Value of the network
Connecting customers to opportunities
HSBC Holdings plc
Annual Report and Accounts 2015
Connecting customers
to opportunities
HSBC aims to be where the growth is, enabling
businesses to thrive and economies to prosper,
and ultimately helping people to fulfil their hopes
and realise their ambitions.
We’ve changed how
we are reporting this year
We have changed our Strategic
Report to make the information
more accessible. We provide
signposts when further information
can be found either elsewhere in
the Annual Report and Accounts or
on our website, www.hsbc.com.
Additional information
Additional information, including
commentary on 2014 compared
with 2013, may be found in the
Form 20-F. It is filed with the
US Securities and Exchange
Commission (‘SEC’) and is available
on www.hsbc.com and www.sec.gov.
Strategic Report
An overview of how we are structured,
what we do and where, our strategic actions,
the principal risks we face, and high-level
performance information. The section is
introduced by both the Group Chairman and
Group Chief Executive, and also explains the
role of the Board.
This Strategic Report was approved
by the Board on 22 February 2016.
Douglas Flint, Group Chairman
Financial Review
Detailed reporting of our financial
performance, at Group level as well
as within our matrix structure. It also
includes our full risk report and reporting
on how we manage capital.
02 HSBC at a glance
04 Who we are
06 Group Chairman’s Statement
10 Group Chief Executive’s Review
12 Our strategy
14 Value of the network
16 Delivering our network to customers
18 Strategic actions
20 Progress on selected strategic actions
22 Financial overview
28 Global businesses
32 Regions
34 How we do business
39 Our approach to tax
40 Our conduct
42 Risk overview
44 Remuneration
47 Detailed financial performance
– 48 Financial summary
– 65 Global businesses
– 76 Geographical regions
101 Risk
227 Capital
As a reminder
Reporting currency
We use US dollars.
Adjusted measures
We supplement our IFRSs figures
with adjusted measures used by
management internally. These
measures are highlighted with the
following symbol:
Further explanation may
be found on
page 48.
Corporate Governance
Details of our Board of Directors and senior
management, and our approach to
corporate governance and remuneration.
249 Corporate Governance Report
249 Biographies of Directors and
senior management
256 Board of Directors
262 Board committees
275 Internal control
277 Going concern and viability
278 Employees
285 Directors’ Remuneration Report
322 Directors’ Responsibility Statement
Financial Statements
Our financial statements and related
notes and reports.
323 Report of the Independent Auditors
336 Financial Statements
347 Notes on the Financial Statements
Other Information
Important information for our shareholders,
including contact information. Like any
industry and company, we have our set of
abbreviations and terminology. Accordingly,
we provide an explanation of the abbreviations
used and a glossary of key terms.
470 Shareholder information
478 Forward-looking statements
and Certain defined terms
479 Abbreviations
483 Glossary
491 Index
Cover image:
Tsing Ma Bridge carries road and rail
traffic to Hong Kong International Airport
and accommodates large container ships.
At HSBC, we help customers across the world
to trade and invest internationally.
HSBC HOldInGS plC
1
Strategic ReportFinancial Review Corporate Governance Financial Statements Shareholder Information
HSBC at a glance
We are one of the most international banking
and financial services organisations in the world.
Group
Our operating model consists
of four global businesses and
five geographical regions supported
by 11 global functions.
Global businesses
Our global businesses set globally consistent
business strategies and operating models.
They manage the products and business
propositions offered to our customers.
Reported profit before tax
(2014: $18.7bn)
$18.9bn
Reported revenue
(2014: $61.2bn)
$59.8bn
Key highlights
– We grew adjusted revenue
by 1%, primarily in client-
facing GB&M, CMB and
Principal RBWM.
– Adjusted operating expenses
increased by 5% from 2014.
However, costs in the second
half of the year were in line with
the first half as our cost saving
initiatives began to take effect.
– Through management initiatives,
we were able to reduce risk-
weighted assets (‘RWAs’) by
$124bn in 2015 and therefore
also the amount of capital we
are required to hold.
Adjusted profit before tax
(2014: $22.0bn)
$20.4bn
Risk-weighted assets
(2014: $1,220bn)
$1,103bn
Retail Banking and
Wealth Management
(‘RBWM’)
We help millions of
people across the
world to manage
their finances, buy
their homes, and
save and invest for
the future. Our
Insurance and
Asset Management
businesses support
all our global
businesses in meeting
their customers’ needs.
Further details
on page 30
Commercial Banking
(‘CMB’)
Global Banking and
Markets (‘GB&M’)
Global private
Banking (‘GpB’)
We help high net
worth individuals
and their families
to grow, manage
and preserve
their wealth.
Further details
on page 31
We support more
than two million
business customers
in 55 countries with
banking products and
services to help them
operate and grow.
Our customers range
from small enterprises
focused primarily
on their domestic
markets, through
to large companies
operating globally.
Further details
on page 28
We provide financial
services and products
to companies,
governments and
institutions. Our
comprehensive
range of products
and solutions, across
capital financing,
advisory and
transaction banking
services, can be
combined and
customised to
meet our clients’
specific objectives.
Further details
on page 29
Reported profit
before tax
$5.0bn
$8.0bn
$7.9bn
$0.3bn
Adjusted profit before tax
($bn)
Risk-weighted assets
($bn)
RBWM
CMB
GB&M
GPB
Other1
6.8
8.2
8.7
0.5
RBWM
CMB
GB&M
GPB
(3.9)
Other1
Key
1 Other – main items are property activities, unallocated
RBWM
GB&M
investment activities, centrally held investment companies,
GPB
and movement in fair value of own debt.
For further details, see page 73 and 99.
CMB
Other
HSBC HOldInGS plC
2
189.5
421.0
440.6
19.3
32.6
Strategic Report
HSBC at a glance
Key metrics
7.2%Return on equity
-3.7%Adjusted jaws
$0.51Dividends per
ordinary share
in respect
of 2015
Geographical regions
We operate in 71 countries and territories
around the world. Our operating entities
represent HSBC to customers, regulators,
employees and other stakeholders.
Market presence
priority markets:
North America
Latin America
Europe
– Canada
– US
– Mexico
– UK
– France
– Germany
– Switzerland
Middle East
and North Africa
– Egypt
– Saudi Arabia
– UAE
For further
details on our
regions, see
page 32.
Asia
– Hong Kong
– Australia
– Mainland China
– India
– Indonesia
– Malaysia
– Singapore
– Taiwan
Priority markets
Other market presence
Reported profit before tax
($bn)
Adjusted profit before tax
($bn)
Risk-weighted assets
($bn)
1
2
3
4
5
0.6
15.8
1.5
0.6
0.3
1
2
3
4
5
2.4
14.5
1.5
1.6
0.5
1
2
3
4
5
337.4
459.7
60.4
191.6
73.4
Key
1. Europe
2. Asia
3. Middle East and North Africa
4. North America
5. Latin America
HSBC HOldInGS plC
3
Strategic ReportFinancial Review Corporate Governance Financial Statements Shareholder Information Who we are
150 years
of helping customers
‘ We seek to build trusting
and lasting relationships
with our many stakeholders’
We are more than
250,000 employees
working around the
world to provide over
47 million customers
with a broad range of
banking products and
services to meet their
financial needs.
Our values
Our values define who we are as an
organisation and make us distinctive.
Open
We are open to different ideas and
cultures, and value diverse perspectives.
Connected
We are connected to our customers,
communities, regulators and each
other, caring about individuals and
their progress.
dependable
We are dependable, standing firm
for what is right and delivering
on commitments.
150-year heritage
These values reflect the best aspects of
our 150-year heritage. They are critical to
fulfilling our purpose to help businesses
to thrive, economies to prosper and
people to realise their ambitions.
Our role in society
How we do business is as important as
what we do. We seek to build trusting
and lasting relationships with our many
stakeholders to generate value in society
and deliver long-term shareholder returns.
The scale of our operations makes this
all the more important. We serve more
than 47 million customers around the
world, ranging from individuals to the
largest of companies. We are committed
to conducting our business in a way
that delivers fair value to customers,
strengthens our communities and
helps ensure a properly functioning
financial system.
We employ more than a quarter of a
million people, and provide opportunities
for professional development and
personal growth. Our people represent
more than 150 nationalities and reflect
our diversity and reach. We value diversity
as essential to who we are and our ability
to fulfil our purpose.
We also recognise the significant role
that the financial system plays in tackling
challenges such as financial crime and
climate change. We are strengthening
our ability to safeguard customers and
ourselves against financial crime, and
believe this will be a source of long-term
advantage for our business. We are also
committed to helping enable a transition
to a low-carbon economy through our
business activities and our own operations.
For further details, see ‘How we do
business’ on page 34.
HSBC HOldInGS plC
4
Strategic Report Who we are
Our heritage,
diversity and scale
make us unique
Our network of
businesses connects
customers to
opportunities…
…and we are mindful
of our responsibilities
to multiple stakeholders
Established
1865
Facilitate more than
Employees
$500bn
in trade and
receivables
finance
255,000
full-time
equivalent
(‘FTE’)
new mortgage
lending
$49bn
present in
71countries
and territories
More than
4,700branches
More than
55,000
internal employee
movements
More than
145languages
spoken
More than
205mdigital retail
payments
More than
40,000
supplier
relationships
More than
300,000
hours
volunteering
Serving
more than
47mcustomers
100
payments processed
each second
More than
550regulatory
relationships
HSBC HOldInGS plC
5
Strategic ReportFinancial Review Corporate Governance Financial Statements Shareholder Information Group Chairman’s
Statement
We enter 2016 with a clear strategy and with
a plan for its implementation already well
under way. Our diversified business model
and balance sheet strength form the foundation
for our future progress, and position HSBC
well to deal with today’s challenging economic
and financial conditions.
2015 was marked by some seismic shifts in global
economic conditions, most notably the continuation
of a sharp decline in commodity and oil prices,
in part attributable to growing concerns over China’s
slowing economic growth. As a consequence,
monetary policy remained accommodative
throughout the major developed economies and
key currency interest rates remained at historically
low levels. Fiscal priorities continued to focus on
controlling spending, an emphasis replicated in the
private sector as weak revenue growth persisted
in many industries.
Against this backdrop, the Group’s financial
performance in 2015 was broadly satisfactory,
with reported profit before tax rising 1% to
$18.9bn. On the adjusted basis used to measure
management and business performance, profit
before tax of $20.4bn was 7% lower than
that achieved in 2014, driven by higher costs
and credit charges.
Earnings per share of $0.65 compared with $0.69
in 2014. Sound management of capital, accelerated
run-off of legacy books and shrinking the balance
sheet in areas that can no longer support the
expanded capital requirements now in force,
contributed to the common equity tier 1 ratio
increasing by 0.8 percentage points to 11.9%.
This capital released from managing the asset
base, together with that generated from operations,
allowed the Board to approve a fourth interim
dividend in respect of 2015 of $0.21 per ordinary
share. This took dividends per ordinary share in
respect of the year to $0.51, $0.01 higher than
2014. Total dividends in respect of 2015 amounted
to $10.0bn, $0.4bn higher than in respect of 2014.
In approving the dividend increase, the Board noted
that prospective dividend growth remained
dependent upon the long-term overall profitability
of the Group and delivering further release of less
efficiently deployed capital. Actions to address
these points are core elements of the Investor
Update provided last June.
HSBC HOldInGS plC
6
Strategic Report Group Chairman’s Statement
Sound progress on strategic initiatives
The Strategic Report highlights delivery to date
against the strategic objectives laid out in last
June’s Investor Update.
When assessing management performance during
2015, outside of the financial results, the Board took
particular account of the following aspects.
The successful negotiation of a majority stake
in a new nationally licensed securities joint-venture
in mainland China is the culmination of more
than a decade of seeking out an appropriate
platform through which to participate in the
country’s fast-developing securities markets.
Once final approvals have been received, we
believe this will establish a landmark opportunity
for HSBC to contribute to the development of
China’s capital markets.
‘ Our three major businesses generated higher
revenue, notwithstanding the uncertain
economic environment and the considerable
reshaping necessitated by regulatory changes’
During 2015, the Group maintained, reinforced and
broadened its leadership position in all aspects of
the internationalisation of the renminbi. This position
has been built over the past five years to establish
a highly competitive platform to service China’s
international trade and investment flows as it
pursues the financial liberalisation and outgoing
investment priorities laid out in the recent 13th
five-year plan. The recent highly successful State
visit to the UK, following an equally successful
Economic and Financial dialogue in China, served to
illustrate the huge potential for mutually beneficial
cooperation between the UK and China from which
HSBC is uniquely positioned to benefit in the realm
of financial services.
The disposal of our Brazilian operations, which
is expected to complete shortly, was both timely
and well executed. This divestment was a key
element of the Board’s desire to simplify the Group
and redeploy capital to geographic areas where
we have greater competitive strength, most
particularly in Asia.
Our three major businesses generated higher
revenue, notwithstanding the uncertain economic
environment and the considerable reshaping
necessitated by regulatory changes. Global Banking
and Markets and Retail Banking and Wealth
Management, in particular, have made significant
changes to their business models and are now
beginning to see the benefits. Commercial Banking
continued to leverage the value of the Group’s
international network and product capabilities.
Global Private Banking, chastened by the exposure
of historical failings in Switzerland, accelerated
disposal of a number of customer portfolios as
it refocused its business model on core customer
segments within a fully transparent operating model.
Across all businesses, the Board recognised
a heightened emphasis on customer focus, which
permeated recruitment, training, product design
and incentives. This is essential to the restoration
of trust.
Finally, and underpinning the above, we made
further progress embedding the standards now
expected to protect customers and the financial
system from bad actors and financial crime. We are,
however, not yet where we need to be. There is still
more investment to make with ever greater urgency
as more and more activity takes place digitally
through multiple channels and via increasingly
sophisticated mobile devices. HSBC’s determination
to address emerging risks and identify bad actors
remains resolute. The Board has made it one of its
top priorities to oversee and ensure management’s
delivery of the necessary enhancements to
customer and transaction screening systems.
The regulatory landscape has
become clearer
The second half of 2015 saw completion of some
of the most important and complex initiatives
undertaken to repair the fault lines that contributed
to the global financial crisis. International agreement
was reached on the amount of total loss-absorbing
capacity that global systemically important banks,
such as HSBC, need for orderly resolution, without
risks to public funds. This allowed the Financial
Stability Board to report to G20 leaders that they
had finalised the tools needed to end ‘too big to fail’
in the banking sector. There is still much to do
to build these tools into national legislative and
regulatory frameworks; however, this international
agreement is an important step forward towards
finally settling the capital base against which we
can assess our target returns.
HSBC HOldInGS plC
7
Strategic ReportFinancial Review Corporate Governance Financial Statements Shareholder Information Strategic Report | Group Chairman’s Statement
There is now broad agreement that the
implementation of the suite of regulatory reforms
introduced post-crisis has made the financial system
more resilient. Accordingly, public policy priorities
are now focusing on harnessing this greater strength
and resilience to support economic growth, which
we welcome.
Concentration within the current regulatory
agenda is increasingly on new and emerging risks
and vulnerabilities. There is growing industry
participation in dialogue around these emerging
threats, most notably regarding cyber risk, the
changing liquidity dynamics resulting from more
market-based finance and financial exclusion
stemming from excessive risk aversion.
Likewise, addressing the root causes of the
misconduct issues that have bedevilled our industry
in recent years has led to growing cooperation
arising out of the multiplicity of joint working groups
and enquiries that have examined the most serious
failings. 2016 sees the introduction of the new
Senior Managers’ Regime in the UK, which will
reinforce individual responsibility and accountability,
which we welcome.
Also in the UK, 2015 saw further clarity given to
the operation of the ‘ring-fenced’ bank structure
and a welcome announcement of a reduction in
the scope and rate of the bank levy going forward.
It is too early to say whether this amounts to a new
understanding between the industry and the public,
but it is encouraging that the industry is once again
gaining a voice at a time of great economic and
geopolitical uncertainty. We can only fulfil our
essential role if we have regained trust, a fact that
is now fully understood.
Review of headquarters’ location
As we announced last week, the Board concluded
its review of domicile alternatives and decided
unanimously to remain headquartered in the UK.
As we evaluated jurisdictions against the specified
criteria, it became clear that the combination of
our strategic focus on Asia and maintaining our hub
in one of the world’s leading international financial
centres, London, was not only compatible, but
offered the best outcome for our customers and
shareholders. This decision was taken after some
10 months of careful analysis and assessment
of geopolitical, economic, regulatory and financial
factors. Advice was taken from internationally
respected experts and from leading financial
advisers. After considering all the relevant factors,
the Board concluded that having our headquarters
in the UK and our significant business in Asia Pacific
led from Hong Kong, delivers the best of both
worlds to our stakeholders. The completion of this
review closes out one of the 10 strategic actions
set out at our Investor Update last June.
Board changes
Subsequent to the changes announced with our
interim results, we have made further changes to
the Board. Safra Catz stepped down from the Board
at the end of 2015 and Sir Simon Robertson, our
Deputy Chairman, and Rona Fairhead will retire
at the forthcoming Annual General Meeting.
‘ There is now broad agreement that the
implementation of the suite of regulatory
reforms introduced post-crisis has made
the financial system more resilient’
Safra served on the Board for nearly eight years
while Simon and Rona are HSBC’s longest serving
non-executive Directors, having served for close to
10 and 12 years, respectively. Over their respective
periods of service, they have made invaluable
contributions to the Group, not least during the
global financial crisis, for which the Board is
extremely grateful. Their combined expertise and
experience in matters of governance, audit and
risk, remuneration, technology, and international
business affairs has been invaluable to HSBC
and they will, upon their retirement, be sorely
missed. On behalf of shareholders and the Board,
I want to take this further opportunity to recognise
their immense contributions to HSBC.
The Board was delighted to announce the
appointments of Paul Walsh and Henri de Castries
as independent non-executive Directors. Paul
joined the Board on 1 January 2016 and Henri’s
appointment takes effect from 1 March 2016.
Paul Walsh was Group CEO of Diageo plc between
2000 and 2013. Under his leadership, Diageo was
refocused from a diversified food, beverage and
hotels conglomerate into one of the world’s leading
global alcoholic beverage businesses. In building
this position, Paul took Diageo from a largely
European and US business into emerging markets
and to global leadership through the acquisition of
many of the world’s leading brands.
Henri de Castries has more than 25 years of
international experience in the finance industry.
Henri has been Chairman and Chief Executive
Officer of AXA, one of the world’s leading global
insurance and asset management companies since
April 2010 after serving as Chairman of its
Management Board from May 2000.
Their international experience and track record
in leading the reshaping of growing businesses,
including undertaking business portfolio
realignments, will be of great value to the Board as
we address the opportunities and challenges ahead.
