------------
* share of other comprehensive income of associates and
joint ventures - - 42 - - - - 42 - 42
- effects of hyperinflation - - 121 - - - - 121 - 121
------------------------------------------------------------
- exchange differences - - - - - 9,317 - 9,317 90 9,407
------------------------------------------------------------ ------- ------- -------- --------- ------- -------- -------- -------- ----------- -------
Total comprehensive
income for the period - - 202 259 (6) 9,317 - 9,772 570 10,342
------------------------------------------------------------ ------- ------- -------- --------- ------- -------- -------- -------- ----------- -------
Shares issued under
employee remuneration
and share plans 10 - (10) - - - - - - -
Capital securities
issued(1) - 1,500 (3) - - - - 1,497 - 1,497
------------------------------------------------------------ ------- ------- -------- --------- ------- -------- -------- -------- ----------- -------
Dividends to shareholders - - (669) - - - - (669) (150) (819)
------------------------------------------------------------ ------- ------- -------- --------- ------- -------- -------- -------- ----------- -------
Redemption of securities(2) - - (1,450) - - - - (1,450) - (1,450)
------------------------------------------------------------ ------- ------- -------- --------- ------- -------- -------- -------- ----------- -------
Transfers(3) - - 435 - - - (435) - - -
------------------------------------------------------------ ------- ------- -------- --------- ------- -------- -------- -------- ----------- -------
Cost of share-based
payment arrangements - - 239 - - - - 239 - 239
------------------------------------------------------------ ------- ------- -------- --------- ------- -------- -------- -------- ----------- -------
Other movements - - 19 (1) - - - 18 (53) (35)
------------------------------------------------------------ ------- ------- -------- --------- ------- -------- -------- -------- ----------- -------
At 31 Dec 2020 24,624 22,414 140,572 1,816 457 (20,375) 26,935 196,443 8,552 204,995
------------------------------------------------------------ ------- ------- -------- --------- ------- -------- -------- -------- ----------- -------
1 During 2021, HSBC Holdings issued $2,000m of Additional Tier1
instruments on which there were $4m of external issue costs. In
2020, HSBC Holdings issued $1,500m of perpetual subordinated
contingent convertible securities.
2 During 2021, HSBC Holdings redeemed $2,000m 6.875% perpetual
subordinated contingent convertible securities. In 2020, HSBC
Holdings called and later redeemed $1,450m 6.20% non-cumulative US
dollar preference shares.
3 Permitted transfers from the merger reserve to retained
earnings were made when the investment in HSBC Overseas Holdings
(UK) Limited was previously impaired. In 2020, an additional
impairment of $435m was recognised and a permitted transfer of this
amount was made from the merger reserve to retained earnings.
Notes on the interim condensed financial statements
Page Page
Basis of preparation and significant Interests in associates and
1 accounting policies 111 10 joint ventures 123
------------------------------------ ---- ----------------------------------- ----
2 Net fee income 112 11 Provisions 126
------------------------------------ ---- ----------------------------------- ----
Contingent liabilities, contractual
3 Dividends 112 12 commitments and guarantees 126
------------------------------------ ---- ----------------------------------- ----
Legal proceedings and regulatory
4 Earnings per share 113 13 matters 127
------------------------------------ ---- ----------------------------------- ----
5 Segmental analysis 113 14 Transactions with related parties 130
------------------------------------ ---- ----------------------------------- ----
Fair values of financial instruments
6 carried at fair value 117 15 Business disposals 130
------------------------------------ ---- ----------------------------------- ----
Fair values of financial instruments Events after the balance sheet
7 not carried at fair value 121 16 date 130
------------------------------------ ---- ----------------------------------- ----
Interim Report 2021 and statutory
8 Derivatives 122 17 accounts 130
------------------------------------ ---- ----------------------------------- ----
9 Financial investments 123
------------------------------------ ----
1 Basis of preparation and significant accounting policies
--------------------------------------------------------
(a) Compliance with International Financial Reporting Standards
Our interim condensed financial statements have been prepared on
the basis of the policies set out in the 2020 annual financial
statements and in accordance with UK adopted IAS 34 'Interim
Financial Reporting', IAS 34 'Interim Financial Reporting' as
issued by the International Accounting Standards Board ('IASB'),
IAS 34 'Interim Financial Reporting' as adopted by the EU and the
Disclosure Guidance and Transparency Rules sourcebook of the UK's
Financial Conduct Authority. Therefore, they include an explanation
of events and transactions that are significant to an understanding
of the changes in HSBC's financial position and performance since
the end of 2020. These financial statements should be read in
conjunction with the Annual Report and Accounts 2020, which were
prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006 and
international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union,
and International Financial Reporting Standards ('IFRSs') as issued
by the IASB, including interpretations issued by the IFRS
Interpretations Committee.
At 30 June 2021, there were no unendorsed standards effective
for the half-year to 30 June 2021 affecting these financial
statements, and there was no difference between IFRSs adopted by
the UK, IFRSs as adopted by the EU and IFRSs issued by the IASB in
terms of their application to HSBC.
The financial statements for HSBC for the year ended 31 December
2021 will be prepared in accordance with IFRS as adopted by the UK,
international financial reporting standards adopted by the EU and
IFRSs as issued by the IASB, including interpretations issued by
the IFRS Interpretations Committee.
Standards applied during the half-year to 30 June 2021
There were no new standards or amendments to standards that had
an effect on these interim condensed financial statements.
(b) Use of estimates and judgements
Management believes that our critical accounting estimates and
judgements are those that relate to impairment of amortised cost
and FVOCI debt financial assets, the valuation of financial
instruments, deferred tax assets, provisions for liabilities,
defined benefit obligations, interests in associates, impairment of
non-financial assets and post-employment benefits. There were no
changes in the current period to the critical accounting estimates
and judgements applied in 2020, which are stated on pages 77 and
289 of the Annual Report and Accounts 2020.
(c) Composition of the Group
There were no material changes in the composition of the Group
in the half-year to 30 June 2021. For further details of future
business disposals, see Note 15 'Business disposals'.
(d) Future accounting developments
IFRS 17 'Insurance Contracts' was issued in May 2017, with
amendments to the standard issued in June 2020. It has not been
adopted for use in the UK or in the EU. The standard sets out the
requirements that an entity should apply in accounting for
insurance contracts it issues and reinsurance contracts it holds.
Following the amendments, IFRS 17 is effective from 1 January 2023.
The Group is in the process of implementing IFRS 17. Industry
practice and interpretation of the standard are still developing.
Therefore, the likely impact of its implementation remains
uncertain. However, compared with the Group's current accounting
policy for insurance, there will be no PVIF asset recognised;
rather the estimated future profit will be included in the
measurement of the insurance contract liability as the contractual
service margin and gradually recognised in revenue as services are
provided over the duration of the insurance contract.
(e) Going concern
The financial statements are prepared on a going concern basis,
as the Directors are satisfied that the Group and parent company
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, capital requirements and capital resources. These
considerations include stressed scenarios that reflect the
continuing uncertainty that the global Covid-19 pandemic has had on
HSBC's operations, as well as considering potential impacts from
other top and emerging risks, and the related impact on
profitability, capital and liquidity.
(f) Accounting policies
The accounting policies that we applied for these interim
condensed consolidated financial statements are consistent with
those described on pages 288 to 299 of the Annual Report and
Accounts 2020, as are the methods of computation.
2 Net fee income
--------------
Half-year to
30 Jun 30 Jun 31 Dec
2021 2020 2020
$m $m $m
---------------------------------- ------- ------- ---------
Net fee income by product
---------------------------------- ------- ------- ---------
Funds under management 1,304 1,113 1,176
---------------------------------- ------- ------- -------
Cards 1,035 954 995
---------------------------------- ------- ------- -------
Broking income 895 743 796
---------------------------------- ------- ------- -------
Credit facilities 827 726 733
---------------------------------- ------- ------- -------
Account services 714 649 644
---------------------------------- ------- ------- -------
Unit trusts 603 455 444
---------------------------------- ------- ------- -------
Underwriting 576 552 463
---------------------------------- ------- ------- -------
Global custody 500 446 488
---------------------------------- ------- ------- -------
Remittances 361 325 352
---------------------------------- ------- ------- -------
Imports/exports 300 288 289
---------------------------------- ------- ------- -------
Insurance agency commission 176 171 154
---------------------------------- ------- ------- -------
Other 1,167 1,058 1,037
---------------------------------- ------- ------- -------
Fee income 8,458 7,480 7,571
---------------------------------- ------- ------- -------
Less: fee expense (1,784) (1,554) (1,623)
---------------------------------- ------- ------- -------
Net fee income 6,674 5,926 5,948
---------------------------------- ------- ------- -------
Net fee income by global business
---------------------------------- ------- ------- ---------
Wealth and Personal Banking 3,042 2,691 2,717
---------------------------------- ------- ------- -------
Commercial Banking 1,786 1,630 1,595
---------------------------------- ------- ------- -------
Global Banking and Markets 1,857 1,608 1,659
---------------------------------- ------- ------- -------
Corporate Centre (11) (3) (23)
---------------------------------- ------- ------- -------
3 Dividends
---------
On 2 August 2021, the Directors approved an interim dividend for
the 2021 half-year of $0.07 per ordinary share in respect of the
financial year ending 31 December 2021. This distribution amounts
to approximately $1,430m and will be payable on 30 September 2021.
No liability is recognised in the financial statements in respect
of these dividends.
Dividends paid to shareholders of HSBC Holdings plc
Half-year to
--------------------------------------------------------------------------------
30 Jun 2021 30 Jun 2020 31 Dec 2020
Per Total Settled Per Total Settled Per Total Settled
share in scrip share in scrip share in scrip
$ $m $m $ $m $m $ $m $m
-------------------- ------ ----- --------- ------- ----- --------- ------- ----- -----------
Dividends paid on
ordinary shares
-------------------- ------ ----- --------- ------- ----- --------- ------- ----- -----------
In respect of
previous
year:
-------------------- ------ ----- --------- ------- ----- --------- ------- ----- -----------
- fourth interim
dividend 0.15 3,059 - - - - - - -
-------------------- ------ ----- --------- ------- ----- --------- ------- ----- ---------
In respect of
current
year:
-------------------- ------ ----- --------- ------- ----- --------- ------- ----- -----------
- first interim - - - - - - - - -
dividend
-------------------- ------ ----- --------- ------- ----- --------- ------- ----- ---------
- second interim - - - - - - - - -
dividend
-------------------- ------ ----- --------- ------- ----- --------- ------- ----- ---------
- third interim - - - - - - - - -
dividend
-------------------- ------ ----- --------- ------- ----- --------- ------- ----- ---------
Total 0.15 3,059 - - - - - - -
-------------------- ------ ----- --------- ------- ----- --------- ------- ----- ---------
Total dividends on
preference shares
classified as
equity
(paid quarterly)(1) 4.99 7 31.00 45 31.00 45
-------------------- ------ ----- --------- ------- ----- --------- ------- ----- -----------
Total coupons on
capital
securities
classified
as equity 666 617 624
-------------------- ------ ----- --------- ------- ----- --------- ------- ----- -----------
Dividends to
shareholders 3,732 662 669
-------------------- ------ ----- --------- ------- ----- --------- ------- ----- -----------
1 HSBC Holdings called $1,450m 6.20% non-cumulative US dollar
preference shares on 10 December 2020. The security was redeemed
and cancelled on 13 January 2021.
Total coupons on capital securities classified as equity
Half-year to
------------------------
30 Jun 30 Jun 31 Dec
2021 2020 2020
First Per security $m $m $m
call
date
---------------------------------------------- --------- ------------ ------ ------ --------
Perpetual subordinated contingent convertible
securities(1)
---------------------------------------------- --------- ------------ ------ ------ --------
- $2,000m issued at 6.875%(2) Jun 2021 $68.750 69 69 69
---------------------------------------------- --------- ------------ ------ ------ ------
- $2,250m issued at 6.375% Sep 2024 $63.750 72 72 71
---------------------------------------------- --------- ------------ ------ ------ ------
- $2,450m issued at 6.375% Mar 2025 $63.750 78 78 78
---------------------------------------------- --------- ------------ ------ ------ ------
- $3,000m issued at 6.000% May 2027 $60.000 90 90 90
---------------------------------------------- --------- ------------ ------ ------ ------
- $2,350m issued at 6.250% Mar 2023 $62.500 73 73 74
---------------------------------------------- --------- ------------ ------ ------ ------
- $1,800m issued at 6.500% Mar 2028 $65.000 59 59 58
---------------------------------------------- --------- ------------ ------ ------ ------
- $1,500m issued at 4.600%(3) Dec 2030 $46.000 35 - -
---------------------------------------------- --------- ------------ ------ ------ ------
- $1,000m issued at 4.000%(4) Mar 2026 $40.000 - - -
---------------------------------------------- --------- ------------ ------ ------ ------
- $1,000m issued at 4.700%(5) Mar 2031 $47.000 - - -
---------------------------------------------- --------- ------------ ------ ------ ------
- EUR1,500m issued at 5.250% Sep 2022 EUR52.500 47 44 46
---------------------------------------------- --------- ------------ ------ ------ ------
- EUR1,000m issued at 6.000% Sep 2023 EUR60.000 34 33 34
---------------------------------------------- --------- ------------ ------ ------ ------
July
- EUR1,250m issued at 4.750% 2029 EUR47.500 36 33 34
---------------------------------------------- --------- ------------ ------ ------ ------
- GBP1,000m issued at 5.875% Sep 2026 GBP58.750 41 36 38
---------------------------------------------- --------- ------------ ------ ------ ------
- SGD1,000m issued at 4.700% Jun 2022 SGD47.000 18 17 18
---------------------------------------------- --------- ------------ ------ ------ ------
- SGD750m issued at 5.000% Sep 2023 SGD50.000 14 13 14
---------------------------------------------- --------- ------------ ------ ------ ------
Total 666 617 624
--------------------------------------------------------- ------------ ------ ------ ------
1 Discretionary coupons are paid twice a year on the perpetual
subordinated contingent convertible securities, in denominations of
1,000 per security in each security's issuance currency.
2 This security was called by HSBC Holdings on 15 April 2021 and
was redeemed and cancelled on 1 June 2021.
3 This security was issued by HSBC Holdings on 17 December 2020.
The first call date commences six calendar months prior to the
reset date of
17 June 2031.
4 This security was issued by HSBC Holdings on 9 March 2021. The
first call date commences six calendar months prior to the reset
date of 9 September 2026.
5 This security was issued by HSBC Holdings on 9 March 2021. The
first call date commences six calendar months prior to the reset
date of 9 September 2031.
1
4 Earnings per share
------------------
Basic earnings per ordinary share is calculated by dividing the
profit attributable to ordinary shareholders of the parent company
by the weighted average number of ordinary shares outstanding,
excluding own shares held. Diluted earnings per ordinary share is
calculated by dividing the basic earnings, which require no
adjustment for the effects of dilutive potential ordinary shares,
by the weighted average number of ordinary shares outstanding,
excluding own shares held, plus the weighted average number of
ordinary shares that would be issued on conversion of dilutive
potential ordinary shares.
Profit attributable to ordinary shareholders of the parent company
Half-year to
------------------------
30 Jun 30 Jun 31 Dec
2021 2020 2020
$m $m $m
---------------------------------------------------------- ------ ------ --------
Profit attributable to shareholders of the parent company 7,949 2,639 2,590
---------------------------------------------------------- ------ ------ ------
Dividend payable on preference shares classified as
equity (7) (45) (45)
---------------------------------------------------------- ------ ------ ------
Coupon payable on capital securities classified as
equity (666) (617) (624)
---------------------------------------------------------- ------ ------ ------
Profit attributable to ordinary shareholders of the
parent company 7,276 1,977 1,921
---------------------------------------------------------- ------ ------ ------
Basic and diluted earnings per share
Half-year to
------------------------------------------------------------------------------------
30 Jun 2021 30 Jun 2020 31 Dec 2020
Amount Amount Amount
Number per Number per Number per
Profit of shares share Profit of shares share Profit of shares share
$m (millions) $ $m (millions) $ $m (millions) $
---------------- ------ ---------- ------ ------ ---------- ------ ------ ---------- --------
Basic(1) 7,276 20,211 0.36 1,977 20,162 0.10 1,921 20,176 0.10
---------------- ------ ---------- ------ ------ ---------- ------ ------ ---------- ------
Effect of
dilutive
potential
ordinary shares 97 58 63
---------------- ------ ---------- ------ ------ ---------- ------ ------ ---------- --------
Diluted(1) 7,276 20,308 0.36 1,977 20,220 0.10 1,921 20,239 0.09
---------------- ------ ---------- ------ ------ ---------- ------ ------ ---------- ------
1 Weighted average number of ordinary shares outstanding (basic) or assuming dilution (diluted).
1
5 Segmental analysis
------------------
The Group Chief Executive, supported by the rest of the Group
Executive Committee ('GEC'), is considered the Chief Operating
Decision Maker ('CODM') for the purposes of identifying the Group's
reportable segments. Global business results are assessed by the
CODM on the basis of adjusted performance that removes the effects
of significant items and currency translation from reported
results. Therefore, we present these results on an adjusted basis
as required by IFRSs. The 2020 adjusted performance information is
presented on a constant currency basis. The income statements for
the half-years to 30 June 2020 and 31 December 2020 are converted
at the average rates of exchange for 2021, and the balance sheets
at 30 June 2020 and 31 December 2020 at the prevailing rates of
exchange on 30 June 2021.
Our operations are closely integrated and, accordingly, the
presentation of data includes internal allocations of certain items
of income and expense. These allocations include the costs of
certain support services and global functions to the extent that
they can be meaningfully attributed to global businesses. While
such allocations have been made on a systematic and consistent
basis, they necessarily involve a degree of subjectivity. Costs
that are not allocated to global businesses are included in
Corporate Centre.
Where relevant, income and expense amounts presented include the
results of inter-segment funding along with inter-company and
inter-business line transactions. All such transactions are
undertaken on arm's length terms. The intra-Group elimination items
for the global businesses are presented in Corporate Centre.
Our global businesses
We provide a comprehensive range of banking and related
financial services to our customers in our three global businesses.
The products and services offered to customers are organised by
these global businesses:
-- Wealth and Personal Banking ('WPB') provides a full range of
retail banking and wealth products to our customers from personal
banking to ultra high net worth individuals. Typically, customer
offerings include retail banking products, such as current and
savings accounts, mortgages and personal loans, credit cards, debit
cards and local and international payment services. We also provide
wealth management services, including insurance and investment
products, global asset management services, investment management
and Private Wealth Solutions for customers with more sophisticated
and international requirements.
-- Commercial Banking ('CMB') offers a broad range of products
and services to serve the needs of our commercial customers,
including small and medium-sized enterprises, mid-market
enterprises and corporates. These include credit and lending,
international trade and receivables finance, treasury management
and liquidity solutions (payments and cash management and
commercial cards), commercial insurance and investments. CMB also
offers customers access to products and services offered by other
global businesses, such as Global Banking and Markets, which
include foreign exchange products, raising capital on debt and
equity markets and advisory services.
-- Global Banking and Markets ('GBM') provides tailored
financial solutions to major government, corporate and
institutional clients and private investors worldwide. The
client-focused business lines deliver a full range of banking
capabilities, including financing, advisory and transaction
services, a markets business that provides services in credit,
rates, foreign exchange, equities, money markets and securities
services, and principal investment activities.