HSBC HOldInGS plC
8
There is a real possibility of meaningful stimulus
for the global economy to come from further trade
liberalisation initiatives such as the Trans-Pacific
Partnership agreement, which was signed earlier
this month.
The global focus on infrastructure development,
most notably the Belt and Road initiative in China
and the Juncker plan in Europe will expand public/
private financing opportunities.
Similarly, the agreements reached on climate change
at the recent COP21 conference in Paris will require
further significant infrastructure renewal. They
will also greatly expand the market for sustainable
financing options such as green bonds where HSBC
is a leading participant. Reinforcing this position,
the Group recently committed $1bn to a green
bond portfolio to fund projects in sectors such
as renewable energy, energy efficiency, clean
transportation and climate change adaption as
well as SME financing in sectors such as public
transport, education and healthcare.
Technology advancements in financial services are
broadening access, improving customer service and
lowering the costs of service delivery. At the same
time, the amount of data held digitally is exploding,
reinforcing the need to bolster cyber security. There
is an urgent public policy need to clarify how
responsibility is to be shared, given the growing
number of routes through which customers can
authorise movement of money from their accounts
or the sharing of data within these accounts.
We enter 2016 with a clear strategy and with much
of the Group’s required reshaping completed or under
way. Our 264,000 staff, like their predecessors, went
the extra mile consistently throughout 2015 to meet
the demands placed on them by our customers,
regulators and the public. I want to place on the
record the Board’s appreciation of that commitment
and our gratitude for what they have achieved to
make HSBC fit for the next 150 years.
douglas Flint
Group Chairman
22 February 2016
Group Chairman’s Statement
looking back – our 150th anniversary
In 2015, HSBC marked its 150th anniversary by
recognising its staff for their essential contributions
through the ages, and its customers for their shared
commitment and loyalty. As we enter the next
period of our history, I want to reiterate these
messages of gratitude and underline our recognition
that such commitment and loyalty have to be earned.
HSBC has also always recognised its responsibilities
to the communities it serves and so in this special
year committed $150m of additional funding
to community projects around the world over
three years.
We also wanted to identify a distinctive cause with
global significance to mark our special anniversary.
‘ We enter 2016 with a clear strategy and with
much of the Group’s required reshaping
completed or under way’
We were delighted, therefore, to announce a
partnership with Cancer Research UK to support
the scientific leaders of tomorrow through a
$25m contribution towards the development
and construction of the Francis Crick Institute.
This state-of-the-art biomedical research facility
will open in the heart of London in 2016 and support
more than 1,200 scientists, collaborating to tackle
the diseases that pose the greatest threat to
humanity – cancer, heart disease, lung disease
and infectious diseases, including HIV and malaria.
To mark HSBC’s support, 150 PhD students,
selected from across the world, will have the
opportunity to conduct vital research at the
new institute.
looking ahead
Current market conditions are inevitably concentrating
attention on the risks that exist within the global
economy. It is, however, important also to recognise
again the resilience that our diversified business
model and balance sheet strength provide, as well
as noting the many counterbalances that should help
to underpin the global economy.
China’s slower economic growth will undoubtedly
contribute to a bumpier financial environment, but
it is still expected to be the largest contributor to
global growth as its economy transitions to higher
added value manufacturing and services and
becomes more consumer driven. This transition
is driving our focus on the Pearl River Delta as a
priority growth opportunity given its concentration
of high tech, research focused and digital businesses.
HSBC HOldInGS plC
9
Strategic ReportFinancial Review Corporate Governance Financial Statements Shareholder Information Group Chief
Executive’s Review
HSBC is better balanced, better connected
and better placed to capitalise on higher return
businesses than it was 12 months ago.
Business performance
Our performance in 2015 again demonstrated the
fundamental strength of our business. Targeted
investment, prudent lending and our diversified,
universal banking business model helped us achieve
revenue growth in a difficult market environment
whilst also reducing risk-weighted assets.
We also started to implement the actions that
we announced at our Investor Update in June
to adapt HSBC to new operating conditions.
Completing these plans will refocus the business
to achieve stronger, sustainable growth and we
are acting on them quickly and efficiently.
On an adjusted basis, we grew revenue over the
course of the year. Global Banking and Markets
performed strongly and Commercial Banking grew
steadily in spite of slower trade. Principal Retail
Banking and Wealth Management also grew
following a strong Wealth Management performance
in the first half. Global Private Banking grew in
Asia, but was down overall due to the impact
of the continued repositioning of the business.
Our adjusted operating expenses increased
as we continued to strengthen our compliance
capability whilst also investing for growth. However,
a combination of strict cost management and the
cost reduction programmes that we started in the
middle of the year helped us keep second half costs
flat relative to the first half, excluding the bank levy.
Loan impairment charges remained generally low
despite an increase in provisions towards the end
of the year. This demonstrates again our prudent
approach to lending and the benefit of our de-risking
measures since 2011.
In total, we generated $11.3bn of capital in
2015, which enabled us to increase the dividend
and strengthen the common equity tier 1 ratio.
HSBC HOldInGS plC
10
Strategic Report Group Chief Executive’s Review
Adapting HSBC
The plans that we announced at our Investor Update
are designed to grow income, reduce costs and
thereby increase our return on equity. There is a
lot to do to achieve our targets but we have made
a good start.
Reducing our risk-weighted assets (‘RWAs’) is vital
to achieving a better return for shareholders. In
2015, management action reduced RWAs by
$124bn, which takes us nearly half-way towards
our target to be achieved by the end of 2017. Much
of this reduction came from Global Banking and
Markets, although a large proportion also came from
Commercial Banking, accelerated asset sales in our
US Consumer and Mortgage Lending portfolio and
the sale of our investment in Industrial Bank. We
expect to deliver further RWA reductions in 2016,
in addition to a decrease of around $33bn from
the sale of our business in Brazil.
‘ The plans that we announced at our Investor
Update are designed to grow income, reduce
costs and increase our return on equity. There
is a lot to do to achieve our targets but we have
made a good start’
We have received a number of offers for our
business in Turkey since June, none of which
were deemed to be in the best interests of
shareholders. We have therefore decided to retain
and restructure our Turkish operations, maintaining
our wholesale banking business and refocusing
our retail banking network. This will provide better
value for shareholders and continue to allow our
clients to capitalise on HSBC’s international footprint.
Our cost-reduction measures are already having
an impact on our cost base and HSBC is now a
leaner business than at the half-year. All of our
initiatives to reduce costs are under way and
we expect further progress in 2016.
We continued to redevelop our businesses in the
US and Mexico over the course of 2015. These are
important businesses in the context of the wider
Group and we are committed to turning them
around. An increase in cross-border business
across the NAFTA area and improved collaboration
between global businesses helped to generate
increased revenue. They remain works in progress.
We are investing in areas of the business that
extract the greatest gain from our international
network and market-leading strength in Asia.
Investment in flagship transaction banking products
helped to increase our market share, particularly
in Payments and Cash Management, Foreign
Exchange and Securities Services.
The development of our Asia businesses is
gaining momentum and we achieved growth
in excess of GDP in seven out of eight of our
priority Asia markets.
We continue to expand our business in the Pearl
River Delta and reached a number of milestones
in 2015, including the signing of an agreement
to form the first majority foreign-owned securities
company in mainland China. When approved,
this will allow us to engage in the full spectrum
of securities business in the country.
We remain the world’s number one bank for offshore
renminbi services and increased revenue by 3%
year-on-year in this vitally important growth market.
Summary and outlook
HSBC is better balanced, better connected
and better placed to capitalise on higher return
businesses than it was 12 months ago. Our
universal banking model is generating higher
income from collaboration between businesses
and our operating expenses and capital ratio
are trending in the right direction. Maintaining
these trends while boosting revenue will be
the principal challenge in the year ahead.
The current economic environment is uncertain,
but our diversified banking model, low earnings
volatility and strong capital generation give us
strength and resilience that will stand us in
good stead.
We remain focused on delivering our nine remaining
strategic actions by the end of 2017.
Stuart Gulliver
Group Chief Executive
22 February 2016
HSBC HOldInGS plC
11
Strategic ReportFinancial Review Corporate Governance Financial Statements Shareholder Information Our strategy
Capturing value from our international network
Our ambition is to be recognised as the world’s leading and
most respected international bank. We will achieve this by
focusing on the needs of our customers and the societies we
serve, thereby delivering long-term sustainable value to all of
our stakeholders.
We aim to provide an unparalleled international network to
connect faster-growing and developed markets. We seek to
develop our wealth and retail banking businesses in markets
where we can achieve profitable scale. Our strategy is built
around long-term trends and reflects our distinctive advantages.
long-term trends
Increasing global connectivity
Shifting economic powers
The international flow of goods, services
and finance continues to expand, aided
by the development of technology and
data in personal and commercial exchanges.
Of the world’s top 30 economies, we expect
those of Asia, the Middle East and Africa to
grow about three-fold by 2050.
The international flow of goods, services
and finance, 2012 to 2025
Shipping volumes, measured by
weight of goods unloaded
2012
2025
$28 trillion
$85 trillion
33%
62%
Key
Emerging and
transition markets
Developed markets
Source: McKinsey Global Institute,
‘Global flows in a digital age’ (2014)
1990: 4,126m
metric tonnes
2014: 9,808m
metric tonnes
Source: United Nations Conference on Trade and Development
Major trade and economic zones
Exports, compound annual growth rate 2014 to 2025
6.2% 5.7% 5.5% 4.7%
4.4%
3.5%
Greater China
Middle East and
north Africa
ASEAn
nAFTA
Trans-pacific
partnership
European
Economic Area
Source: Oxford Economics
HSBC HOldInGS plC
12
Strategic Report Our strategy
distinctive advantages
long-term strategy
Unrivalled global presence
Our network provides access to more than 90%
of global GDP, trade and capital flows. We use it to
offer products that facilitate trade and investment,
and help clients participate in global growth
opportunities. Our global presence helps us build
deeper and more enduring relationships with
businesses and individuals with international needs.
Universal banking model
Our four global businesses serve the full range of
banking customers, from individual savers to large
multinational companies. This universal banking
model enables us to meet clients’ diverse financial
needs effectively. Our balanced mix of businesses
supports a strong capital and funding base, reduces
our risk profile and volatility, and generates stable
shareholder returns.
develop our international network
We have an unparalleled presence in, and a long-
term commitment to, our strategic markets. We aim
to develop our network of businesses to support future
growth and increasing global connectivity. Our global
reach and range of services place us in a strong
position to connect customers to opportunities, helping
both businesses and individuals to grow and prosper.
Invest in wealth management
and select retail businesses
We aim to capture opportunities arising from social
mobility, wealth creation and long-term demographic
changes in our priority markets. We invest in full-scale
retail businesses in markets where we can achieve
profitable scale.
We defined a series of strategic actions
to deliver our long-term strategy through 2017.
For details, see page 18.
Growing middle class
Ageing populations
Economic growth in the world’s fast-growing
economies is bringing millions of people into
the middle class, especially in Asia.
The world’s population aged 60 and above will
more than double from less than one billion in
2015 to more than two billion by 2050.
Size of middle class population
2010
2020
2030
Key
28%
54%
1.8bn
3.2bn
5.0bn
66%
Asia
Rest of the world
Over 64s as a share of working age population
(%)
20%
30%
40%
50%
10%
0%
EU
US
Greater China
India
Indonesia
World
Key
2015
2050
Source: OECD Development Centre, ‘Emerging
middle class in developing countries’ (2010)
Source: United Nations, 2015 Revision
of World Population Prospects
HSBC HOldInGS plC
13
Strategic ReportFinancial Review Corporate Governance Financial Statements Shareholder Information Value of the network
Unrivalled global presence
Our network of businesses covers the world’s largest
and fastest-growing trade corridors and economic zones.
More than 40% of our client revenue derives from
businesses and individuals with an international presence.
Mexico:
Agriculture
Financing growth
– AlSA
Tomato producer with 80% of
product exported to the US and
Canada. Our financing products
helped ALSA grow production
capacity by 50% and incorporate
eco-friendly technology. ALSA
manages foreign exchange through
our digital platform, HSBCnet.
Access to opportunities
Our market presence
Transaction banking products
Countries
and
territories
71
accounting for more than
Transaction banking product revenue
90%
of global Gdp, trade
and capital flows
Sources: Global Insight (2015)
and United Nations Conference
on Trade and Development (2014)
$15.7bn
Our transaction banking products help clients
participate in global trade and capital flows.
We are an industry leader in: global trade
and receivables finance, payments and cash
management, and foreign exchange. We also
provide securities services to help financial
institutions access international markets.
HSBC HOldInGS plC
14
Strategic Report Value of the network
Simplified international banking
– Somfy
World leader in door and window
automation, operating in 60 countries.
For more than 10 years, we have
simplified Somfy’s banking arrangements
across the Americas, Europe, the Middle
East and Asia. We provide Somfy with
cash and liquidity management in 23
countries, including renminbi cash flows
into and out of China.
France:
Motors and automatic controls
Hong Kong:
design and manufacturing
Tailored financing
– Cosmosupplylab
Producer of smart accessories for
global computer and electronics
brands. Our relationships across
Cosmosupplylab’s supply chain
in Asia and the US allowed us to
provide tailored financing to help
increase production to meet
fast-growing demand.
largest trade corridors and market presence
2020 forecast, $ billion
726
697
611
586
HSBC priority market on
both sides of corridor
HSBC priority market on
one side of corridor
275
273
215
193
167
155
155
127
124
118
106
CHN-
HK
CAN-
USA
CHN-
USA
MEX-
USA
CHN-
JPN
CHN-
KOR
FRA-
GER
JPN-
USA
CHN-
GER
GER-
USA
GER-
UK
AUS-
CHN
KOR-
USA
GER-
POL
CHN-
VNM
Source: Oxford Economics
Our priority markets cover both
sides of nine of the world’s 15
largest bilateral trade corridors,
and represent at least one side
of the other six corridors. These
corridors represent nearly 50%
of global trade. Five of the 15
corridors are within Asia and six
connect countries between two
geographic regions.
HSBC HOldInGS plC
15
Strategic ReportFinancial Review Corporate Governance Financial Statements Shareholder Information Strategic Report
Delivering our network
to customers
Business synergies
(equivalent % of total reported revenue 2015)
19%
Business synergies revenue
($bn)
2015
2014
11.6
11.0
Services around the world
Business synergies
Engaging in the global economy
delivering the whole of HSBC
The value of our international network
comes from our connections to the
people and companies that drive
economic activity. We provide products
and services to meet diverse financial
needs – from purchasing a music
download to financing the construction of
an international airport. Our relationships
reflect the geographic reach of our
network and the range of customers
we support. For further details on our
global businesses, see pages 28 to 31.
Our network of clients enables us to
have greater insight into trade and capital
flows across supply chains. When
we bank clients on both sides of a
transaction, we can help them overcome
obstacles and manage risk and liquidity
costs more effectively. We are uniquely
positioned to be the bridge between
customers, both large and small,
around the world.
We develop our products and services
to be globally consistent and to represent
the highest standards across all of our
markets. This allows us to serve our
clients efficiently and in a consistent
way wherever we serve them.
By providing a wide range of product
capabilities and resources, we bring
additional benefits to customers and
efficiencies to the Group. Our global
businesses work together to offer tailored
solutions to the various client segments
we serve across the Group with a higher
level of performance and greater ease
of use.
For example, we can provide Markets
products to small businesses as well as
large multinational companies. We insure
risks for individuals and corporations alike.
We aim to develop long-term relationships
that lead to us supplying products
and services from across our global
businesses. Many of our private banking
clients, for example, own companies
that are Commercial Banking or Global
Banking and Markets (‘GB&M’) clients.
By sharing knowledge and expertise,
our businesses continuously enhance
our capabilities and operations.
In 2015, business synergy revenue
were equivalent to 19% of total revenue
for the Group. We grew revenue across
the majority of the cross-business
synergies we track, including a 7%
increase in revenue from Payments
and Cash Management (‘PCM’) products
sold to GB&M customers.
‘ Our relationships reflect
the geographic reach
of our network’
HSBC HOldInGS plC
16
Delivering our network to customers
Hong Kong:
diversified multinational
Hongkong land’s Central
portfolio: A major listed
company of the Jardine
Matheson Group with a
portfolio of prime office
and luxury retail property
in key Asian cities.
Case study: Jardine Matheson
For more than 100 years,
we have been a trusted
banking partner of the
Jardine Matheson Group,
providing a full spectrum
of banking services and
capital to support it in
achieving its strategic goals.
Comprehensive solutions
We serve Jardine Matheson
globally with a wide range of
products including debt and
equity capital financing, trade
and receivables financing, foreign
exchange, cash management
and asset management. Our
financing and foreign exchange
services have supported Jardine
Matheson in making strategic
acquisitions across Asia.
In 2015, we became the sole
provider of cash management
for Jardine Matheson’s retail
subsidiary, Dairy Farm, across
10 markets in the ASEAN region
and Greater China. We also help
Jardine Matheson manage part
of its group pension portfolio with
our asset management products.
number of markets served
number of products provided
17
12
HSBC HOldInGS plC
17
Strategic ReportFinancial Review Corporate Governance Financial Statements Shareholder Information Strategic actions
At our Investor Update in June 2015,
we outlined a series of actions to deliver
our strategy and capture value from our
global network.
delivering our strategy
Since 2011, we have restructured the
Group to make it simpler and leaner.
This means we have a consistent global
structure and a better platform for
growth, increasing our efficiency and
responsiveness to changing conditions.
Today, the Group is financially stronger,
and we are establishing rigorous controls
to protect against financial crime and
misconduct. This is underpinned by a
clear strategy built around serving tens
of millions of loyal customers. As the
world changes, it is vital that we evolve
to meet challenges and make the most
of opportunities.
The competitive landscape has also
changed, with large global banks
retreating from some markets as
local banks emerge as regional
competitors. Technology is reshaping
customer expectations and providing
opportunities to engage in new and
more efficient ways, while also
introducing new forms of competition
from non-bank service providers.
Meanwhile, long-term trends continue
to shift the global economy through
increased international connectivity,
an expansion of capital markets and
larger affluent populations.
Adapting to a changed world
Our strategic actions
Our industry is dynamic, and a series of
important changes to our environment
has taken place since the transformation
we began five years ago. Regulatory
changes have been introduced to make
the financial services industry more
resilient. Greater capital and funding
requirements, increased local regulation
and a sharper focus on conduct and
compliance have materially altered
our business.
In response to these changes, we
announced a series of strategic actions
in June 2015. They are designed to
capture value from our global network
and universal banking model. Each
has a clear outcome targeted for 2017,
and is designed to help achieve our
medium-term financial targets. These
are: increasing our return on equity to
above 10; achieving positive jaws, as
described on page 27; and maintaining
a progressive dividend. The strategic
actions are set out in the table opposite,
which also shows our progress in 2015.
Outbound client revenue
Regional split of total CMB and GB&M
corporate client revenue (excluding
financial institutions) booked outside
of the client’s home market
5%
31%
23%
6%
Key
35%
Asia
Europe
Middle East and North Africa
North America
Latin America
Source: Internal HSBC client data
Selected awards and recognition 2015
Trade Finance
Awards for Excellence
Best Overall
Global Trade
Finance Bank
FinanceAsia
Achievement Awards
Best Bank
Asiamoney Offshore
RMB poll
Best Overall Offshore
RMB products/
Services
Euromoney Cash
Management Survey
Best Global
Cash Manager (for
non-Financial
Institutions)
Euromoney
FX Survey
no. 1 Bank
for Corporates
(Global Market Share)
HSBC HOldInGS plC
18
Strategic Report Strategic actions
progress against strategic actions
Strategic actions
Targeted outcome
by 2017
Actions to resize and simplify the Group
progress during 2015
Key performance indicators
Reduce Group
risk-weighted
assets (‘RWAs’)
by circa $290bn
See page 20
Optimise
global network
Rebuild nAFTA
region profitability
See page 20
Set up UK
ring-fenced
bank
– Group RWA
– GB&M: achieved over 50% of 2015–17 target
reduction: $290bn
– GB&M return
to Group target
profitability; <1/3
of Group RWAs
– CMB: achieved over 75% of 2015–17 target
– US Consumer and Mortgage Lending:
accelerated asset sales achieving nearly 40%
of 2015–17 RWA reduction target
– RWA reduction from management
actions: circa $124bn (circa 45%
of 2015–17 target on a constant
currency basis)
– Reduced footprint
– Signed agreement to sell operations in Brazil,
– Presence reduced to 71 countries
subject to regulatory approval
and territories in 2015
– US profit before
tax circa $2bn
– Mexico profit
before tax
circa $0.6bn
– Grew US CMB and GB&M adjusted revenue
– US (excluding CML run-off
by 4% and 12%, respectively
– Increased cross-border NAFTA region revenue
by more than 30%
portfolio) adjusted profit before
tax: $494m (up 6% on 2014)
– Mexico adjusted profit before tax:
$67m (down 1% on 2014)
– Completed by
– Confirmed Birmingham as head office location
– Implementation in progress
2018
for the UK ring-fenced bank (HSBC UK)
– Established shared services entity in the UK
to remove critical interdependencies between
ring-fenced and non-ring-fenced businesses
– Second-half costs in line with the first half from
tight cost control and effect of cost saving plans
– Adjusted costs (excluding Brazil):
up 5% on 2014
– Cost-to-achieve expense of $0.9bn during 2015
– FTE: 255,203 (down 1% on 2014)
deliver $4.5–5.0bn
of cost savings
See page 21
– 2017 exit rate
to equal 2014
operating
expenses
Actions to redeploy capital and invest
deliver growth
above Gdp from
international
network
See page 46
Investments in
Asia – prioritise
and accelerate
See page 21
Grow business
from renminbi
(‘RMB’)
internationalisation
Global Standards
– safeguarding
against financial
crime
See page 21
domicile
Headquarters
review
– Revenue growth
of international
network above
GDP
– Average PCM deposits increased by 8%. Revenue
growth in FX and Securities Services businesses
– Transaction banking revenue:
$15.7bn (up 4% on 2014)
– Strategic investment in receivables finance
– Revenue synergies: $11.6bn
platform (now live in more than 20 markets)
and launch of single dealer global FX platform
(up 6% on 2014)
– Market share gains
– Circa 10%
growth p.a. in
assets under
management
in Asia
– Pearl River Delta: management team in place
and new licences obtained (details on page 21)
– Guangdong loans: $4.3bn
(up 5% on 2014)
– ASEAN: Enhanced capabilities and digital
– ASEAN adjusted revenue: $3.2bn
propositions; Euromoney Best Domestic Cash
Manager Award for seven ASEAN markets
– Asset Management Global CEO relocated
to Hong Kong
(up 5% on 2014)
– Asset Management AUM
distributed in Asia: $129bn
(up 13% on 2014)
– Among first fund managers selected for the
Mutual Recognition of Funds Programme
between Hong Kong and mainland China
– Insurance manufacturing new
business premiums in Asia:
$2.0bn (up 7% on 2014)
– $2–2.5bn revenue
– Among first banks to connect to the CIPS
(Cross-border Inter-bank Payment System)
– Joint global coordinator and bookrunner for the
People’s Bank of China’s RMB5bn bond issued
in London, its first debt offering outside China
– Completed
implementation
– Updated procedures in line with new anti-
money laundering and sanctions policies
– Enhanced infrastructure, including systems
related to customer due diligence, transaction
monitoring and screening
– Renminbi internationalisation
revenue, from offshore business
partly or wholly denominated in
RMB as well as selected products
in mainland China: $1.7bn (up 3%
on 2014)
– Implementation in progress
– Completed review
by end of 2015
– Review completed
– Decision announced February
2016 to keep London as global
headquarters location
HSBC HOldInGS plC
19
Strategic ReportFinancial Review Corporate Governance Financial Statements Shareholder Information Strategic Report
Progress on selected
strategic actions
We have mobilised
resources throughout
our organisation to
deliver the results
we have committed
to achieving by 2017.
We aim to capture value from our
network by adapting to structural
changes in our operating environment
and pursuing growth opportunities.
In 2015, we took our first steps
towards achieving the targets we
set out in June. These pages contain
additional information on five selected
actions. For further details on revenue
growth from our international network,
see page 46.
Reduce risk-weighted assets
We made significant progress in meeting
our risk-weighted asset (‘RWA’)
reduction targets in 2015. We did this
primarily by: exiting or disposing of low
returning portfolios; better managing
processes, calculations and positions;
and being more selective in the business
we undertake.
Exit/disposal of low
returning portfolios
Nearly $42bn of our total RWA
reduction came from the partial sale
of our investment in China’s Industrial
Bank, and the accelerated sell-down
of our consumer mortgage portfolio
in the US and our GB&M legacy
credit portfolio.
Management of positions,
processes and calculations
We have refined our RWA calculations,
and implemented process improvements
and exposure reductions in GB&M
and CMB. This reduced RWAs by a
further $82bn, two-thirds of which
was in GB&M.
US and Mexico
We are strengthening our businesses in
Mexico and the US to rebuild profitability.
We seek to grow revenue from cross-
border banking opportunities across the
North American Free Trade Agreement
(‘NAFTA’) area.
US growth
We grew revenue from transaction
banking products, including a 9% increase
in Global Trade and Receivables Finance,
and increased collaboration between
our GB&M and CMB businesses. We
improved cost efficiency by consolidating
data centres and moving to lower-cost
office locations.
Mexico growth
We grew RBWM’s adjusted revenue in
Mexico by 7%, growing faster than the
market in cards, mortgages and personal
loans. We increased revenue from
business synergies in 2015, including
an 18% increase in revenue from Global
Trade and Receivables Finance products
provided to GB&M clients.
nAFTA area initiatives
We increased the number of clients we
serve who conduct business across the
NAFTA area. We are developing our
products to better serve customers and
connect supply chains. Our cross-border
revenue between the US and Mexico
grew by more than 10% in 2015.
Group RWA reduction
Change from 2014
-10%
nAFTA area revenue
(% of Group revenue)
14%
GB&M risk-weighted assets
($bn)
NAFTA area revenue
($bn; includes intercompany revenue)
2015
2014
440.6
516.1
2015
2014
8.3
8.2
HSBC HOldInGS plC
20
Progress on selected strategic actions
Cost savings
We continue to take action to manage
our costs better. We are growing our
digital capabilities and realising efficiency
gains through automating and re-
engineering processes. We are
also simplifying our technology and
reshaping our global functions.
Our cost saving plans and tighter cost
controls have slowed cost growth in
2015. Costs in the second half of the
year were in line with the first half.
Increased efficiency
We removed the requirement for nearly
3,000 roles by automating and eliminating
processes in 2015. We completed over
13% of our target to remove 750 software
applications by the end of 2017. We are
optimising our branch network, and we
closed more than 130 branches in 2015
in six of our largest retail banking markets.
We also introduced a new IT operating
model that achieved a 4% cost reduction
in the IT run rate compared with 2014.
Using technology to
enhance productivity
We increased productivity in our UK
branches through online customer
support and appointment booking. In
CMB, we simplified our processes and
are using technology better to open
new accounts globally. We significantly
reduced the time taken to approve
personal loans from an average of 20
days to two days, and in some cases
instantly, in four of our priority markets.
Reduction in manual payments
(% reduced through automation)
Investment in Asia
We are in a leading position to capture
growth in Asia. Our priorities include
accelerating our business growth in
China’s Pearl River Delta (‘PRD’), and
developing our Asset Management
and Insurance businesses to benefit
from Asia’s growing middle class. We
also aim to grow our business in the
Association of Southeast Asian Nations
(‘ASEAN’) region as trade and investment
flows increase in key markets such as
Singapore and Malaysia, and we are
expanding our Indonesian business.
pearl River delta
We are developing our business in the
PRD, in Guangdong, the Chinese province
bordering Hong Kong. The province’s
increasingly sophisticated economy and
links with Hong Kong provide us with a
unique opportunity to create a full-scale
banking business there.
In 2015, we appointed a CEO for
Guangdong and continued to build
infrastructure and recruit staff. We grew
our RBWM mortgage business and
established a branch of HSBC Life
Insurance in Guangzhou. We also agreed
to establish a majority-owned joint-
venture securities company in Qianhai,
Shenzhen, which, if approved by
regulators, will potentially allow us
to engage in the full spectrum of the
securities business in mainland China.
Global Standards –
safeguarding against
financial crime
We are committed to implementing
the most effective global standards
to combat financial crime. We are
therefore putting in place robust controls
aimed at enabling us to understand
more about our customers, what they
do, and where and why they do it. This
comprehensive approach is designed
to help us detect, deter, and prevent
financial crime.
Enhancing infrastructure
and systems
We are rolling out improved systems
and infrastructure to manage financial
crime risk, and improved transaction
monitoring and sanctions screening
capabilities.
Expanding capabilities
We are strengthening our financial
crime detection and investigation
capabilities within our business teams,
including delivering enhanced training
to appropriate staff.
While significant work remains to be
done, we continue to make progress
towards putting in place a robust and
sustainable anti-money laundering
and sanctions compliance programme.
HSBC branches in Guangdong
Global Standards employee training
25%
Adjusted costs
($bn)
2015
2014
64
Guangdong loans
($bn)
Over 2.1m hours
Investment in Global Standards
($bn)
36.2
34.6
2015
2014
4.3
4.1
2015
2014
1.5
0.9
HSBC HOldInGS plC
21
Strategic ReportFinancial Review Corporate Governance Financial Statements Shareholder Information Strategic Report
Financial overview
Reported results
This table shows our reported results for
the last three years. The results for 2015
are described below.
Reported results
Net interest income
Net fee income
Net trading income
Other income
Net operating income before loan impairment
charges and other credit risk provisions (revenue)
Loan impairment charges and other credit risk provisions
(‘LICs’)
Net operating income
Total operating expenses
Operating profit
Share of profit in associates and joint ventures
Profit before tax
2015
$m
32,531
14,705
8,723
3,841
2014
$m
34,705
15,957
6,760
3,826
2013
$m
35,539
16,434
8,690
3,982
59,800
61,248
64,645
(3,721)
56,079
(3,851)
57,397
(5,849)
58,796
(39,768)
16,311
(41,249)
16,148
(38,556)
20,240
2,556
18,867
2,532
18,680
2,325
22,565
Reported profit before tax
Reported profit before tax was $18.9bn,
up by $0.2bn or 1% from 2014. This
was driven by a favourable movement in
significant items of $2.6bn partly offset
by $0.9bn of adverse effects of foreign
currency translation between the years.
The favourable movement in significant
items included lower fines, settlements,
UK customer redress and associated
provisions (down by $1.3bn in total)
and a gain on the partial disposal of
Industrial Bank ($1.4bn).
Excluding the effects of significant
items and currency translation, profit
before tax was down by 7% from
2014. We describe the drivers of
our performance under ‘Adjusted
performance’ on page 23.
Reported revenue
Revenue of $59.8bn was $1.4bn
or 2% lower than in 2014. Revenue
benefited from a favourable movement
in significant items but this was more
than offset by the adverse effect of
currency translation of $4.8bn between
the years.
Significant items affecting revenue
in 2015 included:
– a $1.4bn gain on the partial sale of
our shareholding in Industrial Bank;
– lower provisions and charges relating
to the ongoing review of compliance
with the Consumer Credit Act in the
UK ($0.6bn lower than in 2014); and
– an increase in favourable movements
on our own debt designated at fair
value from changes in credit spreads
of $0.6bn.
Reported LICs
Loan impairment charges and other credit
risk provisions (‘LICs’) of $3.7bn were
$0.1bn or 3% lower than in 2014,
reflecting the favourable impact of
currency translation between the years.
Reported operating expenses
Operating expenses of $39.8bn were
$1.5bn or 4% lower than in 2014.
This reduction primarily reflected the
favourable effect of currency translation
of $3.3bn between the years.
The total of significant items was broadly
in line with 2014, although there were
notable movements as follows:
– lower provisions and charges relating
to UK customer redress ($0.7bn
lower than in 2014); and
– the non-recurrence of a charge
of $0.6bn in 2014 relating to a
settlement with the US Federal
Housing Finance Agency; broadly
offset by
– settlements and provisions in
connection with legal matters
($0.5bn higher than in 2014); and
– costs-to-achieve relating to business
transformation of $0.9bn in 2015
(for further details, see page 58).
Reported income from associates
Income from associates of $2.6bn
was in line with 2014.
HSBC HOLdINgS PLC
22
Financial overview
Adjusted performance
Our reported results are prepared in
accordance with IFRSs as detailed
in the Financial Statements on page 347.
We also present adjusted performance
measures as we believe these help
explain our performance and these are
highlighted with the following symbol:
To arrive at adjusted performance,
we adjust for:
– the year-on-year effects of foreign
currency translation; and
– the effect of significant items that
distort year-on-year comparisons
and are excluded in order to
understand better the underlying
trends in the business.
Adjusted results
Adjusted results
For reconciliations of our reported
results to an adjusted basis, including
lists of significant items, see pages
66–67 and 77–78.
This table shows our adjusted results
for 2015. These are discussed in more
detail on the following pages.
Net operating income before loan income charges
and other credit risk provisions (revenue)
Loan impairment charges and other credit risk provisions (‘LICs’)
Total operating expenses
Operating profit
Share of profit in associates and joint ventures
Profit before tax
2015
$m
2014
$m
57,765
(3,721)
(36,182)
17,862
57,227
(3,168)
(34,576)
19,483
2,556
20,418
2,493
21,976
Adjusted profit before tax
– Our adjusted profit before tax fell
by $1.6bn or 7%.
portfolio (up by $0.4bn or 2%). These
increases were partly offset in GPB
(down by $0.1bn or 6%) and Other
(down by $0.3bn).
– We grew adjusted revenue by $0.5bn
or 1%, notably in GB&M (up by $1.2bn
or 7%), CMB (up by $0.4bn or 3%) and
Principal RBWM, which is our RBWM
business excluding the US run-off
– Our LICs were $0.6bn or 17%
higher than in 2014, primarily due
to increases in CMB ($0.5bn) and
RBWM ($0.3bn), partly offset by
a reduction in GB&M ($0.3bn).
– Our adjusted operating expenses
increased by $1.6bn or 5%. Excluding
the bank levy, operating expenses in
the second half of 2015 were broadly
in line with the first half of the year.
This was despite investment and
inflationary pressures, and partly
reflects the initial effect of our cost
saving initiatives as well as a strong
focus on cost management.
Movement in adjusted profit before tax compared with 2014
2015 ($m)
Change ($m)
Revenue
LICs
57,765
(3,721)
Operating expenses
(36,182)
(1,606)
Share of profits in associates
and joint-ventures
Profit before tax
2,556
20,418
(1,558)
(553)
538
63
(%)
1
(17)
(5)
3
(7)
HSBC HOLdINgS PLC
23
Strategic ReportFinancial Review Corporate Governance Financial Statements Shareholder Information
Strategic Report | Financial overview
1%growth in gB&M,
CMB and
Principal RBWM
Adjusted performance (continued)
Adjusted revenue
Movement in adjusted revenue compared with 2014
Adjusted revenue rose by 1% in part due
to growth in GB&M, CMB and Principal
RBWM reflecting the following:
– gB&M: Revenue of $18.0bn was
$1.2bn or 7% higher than in 2014.
This was driven by higher revenue
in all client-facing businesses except
Principal Investments. In Equities,
revenue increased by $0.5bn, reflecting
higher client flows and increased
market volatility. Revenue from
transaction banking products rose
$0.4bn as volatility drove higher client
flows in Foreign Exchange, as assets
under custody in Asia rose in Securities
Services, and as deposits rose in
Payments and Cash Management
(‘PCM’). Revenue was also higher in
Balance Sheet Management (‘BSM’),
rising $0.1bn.
– CMB: We grew revenue by $0.4bn
or 3%, in particular in Credit and
Lending (up by $0.4bn) and PCM (up
by $0.1bn). This growth was mainly
in Hong Kong and the UK, reflecting
average balance sheet growth. In
Hong Kong, lending balance growth
was primarily in 2014 and the first half
of 2015. Balances were broadly
unchanged for the remainder of 2015
reflecting subdued demand for credit.
In Global Trade and Receivables
Finance, performance was resilient
(revenue down $44m or 2%) despite a
significant decline in commodity prices
(approximately 40%) and stagnant
world trade.
– RBWM: Our revenue was broadly
unchanged from 2014. We continued
to reduce the size of the balances
in our US Consumer and Mortgage
Lending (‘CML’) run-off portfolio,
resulting in a fall in revenue of $0.3bn.
However, in our Principal RBWM
Principal RBWM
2015 ($m)
22,687
Change ($m)
RBWM US run-off portfolio
1,155
(330)
CMB
Client-facing
GB&M and BSM
Legacy credit
GPB
Other
Total
14,887
17,973
61
2,141
5,456
57,765
Total includes Intersegment revenue of $(6,595)m.