HSBC adjusted profit before tax and balance sheet data
Half-year to 30 Jun 2021
------------------------------------------------------------
Global
Wealth Banking
and Personal Commercial and Corporate
Banking Banking Markets Centre Total
$m $m $m $m $m
Net operating income/(expense) before
change in expected credit losses and
other credit impairment charges(1) 11,401 6,651 7,878 (133) 25,797
---------------------------------------------- ------------- ---------- --------- --------- ---------
- external 11,168 6,626 8,631 (628) 25,797
----------------------------------------------
- inter-segment 233 25 (753) 495 -
---------------------------------------------- ------------- ---------- --------- --------- ---------
of which: net interest income/(expense) 7,067 4,366 2,024 (378) 13,079
---------------------------------------------- ------------- ---------- --------- --------- ---------
Change in expected credit losses and
other credit impairment (charges)/recoveries 52 249 414 4 719
---------------------------------------------- ------------- ---------- --------- --------- ---------
Net operating income 11,453 6,900 8,292 (129) 26,516
---------------------------------------------- ------------- ---------- --------- --------- ---------
Total operating expenses (7,600) (3,525) (4,985) (112) (16,222)
Operating profit 3,853 3,375 3,307 (241) 10,294
---------------------------------------------- ------------- ---------- --------- --------- ---------
Share of profit in associates and
joint ventures 11 1 - 1,644 1,656
---------------------------------------------- ------------- ---------- --------- --------- ---------
Adjusted profit before tax 3,864 3,376 3,307 1,403 11,950
---------------------------------------------- ------------- ---------- --------- --------- ---------
% % % % %
---------------------------------------------- ------------- ---------- --------- --------- -----------
Share of HSBC's adjusted profit before
tax 32.3 28.3 27.7 11.7 100.0
---------------------------------------------- ------------- ---------- --------- --------- ---------
Adjusted cost efficiency ratio 66.7 53.0 63.3 (84.2) 62.9
---------------------------------------------- ------------- ---------- --------- --------- ---------
Adjusted balance sheet data $m $m $m $m $m
---------------------------------------------- ------------- ---------- --------- --------- -----------
Loans and advances to customers (net) 491,320 350,945 216,098 1,148 1,059,511
---------------------------------------------- ------------- ---------- --------- --------- ---------
Interests in associates and joint
ventures 478 15 128 28,088 28,709
---------------------------------------------- ------------- ---------- --------- --------- ---------
Total external assets 912,479 624,042 1,258,694 180,790 2,976,005
---------------------------------------------- ------------- ---------- --------- --------- ---------
Customer accounts 841,257 485,689 341,242 903 1,669,091
---------------------------------------------- ------------- ---------- --------- --------- ---------
HSBC adjusted profit before tax and balance sheet data (continued)
Half-year to 30 Jun 2020
------------------------------------------------------------
Global
Wealth Banking
and Personal Commercial and Corporate
Banking Banking Markets Centre Total
$m $m $m $m $m
Net operating income before change
in expected credit losses and other
credit impairment charges(1) 11,694 7,326 8,574 3 27,597
---------------------------------------- ------------- ---------- --------- --------- ---------
- external 10,071 7,742 10,511 (727) 27,597
----------------------------------------
- inter-segment 1,623 (416) (1,937) 730 -
---------------------------------------- ------------- ---------- --------- --------- ---------
of which: net interest income/(expense) 8,331 5,080 2,435 (804) 15,042
---------------------------------------- ------------- ---------- --------- --------- ---------
Change in expected credit losses and
other credit impairment charges (2,328) (3,751) (1,195) (13) (7,287)
---------------------------------------- ------------- ---------- --------- --------- ---------
Net operating income/(expense) 9,366 3,575 7,379 (10) 20,310
---------------------------------------- ------------- ---------- --------- --------- ---------
Total operating expenses (7,695) (3,457) (4,813) 260 (15,705)
---------------------------------------- ------------- ---------- --------- --------- ---------
Operating profit/(loss) 1,671 118 2,566 250 4,605
---------------------------------------- ------------- ---------- --------- --------- ---------
Share of profit in associates and
joint ventures (8) - - 1,057 1,049
---------------------------------------- ------------- ---------- --------- --------- ---------
Adjusted profit before tax 1,663 118 2,566 1,307 5,654
---------------------------------------- ------------- ---------- --------- --------- ---------
% % % % %
---------------------------------------- ------------- ---------- --------- --------- -----------
Share of HSBC's adjusted profit before
tax 29.4 2.1 45.4 23.1 100.0
---------------------------------------- ------------- ---------- --------- --------- ---------
Adjusted cost efficiency ratio 65.8 47.2 56.1 (8,666.7) 56.9
---------------------------------------- ------------- ---------- --------- --------- ---------
Adjusted balance sheet data $m $m $m $m $m
---------------------------------------- ------------- ---------- --------- --------- -----------
Loans and advances to customers (net) 456,263 362,094 254,126 1,365 1,073,848
---------------------------------------- ------------- ---------- --------- --------- ---------
Interests in associates and joint
ventures 428 15 140 25,659 26,242
---------------------------------------- ------------- ---------- --------- --------- ---------
Total external assets 856,599 579,865 1,472,925 173,932 3,083,321
---------------------------------------- ------------- ---------- --------- --------- ---------
Customer accounts 810,137 441,427 357,082 738 1,609,384
---------------------------------------- ------------- ---------- --------- --------- ---------
Half-year to 31 Dec 2020
Net operating income/(expense) before
change in expected credit losses and
other credit impairment charges(1) 11,019 6,489 7,323 (308) 24,523
---------------------------------------------- ------- ------- --------- ------- ---------
- external 10,534 6,468 8,257 (736) 24,523
----------------------------------------------
- inter-segment 485 21 (934) 428 -
---------------------------------------------- ------- ------- --------- ------- ---------
of which: net interest income/(expense) 7,231 4,545 2,184 (533) 13,427
---------------------------------------------- ------- ------- --------- ------- ---------
Change in expected credit losses and
other credit impairment (charges)/recoveries (685) (1,265) (95) 14 (2,031)
---------------------------------------------- ------- ------- --------- ------- ---------
Net operating income/(expense) 10,334 5,224 7,228 (294) 22,492
---------------------------------------------- ------- ------- --------- ------- ---------
Total operating expenses (7,871) (3,491) (4,916) (673) (16,951)
---------------------------------------------- ------- ------- --------- ------- ---------
Operating profit/(loss) 2,463 1,733 2,312 (967) 5,541
---------------------------------------------- ------- ------- --------- ------- ---------
Share of profit in associates and
joint ventures 15 (1) - 1,125 1,139
---------------------------------------------- ------- ------- --------- ------- ---------
Adjusted profit before tax 2,478 1,732 2,312 158 6,680
---------------------------------------------- ------- ------- --------- ------- ---------
% % % % %
---------------------------------------------- ------- ------- --------- ------- -----------
Share of HSBC's adjusted profit before
tax 37.1 25.9 34.6 2.4 100.0
---------------------------------------------- ------- ------- --------- ------- ---------
Adjusted cost efficiency ratio 71.4 53.8 67.1 (218.5) 69.1
---------------------------------------------- ------- ------- --------- ------- ---------
Adjusted balance sheet data $m $m $m $m $m
---------------------------------------------- ------- ------- --------- ------- -----------
Loans and advances to customers (net) 469,218 342,951 223,395 1,254 1,036,818
---------------------------------------------- ------- ------- --------- ------- ---------
Interests in associates and joint
ventures 446 14 141 26,261 26,862
---------------------------------------------- ------- ------- --------- ------- ---------
Total external assets 882,042 570,369 1,342,544 186,633 2,981,588
---------------------------------------------- ------- ------- --------- ------- ---------
Customer accounts 834,376 470,686 335,977 609 1,641,648
---------------------------------------------- ------- ------- --------- ------- ---------
1 Net operating income before change in expected credit losses
and other credit impairment charges, also referred to as
revenue.
Reported external net operating income is attributed to
countries and territories on the basis of the location of the
branch responsible for reporting the results or advancing the
funds:
Half-year to
------------------------
30 Jun 30 Jun 31 Dec
2021 2020 2020
$m $m $m
--------------------------------------------------------------- ------ ------ --------
Reported external net operating income by country/territory(1) 25,551 26,745 23,684
--------------------------------------------------------------- ------ ------ ------
* UK 5,610 4,166 4,997
---------------------------------------------------------------
* Hong Kong 7,476 8,703 7,080
---------------------------------------------------------------
* US 1,993 2,435 2,039
---------------------------------------------------------------
* France 1,228 697 1,056
---------------------------------------------------------------
* other countries 9,244 10,744 8,512
--------------------------------------------------------------- ------ ------ ------
1 Net operating income before change in expected credit losses
and other credit impairment charges, also referred to as
revenue.
Adjusted results reconciliation
Half-year to
-----------------------------------------------------------------------------------------------------------------------------
30 Jun 2021 30 Jun 2020 31 Dec 2020
Significant Currency Significant Currency Significant
Adjusted items Reported Adjusted translation items Reported Adjusted translation items Reported
$m $m $m $m $m $m $m $m $m $m $m
----------- -------- ----------- -------- -------- ----------- ----------- -------- -------- ----------- ----------- ----------
Revenue(1) 25,797 (246) 25,551 27,597 (1,117) 265 26,745 24,523 (630) (209) 23,684
----------- -------- ----------- -------- -------- ----------- ----------- -------- -------- ----------- ----------- --------
ECL 719 - 719 (7,287) 429 - (6,858) (2,031) 72 - (1,959)
----------- -------- ----------- -------- -------- ----------- ----------- -------- -------- ----------- ----------- --------
Operating
expenses (16,222) (865) (17,087) (15,705) 887 (1,709) (16,527) (16,951) 471 (1,425) (17,905)
----------- -------- ----------- -------- -------- ----------- ----------- -------- -------- ----------- ----------- --------
Share of
profit
in
associates
and
joint
ventures 1,656 - 1,656 1,049 (91) - 958 1,139 (38) (462) 639
----------- -------- ----------- -------- -------- ----------- ----------- -------- -------- ----------- ----------- --------
Profit
before tax 11,950 (1,111) 10,839 5,654 108 (1,444) 4,318 6,680 (125) (2,096) 4,459
----------- -------- ----------- -------- -------- ----------- ----------- -------- -------- ----------- ----------- --------
1 Net operating income before change in expected credit losses
and other credit impairment charges, also referred to as
revenue.
Adjusted balance sheet reconciliation
At
---------------------------------------------------
30 Jun 31 Dec 2020
2021
-------------
Reported Currency
and adjusted Adjusted translation Reported
$m $m $m $m
------------------------------------------- ------------- --------- ------------ -----------
Loans and advances to customers (net) 1,059,511 1,036,818 1,169 1,037,987
------------------------------------------- ------------- --------- ------------ ---------
Interests in associates and joint ventures 28,709 26,862 (178) 26,684
------------------------------------------- ------------- --------- ------------ ---------
Total external assets 2,976,005 2,981,588 2,576 2,984,164
------------------------------------------- ------------- --------- ------------ ---------
Customer accounts 1,669,091 1,641,648 1,132 1,642,780
------------------------------------------- ------------- --------- ------------ ---------
Adjusted profit reconciliation
Half-year to
---------------------------
30 Jun 30 Jun 31 Dec
2021 2020 2020
$m $m $m
Adjusted profit before tax 11,950 5,654 6,680
-------------------------------------------------------- ------- ------- -------
Significant items (1,111) (1,444) (2,096)
-------------------------------------------------------- ------- ------- -------
- customer redress programmes (revenue) 18 26 (47)
--------------------------------------------------------
- disposals, acquisitions and investment in new
businesses (revenue) - (8) (2)
--------------------------------------------------------
- fair value movements on financial instruments(1) (194) 299 (35)
--------------------------------------------------------
- restructuring and other related costs (revenue)(2) (70) (49) (121)
--------------------------------------------------------
- customer redress programmes (operating expenses) (17) (50) 104
--------------------------------------------------------
- impairment of goodwill and other intangible assets - (1,025) (65)
--------------------------------------------------------
- past service costs of guaranteed minimum pension
benefits equalisation - - (17)
--------------------------------------------------------
- restructuring and other related costs (operating
expenses)(3) (848) (505) (1,403)
--------------------------------------------------------
- settlements and provisions in connection with
legal and other regulatory matters - (5) (7)
--------------------------------------------------------
- impairment of goodwill (share of profit in associates
and joint ventures)(4) - - (462)
--------------------------------------------------------
- currency translation on significant items (127) (41)
-------------------------------------------------------- ------- ------- -------
Currency translation 108 (125)
-------------------------------------------------------- ------- ------- -------
Reported profit before tax 10,839 4,318 4,459
-------------------------------------------------------- ------- ------- -------
1 Includes fair value movements on non-qualifying hedges and
debt valuation adjustments on derivatives.
2 Comprises losses associated with the RWA reduction commitments
and gains relating to the business update in February 2020.
3 Includes impairment of software intangible assets of $173m in
the six months to 30 June 2020 and $197m for the impairment of
tangible assets in the six months to 31 December 2020.
4 During the six months to 31 December 2020, The Saudi British
Bank ('SABB'), an associate of HSBC, impaired the goodwill that
arose following the merger with Alawwal bank in 2019. HSBC's
post-tax share of the goodwill impairment was $462m.
6 Fair values of financial instruments carried at fair value
----------------------------------------------------------
The accounting policies, control framework and hierarchy used to
determine fair values at 30 June 2021 are consistent with those
applied for the Annual Report and Accounts 2020.
Financial instruments carried at fair value and bases of valuation
Valuation techniques
-------------------------------
Quoted Using With significant
market observable unobservable
price inputs inputs
Level Level Level
1 2 3 Total
Recurring fair value measurements $m $m $m $m
------------------------------------------------------ ------- ------------- ---------------- ---------
At 30 Jun 2021
------------------------------------------------------ ------- ------------- ---------------- ---------
Assets
------------------------------------------------------ ------- ------------- ---------------- ---------
Trading assets 186,338 71,403 2,509 260,250
------------------------------------------------------ ------- ------------- ---------------- -------
Financial assets designated and otherwise mandatorily
measured at fair value through profit or loss 20,468 15,664 12,988 49,120
------------------------------------------------------ ------- ------------- ---------------- -------
Derivatives 1,630 205,209 2,677 209,516
------------------------------------------------------ ------- ------------- ---------------- -------
Financial investments 253,593 93,166 3,243 350,002
------------------------------------------------------ ------- ------------- ---------------- -------
Liabilities
------------------------------------------------------ ------- ------------- ---------------- ---------
Trading liabilities 61,676 27,104 857 89,637
------------------------------------------------------ ------- ------------- ---------------- -------
Financial liabilities designated at fair value 1,365 143,084 7,237 151,686
------------------------------------------------------ ------- ------------- ---------------- -------
Derivatives 1,098 195,637 3,421 200,156
------------------------------------------------------ ------- ------------- ---------------- -------
At 31 Dec 2020
------------------------------------------------------ ------- ------------- ---------------- ---------
Assets
------------------------------------------------------ ------- ------------- ---------------- ---------
Trading assets 167,980 61,511 2,499 231,990
------------------------------------------------------ ------- ------------- ---------------- -------
Financial assets designated and otherwise mandatorily
measured at fair value through profit or loss 19,711 14,365 11,477 45,553
------------------------------------------------------ ------- ------------- ---------------- -------
Derivatives 2,602 302,454 2,670 307,726
------------------------------------------------------ ------- ------------- ---------------- -------
Financial investments 303,654 94,746 3,654 402,054
------------------------------------------------------ ------- ------------- ---------------- -------
Liabilities
------------------------------------------------------ ------- ------------- ---------------- ---------
Trading liabilities 53,290 21,814 162 75,266
------------------------------------------------------ ------- ------------- ---------------- -------
Financial liabilities designated at fair value 1,267 150,866 5,306 157,439
------------------------------------------------------ ------- ------------- ---------------- -------
Derivatives 1,788 297,025 4,188 303,001
------------------------------------------------------ ------- ------------- ---------------- -------
Transfers between Level 1 and Level 2 fair values
Assets Liabilities
Designated
and otherwise
mandatorily Designated
Financial Trading measured at Trading at fair
investments assets fair value Derivatives liabilities value Derivatives
$m $m $m $m $m $m $m
-------------- ------------ ------- ------------- ----------- ------------ ---------- -------------
At 30 Jun 2021
-------------- ------------ ------- ------------- ----------- ------------ ---------- -------------
Transfers from
Level
1 to Level 2 5,421 3,601 150 103 43 - 212
-------------- ------------ ------- ------------- ----------- ------------ ---------- -----------
Transfers from
Level
2 to Level 1 4,774 2,381 645 - 530 - -
-------------- ------------ ------- ------------- ----------- ------------ ---------- -----------
At 31 Dec 2020
-------------- ------------ ------- ------------- ----------- ------------ ---------- -------------
Transfers from
Level
1 to Level 2 4,514 3,891 245 - 155 7,414 -
-------------- ------------ ------- ------------- ----------- ------------ ---------- -----------
Transfers from
Level
2 to Level 1 7,764 5,517 328 1 433 - -
-------------- ------------ ------- ------------- ----------- ------------ ---------- -----------
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.
Fair value adjustments
We adopt the use of fair value adjustments when we take into
consideration additional factors not incorporated within the
valuation model that would otherwise be considered by a market
participant. We classify fair value adjustments as either
'risk-related' or 'model-related'. The majority of these
adjustments relate to GBM. Movements in the level of fair value
adjustments do not necessarily result in the recognition of profits
or losses within the income statement. For example, as models are
enhanced, fair value adjustments may no longer be required.
Similarly, fair value adjustments will decrease when the related
positions are unwound, but this may not result in profit or
loss.
Global Banking and Markets fair value adjustments
At
------------------------------------------
30 Jun 2021 31 Dec 2020
Corporate Corporate
GBM Centre GBM Centre
$m $m $m $m
----------------------------------------- -------- --------- -------- -----------
Type of adjustment
----------------------------------------- -------- --------- -------- -----------
Risk-related 922 23 1,170 28
----------------------------------------- -------- --------- -------- ---------
- bid-offer 445 - 514 -
-----------------------------------------
- uncertainty 68 1 106 1
-----------------------------------------
- credit valuation adjustment 287 22 445 27
-----------------------------------------
- debt valuation adjustment (100) - (120) -
-----------------------------------------
- funding fair value adjustment 220 - 204 -
-----------------------------------------
- other 2 - 21 -
----------------------------------------- -------- --------- -------- ---------
Model-related 87 - 74 -
----------------------------------------- -------- --------- -------- ---------
- model limitation 87 - 70 -
-----------------------------------------
- other - - 4 -
----------------------------------------- -------- --------- -------- ---------
Inception profit (Day 1 P&L reserves)(1) 120 - 104 -
----------------------------------------- -------- --------- -------- ---------
1,129 23 1,348 28
----------------------------------------- -------- --------- -------- ---------
1 See Note 8 on the interim condensed financial statements on page 116.
We continue to observe losses on the disposals of certain
uncollateralised over-the-counter ('OTC') derivatives as part of
our commitments to reduce RWAs in GBM, as set out in our business
update in February 2020. Based on our analysis, these losses are
not considered to give rise to an adjustment within the IFRS 13
'Fair Value Measurement' framework. We will continue to monitor and
analyse disposals as they occur.