(139)
(250)
1,147
355
372
77
538
(%)
2
(22)
3
7
>200
(6)
(4)
1
business, revenue was higher (up by
$0.4bn or 2%). This was driven by
increased Wealth Management
revenue in Asia (up by $0.2bn) in the
first half of 2015, from growth in
investment distribution, which more
than offset weaker investor sentiment
in the second half of 2015. There was
also growth in Europe (up by $0.3bn),
notably from insurance manufacturing.
We also increased our current account,
savings and deposit revenue by
$0.1bn, notably in Hong Kong and
the UK, from an increase in customer
deposit balances of $32bn. This was
partly offset by a decrease in Personal
Lending revenue of $0.3bn, primarily
from lower overdraft fees in the UK
after the introduction of a text
message alert service in late 2014.
– gPB: Our revenue fell by $0.1bn or 6%
reflecting lower brokerage and account
services fee income from a managed
reduction in client assets. However,
revenue increased in Asia, notably
in the first half of 2015, due to higher
client activity as a result of stock
market performance.
– Other: Revenue was $0.3bn or 4%
lower, reflecting adverse hedging
ineffectiveness movements compared
with favourable movements in
2014 (a net adverse movement
of $0.2bn), together with the non-
recurrence of a gain on the external
hedging of an intra-Group financing
transaction of $0.2bn. In addition,
dividend income was $0.1bn lower
following the partial sale of our
shareholding in Industrial Bank.
HSBC HOLdINgS PLC
24
Financial overview
Adjusted performance (continued)
Adjusted LICs
Adjusted LICs
$bn
– Our LICs were $0.6bn or 17% higher
than in 2014, mainly in CMB ($0.5bn).
This included a fourth quarter increase
in specific LICs in a small number of
countries, largely reflecting local factors,
as well as LICs related to oil and gas.
– LICs increased in RBWM by $0.3bn,
mainly in Brazil as delinquency
rates increased; while in the UAE,
impairments on mortgages rose,
following a review of the quality
and value of collateral.
– In GB&M, there was a reduction
of $0.3bn in specific impairments
as 2014 included a small number
of significant charges, notably in
Brazil and Hong Kong.
Adjusted operating expenses
– Our adjusted operating expenses in
2015 were up $1.6bn or 5% on 2014.
– Run-the-bank costs rose by $0.8bn
or 2%. This was mainly due to wage
inflation in Latin America and Asia. We
also recruited additional staff across
the Group to support business growth.
– Change-the-bank costs rose by $0.5bn
or 16% on 2014. This reflected
investment in regulatory programmes
and compliance, including infrastructure
and systems.
– The bank levy of $1.4bn was $0.4bn or
34% higher than in 2014. Excluding the
bank levy, adjusted operating expenses
in the second half of 2015 were broadly
in line with the first half of the year. This
was despite investment and inflation,
and reflected the initial effect of our
cost-saving initiatives and a strong focus
on cost management. This included a
reduction in full-time equivalent staff in
the second half of the year of 4,585 and
lower travel costs.
2014
$3.2bn
2015
$3.7bn
0.48
0.25
0.2
0.30
0.26
0.14
0.13
0.19
1,645
793
1,011
614
530
800
617
480
1Q14
Key
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
Personal
Wholesale
Other credit risk provisions
LICs/average gross loans and advances
to customers (excluding Brazil)
Adjusted operating expenses
$bn
2015
$36.2bn
1H15:
$17.0bn
2H15:
$16.9bn
excluding bank levy
1.1
8.6
8.2
8.8
8.4
1.5
8.5
Key
Bank levy
Adjusted operating
expenses (excluding
bank levy)
5%
Costs up year-on-
year; however,
costs excluding
the bank levy were
broadly unchanged
in the second half
of the year.
4Q14
(0.1)
1Q15
2Q15
3Q15
4Q15
The quarterly and half-yearly operating expense figures
shown above are stated at the average exchange rate
for the quarter ended 31 December 2015.
For further details on the categorisation
Adjusted income from associates
of run-the-bank and change-the-bank
costs, see page 58.
– Our share of profit from associates
and joint-ventures was broadly unchanged
in 2015. The majority of this profit
was from our investments in Bank
of Communications Co. (‘BoCom’)
and The Saudi British Bank.
HSBC HOLdINgS PLC
25
Strategic ReportFinancial Review Corporate Governance Financial Statements Shareholder Information Strategic Report | Financial overview
Balance sheet and capital strength
Balance sheet
Total assets
($bn)
2015
2014
2013
Loans and advances to customers
($bn)
2015
2014
2013
Capital strength
Common equity tier 1 ratio (end point)
(%)
2015
2014
2013
Risk-weighted assets
($bn)
2015
2014
2013
2,410
2,634
2,671
924
975
992
11.9
11.1
10.9
1,103
1,220
1,093
$2,410bn
2014 to 2015 movement
includes adverse currency
effects of $133bn.
$924bn
2014 to 2015 movement includes
adverse currency effects of $52bn and
the reclassification to ‘held for sale’ of
$17bn of assets relating to Brazil in 2015.
11.9%
Decrease of
$117bn
Risk-weighted assets by global business
($bn)
RBWM
CMB
GB&M
GPB
Other1
189.5
421.0
440.6
19.3
32.6
1 Other – main items are property activities, unallocated investment activities,
centrally held investment companies, and movement in fair value of own debt.
For further details on RWAs, see page 228.
HSBC HOLdINgS PLC
26
Balance sheet strength
Total reported assets were $2.4 trillion,
8.5% lower than at 31 December 2014.
On a constant currency basis, total
assets were $91bn or 4% lower. This
reduction in part reflects the efficient
use of our balance sheet to maximise
shareholder returns.
We are focused on reducing our use of
the balance sheet in areas that are capital
intensive relative to returns. This provides
capacity for growth in higher returning
business areas and regions. For example,
in GB&M, we have reduced trading
assets by decreasing holdings of debt
securities in our Rates business in Europe
and North America.
Capital strength
We manage our capital in an effort to
ensure we exceed current regulatory
requirements and are well placed to
meet those expected in the future.
We monitor our position by using capital
ratios. These measure capital relative
to a regulatory assessment of risks
taken. We quantify how these risks
relate to our businesses using risk-
weighted assets. Details of these
risks are included on page 227.
Our common equity tier 1 (‘CET1’) ratio
at 31 December 2015 was 11.9%,
up from 11.1% at 31 December 2014.
distributable reserves
The distributable reserves of HSBC
Holdings plc at 31 December 2015
were $47bn, and at 31 December 2014
were $49bn.
Financial overview
The strategic actions set out on
page 18 have been undertaken
to support our aim of achieving our
medium-term financial targets.
For detailed information
on our financial performance,
see pages 50 to 60.
delivering on our group financial targets
Target:
7.2
7.3
9.2
>10%
Target:
Positive
We calculate jaws on an
adjusted basis, excluding
currency translation and
significant items, as described
on page 48.
2015 adjusted jaws:
-3.7%
Return on equity
(%)
2015
2014
2013
Adjusted jaws
(2015 year to date)
(1.5)%
(2.9)%
(4.1)%
(3.7)%
1Q
Key
2Q
3Q
4Q
Cost growth %
Revenue growth %
Understanding jaws
Jaws measures the difference between
revenue and cost growth rates.
Positive jaws is where the revenue growth
rate exceeds the cost growth rate.
Total dividends declared
in respect of the year ($m)
2015
2014
2013
Dividends per ordinary share
in respect of year ($)
2015
2014
2013
Target:
Progressive
We are committed to increasing the dividend
we pay to shareholders. This is measured
by dividends per ordinary share declared
in respect of the calendar year. Prospective
dividend growth remains dependent upon
the long-term overall profitability of the
Group and delivering further release of
less efficiently deployed capital. Actions
to address these points are core elements
of the Investor Update provided last June.
10,000
9,583
9,180
0.51
0.50
0.49
HSBC HOLdINgS PLC
27
Return on equity
Our medium-term target is to achieve a
return on equity (‘RoE’) of more than 10%.
This target is modelled on a CET1 ratio in
the range of 12% to 13%.
In 2015, we achieved an RoE of 7.2%
compared with 7.3% in 2014. The bank
levy and significant items, such as
fines, penalties, customer redress and
associated provisions, had a significant
effect on our 2015 RoE, reducing the
return achieved by 190 basis points.
Adjusted jaws
Our target is to grow revenue faster than
operating expenses on an adjusted basis.
This is referred to as positive jaws. In 2015,
we grew adjusted revenue by 0.9% whilst
our adjusted operating expenses rose by
4.6%. Jaws was therefore negative 3.7%.
Jaws for 2015 was affected by the
revenue performance in the second half
of the year. Adjusted revenue growth in
the first half of 2015 was 4.5% but fell in
the second half of 2015, reflecting the
economic environment, including slowing
GDP growth in China. This resulted in
overall revenue growth of 0.9% for 2015.
The increase in adjusted operating
expenses in 2015 included a $0.4bn
rise in the bank levy (to $1.4bn). Excluding
this increase, jaws in 2015 would have
been negative 2.8%. During the second
half of 2015, we made progress on our cost
saving plans set out at our Investor Update.
We reduced the growth rate in adjusted
operating expenses, down from 7.3% in
the first half of 2015 to 4.7% for the year.
Progressive dividend
In 2015, we increased the dividends
per ordinary share in respect of the year
to $0.51 from $0.50 in 2014.
Strategic ReportFinancial Review Corporate Governance Financial Statements Shareholder Information
Global businesses
We manage our products and services
globally through four global businesses.
For further details on the financial
performance of our global businesses,
see pages 68 to 73.
Commercial Banking (‘CMB’)
In 2015, the quality of our service was
recognised by several leading awards.
For the fourth consecutive year, we
were recognised as the Best Global
Cash Manager (for Non-Financial
Institutions) in the Euromoney Cash
Management survey. We were also
recognised as the Best Overall Global
Trade Finance Bank, among other
awards, in the Trade Finance Awards
for Excellence.
Business synergies
CMB is at the centre of business
synergies within the Group, enabling
nearly $6bn of business synergy
revenue in 2015. For example, it
provides trade finance, working capital
and liquidity management solutions to
GB&M clients. It also provides Capital
Finance expertise, and Insurance and
Asset Management capabilities from
across the Group to benefit customers.
Areas of focus
We are focused on creating value
from our network, which covers 90%
of global trade and capital flows. We
are therefore investing in digital and
technology aspects of our core
Payments and Cash Management
(‘PCM’), and Global Trade and
Receivables Finance propositions,
as well as in the Pearl River Delta,
ASEAN and NAFTA growth areas.
We achieved significant risk-weighted
asset efficiencies through management
initiatives in 2015 and continue to ensure
our capital is deployed effectively.
Continued revenue growth in Hong Kong
and the UK
– Adjusted profit before tax of $8.2bn
was $0.4bn or 5% lower than in 2014,
as revenue growth was more than offset
by a rise in LICs and higher costs.
– We grew revenue by $0.4bn or 3%, in
particular in Credit and Lending, and PCM.
This was mainly in Hong Kong and the
UK, reflecting average balance sheet
growth, although demand for credit in
Hong Kong was subdued in the second
half of 2015, with balances remaining
broadly unchanged.
– LICs were $0.5bn or 36% higher, reflecting
enhanced credit risk in the oil and gas
sector, notably in North America, Asia,
and Middle East and North Africa. In
addition, we raised LICs against a small
number of specific clients in Indonesia,
the UAE and the UK.
– Costs increased by $0.4bn or 6%, notably
in Asia and the US, due to wage inflation
and investment in growth initiatives,
regulatory programmes and compliance.
– Management initiatives set out in our
Investor Update in June 2015 contributed
a reduction in risk-weighted assets
(‘RWAs’) of $23.0bn or more than 75%
of our 2015–2017 target.
Profit before tax ($bn)
2015
2014
Reported
Adjusted
Adjusted profit before tax
-5%
8.0
8.8
8.2
8.6
Customers
CMB serves more than two million
customers in 55 countries and
territories. Our customers range from
small enterprises focused primarily
on their domestic markets through
to corporates operating globally.
We have been simplifying our product
range and services to meet clients’
needs better. Since 2013, we have
reduced the number of products we
offer around the world from 975 to fewer
than 410. We have also completed
role-specific conduct training for more
than 20,000 employees to help ensure
that products are sold appropriately.
Products and services
We support our customers with tailored
financial products and services to allow
them to operate efficiently and to grow.
This includes providing them with
working capital, term loans, payment
services and international trade
facilitation, among other services.
We offer expertise in mergers and
acquisitions, and provide access to
financial markets.
HSBC HOLdINgS PLC
28
Strategic Report Global businesses
Best
Overall Global
Trade Finance
Bank
Trade Finance
Most
Innovative
Investment
Bank
The Banker
global Banking and Markets (‘gB&M’)
Customers
GB&M supports major government,
corporate and institutional clients
worldwide in achieving their long-term
strategic goals through tailored and
innovative solutions. Our deep sector
expertise extends across transaction
banking, financing, advisory, capital
markets and risk management. We
serve nearly 4,000 clients in more than
50 countries and territories, helping
them to realise opportunities in the
markets that matter to them.
We continue to strengthen the services
we provide and our relationships with
clients. We regularly assess these
relationships, using benchmarking
and internal programmes. As a result,
in 2015 we improved the on-boarding
experience for clients and enabled
relationship bankers to spend more
time understanding clients’ needs.
Customer feedback allows us
to identify opportunities to further
improve our business and the wider
client experience.
Products and services
Our product specialists continue to
deliver a comprehensive range of
transaction banking, financing, advisory,
capital markets and risk management
services. In 2015, our product strengths
were recognised by numerous
accolades, including Most Innovative
Investment Bank and Best Bank for
Securities Services in The Banker
awards. We were ranked number one
Bank for Corporates (Global Market
Share) in the Euromoney FX Survey,
and for the third consecutive year we
were voted Best Bond House in Asia
by FinanceAsia.
In addition, we provide award-winning
research to investors with an emphasis
on emerging markets.
Business synergies
In 2015, GB&M enabled business
synergies of $8.4bn, supporting growth
in a number of areas. For example, we
provide Markets products to CMB and
RBWM customers, Capital Financing
products to CMB customers, and also
use CMB and Asset Management
products to serve GB&M clients.
Areas of focus
Deepening relationships with clients
in both event and transaction banking
products remains a priority. We will
focus on regions where we see the
greatest growth opportunities such
as NAFTA, ASEAN and the Pearl River
Delta. We also plan to grow our
business from the internationalisation
of China’s renminbi currency and by
investing in digital capabilities.
We made significant progress towards
reducing RWAs in 2015. This will
remain a focus as we continue to exit
legacy credit, manage our Markets
and Capital Financing businesses and
employ a disciplined approach to
new client business.
Our continued focus on cost discipline
will result in further simplification
of the business from streamlining
of our business lines, operations
and technology.
HSBC HOLdINgS PLC
29
Adjusted profit growth of 14% compared
with 2014
– Adjusted profit before tax was higher by
$1.1bn due to higher revenue and lower
LICs, partly offset by increased costs.
– Our revenue increased by $1.2bn or 7%,
with higher revenue in all businesses except
Principal Investments. In client-facing GB&M,
revenue rose due to increased client flows
and volatility in Equities (up by $0.5bn) and in
transaction banking products (up by $0.4bn).
Revenue was also higher in Balance Sheet
Management (up $0.1bn).
– LICs were $0.3bn lower. This reflected
minimal impairments in 2015 compared with
a net charge in 2014 in client-facing GB&M.
However, in 2015 we had lower net releases
of credit risk provisions, primarily on
available-for-sale asset-backed securities
in legacy credit.
– Our operating expenses increased by
$0.4bn or 5%, mainly from higher
performance-related costs and higher staff
costs reflecting wage inflation. In addition,
we continued to invest in our PCM and
Foreign Exchange businesses, as well as
in regulatory programmes and compliance.
– Management initiatives identified in our
Investor Update in June 2015 contributed
to an overall reduction in RWAs of $72bn
this year. This is 54% of our target of $134bn
(stated at December 2015 exchange rates).
– The graph below shows reported and
adjusted profit before tax. The difference
between these figures primarily reflects
fines, penalties and charges in relation
to legal matters, which totalled $1.9bn
and $0.9bn in 2014 and 2015, respectively.
Significant items are detailed on page 66.
Profit before tax ($bn)
2015
2014
Reported
Adjusted
Adjusted profit before tax
+14%
7.9
5.9
8.7
7.7
Strategic ReportFinancial Review Corporate Governance Financial Statements Shareholder Information
Strategic Report | Global businesses
$419bn
assets under
management
45mcustomers served
Retail Banking and Wealth Management (‘RBWM’)
Customers
RBWM serves close to 45 million
customers worldwide through four
main business areas: Retail Banking,
Wealth Management, Asset
Management and Insurance.
Since 2012, we have taken numerous
actions to improve the way we conduct
our business. We have removed the
formulaic link between product sales
and remuneration, paying all staff on
a discretionary basis, which includes
assessment of their behaviour and the
satisfaction of our customers. We have
simplified our product range, reviewed
the fairness of our product features
and pricing, and enhanced the way
we monitor the quality of our sales.
Products and services
RBWM provides services to individuals
under the HSBC Premier and Advance
propositions aimed at mass affluent and
emerging affluent customers who value
international connectivity and benefit
from our global reach and scale. For
customers who have simpler everyday
banking needs, RBWM offers a full range
of banking products and services
reflecting local requirements.
Asset Management and Insurance
We operate our own Asset
Management and Insurance businesses.
By owning these businesses directly,
we can tailor their products to the needs
of customers and maintain end-to-end
control over their quality. We are
investing for growth in these
businesses, leveraging our network
and strong client relationships.
Business synergies
RBWM makes a significant contribution
to the overall success of the Group.
In 2015, Insurance Manufacturing
(within Wealth Management) and
Asset Management generated revenue
of $1.7bn and $1.1bn, respectively,
from the provision of services to clients
across all of our global businesses.
In addition, the foreign exchange and
wealth management needs of our
RBWM clients create opportunities
for GB&M.
RBWM’s strong deposit franchise
supports a stable and diversified
core funding base for the Group,
and the branch network supports
the needs of other global business
clients while enhancing the visibility
of the HSBC brand.
Areas of focus
RBWM’s focus is on growing the
business through relationship-led personal
lending and wealth management, while
transforming our customer experience
and cost base through investment in
digital infrastructure.
HSBC HOLdINgS PLC
30
despite a challenging second half of
2015, Wealth Management revenue
grew by 8%
Total RBWM – Total RBWM adjusted profit
before tax fell by $0.7bn or 10%, with a
decrease in profit before tax in both Principal
RBWM and from the continued reduction
in our US run-off portfolio.
The graph below shows reported and adjusted
profit before tax. The difference between
them primarily reflects fines, penalties and
charges in relation to legal matters, which
totalled $1.6bn and $1.3bn in 2014 and 2015,
respectively. Significant items are detailed
on page 66.