The reduction in fair value adjustments was driven by increased
liquidity, lower volatility and an improved credit environment.
For further details of our risk-related and model-related
adjustments, see pages 315 and 316 of the Annual Report and
Accounts 2020.
Fair value valuation bases
Financial instruments measured at fair value using a valuation technique
with significant unobservable inputs - Level 3
Assets Liabilities
Designated
and
otherwise
mandatorily
measured at
fair value
through Designated
Financial Trading profit Trading at fair
investments assets or loss Derivatives Total liabilities value Derivatives Total
$m $m $m $m $m $m $m $m $m
--------------- ----------- ------- ----------- ----------- ------ ----------- ---------- ----------- --------
Private equity
including
strategic
investments 590 55 12,484 - 13,129 206 - - 206
--------------- ----------- ------- ----------- ----------- ------ ----------- ---------- ----------- ------
Asset-backed
securities 900 250 17 - 1,167 - - - -
--------------- ----------- ------- ----------- ----------- ------ ----------- ---------- ----------- ------
Loans held - - - - - - - - -
for
securitisation
--------------- ----------- ------- ----------- ----------- ------ ----------- ---------- ----------- ------
Structured
notes - - - - - - 7,237 - 7,237
--------------- ----------- ------- ----------- ----------- ------ ----------- ---------- ----------- ------
Derivatives
with monolines - - - 52 52 - - - -
--------------- ----------- ------- ----------- ----------- ------ ----------- ---------- ----------- ------
Other
derivatives - - - 2,625 2,625 - - 3,421 3,421
--------------- ----------- ------- ----------- ----------- ------ ----------- ---------- ----------- ------
Other
portfolios 1,753 2,204 487 - 4,444 651 - - 651
--------------- ----------- ------- ----------- ----------- ------ ----------- ---------- ----------- ------
At 30 Jun 2021 3,243 2,509 12,988 2,677 21,417 857 7,237 3,421 11,515
--------------- ----------- ------- ----------- ----------- ------ ----------- ---------- ----------- ------
Private equity
including
strategic
investments 930 4 10,971 - 11,905 4 - - 4
--------------- ----------- ------- ----------- ----------- ------ ----------- ---------- ----------- ------
Asset-backed
securities 1,286 523 25 - 1,834 - - - -
--------------- ----------- ------- ----------- ----------- ------ ----------- ---------- ----------- ------
Loans held - - - - - - - - -
for
securitisation
--------------- ----------- ------- ----------- ----------- ------ ----------- ---------- ----------- ------
Structured
notes - - - - - 29 5,301 - 5,330
--------------- ----------- ------- ----------- ----------- ------ ----------- ---------- ----------- ------
Derivatives
with monolines - - - 68 68 - - - -
--------------- ----------- ------- ----------- ----------- ------ ----------- ---------- ----------- ------
Other
derivatives - - - 2,602 2,602 - - 4,187 4,187
--------------- ----------- ------- ----------- ----------- ------ ----------- ---------- ----------- ------
Other
portfolios 1,438 1,972 481 - 3,891 129 5 1 135
--------------- ----------- ------- ----------- ----------- ------ ----------- ---------- ----------- ------
At 31 Dec 2020 3,654 2,499 11,477 2,670 20,300 162 5,306 4,188 9,656
--------------- ----------- ------- ----------- ----------- ------ ----------- ---------- ----------- ------
The basis for determining the fair value of the financial
instruments in the table above is explained on page 317 of the
Annual Report and Accounts 2020.
Reconciliation of fair value measurements in Level 3 of the fair
value hierarchy
Movement in Level 3 financial instruments
Assets Liabilities
Designated
and
otherwise
mandatorily
measured
at fair
value
through Designated
Financial Trading profit Trading at fair
investments assets or loss Derivatives liabilities value Derivatives
$m $m $m $m $m $m $m
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -------------
At 1 Jan 2021 3,654 2,499 11,477 2,670 162 5,306 4,188
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
Total gains/(losses) recognised
in profit or loss 2 (155) 1,038 195 15 (456) 466
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
* net income/(losses) from financial instruments held
for trading or managed on a fair value basis - (155) - 195 15 - 466
* changes in fair value of other financial instruments
mandatorily measured at fair value through profit or
loss - - 1,038 - - (456) -
-----------------------------------------------------------
* gains less losses from financial investments held at
fair value through other comprehensive income 2 - - - - - -
Total gains/(losses) recognised
in other comprehensive
income ('OCI')(1) (391) 23 (114) 23 (3) 2 29
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
* financial investments: fair value losses (360) - - - - - -
* exchange differences (31) 23 (114) 23 (3) 2 29
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
Purchases 390 1,094 1,631 - 482 - -
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
New issuances - - - - 24 2,725 -
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
Sales (214) (244) (499) - - - -
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
Settlements (177) (494) (436) (359) (8) (896) (1,537)
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
Transfers out (311) (512) (159) (126) (1) (339) (221)
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
Transfers in 290 298 50 274 186 895 496
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
At 30 Jun 2021 3,243 2,509 12,988 2,677 857 7,237 3,421
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
Unrealised gains/(losses)
recognised in profit or
loss relating to assets
and liabilities held at
30 Jun 2021 - (99) 885 175 2 106 (4)
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
* net income/(losses) from financial instruments held
for trading or managed on a fair value basis - (99) - 175 2 - (4)
* changes in fair value of other financial instruments
mandatorily measured at fair value through profit or
loss - - 885 - - 106 -
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
At 1 Jan 2020 3,218 4,979 9,476 2,136 53 5,016 2,302
----------------------------------------------------------- ----- ----- ------ ----- ---- ----- -----
Total gains/(losses) recognised
in profit or loss (13) (541) (106) 2,237 - (117) 2,105
----------------------------------------------------------- ----- ----- ------ ----- ---- ----- -----
* net income/(losses) from financial instruments held
for trading or managed on a fair value basis - (541) - 2,237 - - 2,105
* changes in fair value of other financial instruments
mandatorily measured at fair value through profit or
loss - - (106) - - (117) -
-----------------------------------------------------------
* gains less losses from financial investments held at
fair value through other comprehensive income (13) - - - - - -
-----------------------------------------------------------
Total losses recognised
in other comprehensive
income ('OCI')(1) (29) (171) (4) (147) (2) (78) (162)
----------------------------------------------------------- ----- ----- ------ ----- ---- ----- -----
* financial investments: fair value losses (19) - - - - - -
* exchange differences (10) (171) (4) (147) (2) (78) (162)
----------------------------------------------------------- ----- ----- ------ ----- ---- ----- -----
Purchases 610 199 1,594 - 63 - -
----------------------------------------------------------- ----- ----- ------ ----- ---- ----- -----
New issuances - - - - 2 1,091 -
----------------------------------------------------------- ----- ----- ------ ----- ---- ----- -----
Sales (271) (577) (424) - (1) - -
----------------------------------------------------------- ----- ----- ------ ----- ---- ----- -----
Settlements (401) (22) (170) (262) (12) (853) (307)
----------------------------------------------------------- ----- ----- ------ ----- ---- ----- -----
Transfers out (22) (797) (63) (139) (5) (275) (270)
----------------------------------------------------------- ----- ----- ------ ----- ---- ----- -----
Transfers in 247 795 101 30 7 224 57
----------------------------------------------------------- ----- ----- ------ ----- ---- ----- -----
At 30 Jun 2020 3,339 3,865 10,404 3,855 105 5,008 3,725
----------------------------------------------------------- ----- ----- ------ ----- ---- ----- -----
Unrealised gains/(losses)
recognised in profit or
loss relating to assets
and liabilities held at
30 Jun 2020 - (7) (140) 529 (3) 100 1,104
----------------------------------------------------------- ----- ----- ------ ----- ---- ----- -----
* net income/(losses) from financial instruments held
for trading or managed on a fair value basis - (7) - 529 (3) - 1,104
* changes in fair value of other financial instruments
mandatorily measured at fair value through profit or
loss - - (140) - - 100 -
----------------------------------------------------------- ----- ----- ------ ----- ---- ----- -----
Movement in Level 3 financial instruments (continued)
Assets Liabilities
Designated
and
otherwise
mandatorily
measured
at fair
value
through Designated
Financial Trading profit Trading at fair
investments assets or loss Derivatives liabilities value Derivatives
$m $m $m $m $m $m $m
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -------------
At 1 Jul 2020 3,339 3,865 10,404 3,855 105 5,008 3,725
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
Total gains recognised
in profit or loss 30 535 610 44 307 58 1,293
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
* net income from financial instruments held for
trading or managed on a fair value basis - 535 - 44 307 - 1,293
* changes in fair value of other financial instruments
mandatorily measured at fair value through profit or
loss - - 610 - - 58 -
-----------------------------------------------------------
* gains less losses from financial investments held at
fair value through other comprehensive income 30 - - - - - -
Total gains recognised
in other comprehensive
income ('OCI')(1) 423 286 290 290 19 282 331
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
- financial investments:
fair value gains 289 - - - - - -
- exchange differences 134 286 290 290 19 282 331
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
Purchases 61 488 2,107 - 3 - -
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
New issuances - - 1 - 4 785 -
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
Sales (403) (1,002) (1,618) - (259) - -
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
Settlements (129) (1,100) (265) (1,280) (14) (678) (1,155)
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
Transfers out (79) (993) (77) (426) (4) (502) (258)
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
Transfers in 412 420 25 187 1 353 252
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
At 31 Dec 2020 3,654 2,499 11,477 2,670 162 5,306 4,188
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
Unrealised gains/(losses)
recognised in profit or
loss relating to assets
and liabilities held at
31 Dec 2020 - (32) 412 707 1 (91) (1,621)
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
* net income/(losses) from financial instruments held
for trading or managed on a fair value basis - (32) - 707 1 - (1,621)
* changes in fair value of other financial instruments
mandatorily measured at fair value through profit or
loss - - 412 - - (91) -
----------------------------------------------------------- ----------- ------- ----------- ----------- ----------- ---------- -----------
1 Included in 'Financial investments: fair value gains/(losses)'
in the current year and 'Exchange differences' in the consolidated
statement of comprehensive income.
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.
Effect of changes in significant unobservable assumptions to
reasonably possible alternatives
The following table shows the sensitivity of Level 3 fair values
to reasonably possible alternative assumptions:
Sensitivity of fair values to reasonably possible alternative assumptions
Reflected in profit Reflected in OCI
or loss
Favourable Unfavourable Favourable Unfavourable
changes changes changes changes
$m $m $m $m
----------------------------------------------------- ---------- ------------ ----------- --------------
Derivatives, trading assets and trading
liabilities(1) 179 (197) - -
----------------------------------------------------- ---------- ------------ ----------- ------------
Financial assets and liabilities designated
and otherwise mandatorily measured at
fair value through profit or loss 795 (793) - -
----------------------------------------------------- ---------- ------------ ----------- ------------
Financial investments 24 (24) 105 (104)
----------------------------------------------------- ---------- ------------ ----------- ------------
At 30 Jun 2021 998 (1,014) 105 (104)
----------------------------------------------------- ---------- ------------ ----------- ------------
Derivatives, trading assets and trading
liabilities(1) 271 (268) - -
----------------------------------------------------- ---------- ------------ ----------- ------------
Financial assets and liabilities designated
and otherwise mandatorily measured at
fair value through profit or loss 625 (625) - -
----------------------------------------------------- ---------- ------------ ----------- ------------
Financial investments 28 (28) 101 (104)
----------------------------------------------------- ---------- ------------ ----------- ------------
At 30 Jun 2020 924 (921) 101 (104)
----------------------------------------------------- ---------- ------------ ----------- ------------
Derivatives, trading assets and trading
liabilities(1) 229 (244) - -
----------------------------------------------------- ---------- ------------ ----------- ------------
Financial assets and liabilities designated
and otherwise mandatorily measured at
fair value through profit or loss 644 (643) - -
----------------------------------------------------- ---------- ------------ ----------- ------------
Financial investments 35 (35) 110 (110)
----------------------------------------------------- ---------- ------------ ----------- ------------
At 31 Dec 2020 908 (922) 110 (110)
----------------------------------------------------- ---------- ------------ ----------- ------------
1 'Derivatives, trading assets and trading liabilities' is
presented as one category to reflect the manner in which these
financial instruments are risk-managed.
The sensitivity analysis aims to measure a range of fair values
consistent with the application of a 95% confidence interval.
Methodologies take account of the nature of the valuation technique
employed, as well as the availability and reliability of observable
proxy and historical data.
When the fair value of a financial instrument is affected by
more than one unobservable assumption, the table above reflects the
most favourable or the most unfavourable change from varying the
assumptions individually.
Key unobservable inputs to Level 3 financial instruments
The following table lists key unobservable inputs to Level 3
financial instruments and provides the range of those inputs at 30
June 2021. There has been no change to the key unobservable inputs
to Level 3 financial instruments and inter-relationships therein,
which are detailed on pages 320 and 321 of the Annual Report and
Accounts 2020.
Quantitative information about significant unobservable inputs in Level
3 valuations
Fair value 30 Jun 2021 31 Dec 2020
-------------------
Assets Liabilities Full range Full range
of inputs of inputs
------------------- -----------------
$m $m Key Lower Higher Lower Higher
Valuation unobservable
techniques inputs
----------------- ------ ----------- ------- ---------- ------- --------
Private equity
including
strategic See footnote
investments 13,129 206 See footnote 1 1
----------------- ------ ----------- -------------- -------------- ------- ---------- ------- --------
Asset-backed
securities 1,167 -
----------------- ------ ----------- -------------- -------------- ------- ---------- ------- --------
- collateralised
loan/debt Prepayment
obligation 80 - Market proxy rate - - 0% 9%
----------------- -------------- -------------- ------- ---------- ------- --------
Market proxy Bid quotes - 100 - 100
----------------- -------------- -------------- ------- ---------- ------- ------
- other ABSs 1,087 - Market proxy Bid quotes - 172 - 101
----------------- ------ ----------- -------------- -------------- ------- ---------- ------- ------
Loans held for - -
securitisation
----------------- ------ ----------- -------------- -------------- ------- ---------- ------- --------
Structured notes - 7,237
----------------- ------ ----------- -------------- -------------- ------- ---------- ------- --------
- equity-linked Model - Option Equity
notes - 6,067 model volatility 5% 124% 6% 115%
----------------- -------------- -------------- ------- ---------- ------- --------
Model - Option Equity
model correlation 7% 98% (4)% 88%
----------------- -------------- -------------- ------- ---------- ------- --------
Model - Option
- FX-linked notes - 634 model FX volatility 3% 36% 0% 36%
----------------- -------------- -------------- ------- ---------- ------- --------
- other - 536
----------------- ------ ----------- -------------- -------------- ------- ---------- ------- --------
Model -
Derivatives with Discounted
monolines 52 - cash flow Credit spread 2% 2% 2% 2%
----------------- ------ ----------- -------------- -------------- ------- ---------- ------- --------
Other derivatives 2,625 3,421
----------------- ------ ----------- -------------- -------------- ------- ---------- ------- --------
- interest rate
derivatives 1,199 999
----------------- ------ ----------- -------------- -------------- ------- ---------- ------- --------
Model -
securitisation Discounted Prepayment
swaps 335 462 cash flow rate 5% 10% 6% 6%
----------------- -------------- -------------- ------- ---------- ------- --------
long-dated Model - Option
swaptions 436 312 model IR volatility 6% 25% 6% 28%
----------------- -------------- -------------- ------- ---------- ------- --------
other 428 225
----------------- ------ ----------- -------------- -------------- ------- ---------- ------- --------
- FX derivatives 471 499
----------------- ------ ----------- -------------- -------------- ------- ---------- ------- --------
Model - Option
FX options 258 315 model FX volatility 1% 36% 0% 43%
----------------- -------------- -------------- ------- ---------- ------- --------
other 213 184
----------------- ------ ----------- -------------- -------------- ------- ---------- ------- --------
- equity
derivatives 885 1,813
----------------- ------ ----------- -------------- -------------- ------- ---------- ------- --------
long-dated
single Model - Option Equity
stock options 465 663 model volatility 2% 100% 0% 120%
----------------- -------------- -------------- ------- ---------- ------- --------
other 420 1,150
----------------- ------ ----------- -------------- -------------- ------- ---------- ------- --------
- credit
derivatives 70 110
----------------- ------ ----------- -------------- -------------- ------- ---------- ------- --------
other 70 110
----------------- ------ ----------- -------------- -------------- ------- ---------- ------- --------
Other portfolios 4,444 651
-------------- -------------- ------- ---------- ------- --------
Model -
- repurchase Discounted
agreements 707 600 cash flow IR curve 0% 5% 0% 5%
----------------- -------------- -------------- ------- ---------- ------- --------
- other(2) 3,737 51
----------------- ------ ----------- -------------- -------------- ------- ---------- ------- --------
At 30 Jun 2021 21,417 11,515
----------------- ------ ----------- -------------- -------------- ------- ---------- ------- --------
1 Given the bespoke nature of the analysis in respect of each
private equity holding, it is not practical to quote a range of key
unobservable inputs .
2 'Other' includes a range of smaller asset holdings.
7 Fair values of financial instruments not carried at fair value
--------------------------------------------------------------
The bases for measuring the fair values of loans and advances to
banks and customers, financial investments, deposits by banks,
customer accounts, debt securities in issue, subordinated
liabilities and non-trading repurchase and reverse repurchase
agreements are explained on page 322 of the Annual Report and
Accounts 2020.
Fair values of financial instruments not carried at fair value on the
balance sheet
At 30 Jun 2021 At 31 Dec 2020
Carrying Fair Carrying Fair
amount value amount value
$m $m $m $m
-------------------------------------------- --------- --------- --------- -----------
Assets
-------------------------------------------- --------- --------- --------- -----------
Loans and advances to banks 86,886 87,029 81,616 81,796
-------------------------------------------- --------- --------- --------- ---------
Loans and advances to customers 1,059,511 1,058,406 1,037,987 1,035,461
-------------------------------------------- --------- --------- --------- ---------
Reverse repurchase agreements - non-trading 201,714 201,694 230,628 230,602
-------------------------------------------- --------- --------- --------- ---------
Financial investments - at amortised cost 84,574 90,065 88,639 96,801
-------------------------------------------- --------- --------- --------- ---------
Liabilities
-------------------------------------------- --------- --------- --------- -----------
Deposits by banks 100,448 100,412 82,080 81,996
-------------------------------------------- --------- --------- --------- ---------
Customer accounts 1,669,091 1,669,483 1,642,780 1,643,131
-------------------------------------------- --------- --------- --------- ---------
Repurchase agreements - non-trading 112,798 112,797 111,901 111,901
-------------------------------------------- --------- --------- --------- ---------
Debt securities in issue 84,218 85,416 95,492 97,028
-------------------------------------------- --------- --------- --------- ---------
Subordinated liabilities 20,774 26,966 21,951 28,552
-------------------------------------------- --------- --------- --------- ---------
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.