Principal RBWM – In our Principal RBWM
business, profit before tax was down by
$0.5bn or 7%, reflecting higher costs
and LICs. Revenue grew.
– Revenue rose $0.4bn in Wealth
Management in Asia in the first half of
the year from investment distribution,
offsetting weaker investor sentiment in the
second half of 2015. Wealth Management
income in Europe also grew as insurance
manufacturing increased. Deposit and
savings income grew in Asia and the UK as
deposits increased by $32bn. This was partly
offset by lower overdraft fees in the UK.
– LICs increased by $0.3bn or 20%, mainly
in Brazil from increased impairment charges
following the economic slowdown, and the
UAE following a review of collateral in the
mortgage book.
– Costs rose by $0.5bn or 4%, driven by
inflation in Asia and Latin America. Our
marketing costs also increased as we
relaunched our Global Advance account
proposition with notable investment in the
UK, and we continued to invest in regulatory
programmes and compliance.
Profit before tax – total RBWM ($bn)
2015
2014
Reported
Adjusted
5.0
5.6
6.8
7.6
Adjusted profit before tax – total RBWM
-10%
Global businesses
$349bn
client assets
$14bn
net new money
(areas targeted
for growth)
Continued repositioning of our
gPB business
– Adjusted profit before tax fell by 26%
to $0.5bn, mainly because revenue fell
by 6% as we continued to reposition the
GPB business.
– However, revenue increased in Asia,
notably in the first half of 2015, due to
higher client activity as a result of a strong
stock market performance, which more
than offset the weaker investor sentiment
in the second half of the year.
– We attracted positive net new money
of $14bn in 2015 in the parts of the
business that fit our target model,
mainly in Hong Kong, the UK, Singapore
and the US.
Profit before tax ($bn)
2015
2014
Reported
Adjusted
Adjusted profit before tax
-26%
0.3
0.6
0.5
0.7
global Private Banking (‘gPB’)
Customers
GPB serves high net worth individuals
and families, including those with
international banking needs, through
18 booking centres covering our
priority markets.
Since 2011, GPB has taken significant
steps to simplify and improve the way
it conducts its business. We have
reduced the number of booking centres
to refocus resources on a smaller
number of locations where we have
the scale to support our new client
service model and enhanced sales
quality standards.
We have also reduced the number of
offshore markets we cover to ensure
appropriate focus is given to key
growth areas.
GPB remains committed to implementing
the most effective global standards,
including customer due diligence, a tax
transparency framework and financial
crime compliance measures.
Products and services
We work closely with our clients to
provide solutions to grow, manage
and preserve wealth. Our products
and services include: Investment
Management, incorporating advisory,
discretionary and brokerage services;
Private Wealth Solutions, comprising
trusts and estate planning, designed
to protect wealth and preserve it for
future generations; and a full range
of Private Banking services.
Business synergies
GPB aims to bring the best of the
Group’s research, product and service
capabilities to GPB clients.
To achieve this, we have three client
service groups: the Corporate Client
Group, enhancing connectivity with
CMB and GB&M; the Wealth Client
Group, delivering a seamless transition
across the RBWM and GPB wealth
franchises; and the Global Solutions
Group, delivering non-traditional
wealth management solutions.
Wherever possible, GPB uses product
capabilities within GB&M, CMB and
RBWM, including asset management,
research, insurance, trade finance
and capital financing, to offer a unique
proposition to our clients.
Areas of focus
GPB aspires to build on HSBC’s
commercial banking heritage and be
the leading private bank for high net
worth business owners and principals.
We work closely and systematically
with CMB and GB&M to deliver a
coordinated private and corporate
coverage model for our clients.
HSBC HOLdINgS PLC
31
Strategic ReportFinancial Review Corporate Governance Financial Statements Shareholder Information
Strategic Report
Regions
We coordinate activities
across global businesses
and supporting functions
through a regional
structure.
For further details on our financial
performance by region, see pages
79 to 95.
Europe
Asia
Strong revenue growth in gB&M
We serve European clients with a
broad range of services and facilitate
international trade and investment.
London is the strategic hub for our
GB&M business. We are creating a
ring-fenced bank based in Birmingham
to serve UK retail and business clients.
Europe generated $2.4bn of adjusted
profit before tax
– Adjusted profit before tax fell $1.1bn
or 32%, as revenue growth of $0.1bn
or 1% was more than offset by an increase
in costs (up by $1.2bn or 8%), of which
$0.4bn related to an increase in the bank
levy. Excluding the bank levy, costs rose by
$0.9bn or 6% as regulatory programmes,
compliance and staff costs increased.
– We increased revenue in GB&M by
$0.7bn or 11%, mainly in client-facing
businesses, such as Equities and Foreign
Exchange, and in Balance Sheet
Management. In CMB, revenue grew
marginally by $0.1bn or 1%, in part due to
balance sheet growth in term lending and
PCM, although fees from overdrafts fell.
Revenue in RBWM was broadly unchanged.
However, revenue fell in GPB by $0.2bn
or 12%, reflecting the ongoing repositioning
of the business. ‘Other’, which includes
revenue relating to central financing
activities, reported a fall in revenue
of $0.4bn.
– The graph below shows reported and
adjusted profit before tax. The difference
between them primarily reflects fines,
penalties, redress and charges in relation
to legal matters, which totalled $3.1bn
and $1.7bn in 2014 and 2015, respectively.
Revenue growth across all
global businesses
Our history as a bank is founded on
financing trade with Asia, and the
continent remains central to our strategy.
In 2015, our businesses in Asia accounted
for 70% of adjusted profit before tax.
We aim to grow our business in China’s
Pearl River Delta and the ASEAN region,
as well as strengthen our leadership
position in the internationalisation of
China’s renminbi currency.
gB&M and Wealth Management
revenue growth despite a challenging
second half
– Adjusted profit before tax was $0.2bn or
1% higher as we grew revenue in all of our
businesses by $0.9bn, partly offset by an
increase in costs of $0.7bn.
– Our revenue increased by $0.9bn or 4%.
In GB&M, this was notably in Foreign
Exchange, Equities, Capital Financing and
Securities Services. Revenue in RBWM also
rose, mainly in Hong Kong from investment
distribution income notably in the first half
of 2015, which more than offset weaker
market sentiment in the second half of the
year, and a rise in interest income from
average lending and deposit balance growth.
We also increased revenue in CMB (up by
$0.2bn or 4%) mainly from average balance
sheet growth, although balances remained
broadly unchanged in the second half of the
year, reflecting subdued demand for credit.
– Our costs grew across all businesses,
notably from higher staff costs due to wage
inflation. We increased staff numbers in
RBWM to support business growth, and in
Risk and Compliance.
– The graph below shows reported and
adjusted profit before tax. The difference
between them was primarily due to the gain
of $1.4bn on the partial disposal of our
shareholding in Industrial Bank in 2015.
Profit before tax ($bn)
2015
2014
Profit before tax ($bn)
2015
2014
Reported
Adjusted
Reported
Adjusted
0.6
0.6
2.4
3.5
15.8
14.6
14.5
14.3
HSBC HOLdINgS PLC
32
Regions
Middle East and North Africa
North America
Latin America
Revenue growth across all
businesses despite geopolitical
uncertainties and falling oil prices
HSBC is the longest serving international
bank with one of the largest networks
in the region, offering a universal
banking model and playing a vital role
in facilitating international trade. Our
priority markets in the region are
Saudi Arabia, Egypt and the United
Arab Emirates (‘UAE’).
despite revenue growth, profit before tax
fell due to higher LICs and costs
– Adjusted profit before tax fell by $0.3bn,
or 15%, mainly due to an increase in LICs
of $0.3bn reflecting net charges in 2015
compared with net releases in 2014. LICs
in 2015 included higher charges in CMB
on individually assessed UAE-related
exposures, and in RBWM on mortgages
in the UAE, reflecting the impact of
a review of portfolio collateral.
– We increased our revenue by $0.1bn,
or 2%, across all businesses, mainly in
GB&M in Egypt from growth in lending
and investments, and in RBWM in the
UAE from higher fee income on cards
and wealth products.
– Our costs were $0.1bn or 5% higher,
mainly in the UAE and Egypt due to higher
staff costs, in part reflecting continued
investment in Global Standards and
wage inflation.
growing revenue from cross-
border banking in the NAFTA area
Revenue growth driven
by RBWM and CMB
The US is a key partner in global trade
and the US dollar remains the primary
currency for global trade and payments.
We support our North American
customers within the NAFTA area and
around the world, helping them grow
their businesses.
gB&M revenue rose 9% and run-off of the
US CML portfolio continued
– Adjusted profit before tax fell $0.4bn or
22% as the decrease in profit before tax
from the continued reduction in our US
CML portfolio more than offset growth
in our principal business.
– Total revenue was $0.3bn lower. We grew
revenue in GB&M by 9%, notably from
increased income in Markets and Balance
Sheet Management. However, this was
more than offset by a decrease in revenue
in the US CML run-off portfolio, reflecting
lower lending balances from the continued
run-off and loan sales.
– LICs increased by $0.2bn in CMB from
the oil and gas sector, and in RBWM
from lower favourable market value
adjustments in the US CML run-off
portfolio as improvements in housing
market conditions were less pronounced.
– We kept costs broadly unchanged, as
higher staff costs in CMB and GB&M
were offset in RBWM, notably in the
US CML run-off portfolio.
– The graph below shows reported and
adjusted profit before tax. The difference
between them in part reflects the effect
of fines, penalties and charges in relation
to legal matters, which totalled $0.6bn
and $0.7bn in 2014 and 2015, respectively.
We are focusing on growing our
business in Mexico, where we are
among the top five banks by assets
and provide connectivity for businesses
around the world, including ones in
the US. In 2015, we announced the
sale of our operations in Brazil. We aim
to continue to provide access to the
region for large multinational companies.
Revenue growth and lower LICs
– Adjusted profit before tax rose by $0.1bn
due to higher revenue and lower LICs,
offset by higher costs.
– Our revenue was $0.2bn higher (up by
3%). We increased revenue in CMB by
$97m, as lending and deposit balances
grew in Argentina, and in RBWM we
grew lending across all core products
in Mexico and grew deposit balances
in Argentina. In RBWM in Brazil, revenue
fell (down by $21m) reflecting the
economic slowdown and our decision
to sell the business there.
– LICs fell by $0.1bn due to lower specific
LICs as the prior year included a significant
GB&M charge, while LICs also fell in
CMB. This was partly offset by higher
LICs in RBWM in Brazil reflecting a rise
in delinquency rates.
– Costs increased in all of our businesses
(up by $0.2bn or 4%) at below the
average rate of inflation in the region.
This was despite continued investment
in Global Standards.
Profit before tax ($bn)
2015
2014
Profit before tax ($bn)
2015
2014
Profit before tax ($bn)
2015
2014
Reported
Adjusted
Reported
Adjusted
1.5
1.8
1.5
1.8
Reported
Adjusted
0.6
1.4
1.6
2.0
0.3
0.2
0.5
0.4
HSBC HOLdINgS PLC
33
Strategic ReportFinancial Review Corporate Governance Financial Statements Shareholder Information How we do business
Building long-term relationships
We conduct our business intent on supporting
the sustained success of our customers, people
and communities. We see investment in our
capabilities, employees and processes as a
source of long-term competitive advantage.
How we do business strengthens the durability
of our earnings and our ability to return value
to shareholders.
Led by our values
Our values underpin how we do
business. We are open to differences
and believe diversity makes us
stronger. We are connected, and our
personal relationships are essential
to our business. We aim to be always
dependable in fulfilling our
responsibilities in society and
delivering on commitments.
Building lasting business relationships
Empowering people
Ensuring sustainable outcomes
HSBC HOLdINgS PLC
34
Strategic Report How we do business
– Ensuring fair outcomes
– Increasing quality of service
– developing long-term opportunities
– Equipping our employees
– Valuing diversity
– Encouraging ownership
– Rewarding positive behaviours
– Managing environmental
and social impacts
– Respecting human rights
– Investing in our communities
HSBC HOLdINgS PLC
35
Strategic ReportFinancial Review Corporate Governance Financial Statements Shareholder Information Strategic Report | How we do business
Complaint types
(RBWM)
28%
29%
12%
31%
Key
Product – features and policy
Product – fees and charges
Other product-related complaints
Service complaints
HSBC global Research
1st
for integrated climate
change research, ranked
by Extel Survey 2015.
Building lasting business relationships
Ensuring fair outcomes
We recognise that delivering fair
outcomes for customers and upholding
financial market integrity is critical
to a sustainable business model.
We continue to enhance our product
governance processes to further
ensure products are designed to
meet customers’ needs and are sold
appropriately. In the UK, for example,
we have started to alert customers by
text message when they are about to
go into overdraft. As a result, customer
complaints in this area have declined
by 67% and customers have saved
more than $129.9m in fees.
For further details on the steps we
have taken to strengthen conduct across
the Group, see page 40. For further
details on compliance risk and for further
details on conduct-related costs included
in significant items, see pages 178 and
97, respectively.
Increasing quality of service
We seek feedback from customers in
order to assess how well we are doing
and what we can do better. In 2015, we
improved our processes for responding
to customer complaints and tools for
understanding their causes. For example,
in India our analysis of customer
complaints led us to improve customer
communication regarding minimum
balances and change our fee structure.
Complaints in this area subsequently
reduced by 62%.
Through our commercial banking research
programmes, we have spoken to more
than 50,000 businesses to gather
feedback on our products and services
from existing and potential customers.
We use competitor benchmarking,
brand tracking and customer surveys
to evaluate our performance. In RBWM,
we conducted more than 350,000
individual customer surveys.
developing long-term
opportunities
Technology and climate change are two
areas that present both challenges and
opportunities to us and our customers.
Investing in technology
We are investing in innovation and digital
capabilities to serve customers better,
and enhancing security around financial
transactions and customer data.
In 2015, we enabled the Apple Pay
mobile payment service for customers
in the UK and the US, and launched
live-chat online customer service in six
markets including the UK, Hong Kong
and France. We made digital secure
keys available in the UK to simplify the
customer login experience. In Argentina
and the Philippines, we launched our new
online banking platform, which will be
deployed in additional countries in 2016.
Facilitating a low-carbon economy
Reducing global carbon dioxide emissions
is a critical challenge for society. We
see the potential for financial services
to facilitate investment that can help the
world transition to a low-carbon economy.
In 2015, our Global Research team
was ranked number one for Integrated
Climate Change for the second year
running in the Extel Survey. Furthermore,
our Asset Management business joined
the Montreal Pledge to disclose the
carbon intensity of its portfolio.
For more information about our climate
business, see page 37.
HSBC HOLdINgS PLC
36
How we do business
geothermal plant,
Nevada, US
The Enel Group pioneered
the use of geothermal
electricity generation
more than 100 years ago
in Italy and remains a
global leader in the sector.
Case study: Enel
Italy, Energy
multinational
One of the leading integrated
global operators in the gas
and electricity sectors with
operations in more than
30 countries across four
continents. Enel is one of the
world’s major producers of
clean energy.
Enel green Power
Enel Green Power (‘EGP’) is
a publicly traded Enel Group
company dedicated to the
production of energy from
renewable sources. In 2015,
HSBC assisted EGP as financial
adviser on its acquisition of a
majority stake in the Indian
wind and solar company BLP
Energy. The transaction marks
EGP’s entry into the Indian
renewable energy market and
its first move into the Asia-
Pacific region.
HSBC also acted as lead
arranger in securing export
financing for EGP’s delivery
of four solar power projects
in South Africa. The financing
of €145m was fully covered
by SACE, the Italian export
credit agency, and underlines
our capabilities in export
finance and the renewable
energy sector.
Number of markets
where served
9
Number of products
provided
8
Climate business
HSBC helps facilitate
investment in areas including
infrastructure and renewable
energy that help lower carbon
dioxide emissions.
In 2015, the Group issued a
green bond for the first time
when HSBC France raised
€500m ($554m) to fund
customers and projects in the
following sectors: renewables,
energy efficiency, sustainable
waste and water management,
sustainable land use, climate
change adaptation, and clean
buildings and transportation.
HSBC also pledged to invest
$1bn in a portfolio of green, social
or sustainable bonds.
We also helped CLP Windfarms
become the first Indian corporate
to issue a public green bond,
and Vestas Wind Systems, based
in Denmark, issue the first
green bond by a wind turbine
manufacturer. We also helped
Agricultural Bank of China issue
the first international green bond
from a Chinese bank.
Another example of our work
facilitating a low-carbon economy
involves our team dedicated to
bus rapid transit systems. These
use prioritised bus lanes in urban
areas to cut journey times, reduce
pollution and increase road safety.
We helped finance 466 efficient
buses in 2015, in countries
including Ghana and South Africa.
Since the team was created in
2005, it has helped finance 4,500
buses and equipment such
as workshops and ticketing
systems. We are also a
member of the United Nations
Partnership on Sustainable,
Low Carbon Transport.
In 2015, we also helped finance
three renewable energy deals in
the US, and an energy efficiency
programme in the UK to install
around seven million electricity
and gas smart meters in homes
and businesses.
HSBC HOLdINgS PLC
37
Strategic ReportFinancial Review Corporate Governance Financial Statements Shareholder Information Strategic Report | How we do business
Empowering people
Valuing diversity
We are proud to provide an open,
supportive and inclusive workplace
where people can grow and achieve their
potential. Our commitment to diversity
and inclusion helps us attract, develop
and retain employees. We are also
committed to reflecting the communities
we serve.
Our employees lead and organise seven
global employee networks to promote
diversity. They focus on gender, age,
ethnicity, sexual orientation, religion,
working parents and disability.
To help managers address bias in hiring,
promotion and talent identification, we
use education programmes and have
expanded mentoring initiatives for
under-represented groups.
In 2015, we won Diversity Team of
the Year at the European Diversity
Awards. We were also one of 10
companies recognised as a Top Global
Employer in Stonewall’s Global
Workplace Equality Index.
We continue to address gender
representation, particularly at senior
levels, with additional focus on
promotions and hiring. We also continue
to expand support and flexible working
programmes for parents returning
to work.
Our award-winning Balance employee
network aims to address gender
diversity across HSBC, encouraging
dialogue and a better understanding
of the challenges and opportunities in
promoting a gender-balanced workforce
throughout the Group. It is available
to staff of all genders, and had active
groups in more than 30 offices around
the world in 2015.
Diversity
Team of
the Year
European
Diversity
Awards
Top
Global
Employer
Stonewall
Encouraging ownership
Employees (FTE) by region
15.6%
7.7%
3.2%
26.5%
47.1%
Key
Asia
Europe
Middle East and North Africa
North America
Latin America
Exchange meeting participation
(% of employees that attended a 2015 meeting)
53%
Employee retention
84.1%
Gender diversity statistics
Female
Male
Holdings Board
Group Management
Board
Senior
employees
All employees
11
8
13
1 (7%)
6,937
2,235 (24%)
127,586
139,357
(58%)
(42%)
(93%)
(76%)
(48%)
(52%)
We promote individual ownership and
responsibility, and have created forums
to encourage dialogue. In 2015, we
continued to facilitate agenda-free
exchange meetings across the Group
for employees to collaborate on ideas
and initiatives to improve our work.
We also held 14 webcasts with senior
executives to promote understanding
of our strategic actions and allow
employees to ask questions.
Equipping employees
Our training programmes reinforce
a culture grounded in our values. In
2015, we completed a three-year
programme of values-led leadership
training for all employees.
We are building employee training
centres in Birmingham, Dubai and
mainland China. These will operate
alongside HSBC University, our online
training service.
In 2015, we also launched HSBC
Confidential, which brought together
all our existing whistleblowing
channels on to a global platform that
allows employees to raise concerns
confidentially without fear of personal
repercussions. The global channel
can be accessed by telephone, email,
web or mail. For further details,
see ‘Whistleblowing’ on page 179.
Rewarding positive behaviours
We have embedded behaviour ratings
in our performance review processes,
which are factored into variable
pay considerations.
In 2015, we introduced an At Our Best
online recognition tool for all employees.
It allows them to recognise colleagues’
actions by awarding points that are
redeemed for gifts and benefits.
HSBC HOLdINgS PLC
38
How we do business
22%reduction in our carbon
dioxide emissions
since 2011
$205mdonated to
charity in 2015
Ensuring sustainable outcomes
Managing environmental
and social impacts
We continue to reduce the environmental
impact of our operations and have
robust policies and processes to
manage sustainability risks in our
business activities.
We are reducing the amount of energy
we consume, and increasing the
proportion from renewable sources.
We have signed agreements to increase
the percentage of our electricity from
new wind and solar sources to 9%,
and have a target of 25% by 2020. We
report on our carbon dioxide emissions
for the year in the Report of the Directors
on page 98.
Our sustainability risk policies cover
a number of sensitive industries and
themes. After we issued new standards
in our forestry and agricultural commodities
policies in 2014, we took the decision to
stop banking more than 160 customers
as soon as possible because they did
not comply. In 2015, HSBC was
recognised as a leader in the Forest 500
ranking of 150 investors’ policies on
the sustainability of forest commodity
supply chains.
We also support a transition to certified,
sustainable palm oil. Our standards require
our palm oil customers to have all their
operations certified as sustainable by the
end of 2018, and we continue to support
them in meeting this goal.
In 2015, there were more than 2,300
attendances by relationship and risk
managers of training on our sustainability
risk policies to help ensure their
implementation is robust.
Details on our sustainability risk
framework and policies are available
online at www.hsbc.com/citizenship/
sustainability/finance.
Respecting human rights
We apply human rights considerations
directly as they affect our employees
and indirectly through our suppliers and
customers, and through our action to
prevent bribery and corruption. For
example, our code of conduct for suppliers
includes elements related to human rights,
as do our project finance lending and
sustainability risk policies. Our Statement
on Human Rights, issued in 2015, explains
how we do this and is available on our
website. We will integrate the provisions
of the Modern Slavery Act 2015 into our
business and supply chain, and will report
in line with the guidelines published by the
UK government.
We are guided by the International Bill
of Human Rights, and support the UN
Declaration of Human Rights and the
principles concerning fundamental rights
set out in the International Labour
Organisation’s Declaration on Fundamental
Principles and Rights at Work.
Investing in our communities
We believe that education and the
environment are essential to resilient
communities and thriving economies.
For more than 10 years, we focused
our community investment activities
on these two areas. In 2015, following
survey responses from employees, we
decided to add medical charities to the
causes we support.
In 2015, we contributed a total of $205m
to charitable programmes and our
employees volunteered 304,555 hours
in community activities during the
working day.
We marked our 150th year by setting
up an additional fund of $150m to support
causes selected by our employees. It will
support 140 charities across the world
over three years. We also made a one-off
$62m donation to charities in Hong Kong
from the sale of commemorative HK$150
bank notes.
HSBC HOLdINgS PLC
39
Tax
Taxes paid by region
($bn)
1.2
0.4
0.4
$8.4bn
2.8
Key
UK
Rest of Europe
Asia
Middle East and North Africa
North America
Latin America
2.5
1.1
Our approach to tax
We apply the spirit as well as the letter
of the law in all territories where we
operate, and have adopted the UK Code
of Practice for the Taxation of Banks. As
a consequence, we pay our fair share of
tax in the countries in which we operate.
We continue to strengthen our processes
to help ensure our banking services are
not associated with any arrangements
known or suspected to be designed to
facilitate tax evasion.
HSBC continued to support global
initiatives to improve tax transparency
such as:
– the US Foreign Account Tax
Compliance Act (‘FATCA’);
– the OECD Standard for Automatic
Exchange of Financial Account
Information (also known as the
Common Reporting Standard);
– the Capital Requirements Directive IV
(‘CRD IV’) Country by Country
Reporting; and
– the OECD Base Erosion and Profit
Shifting (‘BEPS’) initiative.
We do not expect the BEPS initiative
or similar initiatives adopted by national
governments to adversely impact
HSBC’s results.
Strategic ReportFinancial Review Corporate Governance Financial Statements Shareholder Information Our conduct
Operating with high standards of conduct
is central to our long-term success. We have
processes, policies and a culture designed
to ensure fair outcomes for customers and
protect the integrity of financial markets.
Improving conduct
continuously
We have undertaken a series of
initiatives in recent years to strengthen
and develop our measures to encourage
and ensure good conduct.
In 2014, we established a Conduct
& Values Committee to provide Board
oversight of our multiple efforts to raise
standards of conduct and to embed the
behavioural values we stand for.
Later that year, we introduced our
global Conduct Framework, which sets
out five pillars on which our conduct
is based, and links each to specific
behaviours. This guides activities to
strengthen our business, and increases
our understanding and awareness of
how the decisions we make affect
customers and other stakeholders.
Raising standards further
in 2015
We completed a broad programme
of activities during the year to further
raise standards of conduct, and help
ensure their effectiveness across
the Group.
Key developments included introducing
the assessment of values in recruitment,
embedding customer perspective in
decision making, refining the value
proposition of products and improving
the reporting of misconduct.
Selected initiatives and the pillars
they relate to are shown along the
timeline below.
For further details of the work
of the Conduct & Values Committee,
see page 272.
Selected initiatives
Figures in diamonds refer to pillars in our Conduct Framework
2012 to 2014
5
2
5
1
3
Updated RBWM
new product
review process
to assess against
fair exchange of
value criteria
Revised
incentives
structure in
RBWM and
CMB to remove
formulaic link
with sales
volumes, and
instead focus on
customer needs
Established
Board-level
Conduct & Values
Committee to
promote and
oversee activities
across the Group
Introduced a
global conduct
framework to
define and guide
initiatives across
five areas
of activity
Defined global
policy in RBWM
on potentially
vulnerable
customers to help
us identify and
appropriately
serve those
whose
circumstances
could impair their
decision making
2015
2
Introduced values
assessment in
recruitment for
senior roles
across the Group
to help ensure
candidates reflect
our standards
of behaviour
4
Integrated
our GB&M
surveillance
teams and tested
new technologies
to strengthen our
capabilities to
detect suspicious
trading activity
and misconduct
HSBC HOLdINgS PLC
40
2015
Strategic Report Our conduct
Our Conduct Framework
Key
The Pillars
global conduct outcomes
1
2
3
4
5
Pillar 1:
Strategy and
business models
– Our strategy, business models, and the
decisions we make deliver fair treatment of
customers and do not disrupt market integrity
Pillar 2:
Culture and
behaviours
– Our culture supports our people and
empowers them to consistently do the right
thing for our customers and markets in which
we operate
– Our people are competent and committed to
the fair treatment of customers and not
disrupting the integrity of markets
1
– We are open to challenge, we acknowledge
when things go wrong, we fix things and
we learn from our mistakes
– We reward and incentivise performance,
behaviours and attitudes which deliver the
fair treatment of customers and uphold
market integrity
Pillar 3:
Customer
– We know our customers and understand
their needs – we actively listen to them and
ask the right questions
Pillar 4:
Markets
– Our products are designed to meet the
different needs of our customers, to be
competitive and to be understandable
– Our products and services provide a balanced
exchange of value between HSBC and our
customers
– We seek to prevent and will proactively
identify actions and behaviours that
constitute market misconduct, and respond
appropriately
– Trades are executed in a timely, clear and
controlled manner ensuring that optimal
execution is achieved for our customers and
that HSBC trades are not manipulative
– Throughout our sales and servicing we are
efficient, transparent and customer-focused
– We manage our products and services so
that our customers’ experience is in line with
the expectations we set
– We manage conflicts of interest and
appropriately handle information to reduce
the opportunity for misuse
Pillar 5:
governance
and oversight
– Our governance framework provides
– We engage with regulatory bodies in a timely,
effective oversight of how we fairly treat
customers and uphold market integrity
open and transparent manner
Selected initiatives
2012 to 2014
2015
2015
3
3
2
3
3
5
2
Introduced a
tone-of-voice
communications
toolkit to simplify
and improve
clarity of
interactions with
customers
Reviewed all
RBWM products
to assess fair
value for
customers
resulting in
reductions or
removal of certain
fees for 83 retail
banking products
across 24
countries
Launched
‘Rebuilding trust
in banking’
mandatory
training for all
employees
globally;
completed by
more than
270,000 people
Expanded
customer
feedback and
complaint
handling
capabilities;
increased analysis
of root causes to
address recurring
customer
concerns more
effectively
Streamlined
inventory of CMB
products offered
to customers
globally (more
than 50%
reduction
since 2013)
Submitted
attestation to the
Financial Conduct
Authority on our
systems and
controls in GB&M
to mitigate risks
identified in our
foreign exchange
and commodities
businesses
Launched
employee
gratitude project
to promote
culture of
appreciation;
40,000 employee
‘thank you’
notes sent in a
single month
HSBC HOLdINgS PLC
41
Strategic ReportFinancial Review Corporate Governance Financial Statements Shareholder Information Risk overview
We actively manage risk to protect
and enable the business.
Managing risk
As a provider of banking and financial
services, managing risk is part of our core
day-to-day activities. Our success in doing
so is due to our clear risk appetite, which
is aligned to our strategy. We set out the
aggregate level and types of risk that we
are willing to accept in order to achieve
our medium- and long-term strategic
objectives in our risk appetite statement,
which is approved by the Board, covering:
– risks that we accept as part of doing
business, such as credit risk and
market risk;
– risks that we incur to generate income,
such as operational risk and capital and
liquidity risk, which are managed to
remain below an acceptable tolerance;
and
– risks that we have zero tolerance for,
such as reputational risk.
Our risk management framework
and its key components, and our exposure
to risks arising from the business activities
of the global businesses are shown on pages
101 and 109, respectively.
The strategic actions designed to increase
our return on equity are described on
page 18.
To ensure that risks are managed in
a consistent way across the Group, we
employ a risk management framework
that is applicable to all levels of the
organisation and across all risk types.
It sets out governance and structures,
responsibilities and processes. Global
Risk, led by the Group Chief Risk
Officer, who is an executive Director,
is responsible for enterprise-wide risk
oversight and is independent from
the sales and trading functions of the
Group’s businesses. This independence
ensures the necessary balance in risk/
return decisions.
Key risk appetite metrics
Component
Measure
Returns
Return on average ordinary shareholders’ equity
in excess of our estimated cost of equity of 9%
Risk appetite
2015
≥10% 7.2%
Capital
Common equity tier 1 ratio – CRD IV end point basis
≥10% 11.9%
Liquidity
HSBC consolidated balance sheet advances-to-
deposits ratio
≤90% 72%
Loan
impairment
charges
RBWM loan impairment charges as % of advances1
<0.65% 0.58%
Wholesale loan impairment charges as
% of advances
<0.45% 0.26%
1 Including the loans of the Brazilian operations held for sale.
Risk management and stress testing
Stress testing is an integral component
of our risk management framework.
It is an important tool for us to assess
potential vulnerabilities in our businesses,
business model or portfolios. It allows us
to understand the sensitivities of the core
assumptions in our strategic and capital
plans, and improve decision-making
through balancing risk and return.
We also participate in regulatory stress
test exercises in a number of jurisdictions.
The primary Group-wide exercise is
requested by the Bank of England. The
2015 scenario incorporated a synchronised
global downturn affecting Asia, Brazil and
the eurozone in particular, a reduction in
global risk appetite and market liquidity,
and a recession in the UK.
The results were published by the Bank
of England on 1 December 2015 and
are summarised below. Our CET1 ratio
remained well above the regulatory
minimum despite our significant
presence in the countries and regions
affected by the scenario, demonstrating
our resilience to a severe stress situation
in our core markets.
Internal stress test scenarios are closely
aligned to our assessment of top and
emerging risks. The potential impact from
these scenarios, were they to occur, may
prompt pre-emptory management actions
including a reduction in limits or direct
exposures, or closer monitoring of
exposures sensitive to stress.
Our approach to stress testing and
the results of regulatory stress testing
programmes are discussed on pages 103
and 116, respectively.
2015 Bank of England Stress Test Results
group Common Equity Tier 1 Ratio
31 december 2014 actual (end point)
Minimum stressed ratio before management actions
Minimum stressed ratio after management actions
Bank of England minimum ratio
31 december 2015 actual (end point)
HSBC HOLdINgS PLC
42
11.1%
7.0%
7.7%
4.5%
11.9%
Strategic Report Risk overview
Top and emerging risks
We employ a top and emerging risks
framework at all levels of the organisation
to identify current and forward-looking
risks so that we may take action that
either prevents them materialising or
limits their effect.
Top risks are those that may have a
material impact on the financial results,
reputation or business model of the Group
in the year ahead. Emerging risks are those
that have large unknown components and
may form beyond a one-year horizon. If
these risks were to occur, they could have
a material effect on HSBC.
Our current top and emerging risks
are summarised below.
During 2015, we made two changes to
our top and emerging risks to reflect our
assessment of their effect on the Group.
‘Turning of the credit cycle’ was added as a
new risk, reflecting the risk of deterioration
in the credit environment. ‘Internet crime
and fraud’ was removed as mitigating
actions taken have reduced credit and
fraud losses through digital channels.
In addition, four risks were renamed to
better reflect the issues facing HSBC.
We use the new names below.
Our top and emerging risks
are discussed in more detail
on page 110.
Risk
Trend
Mitigants
Externally driven
Economic outlook
and capital flows
Geopolitical risk
We closely monitor economic developments in key markets, undertaking business or portfolio
reviews or stress tests as required, and take appropriate action as circumstances evolve.
We continuously assess the impact of the geopolitical outlook on our country limits and exposures
to ensure we remain within our risk appetite.
Turning of the credit cycle
We undertook portfolio and limit reviews and conducted stress tests on the sectors and portfolios
that are most sensitive to the credit cycle.
Regulatory developments
affecting our business
model and profitability
We actively assess the effect of relevant developments and engage closely with governments
and regulators, seeking to ensure that requirements are considered properly and implemented
in an effective manner.
US DPA and related
agreements and
consent orders
Regulatory focus on
conduct of business
and financial crime
Dispute risk
Cyber threat and
unauthorised access
to systems
Internally driven
People risk
Execution risk
Third-party risk
management
Model risk
Data management
We are continuing to take concerted action to remedy anti-money laundering and sanctions
compliance deficiencies and to implement Global Standards.
We are enhancing our financial crime and regulatory compliance controls and resources and
are implementing significant programmes to enhance the management of conduct and financial
crime risks.
We continue to focus on identifying emerging regulatory and judicial trends, and sharing lessons
learned globally in an effort to avoid or limit future litigation exposure.
We continue to improve our governance and controls framework to protect HSBC’s information and
technical infrastructure against ever-increasing and sophisticated cyber threats.
We continue to focus on attracting and retaining key talent and are implementing a number
of initiatives to improve employee capability, collaboration and engagement.
We have strengthened our prioritisation and governance processes for significant strategic, regulatory
and compliance projects. Risks related to the disposals of our operations in Brazil and Turkey were
subject to close management oversight.
We are enhancing our third-party risk management governance, processes and procedures
and have conducted enhanced risk assessments of our most critical third parties.
We have strengthened our governance framework, created centralised global analytical functions and
recruited additional subject matter experts in our modelling and independent model review teams.
A number of key initiatives and projects are in progress to implement our data strategy to enable
consistent data aggregation, reporting and management.
Risk heightened during 2015
Risk remained at the same level as 2014
HSBC HOLdINgS PLC
43
Strategic ReportFinancial Review Corporate Governance Financial Statements Shareholder Information Remuneration
Our remuneration policy supports the
achievement of our strategic objectives
through balancing reward for both short-term
and long-term sustainable performance.
Remuneration principles
The remuneration strategy for our
employees is based on a series
of key principles.
For full details of our remuneration
policy, see www.hsbc.com/~/media/
HSBC-com/InvestorRelationsAssets/
governance/151023-remuneration-policy.
What we do
– Focus on total compensation with a strong
What we don’t do
– Reward inappropriate or excessive
link between pay and performance
– Judge not only what is achieved but how
it is achieved in line with HSBC Values
risk taking or short-term performance
at the expense of long-term company
sustainability
Post-tax profits allocation
25%
16%
2015
59%
– Operate a thorough performance
management and HSBC Values
assessment process
– Recognise and reward our employees
for outstanding positive behaviour
– Design our policy to align compensation
with long-term shareholder interests
– Apply consequence management to
strengthen the alignment between
risk and reward
– Use only a formulaic approach to determine
bonuses for our executives
– Award discretionary bonuses to employees
rated unacceptable against our HSBC
Values and behaviours
– Allow our employees to hedge against
their unvested or retained awards
– Offer employment contracts with
a notice period of more than 12 months
– Have pre-arranged individual
severance agreements
Key
Dividends1
Variable pay2
Retained earnings/capital
1 Inclusive of dividends to holders of other equity
instruments and net of scrip issuance based on
an assumption of scrip take up for the fourth quarter
of 2015 of 20%. Dividends per ordinary share declared
in respect of 2015 were $0.51, an increase of 2%
compared with 2014.
2 Total variable pay pool net of tax and portion to
be delivered by the award of HSBC shares.