8 Derivatives
-----------
Notional contract amounts and fair values of derivatives by product contract
type held by HSBC
Notional contract Fair value amount
amount
Assets and liabilities Assets Liabilities
Trading Hedging Trading Hedging Total Trading Hedging Total
$m $m $m $m $m $m $m $m
------------------ ------------- --------- ------- ------- -------- ------- ------- ----------
Foreign exchange 7,610,890 32,493 71,412 861 72,273 68,509 624 69,133
------------------ ------------- --------- ------- ------- -------- ------- ------- --------
Interest rate 15,063,325 129,369 175,722 1,723 177,445 167,385 1,360 168,745
------------------ ------------- --------- ------- ------- -------- ------- ------- --------
Equities 742,764 - 13,835 - 13,835 15,414 - 15,414
------------------ ------------- --------- ------- ------- -------- ------- ------- --------
Credit 218,085 - 2,259 - 2,259 3,083 - 3,083
------------------ ------------- --------- ------- ------- -------- ------- ------- --------
Commodity and
other 96,958 - 1,755 - 1,755 1,832 - 1,832
------------------ ------------- --------- ------- ------- -------- ------- ------- --------
Gross total fair
values 23,732,022 161,862 264,983 2,584 267,567 256,223 1,984 258,207
------------------ ------------- --------- ------- ------- -------- ------- ------- --------
Offset (58,051) (58,051)
------------------ ------------- --------- ------- ------- -------- ------- ------- --------
At 30 Jun 2021 23,732,022 161,862 264,983 2,584 209,516 256,223 1,984 200,156
------------------ ------------- --------- ------- ------- -------- ------- ------- --------
Foreign exchange 7,606,446 35,021 106,696 309 107,005 108,903 1,182 110,085
------------------ ------------- --------- ------- ------- -------- ------- ------- --------
Interest rate 15,240,867 157,436 249,204 1,914 251,118 236,594 2,887 239,481
------------------ ------------- --------- ------- ------- -------- ------- ------- --------
Equities 652,288 - 14,043 - 14,043 15,766 - 15,766
------------------ ------------- --------- ------- ------- -------- ------- ------- --------
Credit 269,401 - 2,590 - 2,590 3,682 - 3,682
------------------ ------------- --------- ------- ------- -------- ------- ------- --------
Commodity and
other 120,259 - 2,073 - 2,073 3,090 - 3,090
------------------ ------------- --------- ------- ------- -------- ------- ------- --------
Gross total fair
values 23,889,261 192,457 374,606 2,223 376,829 368,035 4,069 372,104
------------------ ------------- --------- ------- ------- -------- ------- ------- --------
Offset (69,103) (69,103)
------------------ ------------- --------- ------- ------- -------- ------- ------- --------
At 31 Dec 2020 23,889,261 192,457 374,606 2,223 307,726 368,035 4,069 303,001
------------------ ------------- --------- ------- ------- -------- ------- ------- --------
The notional contract amounts of derivatives held for trading
purposes and derivatives designated in qualifying hedge accounting
relationships indicate the nominal value of transactions
outstanding at the balance sheet date, not amounts at risk.
Derivative assets and liabilities decreased during 1H21, reflecting
changes in yield curves and the market environment.
Derivatives valued using models with unobservable inputs
The following table shows the difference between the fair value
at initial recognition, which is the transaction price, and the
value that would have been derived had valuation techniques used
for subsequent measurement been applied at initial recognition,
less subsequent releases.
Unamortised balance of derivatives valued using models with significant
unobservable inputs
Half-year to
30 Jun 30 Jun 31 Dec
2021 2020 2020
$m $m $m
---------------------------------------------------------- ------ ------ --------
Unamortised balance at beginning of period 104 73 89
---------------------------------------------------------- ------ ------ ------
Deferral on new transactions 187 106 126
---------------------------------------------------------- ------ ------ ------
Recognised in the income statement during the period (172) (87) (118)
---------------------------------------------------------- ------ ------ ------
- amortisation (89) (51) (65)
----------------------------------------------------------
- subsequent to unobservable inputs becoming observable (3) (1) (3)
----------------------------------------------------------
- maturity, termination or offsetting derivative (80) (35) (50)
---------------------------------------------------------- ------ ------ ------
Exchange differences 1 (3) 7
---------------------------------------------------------- ------ ------ ------
Unamortised balance at end of period(1) 120 89 104
---------------------------------------------------------- ------ ------ ------
1 This amount is yet to be recognised in the consolidated income statement.
Hedge accounting derivatives
The notional contract amounts of derivatives held for hedge
accounting purposes indicate the nominal value of transactions
outstanding at the balance sheet date, not amounts at risk.
Notional contract amounts of derivatives held for hedging purposes by
product type
At 30 Jun 2021 At 31 Dec 2020
Cash flow Fair value Cash flow Fair value
hedges hedges hedges hedges
$m $m $m $m
---------------------------- ----------- ---------- ---------- -------------
Foreign exchange 21,672 4 24,506 15
---------------------------- ----------- ---------- ---------- -----------
Interest rate 31,490 97,879 35,863 121,573
---------------------------- ----------- ---------- ---------- -----------
Total 53,162 97,883 60,369 121,588
---------------------------- ----------- ---------- ---------- -----------
The Group applies hedge accounting in respect of certain
consolidated net investments. Hedging is undertaken using forward
foreign exchange contracts or by financing with foreign currency
borrowings. At 30 June 2021, the notional contract values of
outstanding financial instruments designated as hedges of net
investments in foreign operations were $10,817m (31 December 2020:
$10,500m).
Interest rate benchmark reform: Amendments to IFRS 9 and IAS 39
'Financial Instruments'
The Group has cash flow and fair value hedge accounting
relationships that are exposed to different Ibors, predominantly US
dollar Libor, sterling Libor and Euribor, as well as overnight
rates subject to the market-wide benchmarks reform such as the
European Overnight Index Average rate ('Eonia'). Existing financial
instruments (such as derivatives, loans and bonds) designated in
relationships referencing these benchmarks are expected to
transition to 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 market-wide benchmarks reform.
The hedged items that are affected by the Phase 2 amendments to
the IASB's Ibor reform are 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 expected to be directly
affected by market-wide Ibor reform and in scope of the IASB Ibor
reform Phase 1 and Phase 2 amendments. The cross-currency swaps
designated in hedge accounting relationships and affected by Ibor
reform are not significant and have not been presented below:
Hedging instrument impacted by Ibor reform
Hedging instrument
-----------------------------------------------------------------
Impacted by Ibor reform
EUR GBP $ Other Total Not impacted
by Ibor Notional
reform amount(1)
$m $m $m $m $m $m $m
------------------ ------ ----- ------ ------ ------ ------------ ------------
Fair value hedges 9,615 311 25,511 7,024 42,461 55,418 97,879
------------------ ------ ----- ------ ------ ------ ------------ ----------
Cash flow hedges 8,662 829 4,201 5,630 19,322 12,168 31,490
------------------ ------ ----- ------ ------ ------ ------------ ----------
At 30 Jun 2021 18,277 1,140 29,712 12,654 61,783 67,586 129,369
------------------ ------ ----- ------ ------ ------ ------------ ----------
Fair value hedges 17,792 3,706 32,789 10,128 64,415 57,158 121,573
------------------ ------ ----- ------ ------ ------ ------------ ----------
Cash flow hedges 8,344 2,522 8,705 6,797 26,368 9,495 35,863
------------------ ------ ----- ------ ------ ------ ------------ ----------
At 31 Dec 2020 26,136 6,228 41,494 16,925 90,783 66,653 157,436
------------------ ------ ----- ------ ------ ------ ------------ ----------
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.
2 The notional contract amounts of euro interest rate
derivatives impacted by Ibor reform mainly comprise hedges with a
Euribor benchmark, which are 'Fair value hedges' of $8,793m (31
December 2020: $6,000m) and 'Cash flow hedges' of $8,662m (31
December 2020: $8,344m).
9 Financial investments
---------------------
Carrying amounts of financial investments
30 Jun 31 Dec
2021 2020
$m $m
Financial investments measured at fair value through other
comprehensive income 350,002 402,054
----------------------------------------------------------- ------- -------
- treasury and other eligible bills 101,297 118,163
-----------------------------------------------------------
- debt securities 246,728 281,467
-----------------------------------------------------------
- equity securities 1,895 2,337
-----------------------------------------------------------
- other instruments 82 87
----------------------------------------------------------- ------- -------
Debt instruments measured at amortised cost 84,574 88,639
----------------------------------------------------------- ------- -------
- treasury and other eligible bills 8,085 11,757
-----------------------------------------------------------
- debt securities 76,489 76,882
----------------------------------------------------------- ------- -------
At the end of the period 434,576 490,693
----------------------------------------------------------- ------- -------
10 Interests in associates and joint ventures
------------------------------------------
At 30 June 2021, the carrying amount of HSBC's interests in
associates and joint ventures was $28,709m (31 December 2020:
$26,684m).
Principal associates of HSBC
At
------------------------------------------
30 Jun 2021 31 Dec 2020
Carrying Fair Carrying Fair
amount value(1) amount value(1)
$m $m $m $m
------------------------------------ -------- --------- -------- -----------
Bank of Communications Co., Limited 22,857 9,484 21,248 7,457
------------------------------------ -------- --------- -------- ---------
The Saudi British Bank 4,405 5,350 4,215 4,197
------------------------------------ -------- --------- -------- ---------
1 Principal associates are listed on recognised stock exchanges.
The fair values are based on the quoted market prices of the shares
held (Level 1 in the fair value hierarchy).
Bank of Communications Co., Limited
The Group's investment in Bank of Communications Co., Limited
('BoCom') is classified as an associate. Significant influence in
BoCom was established with consideration of all relevant factors,
including representation on BoCom's Board of Directors and
participation in a Resource and Experience Sharing agreement
('RES'). Under the RES, HSBC staff have been seconded to assist in
the maintenance of BoCom's financial and operating policies.
Investments in associates are recognised using the equity method of
accounting in accordance with IAS 28 whereby the investment is
initially recognised at cost and adjusted thereafter for the
post-acquisition change in the Group's share of BoCom's net assets.
An impairment test is required if there is any indication of
impairment.
Impairment testing
At 30 June 2021, the fair value of the Group's investment in
BoCom had been below the carrying amount for approximately nine
years. As a result, the Group performed an impairment test on the
carrying amount, which confirmed that there was no impairment at 30
June 2021 as the recoverable amount as determined by a value-in-use
('VIU') calculation was higher than the carrying value.
At
------------------------------------------------
30 Jun 2021 31 Dec 2020
Carrying Fair Carrying Fair
VIU value value VIU value value
$bn $bn $bn $bn $bn $bn
------ ---- -------- ------ ---- -------- --------
BoCom 23.6 22.9 9.5 21.8 21.2 7.5
------ ---- -------- ------ ---- -------- ------
In future periods, the VIU may increase or decrease depending on
the effect of changes to model inputs. The main model inputs are
described below and are based on factors observed at period-end.
The factors that could result in a change in the VIU and an
impairment include a short-term underperformance by BoCom, a change
in regulatory capital requirements, or an increase in uncertainty
regarding the future performance of BoCom resulting in a downgrade
of the forecast of future asset growth or profitability. An
increase in the discount rate as a result of an increase in the
risk premium or risk-free rates could also result in a reduction of
VIU and an impairment. At the point where the carrying value
exceeds the VIU, impairment would be recognised.
If the Group did not have significant influence in BoCom, the
investment would be carried at fair value rather than the current
carrying value.
Basis of recoverable amount
The impairment test was performed by comparing the recoverable
amount of BoCom, determined by a VIU calculation, with its carrying
amount. The VIU calculation uses discounted cash flow projections
based on management's best estimates of future earnings available
to ordinary shareholders prepared in accordance with IAS 36.
Significant management judgement is required in arriving at the
best estimate. There are two main components to the VIU
calculation. The first component is management's best estimate of
BoCom's earnings, which is based on explicit forecasts over the
short to medium term. This results in forecast earnings growth that
is lower than recent historical actual growth and also reflects the
uncertainty arising from the current economic outlook. Earnings
beyond the short to medium term are then extrapolated into
perpetuity using a long-term growth rate to derive a terminal
value, which comprises the majority of the VIU. The second
component is the capital maintenance charge ('CMC'), which is
management's forecast of the earnings that need to be withheld in
order for BoCom to meet capital requirements over the forecast
period (i.e. CMC is deducted when arriving at management's estimate
of future earnings available to ordinary shareholders). The
principal inputs to the CMC calculation include estimates of asset
growth, the ratio of risk-weighted assets to total assets, and the
expected capital requirements. An increase in the CMC as a result
of a change to these principal inputs would reduce VIU.
Additionally, management considers other factors (including
qualitative factors) to ensure that the inputs to the VIU
calculation remain appropriate.
Key assumptions in value-in-use calculation
We used a number of assumptions in our VIU calculation, in
accordance with the requirements of IAS 36:
-- Long-term profit growth rate: 3% (31 December 2020: 3%) for
periods after 2024, which does not exceed forecast GDP growth in
mainland China and is consistent with forecasts by external
analysts.
-- Long-term asset growth rate: 3% (31 December 2020: 3%) for
periods after 2024, which is the rate that assets are expected to
grow to achieve long-term profit growth of 3%.
-- Discount rate: 10.59% (31 December 2020: 11.37%), which is
based on a capital asset pricing model ('CAPM') calculation for
BoCom, using market data. Management also compares the rate derived
from the CAPM with discount rates from external sources. The
discount rate used is within the range of 9.5% to 15.0% (31
December 2020: 10.3% to 15.0%) indicated by external sources. The
lower rate reflects the impact of updates to certain components of
CAPM arising from a relative reduction in the volatility of Chinese
banks, the maturity of the Chinese banking industry, and a decrease
in mainland China's credit risk due to its relatively quick
recovery from the impact of the Covid-19 outbreak.
-- Expected credit losses ('ECL') as a percentage of customer
advances: ranges from 0.98% to 1.10% (31 December 2020: 0.98% to
1.22%) in the short to medium term, reflecting a decrease in the
upper end of the range due to BoCom's actual results and an
improved outlook for ECL following the peak of the Covid-19
outbreak in mainland China. For periods after 2024, the ratio is
0.88% (2020: 0.88%), which is slightly lower than BoCom's average
ECL in recent years prior to the Covid-19 outbreak.
-- Risk-weighted assets as a percentage of total assets: ranges
from 61% to 62% (31 December 2020: 61% to 62%) in the short to
medium term, reflecting increases that may arise from relatively
elevated ECL in the short term, followed by reductions that may
arise from a subsequent lowering of ECL and a continuation of the
trend of strong retail loan growth. For periods after 2024, the
ratio is 61% (2020: 61%). These rates are similar to BoCom's actual
results in recent years and are slightly below forecasts disclosed
by external analysts.
-- Operating income growth rate: ranges from 4.4% to 6.3% (31
December 2020: 3.5% to 6.7%) in the short to medium term, and is
lower than BoCom's actual results in recent years and forecasts
disclosed by external analysts, reflecting BoCom's most recent
actual results, global trade tensions and industry developments in
mainland China.
-- Cost-income ratio: 36.1% (31 December 2020: 36.3% to 36.8%)
in the short to medium term. These ratios are similar to BoCom's
actual results in recent years and slightly lower than forecasts
disclosed by external analysts.
-- Effective tax rate: ranges from 10.0% to 14.3% (31 December
2020: 7.8% to 16.5%) in the short to medium term, reflecting
BoCom's actual results and an expected increase towards the
long-term assumption through the forecast period. For periods after
2024, the rate is 16.8% (2020: 16.8%), which is higher than the
recent historical average, above the most likely rate within the
range of the minimum tax rate as proposed by the OECD/G20 Inclusive
Framework on Base Erosion and Profit Shifting, and forecasts for
the short to medium term disclosed by external analysts.
-- Capital requirements: Capital adequacy ratio: 12.5% (31
December 2020: 11.5%) and tier 1 capital adequacy ratio: 9.5% (31
December 2020: 9.5%), based on BoCom's capital risk appetite and
the minimum regulatory requirements, respectively. The capital
adequacy ratio assumption was updated to 12.5% from 11.5%, which
was the minimum regulatory requirement, following the recent
approval of BoCom's capital management plan.
The following table shows the change to each key assumption in
the VIU calculation that on its own would reduce the headroom to
nil:
Key assumption Changes to key assumption to reduce
headroom to nil
Decrease by 22 basis points
* Long-term profit growth rate
Increase by 19 basis points
* Long-term asset growth rate
Increase by 27 basis points
* Discount rate
Increase by 3 basis points
* Expected credit losses as a percentage of customer
advances
Increase by 145 basis points
* Risk-weighted assets as a percentage of total assets
Decrease by 39 basis points
* Operating income growth rate
Increase by 87 basis points
* Cost-income ratio
Increase by 228 basis points
* Long-term effective tax rate
Increase by 30 basis points
* Capital requirements - capital adequacy ratio
Increase by 199 basis points
* Capital requirements - tier 1 capital adequacy ratio
=========================================================== ===================================
The following table further illustrates the impact on VIU of
reasonably possible changes to key assumptions. This reflects the
sensitivity of the VIU to each key assumption on its own and it is
possible that more than one favourable and/or unfavourable change
may occur at the same time. The selected rates of reasonably
possible changes to key assumptions are largely based on external
analysts' forecasts, which can change period to period.
Sensitivity of VIU to reasonably possible changes in key assumptions
Favourable change Unfavourable change
Increase
in Decrease
VIU VIU in VIU VIU
bps $bn $bn bps $bn $bn
-------------------------- ---- ---------------- ---------- --------- ---------------- ---------- ---------
At 30 Jun 2021
-------------------------- ---- ---------------- ---------- --------- ---------------- ---------- ---------
Long-term asset/profit growth 1.9 25.5 - / 23.6
rate(1) (50) / - / - / 23.6 - / (50) (1.7) / 21.9
Discount rate (109) 3.8 27.4 31 (0.8) 22.8
-------------------------------- ---------------- ----- --- ----- ---------------- ------ -----
2021 to 2021 to
2024: 99 2024: 112
Expected credit losses as
a percentage of customer 2025 onwards: 2025 onwards:
advances 79 1.9 25.5 102 (3.0) 20.6
-------------------------- ---- ---------------- ----- --- ----- ---------------- ------ -----
Risk-weighted assets as a
percentage of total assets (81) 0.3 23.9 87 (0.6) 23.0
-------------------------------- ---------------- ----- --- ----- ---------------- ------ -----
Operating income growth rate 16 0.4 24.0 (46) (0.9) 22.7
-------------------------------- ---------------- ----- --- ----- ---------------- ------ -----
Cost-income ratio (168) 1.7 25.3 287 (2.6) 21.0
-------------------------------- ---------------- ----- --- ----- ---------------- ------ -----
Long-term effective tax rate (180) 0.6 24.2 820 (2.7) 20.9
-------------------------------- ---------------- ----- --- ----- ---------------- ------ -----
Capital requirements - capital
adequacy ratio - - 23.6 254 (7.4) 16.2
-------------------------------- ---------------- ----- --- ----- ---------------- ------ -----
Capital requirements - tier
1 capital adequacy ratio - - 23.6 332 (4.8) 18.8
-------------------------------- ---------------- ----- --- ----- ---------------- ------ -----
At 31 Dec 2020
-------------------------- ---- ---------------- ---------- --------- ---------------- ---------- ---------
Long-term asset/profit growth 1.4 23.2 - / 21.8
rate(1) (50) / - / - / 21.8 - / (50) (1.3) / 20.5
Discount rate 1.2 23.0 53 (1.2) 20.6
-------------------------------- ---------------- ----- --- ----- ---------------- ------ -----
2020 to 2024: 2020 to 2024:
96 122
Expected credit losses as
a percentage of customer 2025 onwards: 2025 onwards:
advances 76 2.3 24.1 95 (2.1) 19.7
-------------------------- ---- ---------------- ----- --- ----- ---------------- ------ -----
Risk-weighted assets as a
percentage of total assets (40) 0.1 21.9 166 (0.8) 21.0
-------------------------------- ---------------- ----- --- ----- ---------------- ------ -----
Operating income growth rate 2 0.2 22.0 (69) (1.5) 20.3
-------------------------------- ---------------- ----- --- ----- ---------------- ------ -----
Cost-income ratio (149) 1.3 23.1 120 (1.2) 20.6
-------------------------------- ---------------- ----- --- ----- ---------------- ------ -----
Long-term effective tax rate (316) 0.9 22.7 820 (2.2) 19.6
-------------------------------- ---------------- ----- --- ----- ---------------- ------ -----
Capital requirements - capital
adequacy ratio - - 21.8 297 (7.8) 14.0
-------------------------------- ---------------- ----- --- ----- ---------------- ------ -----
Capital requirements - tier
1 capital adequacy ratio - - 21.8 263 (5.3) 16.5
-------------------------------- ---------------- ----- --- ----- ---------------- ------ -----
1 The reasonably possible ranges of the long-term profit growth
rate and long-term asset growth rate assumptions reflect the close
relationship between these assumptions, which would result in
offsetting changes to each assumption.
Considering the interrelationship of the changes set out in the
table above, management estimates that the reasonably possible
range of VIU is $19.6bn to $25.9bn (31 December 2020: $18.2bn to
$24.2bn). The range is based on the favourable/unfavourable change
in the earnings in the short to medium term and long-term expected
credit losses as a percentage of customer advances as set out in
the table above. All other long-term assumptions, the discount rate
and the basis of the CMC have been kept unchanged when determining
the reasonably possible range of the VIU.
The Saudi British Bank
The Group's investment in The Saudi British Bank ('SABB') is
classified as an associate. In June 2019, the merger between SABB
and Alawwal bank ('Alawwal') became effective, which reduced HSBC's
40% interest in SABB to 29.2%. On 3 December 2020, HSBC purchased
additional shares in SABB, which increased the Group's shareholding
to 31%. HSBC remains the largest shareholder in SABB. Significant
influence in SABB is established via representation on the Board of
Directors. Investments in associates are recognised using the
equity method of accounting in accordance with IAS 28, as described
previously for BoCom.
Impairment testing
There were no indicators of impairment at 30 June 2021. The fair
value of the Group's investment in SABB of $5.4bn was above the
carrying amount of $4.4bn.
11 Provisions
----------
Legal
proceedings
Restructuring and regulatory Customer Other
costs matters remediation provisions Total
$m $m $m $m $m
----------------------------------- ------------- --------------- ------------ ----------- -------
Provisions (excluding contractual
commitments)
----------------------------------- ------------- --------------- ------------ ----------- -------
At 31 Dec 2020 671 756 858 305 2,590
----------------------------------- ------------- --------------- ------------ ----------- -----
Additions 158 61 92 100 411
----------------------------------- ------------- --------------- ------------ ----------- -----
Amounts utilised (273) (149) (298) (28) (748)
----------------------------------- ------------- --------------- ------------ ----------- -----
Unused amounts reversed (72) (14) (93) (43) (222)
----------------------------------- ------------- --------------- ------------ ----------- -----
Exchange and other movements 45 (27) 10 (29) (1)
----------------------------------- ------------- --------------- ------------ ----------- -----
At 30 Jun 2021 529 627 569 305 2,030
----------------------------------- ------------- --------------- ------------ ----------- -----
Contractual commitments(1)
----------------------------------- ------------- --------------- ------------ ----------- -------
At 31 Dec 2020 1,088
----------------------------------- ------------- --------------- ------------ ----------- -----
Net change in expected credit loss
provision and other movements (304)
----------------------------------- ------------- --------------- ------------ ----------- -----
At 30 Jun 2021 784
----------------------------------- ------------- --------------- ------------ ----------- -----
Total provisions
----------------------------------- ------------- --------------- ------------ ----------- -------
At 31 Dec 2020 3,678
----------------------------------- ------------- --------------- ------------ ----------- -----
At 30 Jun 2021 2,814
----------------------------------- ------------- --------------- ------------ ----------- -----
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.
Further details of 'Legal proceedings and regulatory matters'
are set out in Note 13. Legal proceedings include civil court,
arbitration or tribunal proceedings brought against HSBC companies
(whether by way of claim or counterclaim); or civil disputes that
may, if not settled, result in court, arbitration or tribunal
proceedings. 'Regulatory matters' refers to investigations, reviews
and other actions carried out by, or in response to, the actions of
regulators or law enforcement agencies in connection with alleged
wrongdoing by HSBC.
Customer remediation refers to HSBC's activities to compensate
customers for losses or damages associated with a failure to comply
with regulations or to treat customers fairly. Customer remediation
is often initiated by HSBC in response to customer complaints
and/or industry developments in sales practices, and is not
necessarily initiated by regulatory action. Further details of
customer remediation are set out in this note.
At 30 June 2021, $278m (31 December 2020: $334m) of the customer
remediation provision related to the estimated liability for
redress in respect of the possible mis-selling of payment
protection insurance ('PPI') policies in previous years. Payments
totalling $74m were made during the first six months of 2021, and
the provision was increased by $18m.
At 30 June 2021, a provision of $124m (31 December 2020: $308m)
was held relating to the liability for redress payable to customers
following a review of collections and recoveries practices in the
UK. During the first six months of 2021, redress payments and
incurred operating costs totalled $157m, in addition to a net
release of $27m of provision. This release takes account of the
impact of the estimated cost of redress of the actual number of
customers impacted and cost of redress paid.
For further details of the impact of IFRS 9 on undrawn loan
commitments and financial guarantees, presented in 'Contractual
commitments', see Note 12. Further analysis of the movement in the
expected credit loss provision is disclosed within the
'Reconciliation of allowances for loans and advances to banks and
customers including loan commitments and financial guarantees'
table on page 70.
12 Contingent liabilities, contractual commitments and guarantees
--------------------------------------------------------------
At
------------------
30 Jun 31 Dec
2021 2020
$m $m
--------------------------------------------------------- ------- ---------
Guarantees and contingent liabilities:
--------------------------------------------------------- ------- ---------
* financial guarantees 27,274 18,384
--------------------------------------------------------- ------- -------
- performance and other guarantees 80,641 78,114
--------------------------------------------------------- ------- -------
- other contingent liabilities 838 1,219
--------------------------------------------------------- ------- -------
At the end of the period 108,753 97,717
--------------------------------------------------------- ------- -------
Commitments:(1)
--------------------------------------------------------- ------- ---------
- documentary credits and short-term trade-related
transactions 9,201 7,178
--------------------------------------------------------- ------- -------
- forward asset purchases and forward deposits placed 72,916 66,506
--------------------------------------------------------- ------- -------
- standby facilities, credit lines and other commitments
to lend 764,768 771,086
--------------------------------------------------------- ------- -------
At the end of the period 846,885 844,770
--------------------------------------------------------- ------- -------
1 Includes $661,373m of commitments at 30 June 2021 (31 December
2020: $659,783m), to which the impairment requirements in IFRS 9
are applied where HSBC has become party to an irrevocable
commitment.
The preceding table discloses the nominal principal amounts of
off-balance sheet liabilities and commitments for the Group, which
represent the maximum amounts at risk should the contracts be fully
drawn upon and the clients default. As a significant portion of
guarantees and commitments are 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 11.
The majority of the guarantees have a term of less than one
year, while guarantees with terms of more than one year are subject
to HSBC's annual credit review process.
Contingent liabilities arising from legal proceedings and
regulatory and other matters against Group companies are excluded
from this note but are disclosed in Notes 11 and 13.
13 Legal proceedings and regulatory matters
----------------------------------------
HSBC 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, HSBC 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 of the Annual Report and Accounts 2020. While the
outcomes of legal proceedings and regulatory matters are inherently
uncertain, management believes that, based on the information
available to it, appropriate provisions have been made in respect
of these matters as at 30 June 2021 (see Note 11). Where an
individual provision is material, the fact that a provision has
been made is stated and quantified, except to the extent that 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.
Bernard L. Madoff Investment Securities LLC
Bernard L. Madoff ('Madoff') was arrested in December 2008 and
later pleaded guilty to running a Ponzi scheme. His firm, Bernard
L. Madoff Investment Securities LLC ('Madoff Securities'), is being
liquidated in the US by a trustee (the 'Trustee').
Various non-US HSBC companies provided custodial, administration
and similar services to a number of funds incorporated outside the
US whose assets were invested with Madoff Securities. Based on
information provided by Madoff Securities as at 30 November 2008,
the purported aggregate value of these funds was $8.4bn, including
fictitious profits reported by Madoff.
Based on information available to HSBC, the funds' actual
transfers to Madoff Securities minus their actual withdrawals from
Madoff Securities during the time HSBC serviced the funds are
estimated to have totalled approximately $4bn. Various HSBC
companies have been named as defendants in lawsuits arising out of
Madoff Securities' fraud.
US litigation: The Trustee has brought lawsuits against various
HSBC companies and others in the US Bankruptcy Court for the
Southern District of New York (the 'US Bankruptcy Court'), seeking
recovery of transfers from Madoff Securities to HSBC in an amount
not yet pleaded or determined. HSBC and other parties to the
actions have moved to dismiss the Trustee's claims. The US
Bankruptcy Court granted HSBC's motion to dismiss with respect to
certain of the Trustee's claims in November 2016. In February 2019,
the US Court of Appeals for the Second Circuit (the 'Second Circuit
Court of Appeals') reversed that dismissal. Following the US
Supreme Court's denial of certiorari in June 2020, the cases were
remanded to the US Bankruptcy Court, where they are now
pending.
Fairfield Sentry Limited, Fairfield Sigma Limited and Fairfield
Lambda Limited (together, 'Fairfield') (in liquidation since July
2009) have brought a lawsuit in the US against fund shareholders,
including HSBC companies that acted as nominees for clients,
seeking restitution of redemption payments. In December 2018, the
US Bankruptcy Court issued an opinion, which ruled in favour of the
defendants' motion to dismiss in respect of certain claims by the
liquidators for Fairfield and granted a motion by the liquidators
to file amended complaints. As a result of that opinion, all claims
against one of the HSBC companies, and certain claims against the
remaining HSBC defendants, were dismissed. In May 2019, the
liquidators appealed certain issues from the US Bankruptcy Court to
the US District Court for the Southern District of New York (the
'New York District Court') and these appeals remain pending.
In January 2020, the liquidators filed amended complaints on the
claims remaining in the US Bankruptcy Court. In December 2020, the
US Bankruptcy Court granted in part and denied in part motions
filed by the defendants, including HSBC, to dismiss the amended
complaints. In March 2021, the liquidators and defendants appealed
the US Bankruptcy Court's decision, and these appeals are currently
pending. Meanwhile, proceedings before the US Bankruptcy Court with
respect to the remaining claims that were not dismissed are
ongoing.
UK litigation: The Trustee has filed a claim against various
HSBC companies in the High Court of England and Wales, seeking
recovery of transfers from Madoff Securities to HSBC in an amount
not yet pleaded or determined. The deadline for service of the
claim has been extended to September 2021 for UK-based defendants
and November 2021 for all other defendants.
Cayman Islands litigation: In February 2013, Primeo Fund
('Primeo') (in liquidation since April 2009) brought an action
against HSBC Securities Services Luxembourg ('HSSL') and Bank of
Bermuda (Cayman) Limited (now known as HSBC Cayman Limited),
alleging breach of contract and breach of fiduciary duty and
claiming damages and equitable compensation. The trial concluded in
February 2017 and, in August 2017, the court dismissed all claims
against the defendants. In September 2017, Primeo appealed to the
Court of Appeal of the Cayman Islands and, in June 2019, the Court
of Appeal of the Cayman Islands dismissed Primeo's appeal. In
August 2019, Primeo filed a notice of appeal to the UK Privy
Council. The first of two possible hearings before the UK Privy
Council took place during April 2021, where judgment is
pending.
Luxembourg litigation: In April 2009, Herald Fund SPC ('Herald')
(in liquidation since July 2013) brought an action against HSSL
before the Luxembourg District Court, seeking restitution of cash
and securities that Herald purportedly lost because of Madoff
Securities' fraud, or money damages. The Luxembourg District Court
dismissed Herald's securities restitution claim, but reserved
Herald's cash restitution claim and its claim for money damages.
Herald has appealed this judgment to the Luxembourg Court of
Appeal, where the matter is pending. In late 2018, Herald brought
additional claims against HSSL and HSBC Bank plc before the
Luxembourg District Court, seeking further restitution and
damages.
In October 2009, Alpha Prime Fund Limited ('Alpha Prime')
brought an action against HSSL before the Luxembourg District
Court, seeking the restitution of securities, or the cash
equivalent, or money damages. In December 2018, Alpha Prime brought
additional claims before the Luxembourg District Court seeking
damages against various HSBC companies. These matters are currently
pending before the Luxembourg District Court.
In December 2014, Senator Fund SPC ('Senator') brought an action
against HSSL before the Luxembourg District Court, seeking
restitution of securities, or the cash equivalent, or money
damages. In April 2015, Senator commenced a separate action against
the Luxembourg branch of HSBC Bank plc asserting identical claims
before the Luxembourg District Court. In December 2018, Senator
brought additional claims against HSSL and HSBC Bank plc Luxembourg
branch before the Luxembourg District Court, seeking restitution of
Senator's securities or money damages. These matters are currently
pending before the Luxembourg District Court.
Ireland litigation: In November 2013, Defender Limited brought
an action against HSBC Institutional Trust Services (Ireland)
Limited ('HTIE') and others, based on allegations of breach of
contract and claiming damages and indemnification for fund losses.
The trial commenced in October 2018. In December 2018, the Irish
High Court issued a judgment in HTIE's favour on a preliminary
issue, holding that Defender Limited had no effective claim against
HTIE. This judgment concluded the trial without further issues in
dispute being heard. In February 2019, Defender Limited appealed
the decision. In July 2020, the Irish Supreme Court ruled in part
in favour of Defender Limited and returned the case to the High
Court for further proceedings. In April 2021, the parties reached
an agreement to resolve the dispute and, in May 2021, the action
against HTIE was discontinued.
There are many factors that may affect the range of possible
outcomes, and any resulting financial impact, of the various
Madoff-related proceedings described above, including but not
limited to the multiple jurisdictions in which the proceedings have
been brought. Based upon the information currently available,
management's estimate of the possible aggregate damages that might
arise as a result of all claims in the various Madoff-related
proceedings is up to or exceeding $500m, excluding costs and
interest. Due to uncertainties and limitations of this estimate,
any possible damages that might ultimately arise could differ
significantly from this amount.
Anti-money laundering and sanctions-related matters
In December 2012, HSBC Holdings entered into a number of
agreements, including an undertaking with the UK Financial Services
Authority (replaced with a Direction issued by the UK Financial
Conduct Authority ('FCA') in 2013 and again in 2020) as well as 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 was, 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. In 2020, HSBC's engagement with the
independent compliance monitor, acting in his roles as both Skilled
Person and Independent Consultant, concluded. The role of FCA
Skilled Person was assigned to a new individual in the second
quarter of 2020. Separately, in early 2021, a new FRB Independent
Consultant was appointed pursuant to the cease-and-desist order.
The roles of each of the FCA Skilled Person and the FRB Independent
Consultant are discussed on page 188 of the Annual Report and
Accounts 2020.
The FCA is conducting an investigation into HSBC Bank plc's and
HSBC UK Bank plc's compliance with UK money laundering regulations
and financial crime systems and controls requirements. HSBC
continues to cooperate with the FCA's investigation, which is at or
nearing completion.
Since November 2014, a number of lawsuits have been filed in
federal courts in the US against various HSBC companies and others
on behalf of plaintiffs who are, or are related to, victims of
terrorist attacks in the Middle East. In each case, it is alleged
that the defendants aided and abetted the unlawful conduct of
various sanctioned parties in violation of the US Anti-Terrorism
Act. Currently, nine actions remain pending in federal courts in
New York or the District of Columbia. The courts have granted
HSBC's motions to dismiss in five of these cases. Appeals remain
pending in two cases, and the remaining three dismissals are also
subject to appeal. The four remaining actions are at a very 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.
London interbank offered rates, European interbank offered rates
and other benchmark interest rate investigations and litigation
Euro interest rate derivatives: In December 2016, the European
Commission ('EC') issued a decision finding that HSBC, among other
banks, engaged in anti-competitive practices in connection with the
pricing of euro interest rate derivatives in early 2007. The EC
imposed a fine on HSBC based on a one-month infringement. HSBC
appealed the decision and, in September 2019, the General Court of
the European Union (the 'General Court') issued a decision largely
upholding the EC's findings on liability but annulling the fine.
HSBC and the EC both appealed the General Court's decision to the
European Court of Justice (the 'Court of Justice'). In June 2021,
the EC adopted a new fining decision for an amount which was 5%
less than the previously annulled fine, and subsequently withdrew
its appeal to the Court of Justice. HSBC's appeal remains
pending.
US dollar Libor: Beginning in 2011, HSBC and other panel banks
have been named as defendants in a number of private lawsuits filed
in the US with respect to the setting of US dollar Libor. The
complaints assert claims under various US laws, including US
antitrust and racketeering laws, the US Commodity Exchange Act ('US
CEA') and state law. The lawsuits include individual and putative
class actions, most of which have been transferred and/or
consolidated for pre-trial purposes before the New York District
Court. HSBC has reached class settlements with five groups of
plaintiffs, and the court has approved these settlements. HSBC has
also resolved several of the individual actions, although a number
of other US dollar Libor-related actions remain pending against
HSBC in the New York District Court and the Second Circuit Court of
Appeals.
Intercontinental Exchange ('ICE') Libor: Between January and
March 2019, HSBC and other panel banks were named as defendants in
three putative class actions filed in the New York District Court
on behalf of persons and entities who purchased instruments paying
interest indexed to US dollar ICE Libor from a panel bank. The
complaints allege, among other things, misconduct related to the
suppression of this benchmark rate in violation of US antitrust and
state law. In July 2019, the three putative class actions were
consolidated, and the plaintiffs filed a consolidated amended
complaint. In March 2020, the court granted the defendants' joint
motion to dismiss in its entirety. This matter is on appeal.
Singapore interbank offered rate ('Sibor'), Singapore swap offer
rate ('SOR') and Australia bank bill swap rate ('BBSW'):
In July and August 2016, HSBC and other panel banks were named
as defendants in two putative class actions filed in the New York
District Court on behalf of persons who transacted in products
related to the Sibor, SOR and BBSW benchmark rates. The complaints
allege, among other things, misconduct related to these benchmark
rates in violation of US antitrust, commodities and racketeering
laws, and state law.
In the Sibor/SOR litigation, in March 2021, following an appeal
by the plaintiffs, the Second Circuit Court of Appeals reversed the
dismissal of the plaintiffs' third amended complaint and remanded
the case to the New York District Court where it remains pending
against the defendants, including The Hongkong and Shanghai Banking
Corporation Limited.