Single figure of remuneration for our executive directors
(£000)
Stuart Gulliver
2015 actual
54%
64%
16%
30%
36%
Iain Mackay
2015 actual
48%
62%
26%
26%
38%
Marc Moses
2015 actual
51%
63%
21%
28%
37%
Key
Components of pay:
Fixed pay
Annual incentive
Group Performance
Share Plan (’GPSP’)
Settled in:
Shares
Cash
For full details of our Directors’
pay and performance for 2015,
see the Directors’ Remuneration
Report on page 285.
How much our executive directors earned in 2015 (£000)
douglas Flint
Group Chairman
Stuart gulliver
Group Chief
Executive
Iain Mackay
Group Finance
Director
Marc Moses
Group Chief
Risk Officer
2015
2014
2015
2014
2015
2014
2015
2014
Fixed pay
Base salary
1,500
1,500
1,250
1,250
Fixed pay allowance
Pension
–
750
–
1,700
1,700
750
625
625
700
950
350
700
950
350
700
950
350
700
950
350
Total fixed pay
2,250
2,250
3,575
3,575
2,000
2,000
2,000
2,000
Variable pay
Annual incentive
GPSP
Total variable pay
Total fixed and
variable pay
Benefits
Non-taxable benefits
Notional return
on deferred cash
Total single figure
of remuneration
–
–
–
–
–
–
1,072
1,290
1,068
867
827
1,033
1,969
2,112
1,101
1,131
1,101
1,131
3,041
3,402
2,169
1,998
1,928
2,164
2,250
2,250
6,616
6,977
4,169
3,998
3,928
4,164
151
95
–
136
105
41
662
589
53
9
53
–
54
28
5
43
28
11
6
29
5
6
33
36
2,496
2,532
7,340
7,619
4,256
4,080
3,968
4,239
HSBC HOLdINgS PLC
44
Strategic Report
Remuneration
Policy for executive directors
We are making changes to our
directors’ remuneration policy
Our current remuneration policy was
approved by shareholders at the 2014
Annual General Meeting (‘AGM’) and
was applied for 2015. Due to increased
regulatory requirements, we are putting
forward a new remuneration policy for
shareholder approval at the AGM this
year. For further details, see page 288.
The table below summarises how each
element of pay was implemented in
2015 and how it will change for 2016
if the new policy is approved.
For full details of the current
Directors’ remuneration policy,
see page 381 of the 2013 Directors’
Remuneration Report.
Pay
Element
Implementation in 2015
Proposed changes to policy for 2016
Fixed
Base salary
– Benchmarked on an annual basis
– Increases will not exceed more than 15% of
base salary levels as at 2013 during the term
of the policy
– Amounts have not changed since 2010
No change to policy:
– Increase will not exceed more than 15% of base salary levels
as at 2016 during the term of the policy
Fixed pay
allowance
– Fixed pay allowances introduced in 2014 to ensure the
total compensation package remains competitive as a
consequence of new regulatory requirements in 2013
– Maximum fixed pay allowance for each
executive Director is 150% of base salary
– Granted in immediately vested shares,
– Granted in immediately vested shares, subject
to a retention period with 20% released after
one year and the remainder after five years
subject to a retention period released pro-rata
over a period of five years
Pension
– Cash allowance in lieu of pension of up to 50%
– Reduced to a maximum of 30% of base salary
of base salary
Benefits
– Takes account of local market practice,
including but not limited to medical and
income protection insurance
– No change to current provided benefits
– Post-departure benefits introduced for up to seven years from
date of departure
Variable
Annual
incentive
– Maximum is 67% of fixed pay (equal to
approximately 181% of base salary)
– Measured against an annual scorecard
– A minimum of 60% will be deferred and vest over
– Maximum is 215% of base salary
– 100% delivered in shares subject to a retention period, with
the Remuneration Committee to have discretion to defer
a portion of the awards or apply a longer retention period
a three-year period
– Delivered in cash and shares, with a minimum
of 50% delivered in shares
Long-term
incentive
– Group Performance Share Plan
– Maximum of 133% of fixed pay (equal to
approximately 381% of base salary)
– Measured against 2014 long-term scorecard
– Delivered in shares with a five-year vesting period
– Required to hold shares until retirement
– New long-term incentive plan
– Maximum is 320% of base salary
– Performance targets set annually for each three-year
forward-looking performance period
– Introduction of relative total shareholder return as a
performance measure
– Delivered in shares, subject to the outcome of the performance
conditions at the end of the three-year performance period, in
equal instalments between the third and seventh anniversary
of the grant date
– A retention period may be applied to ensure compliance with
regulatory requirements
HSBC HOLdINgS PLC
45
Strategic ReportFinancial Review Corporate Governance Financial Statements Shareholder Information Value of the
international network
Our international network is a distinctive
advantage and underpins our strategy.
It enables us to serve clients in a
large number of countries.
Our global footprint
gives us a strong position
in transaction banking
products, which support
global trade and capital
flows. The scale of our
network means we can
offer these products
to a larger number of
customers, including
companies that operate
in many countries.
Details can be found on pages 14 to 17.
By serving a wide range of customers,
we also create business synergies.
Cross-business synergies come from
providing products from one of our
global businesses to customers of
another. In-business synergies come
from owning our Securities Services
business, and our Asset Management
and Insurance businesses that
manufacture their own products,
and support our global businesses.
We are building on these strengths,
and saw their effects during 2015.
growth from transaction
banking products
We grew revenue from our transaction
banking products by 4% in 2015 to
$15.7bn, driven in particular by Foreign
Exchange, and Payments and Cash
Management (‘PCM’). In Global
Trade and Receivables Finance, we
maintained revenue despite a decline
of approximately 40% in commodity
prices and stagnant world trade. We
continue to benefit from our presence
along strategic trade corridors and
synergies across global businesses.
Payments and Cash
Management
We increased average deposits by 8%
in 2015, aided by: investment in sales
and client management; new and
enhanced products; and access
through digital channels including
HSBCnet mobile, which is now
available in 34 markets.
Business synergies
We grew business synergy revenue by
$0.6bn to $11.6bn in 2015. In-business
synergies grew 8%, including 7%
growth in Securities Services revenue.
Growth in cross-business synergies
revenue was led by a 7% increase
in revenue from PCM products sold
to GB&M customers.
Business synergies revenue growth
(% change 2014 to 2015)
6%
Transaction banking product revenue ($bn)
2015
2014
15.7
15.1
HSBC HOLdINgS PLC
46
Financial Review
All disclosures in the Financial Review section
are unaudited unless otherwise stated.
Disclosures marked as audited should
be considered audited in the context
of financial statements taken as a whole.
HSBC HOLdINgS PLC
47
Financial Review Strategic ReportCorporate Governance Financial Statements Shareholder Information Report of the Directors: Financial summary
Use of non-GAAP financial measures
Financial summary
Use of non-GAAP financial measures
Consolidated income statement
Group performance by income and expense item
Net interest income
Net fee income
Net trading income
Net income from financial instruments designated
at fair value
Gains less losses from financial investments
Net insurance premium income
Other operating income
Net insurance claims and benefits paid and movement
in liabilities to policyholders
Loan impairment charges and other credit risk provisions
Operating expenses
Share of profit in associates and joint ventures
Tax expense
Consolidated balance sheet
Movement in 2015
Reconciliation of RoRWA measures
Critical accounting estimates and judgements
48
50
51
51
53
54
54
55
56
56
57
57
58
60
60
61
62
64
64
The management commentary included in the Strategic Report, the
Report of the Directors: ‘Financial Review’, together with the
‘Employees’ and ‘Corporate sustainability’ sections of ‘Corporate
Governance’ and the ‘Directors’ Remuneration Report’ is presented
in compliance with the IFRSs Practice Statement ‘Management
Commentary’ issued by the IASB.
Use of non-GAAP financial
measures
Our reported results are prepared in accordance with IFRSs
as detailed in the Financial Statements starting on
page 336. In measuring our performance, the financial
measures that we use include those which have been
derived from our reported results in order to eliminate
factors which distort year-on-year comparisons. These are
considered non-GAAP financial measures.
The primary non-GAAP financial measure we use is
‘adjusted performance’. Other non-GAAP financial
measures are described and reconciled to the most
relevant reported financial measure when used.
Adjusted performance
Adjusted performance is computed by adjusting reported
results for the year-on-year effects of foreign currency
translation differences and significant items that distort
year-on-year comparisons. ‘Significant items’ are excluded
from adjusted performance because management and
investors would ordinarily identify and consider them
separately in order to better understand the underlying
trends in a business.
These items, which are detailed in the tables starting on
pages 66 and 77, include:
• gains or losses on the disposal or reclassification of
subsidiaries, associates and joint ventures;
• fines, penalties, customer redress and associated
provisions, together with settlements and provisions
relating to legal matters when their size or historical
nature mean they warrant separate consideration;
• costs incurred to achieve the productivity and cost
reduction targets outlined in the Investor Update of
June 2015; and
• credit spread movements on our long-term debt
designated at fair value.
We consider adjusted performance provides useful
information for investors by aligning internal and external
reporting, identifying and quantifying items management
believe to be significant and providing insight into how
management assesses year-on-year performance.
Foreign currency translation differences
Foreign currency translation differences reflect the
movements of the US dollar against most major currencies
during 2015. We exclude the translation differences when
deriving constant currency data because using this data
allows us to assess balance sheet and income statement
performance on a like-for-like basis to better understand
the underlying trends in the business.
Foreign currency translation differences
Foreign currency translation differences for 2015 are computed
by retranslating into US dollars for non-US dollar branches,
subsidiaries, joint ventures and associates:
•
the income statements for 2014 at the average rates of
exchange for 2015; and
the balance sheet at 31 December 2014 at the prevailing
rates of exchange on 31 December 2015.
•
No adjustment has been made to the exchange rates used to
translate foreign currency denominated assets and liabilities
into the functional currencies of any HSBC branches, subsidiaries,
joint ventures or associates. When reference is made to foreign
currency translation differences in tables or commentaries,
comparative data reported in the functional currencies of HSBC’s
operations have been translated at the appropriate exchange
rates applied in the current year on the basis described above.
HSBC HOLDINGS PLC
48
Significant items
The tables starting on pages 66 and 77, detail the effect of
significant items on each of our geographical segments and
global businesses in 2015 and 2014.
Reconciliation of reported and adjusted items
Revenue1
Reported
Currency translation
Own credit spread2
Acquisitions, disposals and dilutions
Other significant items
Adjusted
Loan impairment charges and other credit risk provisions
Reported
Currency translation
Acquisitions, disposals and dilutions
Other significant items
Adjusted
Total operating expenses
Reported
Currency translation
Acquisitions, disposals and dilutions
Other significant items
Adjusted
Adjusted cost efficiency ratio
Share of profit in associates and joint ventures
Reported
Currency translation
Acquisitions, disposals and dilutions
Other significant items
Adjusted
Profit before tax
Reported
Currency translation
Own credit spread2
Acquisitions, disposals and dilutions
Other significant items
Adjusted
For footnotes, see page 99.
The following table reconciles selected reported items
for 2015 and 2014 to adjusted items at a Group level.
2015
$m
59,800
(1,002)
–
(1,033)
57,765
(3,721)
–
–
(3,721)
(39,768)
–
3,586
(36,182)
62.6%
2,556
–
–
2,556
18,867
(1,002)
–
2,553
20,418
2014
$m
61,248
(4,775)
(417)
(9)
1,180
57,227
(3,851)
683
–
–
(3,168)
(41,249)
3,278
40
3,355
(34,576)
60.4%
2,532
(39)
–
–
2,493
18,680
(853)
(417)
31
4,535
21,976
Change
%
(2)
1
3
(17)
4
(5)
1
3
1
(7)
HSBC HOLDINGS PLC
49
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Financial summary (continued)
Consolidated income statement / Group performance by income and expense item
Consolidated income statement
Five-year summary consolidated income statement
Net interest income
Net fee income
Net trading income
Net income/(expense) from financial instruments designated
at fair value
Gains less losses from financial investments
Dividend income
Net insurance premium income
Gains on disposal of US branch network, US cards business and
Ping An Insurance (Group) Company of China, Ltd
Other operating income
Total operating income
Net insurance claims and benefits paid and movement in
liabilities to policyholders
Net operating income before loan impairment charges
and other credit risk provisions
Loan impairment charges and other credit risk provisions
Net operating income
Total operating expenses
Operating profit
Share of profit in associates and joint ventures
Profit before tax
Tax expense
Profit for the year
Profit attributable to shareholders of the parent company
Profit attributable to non-controlling interests
Five-year financial information
Basic earnings per share
Diluted earnings per share
Dividends per ordinary share3
Dividend payout ratio4
Post-tax return on average total assets
Return on average ordinary shareholders’ equity
Average foreign exchange translation rates to $:
$1: £
$1: €
For footnotes, see page 99.
2015
$m
32,531
14,705
8,723
1,532
2,068
123
10,355
–
1,055
71,092
2014
$m
34,705
15,957
6,760
2,473
1,335
311
11,921
–
1,131
74,593
2013
$m
35,539
16,434
8,690
768
2,012
322
11,940
–
2,632
78,337
2012
$m
37,672
16,430
7,091
(2,226)
1,189
221
13,044
7,024
2,100
82,545
2011
$m
40,662
17,160
6,506
3,439
907
149
12,872
–
1,766
83,461
(11,292)
(13,345)
(13,692)
(14,215)
(11,181)
59,800
(3,721)
56,079
61,248
(3,851)
57,397
64,645
(5,849)
58,796
68,330
(8,311)
60,019
(39,768)
(41,249)
(38,556)
(42,927)
16,311
2,556
18,867
(3,771)
15,096
13,522
1,574
2015
$
0.65
0.64
0.50
%
76.5
0.6
7.2
0.654
0.902
16,148
2,532
18,680
(3,975)
14,705
13,688
1,017
2014
$
0.69
0.69
0.49
%
71.0
0.5
7.3
0.607
0.754
20,240
2,325
22,565
17,092
3,557
20,649
(4,765)
(5,315)
17,800
16,204
1,596
15,334
14,027
1,307
2013
$
0.84
0.84
0.48
%
57.1
0.7
9.2
2012
$
0.74
0.74
0.41
%
55.4
0.6
8.4
0.639
0.753
0.631
0.778
72,280
(12,127)
60,153
(41,545)
18,608
3,264
21,872
(3,928)
17,944
16,797
1,147
2011
$
0.92
0.91
0.39
%
42.4
0.6
10.9
0.624
0.719
Unless stated otherwise, all tables in the Annual Report and Accounts 2015 are presented on a reported basis.
For a summary of our financial performance in 2015, see page 22.
HSBC HOLDINGS PLC
50
Group performance by income and expense item
Net interest income
Interest income
Interest expense
Net interest income5
Average interest-earning assets
Gross interest yield6
Less: cost of funds
Net interest spread7
Net interest margin8
For footnotes, see page 99.
Summary of interest income by type of asset
2015
$m
47,189
(14,658)
32,531
2014
$m
50,955
(16,250)
34,705
2013
$m
51,192
(15,653)
35,539
1,726,949
1,786,536
1,669,368
2.73%
(1.00%)
1.73%
1.88%
2.85%
(1.05%)
1.80%
1.94%
3.07%
(1.10%)
1.97%
2.13%
Short-term funds and loans and advances to banks
Loans and advances to customers
Reverse repurchase agreements – non-trading
Financial investments
Other interest-earning assets
Total interest-earning assets
Trading assets and financial assets
designated at fair value9,10
Impairment allowances
Non-interest-earning assets
Year ended 31 December
For footnotes, see page 99.
Average
balance
$m
221,924
909,707
162,308
396,113
36,897
2015
Interest
income
$m
2,277
33,104
1,301
7,508
2,999
Yield
%
1.03
3.64
0.80
1.90
8.13
Average
balance
$m
237,148
931,311
198,273
399,816
19,988
2014
Interest
income
$m
3,068
37,429
1,800
8,323
335
Average
balance
2013
Interest
income
$m
$m
236,377
2,851
897,322 38,529
995
114,324
8,002
393,309
815
28,036
Yield
%
1.29
4.02
0.91
2.08
1.68
1,726,949
47,189
2.73
1,786,536
50,955
2.85 1,669,368 51,192
Yield
%
1.21
4.29
0.87
2.03
2.91
3.07
195,285
(10,606)
682,143
4,626
2.37
238,958
(14,015)
668,564
5,596
2.34
5,763
1.62
354,817
(15,954)
683,785
2,593,771
51,815
2.00
2,680,043
56,551
2.11 2,692,016 56,955
2.12
Summary of interest expense by type of liability and equity
Deposits by banks11
Financial liabilities designated at fair value
– own debt issued12
Customer accounts13
Repurchase agreements – non-trading
Debt securities in issue
Other interest-bearing liabilities
Total interest-bearing liabilities
Trading liabilities and financial liabilities designated
at fair value (excluding own debt issued)
Non-interest bearing current accounts
Total equity and other non-interest bearing
liabilities
2015
Average
balance
$m
Interest
expense
$m
55,863
378
58,489
1,075,901
117,947
129,039
28,396
717
7,401
355
3,521
2,286
Cost
%
0.68
1.23
0.69
0.30
2.73
8.05
2014
2013
Average
balance
$m
Interest
expense
$m
Cost
%
Average
balance
$m
Interest
expense
$m
61,217
481
0.79
61,616
555
66,374
1,088,493
190,705
129,724
10,120
837
9,131
652
4,554
595
72,333
1.26
0.84 1,035,500
94,410
0.34
150,976
3.51
11,345
5.88
967
8,794
405
4,182
750
1,465,635
14,658
1.00
1,546,633
16,250
1.05 1,426,180 15,653
Cost
%
0.90
1.34
0.85
0.43
2.77
6.61
1.10
151,294
190,914
785,928
2,071
1.37
178,518
185,990
768,902
2,856
1.60
3,027
1.00
301,353
184,370
780,113
Year ended 31 December
2,593,771
16,729
0.64
2,680,043
19,106
0.71 2,692,016 18,680
0.69
For footnotes, see page 99.
HSBC HOLDINGS PLC
51
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Financial summary (continued)
Group performance by income and expense item
Reported net interest income of $32.5bn decreased by
$2.2bn or 6% compared with 2014. This included the
significant items and currency translation summarised in
the table below.
Significant items and currency translation
Significant items
Provisions arising from the ongoing review of compliance with the Consumer Credit Act in the UK
Acquisitions, disposals and dilutions
Currency translation
Year ended 31 December
Excluding the significant items and currency translation
tabulated above, net interest income was broadly
unchanged compared with 2014, as increases in Asia and
Latin America were offset by a reduction in North America.