In the BBSW litigation, in November 2018, the court dismissed
all foreign defendants, including all the HSBC entities, on
personal jurisdiction grounds. In April 2019, the plaintiffs filed
an amended complaint, which the defendants moved to dismiss. In
February 2020, the court again dismissed the plaintiffs' amended
complaint against all the HSBC entities.
There are many factors that may affect the range of outcomes,
and the resulting financial impact, of these matters, which could
be significant.
Foreign exchange-related investigations and litigation
Since at least 2014, the EC has been conducting an investigation
into trading activities by a number of banks, including HSBC, in
the foreign exchange spot market. HSBC is cooperating with this
investigation.
In January 2018, following the conclusion of the US Department
of Justice's ('DoJ') investigation into HSBC's historical foreign
exchange activities, HSBC Holdings entered into a three-year
deferred prosecution agreement with the Criminal Division of the
DoJ (the 'FX DPA'), regarding fraudulent conduct in connection with
two particular transactions in 2010 and 2011. In January 2021, the
FX DPA expired and, in July 2021, the DoJ filed a motion to dismiss
the charges deferred by the FX DPA, which remains pending.
In December 2016, Brazil's Administrative Council of Economic
Defense initiated an investigation into the onshore foreign
exchange market and identified a number of banks, including HSBC,
as subjects of its investigation.
In June 2020, the Competition Commission of South Africa, having
initially referred a complaint for proceedings before the South
African Competition Tribunal in February 2017, filed a revised
complaint against 28 financial institutions, including HSBC Bank
plc and HSBC Bank USA, for alleged anti-competitive behaviour in
the South African foreign exchange market. In August 2020, HSBC
Bank plc and HSBC Bank USA filed an application to dismiss the
revised complaint, which remains pending.
Beginning in 2013, various HSBC companies and other banks have
been named as defendants in a number of putative class actions
filed in, or transferred to, the New York District Court arising
from allegations that the defendants conspired to manipulate
foreign exchange rates. HSBC has reached class settlements with two
groups of plaintiffs, including direct and indirect purchasers of
foreign exchange products, and the court has granted final approval
of these settlements. A putative class action by a group of retail
customers of foreign exchange products remains pending.
In September 2018, various HSBC companies and other banks were
named as defendants in two motions for certification of class
actions filed in Israel alleging foreign exchange-related
misconduct. In July 2019, the Tel Aviv Court allowed the plaintiffs
to consolidate their claims and, in September 2019, the plaintiffs
filed a motion for certification of the consolidated class action.
In August 2020, HSBC Bank plc filed a motion to dismiss and, in
January 2021, HSBC Holdings filed a motion seeking to challenge the
service of the motion for certification on defendants outside
Israel. These motions remain pending.
In November and December 2018, complaints alleging foreign
exchange-related misconduct were filed in the New York District
Court and the High Court of England and Wales against HSBC and
other defendants by certain plaintiffs that opted out of the direct
purchaser class action settlement in the US. These matters remain
pending. Additionally, in May 2021, two civil actions were filed in
Brazil alleging foreign exchange-related misconduct by various
banks, including HSBC, for the period from 2007 to 2013. HSBC has
not yet been served with these actions. It is possible that
additional civil actions will be initiated against HSBC in relation
to its historical foreign exchange activities.
There are many factors that may affect the range of outcomes,
and the resulting financial impact, of these matters, which could
be significant.
Precious metals fix-related litigation
Gold: Beginning in March 2014, numerous putative class actions
were filed in the New York District Court and the US District
Courts for the District of New Jersey and the Northern District of
California, naming HSBC and other members of The London Gold Market
Fixing Limited as defendants. The complaints, which were
consolidated in the New York District Court, allege that, from
January 2004 to June 2013, the defendants conspired to manipulate
the price of gold and gold derivatives for their collective benefit
in violation of US antitrust laws, the US CEA and New York state
law. In October 2020, HSBC reached a settlement in principle with
the plaintiffs to resolve the consolidated action. The settlement
remains subject to court approval.
Beginning in December 2015, numerous putative class actions
under Canadian law were filed in the Ontario and Quebec Superior
Courts of Justice against various HSBC companies and other
financial institutions. The plaintiffs allege that, among other
things, from January 2004 to March 2014, the defendants conspired
to manipulate the price of gold and gold derivatives in violation
of the Canadian Competition Act and common law. These actions are
ongoing.
Silver: Beginning in July 2014, numerous putative class actions
were filed in federal district courts in New York, naming HSBC and
other members of The London Silver Market Fixing Limited as
defendants. The complaints allege that, from January 2007 to
December 2013, the defendants conspired to manipulate the price of
silver and silver derivatives for their collective benefit in
violation of US antitrust laws, the US CEA and New York state law.
The actions were consolidated in the New York District Court, and
discovery is proceeding.
In April 2016, two putative class actions under Canadian law
were filed in the Ontario and Quebec Superior Courts of Justice
against various HSBC companies and other financial institutions.
The plaintiffs in both actions allege that, from January 1999 to
August 2014, the defendants conspired to manipulate the price of
silver and silver derivatives in violation of the Canadian
Competition Act and common law. These actions are ongoing.
Platinum and palladium: Between late 2014 and early 2015,
numerous putative class actions were filed in the New York District
Court, naming HSBC and other members of The London Platinum and
Palladium Fixing Company Limited as defendants. The complaints
allege that, from January 2008 to November 2014, the defendants
conspired to manipulate the price of platinum group metals ('PGM')
and PGM-based financial products for their collective benefit in
violation of US antitrust laws and the US CEA. In March 2020, the
court granted the defendants' motion to dismiss the plaintiffs'
third amended complaint but granted the plaintiffs leave to
re-plead certain claims. The plaintiffs have filed an appeal.
Based on the facts currently known, it is not practicable at
this time for HSBC to predict the resolution of these matters,
including the timing or any possible impact on HSBC, 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 June 2020, two separate claims were issued against HSBC UK
Bank plc (as successor to PBGB's business) in the High Court of
England and Wales by two separate groups of investors in Eclipse
film finance schemes in connection with PBGB's role in the
development of such schemes. These actions are ongoing.
In April 2021, HSBC UK Bank plc (as successor to PBGB's
business) was served with a claim issued in the High Court of
England and Wales in connection with PBGB's role in the development
of the Zeus film finance schemes. This action is at an early
stage.
It is possible that additional actions or investigations will be
initiated against HSBC UK Bank plc as a result of PBGB's historical
involvement in the provision of certain film finance-related
services.
Based on the facts currently known, it is not practicable to
predict the resolution of these matters, including the timing or
any possible impact on HSBC, which could be significant.
Other regulatory investigations, reviews and litigation
HSBC Holdings and/or certain of its affiliates are subject to a
number of other investigations and reviews by various regulators
and competition and law enforcement authorities, as well as
litigation, in connection with various matters relating to the
firm's businesses and operations, including:
-- investigations by tax administration, regulatory and law
enforcement authorities in Argentina, India and elsewhere in
connection with allegations of tax evasion or tax fraud, money
laundering and unlawful cross-border banking solicitation;
-- an investigation by the US Commodity Futures Trading
Commission regarding interest rate swap transactions related to,
among other things, bond issuances;
-- an investigation by the FCA in connection with collections
and recoveries operations in the UK;
-- an investigation by the UK Competition and Markets Authority
concerning the financial services sector;
-- a putative class action brought in the New York District
Court relating to the Mexican government bond market;
-- two group actions pending in the US courts and a claim issued
in the High Court of England and Wales in connection with HSBC Bank
plc's role as a correspondent bank to Stanford International Bank
Ltd from 2003 to 2009; and
-- litigation brought against various HSBC companies in the US
courts relating to residential mortgage-backed securities, based
primarily on (a) claims brought against HSBC Bank USA in connection
with its role as trustee on behalf of various securitisation
trusts; and (b) claims against several HSBC companies seeking that
the defendants repurchase various mortgage loans.
There are many factors that may affect the range of outcomes,
and the resulting financial impact, of these matters, which could
be significant.
14 Transactions with related parties
---------------------------------
There were no changes in the related party transactions
described in the Annual Report and Accounts 2020 that have had a
material effect on the financial position or performance of HSBC in
the half-year to 30 June 2021. All related party transactions that
took place in the half-year to 30 June 2021 were similar in nature
to those disclosed in the Annual Report and Accounts 2020.
15 Business disposals
------------------
In the first half of 2021, we accelerated the pace of execution
on our strategic ambition to be the preferred international
financial partner for our clients with the announcements of the
potential sale of our retail banking businesses in France, as well
as the exit of domestic mass market retail banking in the US .
Potential sale of the retail banking business in France
On 18 June 2021, HSBC Continental Europe signed a memorandum of
understanding with Promontoria MMB SAS ('My Money Group'), its
subsidiary Banque des Caraïbes SA and My Money Bank, regarding the
potential sale of HSBC Continental Europe's retail banking business
in France.
The potential sale includes: HSBC Continental Europe's French
retail banking business; the Crédit Commercial de France ('CCF')
brand; and, subject to the satisfaction of relevant conditions,
HSBC Continental Europe's 100% ownership interest in HSBC SFH
(France) and its 3% ownership interest in Crédit Logement. The sale
would generate an estimated loss before tax including related
transaction costs for the Group of $2.3bn, together with an
additional $0.7bn impairment of goodwill.
There would be no immediate tax benefit recognised in respect of
the sale loss nor impairment. The vast majority of the estimated
loss for the write-down of the disposal group to fair value less
costs to sell will be recognised when it is classified as held for
sale in accordance with IFRS 5, which is currently anticipated to
be in 2022. Subsequently, the disposal group classified as held for
sale will be remeasured at the lower of carrying amount and fair
value less costs to sell at each reporting period. Any remaining
gain or loss not previously recognised shall be recognised at the
date of derecognition, which is currently anticipated to be in the
first half of 2023.
At 30 June 2021, the value of the total assets of the business
to be sold was $28.2bn, including $25.6bn of loans and advances to
customers, and the value of customer accounts was $23.5bn.
US retail banking business
On 26 May 2021, we announced that we will exit our US mass
market retail banking business, including our Personal and Advance
propositions, as well as retail business banking, and will rebrand
approximately 20 to 25 of our retail branches into international
wealth centres to serve our Premier and Jade customers. In
conjunction with the execution of this strategy, HSBC Bank USA,
N.A. has entered into definitive sale agreements with Citizens Bank
and Cathay Bank to sell approximately 90 of our retail branches
along with substantially all residential mortgage, unsecured and
retail business banking loans and all deposits in our branch
network not associated with our Premier, Jade and Private Banking
customers. Certain assets under management associated with our mass
market retail banking business will also be transferred. The
remaining branches not sold or rebranded will be closed.
The sales are expected to close by the first quarter of 2022,
subject to regulatory approval, and are not expected to impact
results materially. At 30 June 2021, loans and advances to
customers of $2.6bn and customer accounts of $9.9bn related to
these transactions met the criteria to be classified as held for
sale.
16 Events after the balance sheet date
-----------------------------------
In its assessment of events after the balance sheet date, HSBC
has considered and concluded that no material events have occurred
resulting in adjustments to the financial statements.
An interim dividend for the 2021 half-year in respect of the
financial year ending 31 December 2021 was approved by the
Directors on 2 August 2021, as described in Note 3.
17 Interim Report 2021 and statutory accounts
------------------------------------------
The information in this Interim Report 2021 is unaudited and
does not constitute statutory accounts within the meaning of
section 434 of the Companies Act 2006. This Interim Report 2021 was
approved by the Board of Directors on 2 August 2021. The statutory
accounts of HSBC Holdings plc for the year ended 31 December 2020
have been delivered to the Registrar of Companies in England and
Wales in accordance with section 447 of the Companies Act 2006. The
Group's auditor PricewaterhouseCoopers LLP ('PwC') has reported on
those accounts. Its report was unqualified, did not include a
reference to any matters to which PwC drew attention by way of
emphasis without qualifying its report and did not contain a
statement under section 498(2) or (3) of the Companies Act
2006.
Shareholder information
Page Page
1 Directors' interests 132 11 Corporate governance 136
----------------------------- ---- ---------------------------------- ----
2 Employee share plans 134 12 Changes in Directors' details 136
----------------------------- ---- ---------------------------------- ----
3 Other equity instruments 134 13 Going concern basis 136
----------------------------- ---- ---------------------------------- ----
Notifiable interests in share Telephone and online share dealing
4 capital 134 14 service 136
----------------------------- ---- ---------------------------------- ----
Dealings in HSBC Holdings
5 listed securities 135 15 Stock symbols 137
----------------------------- ---- ---------------------------------- ----
Copies of the Interim Report
Interim dividend for the 2021 2021 and shareholder enquiries
6 half-year 135 16 and communications
----------------------------- ---- ---------------------------------- ----
7 Dividend on preference shares 135 137
----------------------------- ---- ---------------------------------- ----
Proposed interim dividends
8 for 2021 135
----------------------------- ----
9 Earnings release 135
----------------------------- ----
10 Final results 135
----------------------------- ----
1 Directors' interests
--------------------
According to the register of Directors' interests maintained by
HSBC Holdings pursuant to section 352 of the Securities and Futures
Ordinance of Hong Kong, at 30 June 2021 (or date of retirement from
the Board, if earlier) the Directors of HSBC Holdings had the
following interests, all beneficial unless otherwise stated, in the
shares or debentures of HSBC and its associates:
Directors' interests - shares and debentures
At 30 Jun 2021
------------------------------------------------------------
Child
under Jointly
At 1 Jan Beneficial 18 with another Total
2021 owner or spouse person Trustee interests
------------------------------------ -------- ---------- ---------- ------------- ------- ------------
HSBC Holdings ordinary shares
------------------------------------ -------- ---------- ---------- ------------- ------- ------------
Laura Cha(1) 16,200 16,200 - - - 16,200
------------------------------------ -------- ---------- ---------- ------------- ------- ----------
Henri de Castries(1) 19,251 19,251 - - - 19,251
------------------------------------ -------- ---------- ---------- ------------- ------- ----------
James Forese(2) 115,000 115,000 - - - 115,000
------------------------------------ -------- ---------- ---------- ------------- ------- ----------
Steven Guggenheimer(2) 15,000 - - 15,000 - 15,000
------------------------------------ -------- ---------- ---------- ------------- ------- ----------
Irene Lee 11,904 15,000 - - - 15,000
------------------------------------ -------- ---------- ---------- ------------- ------- ----------
José Antonio Meade
Kuribreña(2) 15,000 15,000 - - - 15,000
------------------------------------ -------- ---------- ---------- ------------- ------- ----------
Heidi Miller(1,2) 15,700 15,700 - - - 15,700
------------------------------------ -------- ---------- ---------- ------------- ------- ----------
Eileen Murray(2) 75,000 75,000 75,000
------------------------------------ -------- ---------- ---------- ------------- ------- ----------
David Nish 50,000 - 50,000 - - 50,000
------------------------------------ -------- ---------- ---------- ------------- ------- ----------
Noel Quinn(3) 778,958 986,297 - - - 986,297
------------------------------------ -------- ---------- ---------- ------------- ------- ----------
Ewen Stevenson(3) 545,731 757,135 - - - 757,135
------------------------------------ -------- ---------- ---------- ------------- ------- ----------
Jackson Tai(2,4) 66,515 32,800 11,965 21,750 - 66,515
------------------------------------ -------- ---------- ---------- ------------- ------- ----------
Mark Tucker 307,352 307,352 - - - 307,352
------------------------------------ -------- ---------- ---------- ------------- ------- ----------
Pauline van der Meer Mohr 15,000 15,000 - - - 15,000
------------------------------------ -------- ---------- ---------- ------------- ------- ----------
1 Laura Cha, Henri de Castries and Heidi Miller retired from the Board on 28 May 2021.
2 James Forese has an interest in 23,000, Steven Guggenheimer
has an interest in 3,000, José Antonio Meade Kuribreña has an
interest in 3,000, Heidi Miller has an interest in 3,140, Eileen
Murray has an interest in 15,000 and Jackson Tai has an interest in
13,303 listed American Depositary Shares ('ADSs'), which are
categorised as equity derivatives under Part XV of the Securities
and Futures Ordinance of Hong Kong. Each ADS represents five HSBC
Holdings ordinary shares.
3 Executive Directors' other interests in HSBC Holdings ordinary
shares arising from the HSBC Holdings Savings-Related Share Option
Plan (UK) and the HSBC Share Plan 2011 are set out on the following
pages. At 30 June 2021, the aggregate interests under the
Securities and Futures Ordinance of Hong Kong in HSBC Holdings
ordinary shares, including interests arising through employee share
plans, were: Noel Quinn - 2,585,804 and Ewen Stevenson - 2,377,832.
Each Director's total interests represents around 0.01% of the
shares in issue and 0.01% of the shares in issue excluding treasury
shares.
4 Jackson Tai's holding includes a non-beneficial interest in
11,965 shares of which he is custodian.
Savings-Related Share Option Plan
Currently no executive Directors participate in a
Savings-Related Share Option Plan. For further details on the
Savings-Related Share Option Plan, see page 128.
HSBC Share Plan 2011
Conditional awards of deferred shares
Vesting of deferred share awards is normally subject to the
Director remaining an employee on the vesting date. The awards may
vest at an earlier date in certain circumstances. Under the
Securities and Futures Ordinance of Hong Kong, interests in
conditional share awards are categorised as the interests of the
beneficial owner.
Deferred share awards
HSBC Holdings ordinary shares
-------------------------------------------------------------------
Awards vested
Awards made during during
Awards the period to the period to Awards
held at 30 Jun 2021 30 Jun 2021 held at
--------
Year in
which
awards
Date of may 1 Jan Monetary Monetary 30 Jun
award vest 2021 Number value Number value 2021
GBP000 GBP000
29/2/2016(1) 2021 38,910 - - 39,885(2) 169 -
------------- ----------------------- -------- ----------- -------- ----------- -------- ---------
27/2/2017(3) 2020-2024 65,836 - - 14,851 63 52,647(2)
------------- ----------------------- -------- ----------- -------- ----------- -------- -----------
26/2/2018(4) 2021-2025 107,523 - - 21,504 91 86,019
------------- ----------------------- -------- ----------- -------- ----------- -------- ---------
25/2/2019(5) 2022-2026 140,585 - - - - 140,585
------------- ----------------------- -------- ----------- -------- ----------- -------- ---------
24/2/2020(6) 2023-2027 201,702 - - - - 201,702
------------- ----------------------- -------- ----------- -------- ----------- -------- ---------
Noel Quinn 1/3/2021(7) 2021 - 187,470 799 187,470 799 -
------------ ------------- ---------- -------- ----------- -------- ----------- -------- ---------
28/5/2019(8) 2020-2025 486,802 - - 222,047 948 264,755
------------- ----------------------- -------- ----------- -------- ----------- -------- -----------
28/5/2019(9) 2022-2026 241,988 - - 241,988
------------- ----------------------- -------- ----------- -------- ----------- -------- ---------
Ewen
Stevenson 1/3/2021(7) 2021 - 105,584 450 105,584 450 -
------------ ------------- ---------- -------- ----------- -------- ----------- -------- ---------
1 At the date of the award (29 February 2016), the market value
per share was GBP4.6735. The award vested in full on 15 March 2021
at a market value of GBP4.2464.
2 Includes any additional shares arising from dividend equivalents.
3 At the date of the award (27 February 2017), the market value
per share was GBP6.5030. The award will vest in five equal annual
tranches. The second tranche vested on 12 March 2021 at a market
value of GBP4.2712. Shares equivalent in number to those that vest
under the award (net of tax liabilities) must be retained for six
months from the vesting date.
4 At the date of the award (26 February 2018), the market value
per share was GBP7.2340. Shares equivalent in number to those that
vest under the award (net of tax liabilities) must be retained for
one year from the vesting date. The award will vest in five equal
annual tranches. The first tranche vested on 11 March 2021 at a
market value of GBP4.2538.
5 At the date of the award (25 February 2019), the market value
per share was GBP6.2350. Shares equivalent in number to those that
vest under the award (net of tax liabilities) must be retained for
one year from the vesting date. The award will vest in five equal
annual tranches commencing in March 2022.
6 At the date of the award (24 February 2020), the market value
per share was GBP5.6220. Shares equivalent in number to those that
vest under the award (net of tax liabilities) must be retained for
one year from the vesting date. The award will vest in five equal
annual tranches commencing in March 2023.
7 The non-deferred award vested immediately on 1 March 2021 and
was based on the market value of GBP4.2620. Shares equivalent in
number to those that vest under the award (net of tax liabilities)
must be retained for one year from the vesting date.
8 The award was granted on 28 May 2019 using a market value per
share of GBP6.6430 as at 30 November 2018. Shares equivalent in
number to those that vest under the award (net of tax liabilities)
must be retained for up to one year from the vesting date. The
second tranche vested on
12 March 2021 and was based on a market value of GBP4.2712. The
award replaced the 2015 to 2018 long-term incentive ('LTI') plans
forfeited by the Royal Bank of Scotland Group plc ('RBS') and is
subject to any performance adjustments assessed and disclosed in
the relevant annual report and accounts of RBS.
9 The award was granted on 28 May 2019 using a market value per
share of GBP6.2350 as at 22 February 2019. Shares equivalent in
number to those that vest under the award (net of tax liabilities)
must be retained for up to one year from the vesting date. The
award will vest in five annual tranches commencing in March 2022.
The award is in respect of the 2018 performance year granted based
on Ewen Stevenson's maximum opportunity under RBS's policy and the
outcome of the 2018 scorecard as disclosed in RBS's Annual Report
and Accounts 2018. The number of shares that vest may be adjusted
based on any 'pre-vest performance test' assessed and disclosed in
RBS's Annual Report and Accounts.
1
Long-term incentive awards
The long-term incentive award is an award of shares with a
three-year performance period. At the end of this performance
period and subject to the award terms, the number of shares that
vest will be determined based on an assessment against financial
and non-financial measures. Subject to that assessment, the shares
will vest in five equal annual instalments. On vesting, awards are
subject to a retention period of up to one year. Under the
Securities and Futures Ordinance of Hong Kong, interests in share
awards are categorised as interests of the beneficial owner.
Long-term incentive awards
HSBC Holdings ordinary shares
------------------------------------------------------------------
Awards made Awards vested
Awards during during Awards
held the period the period held
at to 30 Jun 2021 to 30 Jun 2021 at
------- -----------
Year
in which
awards
Date may 1 Jan Monetary Monetary 30 Jun
of award(1) vest 2021 Number value Number value 2021
GBP000 GBP000
1 Mar
Noel Quinn 2021 2024-2028 - 1,118,554 4,767 - - 1,118,554
------------- ------------- ---------- ------- ---------- -------- ------------ -------- ---------
24 Feb
2020 2023-2027 476,757 - - - - 476,757
------------- ------------------------ ------- ---------- -------- ------------ -------- ---------
Ewen 1 Mar
Stevenson 2021 2024-2028 - 637,197 2,716 - - 637,197
------------- ------------- ---------- ------- ---------- -------- ------------ -------- ---------
1 Awards made on 24 February 2020 were based on the market value
of GBP5.6220 and awards made on 1 March 2021 were based on the
market value of GBP4.2620.
No Directors held any short position (as defined in the
Securities and Futures Ordinance of Hong Kong) in the shares or
debentures of HSBC Holdings and its associated corporations. Save
as stated in the tables above, none of the Directors had an
interest in any shares or debentures of HSBC Holdings or any
associates at the beginning or at the end of the period, and none
of the Directors or members of their immediate families were
awarded or exercised any right to subscribe for any shares or
debentures in any HSBC corporation during the period.
There have been no changes in the shares or debentures of the
Directors from 30 June 2021 to the date of this report.
2 Employee share plans
--------------------
Share options and discretionary awards of shares are granted
under HSBC share plans to help align the interests of employees
with those of shareholders. The following are particulars of
outstanding share options, including those held by employees
working under employment contracts that are regarded as 'continuous
contracts' for the purposes of the Hong Kong Employment Ordinance.
The options were granted at nil consideration. No options have been
granted to substantial shareholders, suppliers of goods or
services, or in excess of the individual limit for each share plan.
No options were cancelled by HSBC during the period to 30 June
2021.
A summary of the total number of options granted, exercised or
lapsed during the period is shown in the following table.
Particulars of options held by Directors of HSBC Holdings are set
out on page 126. Further details required to be disclosed pursuant
to Chapter 17 of the Rules Governing the Listing of Securities on
The Stock Exchange of Hong Kong Limited are available on our
website at www.hsbc.com, and on the website of The Stock Exchange
of Hong Kong Limited at www.hkex.com.hk. Copies may be obtained
upon request from the Group Company Secretary and Chief Governance
Officer, 8 Canada Square, London E14 5HQ.
All-employee share plans
The HSBC Holdings Savings-Related Share Option Plan (UK) is an
all-employee share plan under which eligible employees have been
granted options to acquire HSBC Holdings ordinary shares. The HSBC
International Employee Share Purchase Plan was introduced in 2013
and now includes employees based in 27 jurisdictions, although no
options are granted under this plan. During 2020, approximately
171,000 employees were offered participation in these plans.
For options granted under the HSBC Holdings Savings-Related
Share Option Plan (UK), employees may make contributions of up to
GBP500 each month over a period of three or five years. The
contributions may be used within six months following the third or
fifth anniversary of the commencement of the relevant savings
contract, at the employee's election, to exercise the options.
Alternatively, the employee may elect to have the savings, plus
(where applicable) any interest or bonus, repaid in cash. In the
case of redundancy, ceasing employment on grounds of injury or
disability, retirement, death, the transfer of the employing
business to another party, or a change of control of the employing
company, options may be exercised before completion of the relevant
savings contract. In certain circumstances, the exercise period of
options awarded under the all-employee share option plans may be
extended; for example, on the death of a participant, the executors
may exercise the option up to six months beyond the normal exercise
period or, if a participant has chosen to defer up to 12
contributions, the start of the normal exercise period will be
delayed by up to 12 months.
Under the HSBC Holdings Savings-Related Share Option Plan (UK),
the option exercise price is determined by reference to the average
market value of the HSBC Holdings ordinary shares on the five
business days immediately preceding the invitation date, then
applying a discount of 20%. The HSBC Holdings Savings-Related Share
Option Plan (UK) has an expiry date of 24 April 2030 (by which time
the plan may be extended with approval from shareholders) unless
the Directors resolve to terminate the plan at an earlier date.
HSBC Holdings all-employee share option plan
HSBC Holdings ordinary shares
------------------------------------------------------------------------
Dates of Exercise price Usually
award exercisable
from to from to from to Granted
1 Jan in Exercised Lapsed 30 Jun
2021 period in period in period 2021
------- ------- ------- ------- ----- --------
HSBC Savings-Related Share Option
Plan (UK)(1)
--------------- ------- ------------- -------------- ---------------
24 Sep (GBP) (GBP)
22 Sep 1 Nov 30 April
2015 2020 2.6270 5.9640 2019 2026 130,952,539 - 2,991,699 10,054,766 117,906,074
------- ------- ------- ------- ----- -------- ----------- ------ --------- ---------- -----------
1 The weighted average closing price of the shares immediately
before the dates on which options were exercised was GBP4.3567.
1
3 Other equity instruments
------------------------
Additional tier 1 capital - contingent convertible
securities
HSBC Holdings continues to issue contingent convertible
securities that are included in its capital base as fully CRR
II-compliant additional tier 1 capital securities on an end point
basis. These securities are marketed principally and subsequently
allotted to corporate investors and fund managers. The net proceeds
of the issuances are typically used for HSBC Holdings' general
corporate purposes and to further strengthen its capital base to
meet requirements under CRR II. These securities bear a fixed rate
of interest until their initial call dates. After the initial call
dates, if they are not redeemed, the securities will bear interest
at rates fixed periodically in advance for five-year periods based
on credit spreads, fixed at issuance, above prevailing market
rates. Interest on the contingent convertible securities will be
due and payable only at our sole discretion of HSBC Holdings, and
HSBC Holdings has sole and absolute discretion at all times to
cancel for any reason (in whole or part) any interest payment that
would otherwise be
payable on any payment date. Distributions will not be paid if
they are prohibited under UK banking regulations or if the Group
has insufficient reserves or fails to meet the solvency conditions
defined in the securities' terms.
The contingent convertible securities are undated and are
repayable at the option of HSBC Holdings in whole typically at the
initial call date or on any fifth anniversary after this date. In
addition, the securities are repayable at the option of HSBC in
whole for certain regulatory or tax reasons. Any repayments require
the prior consent of the PRA. These securities rank pari passu with
HSBC Holdings' sterling preference share and therefore rank ahead
of ordinary shares. The contingent convertible securities will be
converted into fully paid ordinary shares of HSBC Holdings at a
predetermined price, should HSBC's consolidated non-transitional
CET1 ratio fall below 7.0%. Therefore, in accordance with the terms
of the securities, if the non-transitional CET1 ratio breaches the
7.0% trigger, the securities will convert into ordinary shares at
the fixed contractual conversion prices in the issuance currencies
of the relevant securities, equivalent to GBP2.70 at the prevailing
rate of exchange on the issuance date, subject to anti-dilution
adjustments. During the first half of 2021, HSBC issued $2,000m of
contingent convertible securities across two issuances of $1,000m
each.
4 Notifiable interests in share capital
-------------------------------------
Between 1 January 2021 and 30 June 2021, HSBC Holdings had not
received any notifications of major holdings of voting rights
pursuant to the requirements of Rule 5 of the UK Disclosure
Guidance and Transparency Rules.
At 30 June 2021, as recorded in the register maintained by HSBC
Holdings pursuant to section 336 of the Securities and Futures
Ordinance of Hong Kong:
-- BlackRock, Inc. gave notice on 30 June 2021 that on 25 June
2021 it had the following interests in HSBC Holdings ordinary
shares:
a long position of 1,658,733,707 shares and a short position of
14,678,994 shares, representing 7.99% and 0.07% respectively, of
the ordinary shares in issue at that date.
-- Ping An Asset Management Co., Ltd, gave notice on 25
September 2020 that on 23 September 2020 it had a long position of
1,655,479,531 in HSBC Holdings ordinary shares, representing 8.00%
of the ordinary shares in issue at that date.
--
5 Dealings in HSBC Holdings listed securities
-------------------------------------------
HSBC has policies and procedures that, except where permitted by
statute and regulation, prohibit it undertaking specified
transactions in respect of its securities listed on The Stock
Exchange of Hong Kong Limited ('HKEx'). Except for dealings as
intermediaries or as trustees by subsidiaries of HSBC Holdings,
neither HSBC Holdings nor any of its subsidiaries has purchased,
sold or redeemed any of its securities listed on HKEx during the
half-year ended 30 June 2021.
6 Interim dividend for the 2021 half-year
---------------------------------------
On 2 August 2021, the Directors approved an interim dividend for
the 2021 half-year of $0.07 per ordinary share in respect of the
financial year ending 31 December 2021. The dividend will be
payable on 30 September 2021 to holders on the Principal Register
in the UK, the Hong Kong Overseas Branch Register or the Bermuda
Overseas Branch Register on 20 August 2021.
The dividend will be payable in US dollars, or in pounds
sterling or Hong Kong dollars at the forward exchange rates quoted
by HSBC Bank plc in London at or about 11.00am on 20 September
2021, or a combination of these currencies. Particulars of these
arrangements will be sent to shareholders on or about 27 August
2021 and changes to currency elections must be received by 16
September 2021. The ordinary shares in London, Hong Kong and
Bermuda, and American Depositary Shares ('ADSs') in New York will
be quoted ex-dividend on 19 August 2021. As announced on 23
February 2021, the Group has decided to discontinue the scrip
dividend option.
The dividend will be payable on ADSs, each of which represents
five ordinary shares, on 30 September 2021 to holders of record
on
20 August 2021. The dividend of $0.35 per ADS will be payable by
the depositary in US dollars. Alternatively, the cash dividend may
be invested in additional ADSs by participants in the dividend
reinvestment plan operated by the depositary. Elections must be
received by 10 September 2021.
Any person who has acquired ordinary shares registered on the
Principal Register in the UK, the Hong Kong Overseas Branch
Register or the Bermuda Overseas Branch Register but who has not
lodged the share transfer with the Principal Registrar in the UK,
Hong Kong Overseas Branch Registrar or Bermuda Overseas Branch
registrar should do so before 4.00pm local time on 20 August 2021
in order to receive the dividend.
Ordinary shares may not be removed from or transferred to the
Principal Register in the UK, the Hong Kong Overseas Branch
Register or the Bermuda Overseas Branch Register on 20 August 2021.
Any person wishing to remove ordinary shares to or from each
register must do so before 4.00pm local time on 19 August 2021.
Transfer of ADSs must be lodged with the depositary by 11.00am
on 20 August 2021 in order to receive the dividend. ADS holders who
receive a cash dividend will be charged a fee, which will be
deducted by the depositary, of $0.005 per ADS per cash
dividend.
7 Dividend on preference share
----------------------------
A quarterly dividend of GBP0.01 per Series A sterling preference
share is payable on 15 March, 15 June, 15 September and 15 December
2021 for the quarter then ended at the sole and absolute discretion
of the Board of HSBC Holdings plc. Accordingly, the Board of HSBC
Holdings plc has approved a quarterly dividend to be payable on 15
September 2021 to holders of record on 31 August 2021.
8 Proposed interim dividends for 2021
-----------------------------------
As announced on 23 February 2021, the Group will not be paying
quarterly dividends during 2021 but will consider whether to
announce a further interim dividend at the 2021 results
announcement in February 2022. The Group will review whether to
revert to paying quarterly dividends at or ahead of its 2021
results announcement in February 2022. The Board has adopted a
policy designed to provide sustainable cash dividends, while
retaining the flexibility to invest and grow the business in the
future, supplemented by additional shareholder distributions, if
appropriate. Reflecting the current improved economic outlook and
operating environment in many of our markets, we now expect to move
within our target dividend payout ratio of 40% to 55% of reported
earnings per ordinary share ('EPS') in 2021, with the flexibility
to adjust EPS for non-cash significant items. Additionally, in
2022, we intend to adjust EPS to exclude the forecast loss on the
sale of our retail banking operations in France.
Dividends are declared in US dollars and, at the election of the
shareholder, paid in cash in one of, or in a combination of, US
dollars, pounds sterling and Hong Kong dollars.
9 Earnings release
----------------
An earnings release for the three-month period ending 30
September 2021 is expected to be issued on 25 October 2021.
10 Final results
-------------
The results for the year to 31 December 2021 are expected to be
announced on 22 February 2022.
11 Corporate governance
--------------------
We are subject to corporate governance requirements in both the
UK and Hong Kong. Throughout the six months ended 30 June 2021, we
complied with the applicable provisions of the UK Corporate
Governance Code and also the requirements of the Hong Kong
Corporate Governance Code. The UK Corporate Governance Code is
available at www.frc.org.uk and the Hong Kong Corporate Governance
Code is available at www.hkex.com.hk.
Under the Hong Kong Code, the Group Audit Committee should be
responsible for the oversight of all risk management and internal
control systems, unless expressly addressed by a separate risk
committee. Our Group Risk Committee is responsible for oversight of
internal control, other than internal financial controls, and risk
management systems.
The Board has codified obligations for transactions in Group
securities in accordance with the requirements of the Market Abuse
Regulation and the rules governing the listing of securities on the
HKEx, save that the HKEx has granted waivers from strict compliance
with the rules that take into account accepted practices in the UK,
particularly in respect of employee share plans.
Following specific enquiries all Directors have confirmed that
they have complied with their obligations in respect of transacting
in Group securities throughout the period.
There have been no material changes to the information disclosed
in the Annual Report and Accounts 2020 in respect of the
remuneration of employees, remuneration policies, bonus and share
option plans and training schemes. Details of the number of
employees are provided on page 31 of the Interim Report 2021.
12 Changes in Directors' details
-----------------------------
Changes in current Directors' details since the date of the
Annual Report and Accounts 2020, which are required to be disclosed
pursuant to Rule 13.51(2) and Rule 13.51B(1) of the Hong Kong
Listing Rules, are set out below.
Henri de Castries
Retired from the Board, Group Remuneration Committee and
Nomination & Corporate Governance Committee on 28 May 2021.
Laura Cha, GBM
Retired from the Board and Nomination & Corporate Governance
Committee on 28 May 2021.
Irene Lee
Stepped down from the Group Remuneration Committee on 28 May
2021.
José Antonio Meade Kuribreña
Appointed as a member to the Group Remuneration Committee on 28
May 2021.
Heidi Miller
Retired from the Board, Group Risk Committee and Nomination
& Corporate Governance Committee on 28 May 2021.
Eileen Murray
Stepped down from the Group Audit Committee on 28 May 2021.
Pauline van der Meer Mohr
Stepped down from the Group Risk Committee on 28 May 2021.
David Nish
Stepped down from the Group Remuneration Committee on 23
February 2021.
13 Going concern basis
-------------------
As mentioned in Note 1 'Basis of preparation and significant
accounting policies' on page 105, the financial statements are
prepared on a going concern basis as the Directors are satisfied
that the Group and parent company have the resources to continue in
business for the foreseeable future. In making this assessment, the
Directors considered a wide range of information relating to
present and future conditions, including future projections of
profitability, cash flows, capital requirements and capital
resources. These considerations include stressed scenarios that
reflect the increasing uncertainty that the global Covid-19
pandemic has had on HSBC's operations, as well as the potential
impacts from other top and emerging risks, and the related impact
on profitability, capital and liquidity.
In particular, HSBC's principal activities, business and
operating models, strategic direction, and top and emerging risks
are addressed in the Overview section. A financial summary,
including a review of the consolidated income statement and
consolidated balance sheet, is provided in the 'Interim management
report' section. HSBC's objectives, policies and processes for
managing credit, liquidity and market risk are described in the
Risk section of the Annual Report and Accounts 2020. HSBC's
approach to capital management and allocation is described in the
'Treasury risk' section of the Annual Report and Accounts 2020.
14 Telephone and online share dealing service
------------------------------------------
For shareholders on the Principal Register who are resident in
the UK, with a UK postal address, and who hold an HSBC Bank plc
personal current account, the HSBC InvestDirect share dealing
service is available for buying and selling HSBC Holdings plc
ordinary shares. Details are available from: HSBC InvestDirect,
Forum 1, Parkway, Whiteley PO15 7PA; or UK telephone: +44 (0) 3456
080848, or from an overseas telephone: +44 (0) 1226 261090; or
website:
www.hsbc.co.uk/investments/products-and-services/invest-direct.
15 Stock symbols
-------------
HSBC Holdings plc ordinary shares trade under the following
stock symbols:
London Stock Exchange HSBA*
Hong Kong Stock Exchange 5
New York Stock Exchange (ADS) HSBC
Bermuda Stock Exchange HSBC.BH
*HSBC's primary market
16 Copies of the Interim Report 2021 and shareholder enquiries and
communications
---------------------------------------------------------------
Further copies of the Interim Report 2021 may be obtained from
Global Communications, HSBC Holdings plc, 8 Canada Square, London
E14 5HQ, United Kingdom; from Communications (Asia), The Hongkong
and Shanghai Banking Corporation Limited, 1 Queen's Road Central,
Hong Kong; or from US Communications, HSBC Bank USA, N.A., 1 West
39th Street, 9th Floor, New York, NY 10018, USA. The Interim Report
2021 may also be downloaded from the HSBC website,
www.hsbc.com.
Shareholders may at any time choose to receive corporate
communications in printed form or to receive notifications of their
availability on HSBC's website. To receive notifications of the
availability of a corporate communication on HSBC's website by
email, or to revoke or amend an instruction to receive such
notifications by email, go to www.hsbc.com/ecomms. If you provide
an email address to receive electronic communications from HSBC, we
will also send notifications of any future dividend entitlements by
email. If you received a notification of the availability of this
document on HSBC's website and would like to receive a printed copy
or, if you would like to receive future corporate communications in
printed form, please write or send an email (quoting your
shareholder reference number) to the appropriate Registrar at the
address given below. Printed copies will be provided without
charge.
Any enquiries relating to your shareholdings on the share
register (for example transfers of shares, change of name or
address, lost share certificates or dividend cheques) should be
sent to the Registrar at the address given below. The Registrars
offer an online facility, Investor Centre, which enables
shareholders to manage their shareholding electronically.
Hong Kong Overseas Branch Bermuda Overseas Branch
Principal Register Register Register
Computershare Investor Computershare Hong Kong Investor Relations Team
Services PLC Investor HSBC Bank Bermuda Limited
The Pavilions Services Limited 37 Front Street
Bridgwater Road Rooms 1712-1716, 17th Hamilton HM 11
Bristol BS99 6ZZ Floor Bermuda
United Kingdom Hopewell Centre
183 Queen's Road East
Hong Kong
Telephone: +44 (0) 370 Telephone: +852 2862 8555 Telephone: +1 441 299
702 0137 Email: hsbc.ecom@computershare.com.hk 6737
Email: web.queries@computershare.co.uk Web: www.investorcentre.com/hk Email:
Web: hbbm.shareholder.services@hsbc.bm
www.investorcentre.co.uk/contactus Web: www.investorcentre.com/bm
Any enquiries relating to ADSs should be sent to the depositary
at:
The Bank of New York Mellon Telephone (US): +1 877 283 5786
Shareowner Services Telephone (international): +1 201 680 6825
PO Box 505000 Email: shrrelations@cpushareownerservices.com
Louisville, KY 40233-5000 Web: www.mybnymdr.com
USA
A Chinese translation of this and future documents may be
obtained on request from the Registrar. Please also contact the
Registrar if you have received a Chinese translation of this
document and do not wish to receive such translations in
future.
Persons whose shares are held on their behalf by another person
may have been nominated to receive communications from HSBC
pursuant to section 146 of the UK Companies Act 2006 ('nominated
person'). The main point of contact for a nominated person remains
the registered shareholder (for example your stockbroker,
investment manager, custodian or other person who manages the
investment on your behalf). Any changes or queries relating to a
nominated person's personal details and holding (including any
administration thereof) must continue to be directed to the
registered shareholder and not HSBC's Registrar. The only exception
is where HSBC, in exercising one of its powers under the UK
Companies Act 2006, writes to nominated persons directly for a
response.
Cautionary statement regarding forward-
looking statements
This Interim Report 2021 contains certain forward-looking
statements with respect to HSBC's: financial condition; results of
operations and business, including the strategic priorities;
financial, investment and capital targets; and ESG
targets/commitments described herein.
Statements that are not historical facts, including statements
about HSBC's beliefs and expectations, are forward-looking
statements. Words such as 'will', 'should', 'expects', 'targets',
'anticipates', 'intends', 'plans', 'believes', 'seeks',
'estimates', 'potential' and 'reasonably possible', variations of
these words and similar expressions are intended to identify
forward-looking statements. These statements are based on current
plans, information, data, estimates and projections, and therefore
undue reliance should not be placed on them. Forward-looking
statements speak only as of the date they are made. HSBC makes no
commitment to revise or update any forward-looking statements to
reflect events or circumstances occurring or existing after the
date of any forward-looking statements.
Written and/or oral forward-looking statements may also be made
in the periodic reports to the US Securities and Exchange
Commission, summary financial statements to shareholders, proxy
statements, offering circulars and prospectuses, press releases and
other written materials, and in oral statements made by HSBC's
Directors, officers or employees to third parties, including
financial analysts.
Forward-looking statements involve inherent risks and
uncertainties. Readers are cautioned that a number of factors could
cause actual results to differ, in some instances materially, from
those anticipated or implied in any forward-looking statement.
These include, but are not limited to:
-- changes in general economic conditions in the markets in
which we operate, such as continuing or deepening recessions and
fluctuations in employment and creditworthy customers beyond those
factored into consensus forecasts (including, without limitation,
as a result of the Covid-19 pandemic); the Covid-19 pandemic, which
is expected to continue to have adverse impacts on our income due
to lower lending and transaction volumes, lower wealth and
insurance manufacturing revenue, and lower or negative interest
rates in markets where we operate, as well as, more generally, the
potential for material adverse impacts on our financial condition,
results of operations, prospects, liquidity, capital position and
credit ratings; deviations from the market and economic assumptions
that form the basis for our ECL measurements (including, without
limitation, as a result of the Covid-19 pandemic); potential
changes in HSBC's dividend policy; changes in foreign exchange
rates and interest rates, including the accounting impact resulting
from
financial reporting in respect of hyperinflationary economies;
volatility in equity markets; lack of liquidity in wholesale
funding or capital markets, which may affect our ability to meet
our obligations under financing facilities or to fund new loans,
investments and businesses; geopolitical tensions or diplomatic
developments producing social instability or legal uncertainty,
such as the developments in Hong Kong and the South China Sea, the
US's approach to strategic competition with China, supply chain
restrictions, claims of human rights violations, diplomatic
tensions between China and the UK, the EU, Australia and India, and
other potential areas of tension, which may affect HSBC by creating
regulatory, reputational and market risks; the efficacy of
government, customer and HSBC's actions in managing and mitigating
climate change and in supporting the global transition to net zero
carbon emissions, which may cause both idiosyncratic and systemic
risks resulting in potential financial and non-financial impacts;
illiquidity and downward price pressure in national real estate
markets; adverse changes in central banks' policies with respect to
the provision of liquidity support to financial markets; heightened
market concerns over sovereign creditworthiness in over-indebted
countries; adverse changes in the funding status of public or
private defined benefit pensions; societal shifts in customer
financing and investment needs, including consumer perception as to
the continuing availability of credit; exposure to counterparty
risk, including third parties using us as a conduit for illegal
activities without our knowledge; the expected discontinuation of
certain key Ibors and the development of near risk-free benchmark
rates, as well as the transition of legacy Ibor contracts to near
risk-free benchmark rates, which exposes HSBC to material execution
risks, and increases some financial and non-financial risks; and
price competition in the market segments we serve;
-- changes in government policy and regulation, including the
monetary, interest rate and other policies of central banks and
other regulatory authorities in the principal markets in which we
operate and the consequences thereof (including, without
limitation, actions taken as a result of the Covid-19 pandemic);
initiatives to change the size, scope of activities and
interconnectedness of financial institutions in connection with the
implementation of stricter regulation of financial institutions in
key markets worldwide; revised capital and liquidity benchmarks,
which could serve to deleverage bank balance sheets and lower
returns available from the current business model and portfolio
mix; changes to tax laws and tax rates applicable to HSBC,
including the imposition of levies or taxes designed to change
business mix and risk appetite; the practices, pricing or
responsibilities of financial institutions serving their consumer
markets; expropriation, nationalisation, confiscation of assets and
changes in legislation relating to foreign ownership; the future of
the UK's relationship with the EU following the UK's withdrawal
from the EU, which may continue to be characterised by uncertainty
despite the signing of the Trade and Cooperation Agreement between
the UK and the EU; passage of the Hong Kong national security law
and restrictions on telecommunications, as well as the US Hong Kong
Autonomy Act, which have caused tensions between China, the US and
the UK; general changes in government policy that may significantly
influence investor decisions; the costs, effects and outcomes of
regulatory reviews, actions or litigation, including any additional
compliance requirements; and the effects of competition in the
markets where we operate including increased competition from
non-bank financial services companies; and
-- factors specific to HSBC, including our success in adequately
identifying the risks we face, such as the incidence of loan losses
or delinquency, and managing those risks (through account
management, hedging and other techniques); our ability to achieve
our financial, investment, capital and ESG targets/commitments,
which may result in our failure to achieve any of the expected
benefits of our strategic priorities; model limitations or failure,
including, without limitation, the impact that the consequences of
the Covid-19 pandemic have had on the performance and usage of
financial models, which may require us to hold additional capital,
incur losses and/or use compensating controls, such as judgemental
post-model adjustments, to address model limitations; changes to
the judgements, estimates and assumptions we base our financial
statements on; changes in our ability to meet the requirements of
regulatory stress tests; a reduction in the credit ratings assigned
to us or any of our subsidiaries, which could increase the cost or
decrease the availability of our funding and affect our liquidity
position and net interest margin; changes to the reliability and
security of our data management, data privacy, information and
technology infrastructure, including threats from cyber-attacks,
which may impact our ability to service clients and may result in
financial loss, business disruption and/ or loss of customer
services and data; changes in insurance customer behaviour and
insurance claim rates; our dependence on loan payments and
dividends from subsidiaries to meet our obligations; changes in
accounting standards, which may have a material impact on the way
we prepare our financial statements; changes in our ability to
manage third-party, fraud and reputational risks inherent in our
operations; employee misconduct, which may result in regulatory
sanctions and/or reputational or financial harm; changes in skill
requirements, ways of working and talent shortages, which may
affect our ability to recruit and retain senior management and
diverse and skilled personnel; and changes in our ability to
develop sustainable finance products and our capacity to measure
the climate impact from our financing activity, which may affect
our ability to achieve our climate ambition. Effective risk
management depends on, among other things, our ability through
stress testing and other techniques to prepare for events that
cannot be captured by the statistical models it uses; our success
in addressing operational, legal and regulatory, and litigation
challenges; and other risks and uncertainties we identify in 'Top
and emerging risks' on pages 25 to 26 of the Interim Report
2021.
--
Certain defined terms
Unless the context requires otherwise, 'HSBC Holdings' means
HSBC Holdings plc and 'HSBC', the 'Group', 'we', 'us' and 'our'
refer to HSBC Holdings together with its subsidiaries. Within this
document the Hong Kong Special Administrative Region of the
People's Republic of China is referred to as 'Hong Kong'. When used
in the terms 'shareholders' equity' and 'total shareholders'
equity', 'shareholders' means holders of HSBC Holdings ordinary
shares and those preference shares and capital securities issued by
HSBC Holdings classified as equity. The abbreviations '$m', '$bn'
and '$tn' represent millions, billions (thousands of millions) and
trillions of US dollars, respectively.
Abbreviations
Currencies
GBP British pound sterling
CA$ Canadian dollar
EUR Euro
HK$ Hong Kong dollar
RMB Chinese renminbi
SGD Singapore dollar
$ United States dollar
Abbreviation
1H20 First half of 2020
1H21 First half of 2021
1Q20 First quarter of 2020
1Q21 First quarter of 2021
2H20 Second half of 2020
2Q20 Second quarter of 2020
2Q21 Second quarter of 2021
4Q20 Fourth quarter of 2020
A
ABS Asset-backed security
ADS American Depositary Share
AGM Annual General Meeting
AIEA Average interest-earning
assets
ALCM Asset, Liability and Capital
Management
ALCO Asset and Liability Management
Committee
AML Anti-money laundering
ANP Annualised new business
premiums
ASEAN Association of Southeast
Asian Nations
AT1 Additional tier 1
B
Basel Basel Committee on Banking
Supervision
Basel III Basel Committee's reforms
to strengthen global capital
and liquidity rules
BoCom Bank of Communications Co.,
Limited, one of China's
largest banks
BoE Bank of England
Bps Basis points. One basis
point is equal to one hundredth
of a percentage point
BVI British Virgin Islands
C
C&L Credit and Lending
CAPM Capital asset pricing model
CEA Commodity Exchange Act (US)
CET1 Common equity tier 1
CMB Commercial Banking, a global
business
CMC Capital maintenance charge
CODM Chief Operating Decision
Maker
CRD IV Capital Requirements Regulation
and Directive
CRR Customer risk rating
CRR II Revised Capital Requirements
Regulation and Directive,
as implemented
D
DoJ US Department of Justice
DPA Deferred prosecution agreement
(US)
DPD Days past due
DPF Discretionary participation
feature of insurance and
investment contracts
DVA Debt valuation adjustment
E
EBA European Banking Authority
EC European Commission
ECB European Central Bank
ECL Expected credit losses.
In the income statement,
ECL is recorded as a change
in expected credit losses
and other credit impairment
charges. In the balance
sheet, ECL is recorded as
an allowance for financial
instruments to which only
the impairment requirements
in IFRS 9 are applied.
EEA European Economic Area
Eonia Euro Overnight Index Average
EPS Earnings per ordinary share
ESG Environmental, social and
governance
EURSTR Euro short-term rate
EU European Union
Euribor Euro interbank offered rate
EVE Economic value of equity
F
FCA Financial Conduct Authority
(UK)
FRB Federal Reserve Board (US)
FSTF Financial Services Task
Force
FTE Full-time equivalent staff
FVOCI Fair value through other
comprehensive income
FX Foreign exchange
FX DPA Three-year deferred prosecution
agreement with the US Department
of Justice, entered into
in January 2018
G
GAAP Generally accepted accounting
principles
GBM Global Banking and Markets,
a global business
GDP Gross domestic product
GEC Group Executive Committee
GLCM Global Liquidity and Cash
Management
Group HSBC Holdings together with
its subsidiary undertakings
GTRF Global Trade and Receivables
Finance
H
HKEx The Stock Exchange of Hong
Kong Limited
HKMA Hong Kong Monetary Authority
HNAH HSBC North America Holdings
Inc.
Holdings HSBC Holdings Asset and
ALCO Liability Management Committee
Hong Kong Hong Kong Special Administrative
Region of the People's Republic
of China
HQLA High-quality liquid assets
HSBC HSBC Holdings together with
its subsidiary undertakings
HSBC Bank HSBC Bank plc, also known
as the non-ring-fenced bank
HSBC Bank HSBC Bank Middle East Limited
Middle
East
HSBC Bank HSBC Bank USA, N.A., HSBC's
USA retail bank in the US
HSBC Canada The sub-group, HSBC Bank
Canada, HSBC Trust Company
Canada, HSBC Mortgage Corporation
Canada and HSBC Securities
Canada, consolidated for
liquidity purposes
HSBC Continental HSBC Continental Europe
Europe
HSBC Finance HSBC Finance Corporation,
the US consumer finance
company (formerly Household
International, Inc.)
HSBC Holdings HSBC Holdings plc, the parent
company of HSBC
HSBC Private HSBC Private Bank (Suisse)
Bank (Suisse) SA, HSBC's private bank
in Switzerland
HSBC UK HSBC UK Bank plc, also known
as the ring-fenced bank
HSBC USA The sub-group, HSBC USA
Inc and HSBC Bank USA, consolidated
for liquidity purposes
HSI HSBC Securities (USA) Inc.
HSSL HSBC Securities Services
(Luxembourg)
HTIE HSBC Institutional Trust
Services (Ireland) Limited
I
IAS International Accounting
Standards
IASB International Accounting
Standards Board
IBA ICE Benchmark Administration
Ibor Interbank offered rate
ICAAP Internal capital adequacy
assessment process
IFRSs International Financial
Reporting Standards
ILAAP Internal liquidity adequacy
assessment process
ILM Internal liquidity metric
IRB Internal ratings-based
ISDA International Swaps and
Derivatives Association
L
LCR Liquidity coverage ratio
LGBT+ Lesbian, gay, bisexual and
transgender. The plus sign
denotes other non-mainstream
groups on the spectrums
of sexual orientation and
gender identity
LGD Loss given default
Libor London interbank offered
rate
LTI Long-term incentive
LTV Loan to value
M
Mainland People's Republic of China
China excluding Hong Kong
and Macau
MENA Middle East and North Africa
MREL EU minimum requirements
for own funds and eligible
liabilities
MSS Markets and Securities Services,
HSBC's capital markets and
securities services businesses
in Global Banking and Markets
N
Net operating Net operating income before
income change in expected credit
losses and other credit
impairment charges/Loan
impairment charges and other
credit provisions, also
referred to as revenue
NII Net interest income
NIM Net interest margin
NSFR Net stable funding ratio
NZBA Net-Zero Banking Alliance
O
OCI Other comprehensive income
OECD Organisation of Economic
Co-operation and Development
OFAC Office of Foreign Assets
Control
OTC Over-the-counter
P
PBT Profit before tax
PD Probability of default
POCI Purchased or originated
credit impaired
PPI Payment protection insurance
PRA Prudential Regulation Authority
(UK)
Premier HSBC Premier, HSBC's premium
personal global banking
service
PVIF Present value of in-force
long-term insurance business
PwC PricewaterhouseCoopers LLP
and its network of firms
R
RFR Risk-free rate
RNIV Risk not in VaR
RoE Return on average ordinary
shareholders' equity
RoTE Return on average tangible
equity
RWA Risk-weighted asset
S
SABB The Saudi British Bank
SEC Securities and Exchange
Commission (US)
ServCo Separately incorporated
group group of service companies
established in response
to UK ring-fencing requirements
Sibor Singapore interbank offered
rate
SME Small and medium-sized enterprise
SOFR Secured Overnight Financing
Rate
Sonia Sterling Overnight Index
Average
T
TRLibor Turkish Lira interbank offered
rate
U
UAE United Arab Emirates
UK United Kingdom
UN United Nations
US United States of America
V
VaR Value at risk
VIU Value in use
W
WPB Wealth and Personal Banking,
a global business
This document comprises the Interim Report 2021 and information
herein has been filed on Form 6-K with the US Securities and
Exchange Commission for HSBC Holdings plc and its subsidiary and
associated undertakings.
HSBC Holdings plc
Incorporated in England with limited liability. Registered in
England: number 617987
Registered Office and Group Head Office
8 Canada Square, London E14 5HQ, United Kingdom
Web: www.hsbc.com
(c) Copyright HSBC Holdings plc 2021
All rights reserved
No part of this publication may be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means,
electronic, mechanical, photocopying, recording, or otherwise,
without the prior written permission of HSBC Holdings plc.
Published by Global Finance, HSBC Holdings plc, London
Designed by Superunion, London (cover and 'Overview' section)
and by Global Finance, HSBC Holdings plc, London (rest of the
Interim Report 2021)
This information is provided by RNS, the news service of the
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END
IR MZGGRMZKGMZM
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