On a reported basis, net interest spread and margin both
fell, mainly due to adverse foreign exchange movements in
Latin America and Europe, partly offset by a reduction in
significant items, namely lower provisions arising from the
ongoing review of compliance with the Consumer Credit
Act (‘CCA’) in the UK. Excluding these factors, net interest
spread and margin were marginally lower due to reduced
yields on customer lending in Europe and North America.
However, during the year, we changed the mix of our
overall portfolio towards higher yielding customer lending
balances. This was through a managed reduction in the
average balances of lower yielding short-term funds,
reverse repos and financial investments, notably in Europe,
reflecting our continued focus on the efficient use of our
balance sheet.
Interest income by type of asset and interest expense by
type of liability, and the associated average balances as set
out in the summary tables above, were affected by the
reclassification in June 2015, of our operations in Brazil to
‘Assets held for sale’ in ‘Other interest-earning assets’ and
liabilities of disposal groups held for sale in ‘Other interest-
bearing liabilities’, respectively.
Interest income
Reported interest income decreased by $3.8bn compared
with 2014 driven by currency translation, notably in Latin
America and Europe, although this was partly offset in
Europe as 2014 included higher provisions arising from the
on-going review of compliance with the CCA.
Excluding these factors, interest income was broadly
unchanged compared with 2014.
Interest income on loans and advances to customers was
broadly unchanged as lower interest income in Europe
and North America was offset by increases in Asia and
Latin America.
In Europe, the reduction in interest income was driven
by lower yields on mortgages in the UK in line with
competitive pricing, and the effect of downward
movements in market interest rates in the eurozone.
Interest income also fell in North America as the CML
portfolio continued to decrease from run-off and sales.
In addition, new lending to customers in RBWM and CMB
was at reduced yields in the current low interest rate
2015
$m
(10)
–
(10)
(10)
2014
$m
(632)
38
(594)
2,890
2,296
environment, although the effect of this was partly offset
by an increase in average term lending balances.
By contrast, in Asia, the rise in interest income was driven
by growth in average term lending balances, primarily in
Hong Kong and mainland China. This was partly offset by
compressed yields on customer lending, notably in
mainland China and Australia due to central bank rate
reductions, although yields in Hong Kong marginally
increased. In Latin America, the increase was primarily in
Argentina, driven by growth in average balances.
Interest income on short-term funds and financial
investments in Balance Sheet Management marginally
decreased. This was driven by lower interest income in
Europe, due to a managed reduction in average balances,
and in Asia, reflecting movement in central bank interest
rates in mainland China and India. These factors were
partly offset in North America by a change in product mix
towards higher yielding mortgage backed securities in
order to maximise the effectiveness of the portfolio.
Interest income from other interest-earning assets rose
due to the reclassification of our operations in Brazil to
‘Assets held for sale’ in June 2015. In Brazil, excluding the
impact of currency translation, interest income rose due to
growth in average term lending balances and financial
investments, together with higher yields reflecting
successive increases in central bank interest rates in
2014 and 2015.
Interest expense
Reported interest expense decreased by $1.6bn compared
with 2014 driven by currency translation, primarily in Latin
America and Europe.
Excluding this, interest expense fell driven by a lower cost
of customer accounts, debt issued and repos.
Interest expense on customer accounts fell marginally
despite growth in average balances. This reflected central
bank rate reductions in a number of markets, notably
Mexico, mainland China, Australia and India. Europe was
affected by downward movements in market rates in the
eurozone. This was partly offset by rising costs in North
America, in line with promotional deposit offerings.
Interest expense on debt issued also fell, primarily in
Europe as new debt was issued at lower prevailing rates
and average outstanding balances fell as a result of net
redemptions. Interest expense also fell on repos, notably in
Europe, reflecting the managed reduction in average
balances.
HSBC HOLDINGS PLC
52
Interest expense on other interest-bearing liabilities
increased due to the reclassification of our operations in
Brazil. In Brazil, excluding currency translation, interest
expense rose, primarily on debt securities in issue and also
on customer accounts driven by successive increases in
central bank rates. Other interest expense also increased in
North America, as 2014 benefited from the release of
accrued interest associated with uncertain tax positions.
Net fee income
Account services
Funds under management
Cards
Credit facilities
Broking income
Unit trusts
Imports/exports
Remittances
Underwriting
Global custody
Insurance agency commission
Other
Fee income
Less: fee expense
Year ended 31 December
2015
$m
2,745
2,570
2,281
1,919
1,441
1,007
971
772
762
721
519
2,308
18,016
(3,311)
14,705
2014
$m
3,407
2,658
2,460
1,890
1,371
1,005
1,115
833
872
726
516
2,692
19,545
(3,588)
15,957
2013
$m
3,581
2,673
2,455
1,907
1,388
891
1,157
849
866
698
551
2,957
19,973
(3,539)
16,434
Reported net fee income fell by $1.3bn compared with 2014,
primarily reflecting the adverse effects of currency translation
between the years of $1.2bn, notably in Europe and Latin
America, as tabulated below.
Significant items and currency translation
Significant items
Acquisitions, disposals and dilutions
Currency translation
Year ended 31 December
On an adjusted basis, net fee income decreased by $38m.
This reflected a reduction in Europe, primarily within
RBWM and GB&M, largely offset by increases in Asia
in RBWM and North America in GB&M.
Account services fee income fell significantly by $348m,
mainly in the UK in RBWM where lower overdraft fees
reflected re-pricing and fewer overdrawn balances
following the introduction in November 2014 of a text-alert
service for customers. Account services fees also fell in
Switzerland due to the continuing repositioning of our GPB
business.
Import and export fees fell too (by $79m), mainly in Asia
reflecting a reduction in trade activity. In addition, our
underwriting fee income fell by $65m, mainly in Hong Kong
in GB&M, where there was reduced activity in equity
capital markets, although this was partly offset by higher
debt issuances in the US.
By contrast, our credit facilities fee income grew strongly
(by $190m) in North America and, to a lesser extent, in
Asia, reflecting continued growth in average lending
2015
$m
–
–
2014
$m
10
1,204
1,214
balances, although balances were broadly unchanged in
Asia in the second half of the year.
Our fee income from broking and unit trusts also grew (up
by $182m), mainly in Hong Kong, driven by higher sales
of equities and mutual funds in RBWM. This was from
increased stock market turnover, in part facilitated by the
Shanghai-Hong Kong Stock Connect platform and greater
investor appetite following improvements in Asian equity
markets in the first half of the year, however there was
weaker investor sentiment in the second half of the year.
Fees from funds under management increased by $157m.
In our Global Asset Management business, this was notably
in France and the US due to volume growth from fixed
income products. In addition, fee income from funds under
management also increased in Germany from growth in
Securities Services in GB&M, and in Hong Kong from
increased funds under management in GPB.
Fee expenses were marginally higher by $101m due to a
rise in brokerage fees, notably in Germany.
HSBC HOLDINGS PLC
53
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Financial summary (continued)
Group performance by income and expense item
Net trading income
Trading activities
Ping An contingent forward sale contract
Net interest income on trading activities
Gain/(loss) on termination of hedges
Other trading income – hedge ineffectiveness:
– on cash flow hedges
– on fair value hedges
Fair value movement on non-qualifying hedges14
Year ended 31 December
For footnote, see page 99.
2015
$m
7,285
–
1,775
(11)
15
(11)
(330)
8,723
2014
$m
5,419
–
1,907
1
34
19
(620)
6,760
2013
$m
6,921
(682)
2,047
(194)
22
65
511
8,690
Reported net trading income of $8.7bn was $2.0bn higher
than in 2014, predominantly in Europe. The movement in
net trading income in part reflected the favourable
significant items and currency translation summarised in
the table below.
Significant items and currency translation
Significant items
Included within trading activities:
– favourable/(adverse) debit valuation adjustment on derivative contracts
Included in other net trading income:
– fair value movement on non-qualifying hedges
– acquisitions, disposals and dilutions
Currency translation
Year ended 31 December
2015
$m
230
230
(327)
(327)
–
(97)
(97)
2014
$m
(332)
(332)
(539)
(541)
2
(871)
520
(351)
On an adjusted basis, net trading income from trading
activities increased by $1.7bn compared with 2014, driven
by our client-facing GB&M businesses, notably Equities,
Foreign Exchange and Credit. This was primarily in the
UK following an increase in volatility and client activity.
uncollateralised derivative portfolios by introducing the
funding fair value adjustment (‘FFVA’) which resulted in a
charge of $263m. In addition, the Equities and Rates
businesses benefited from favourable movements on own
credit spreads compared with minimal movements in 2014.
Net trading income from trading activities also rose due
to a number of other valuation movements. In 2014,
we revised our estimation methodology for valuing
These movements contributed to an increase in net trading
income from trading activities in Rates, although client
activity remained subdued.
Net income from financial instruments designated at fair value
Net income/(expense) arising from:
– financial assets held to meet liabilities under insurance and investment contracts
– liabilities to customers under investment contracts
– HSBC’s long-term debt issued and related derivatives
– change in own credit spread on long-term debt (significant item)
– other changes in fair value
– other instruments designated at fair value and related derivatives
Year ended 31 December
2015
$m
531
34
863
1,002
(139)
104
1,532
Assets and liabilities from which net income from financial instruments designated at fair value arose
Financial assets designated at fair value at 31 December
Financial liabilities designated at fair value at 31 December
Including:
Financial assets held to meet liabilities under:
– insurance and investment contracts with DPF
– unit-linked insurance and other insurance and investment contracts
Long-term debt issues designated at fair value
2015
$m
23,852
66,408
11,119
11,153
60,188
2014
$m
2,300
(435)
508
417
91
100
2,473
2014
$m
29,037
76,153
10,650
16,333
69,681
2013
$m
3,170
(1,237)
(1,228)
(1,246)
18
63
768
2013
$m
38,430
89,084
10,717
25,423
75,278
HSBC HOLDINGS PLC
54
The majority of the financial liabilities designated at fair
value are fixed-rate long-term debt issuances and are
managed in conjunction with interest rate swaps as part
of our interest rate management strategy.
Reported net income from financial instruments
designated at fair value was $1.5bn in 2015, compared
with $2.5bn in 2014. The former included favourable
movements in the fair value of our own long-term debt of
$1.0bn due to changes in credit spread, compared with
favourable movements of $417m in 2014.
Significant items and currency translation
Significant items
Own credit spread
Currency translation
Year ended 31 December
On an adjusted basis, which excludes changes in our own
credit spread and the net adverse effect of currency
translation shown above, net income from financial
instruments at fair value decreased by $1.2bn.
Net income from financial assets held to meet liabilities
under insurance and investment contracts of $531m was
$1.8bn lower than in 2014. This was primarily driven by
weaker equity markets in Hong Kong and the UK, notably
in the second half of the year. The fair value movement in
Gains less losses from financial investments
Net gains/(losses) from disposal of:
– debt securities
– equity securities
– other financial investments
Impairment of available-for-sale equity securities
Year ended 31 December
2015
$m
1,002
1,002
2014
$m
417
303
720
2015 included gains in Brazil and France, partly offset by
losses in Hong Kong. These gains and losses are broadly
offset by ‘Net insurance claims and benefits paid and
movements in liabilities to policyholders’ and ‘Liabilities
to customers under investment contracts’.
Other changes in fair value reflected a net adverse
movement due to interest and exchange rate hedging
ineffectiveness.
2015
$m
345
1,829
5
2,179
(111)
2,068
2014
$m
665
1,037
6
1,708
(373)
1,335
2013
$m
491
1,697
(1)
2,187
(175)
2,012
In 2015, gains less losses from financial investments
increased by $733m on a reported basis compared with
2014. This was driven by the significant items and currency
translation tabulated below, notably the gain on the partial
sale of our shareholding in Industrial Bank Co. Ltd
(‘Industrial Bank’) of $1.4bn.
Significant items and currency translation
Significant items
Gain on sale of shareholding in Bank of Shanghai
Gain on the partial sale of shareholding in Industrial Bank
Impairment of our investment in Industrial Bank
Currency translation
Year ended 31 December
On an adjusted basis, excluding all significant items and
currency translation tabulated above, gains less losses
from financial investments decreased by $387m. This was
primarily in our GB&M business, driven by lower gains on
disposals of available-for-sale debt securities, notably in
the UK and US and lower gains on equity securities in
Principal Investments in the UK.
2015
$m
–
1,372
–
1,372
1,372
2014
$m
428
−
(271)
157
95
252
In addition, we recorded minor losses on disposals from
our legacy credit portfolio compared with gains in 2014.
The disposal of these assets reflects our continued efforts
to manage down low-returning assets to maximise returns.
HSBC HOLDINGS PLC
55
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Financial summary (continued)
Group performance by income and expense item
Net insurance premium income
Gross insurance premium income
Reinsurance premiums
Year ended 31 December
Reported net insurance premium income was $1.6bn
lower, largely from the adverse effects of currency
translation of $930m.
Significant items and currency translation
Significant items
Currency translation
Year ended 31 December
On an adjusted basis, excluding the effect of currency
translation, net insurance premium income fell by $636m
or 6%, driven by Asia, primarily in Hong Kong where it
declined because of lower unit-linked contract premiums
and new reinsurance agreements.
Other operating income
2015
$m
11,012
(657)
10,355
2014
$m
12,370
(449)
11,921
2013
$m
12,398
(458)
11,940
2015
$m
–
–
2014
$m
–
930
930
In Europe, premium income fell mainly in the UK, reflecting
a decision to exit the commercial pensions market in 2014.
Rent received
Gains/(losses) recognised on assets held for sale
Gains on investment properties
Gain on disposal of property, plant and equipment, intangible assets and
non-financial investments
Gains/(losses) arising from dilution of interest in Industrial Bank and other associates
and joint ventures
Gain on disposal of HSBC Bank (Panama) S.A.
Change in present value of in-force long-term insurance business
Other
Year ended 31 December
Change in present value of in-force long-term insurance business
Value of new business
Expected return
Assumption changes and experience variances
Other adjustments
Year ended 31 December
Reported other operating income decreased by $76m from
2014. This was partly due to the significant items recorded
in the table below.
Significant items and currency translation
Significant items
Included within gains/(losses) recognised on assets held for sale:
– disposal costs of our Brazilian operation
– gain/(loss) on sale of several tranches of real estate secured accounts in the US
Included within the remaining line items:
– acquisitions, disposals and dilutions
Currency translation
Year ended 31 December
HSBC HOLDINGS PLC
56
2015
$m
171
(244)
61
53
–
–
799
215
1,055
2015
$m
809
(552)
504
38
799
2014
$m
162
220
120
32
(32)
–
261
368
1,131
2014
$m
870
(545)
(116)
52
261
2015
$m
(232)
(18)
(214)
–
–
(232)
2013
$m
155
(729)
113
178
1,051
1,107
525
232
2,632
2013
$m
924
(505)
88
18
525
2014
$m
168
–
168
(41)
(41)
(64)
63
Excluding the significant items and currency translation
tabulated above, other operating income increased by
$219m compared with 2014. This was primarily from
higher favourable movements in present value of in-force
(‘PVIF’) long-term insurance business, partly offset by lower
disposal and revaluation gains on investment properties,
mainly in Asia.
The higher favourable movement in the PVIF balance was
driven by changes in interest rates and investment return
assumptions, notably in France and Hong Kong.
Net insurance claims and benefits paid and movement in liabilities to policyholders
Net insurance claims and benefits paid and movement in liabilities to policyholders:
– gross
– less reinsurers’ share
Year ended 31 December15
For footnote, see page 99.
2015
$m
11,872
(580)
11,292
2014
$m
13,723
(378)
13,345
2013
$m
13,948
(256)
13,692
Reported net insurance claims and benefits paid and
movement in liabilities to policyholders were $2.1bn lower
than in 2014, in part reflecting the effect of currency
translation of $1.1bn.
Significant items and currency translation
Significant items
Currency translation
Year ended 31 December
2015
$m
–
–
2014
$m
–
1,109
1,109
Excluding the effects of currency translation, net insurance
claims and benefits paid and movements in liabilities to
policyholders were $0.9bn lower.
This was primarily driven by a decrease in returns on
financial assets supporting liabilities to policyholders,
where the policyholder shares in the investment risk. This
decrease in returns reflected a weaker equity market
performance in Hong Kong in the second half of the year.
The gains or losses recognised on the financial assets
designated at fair value that are held to support these
insurance contract liabilities are reported in ‘Net income
from financial instruments designated at fair value’.
In addition, movements in liabilities to policyholders were
lower due to a decrease in premiums written in Asia, as
explained in ‘Net earned insurance premiums’.
Loan impairment charges and other credit risk provisions
Loan impairment charges:
– new allowances net of allowance releases
– recoveries of amounts previously written off
Individually assessed allowances
Collectively assessed allowances
Releases of impairment on available-for-sale debt securities
Other credit risk provisions
Year ended 31 December
2015
$m
4,400
(808)
3,592
1,505
2,087
(17)
146
3,721
2014
$m
5,010
(955)
4,055
1,780
2,275
(319)
115
3,851
2013
$m
7,344
(1,296)
6,048
2,320
3,728
(211)
12
5,849
Impairment charges on loans and advances to customers as a percentage of
average gross loans and advances to customers
0.39%
0.43%
0.67%
Reported loan impairment charges and other credit risk
provisions (‘LICs’) of $3.7bn were $0.1bn lower than in
2014, primarily due to favourable currency translation
of $683m.
Significant items and currency translation
Significant items
Currency translation
Year ended 31 December
Excluding the effects of currency translation, LICs were
$0.6bn higher than in 2014.
2015
$m
–
–
2014
$m
–
683
683
HSBC HOLDINGS PLC
57
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Financial summary (continued)
Group performance by income and expense item
In the fourth quarter of 2015, our LICs increased compared
with the third quarter following a rise in individually
assessed LICs in a small number of countries. This was
reflective of specific circumstances associated with those
countries with no common underlying theme. In addition,
we increased our collectively assessed LICs on exposures
related to the oil and gas industry by $0.2bn, notably in
North America, Middle East and North Africa, and Asia. For
more information on our exposure to the oil and gas
sector, see page 117.
The following paragraphs set out in more detail the factors
that have contributed to movements in our collectively and
individually assessed LICs compared with 2014.
On an adjusted basis, collectively assessed LICs rose by
$221m, mainly in Middle East and North Africa, North
America and Asia, partly offset in Europe. It arose from
the following:
•
in Middle East and North Africa (up by $167m), this was
mainly in the UAE in RBWM, where we increased
the impairment allowances on our mortgage book
following a review of the quality and value of collateral.
In addition, LICs grew in our CMB business, notably
relating to the oil and foodstuffs industries;
• in North America (up by $132m) and Asia (up by
$108m), this reflected an increase in allowances against
our oil and gas exposures. In our US CML portfolio, LICs
were higher than in 2014 reflecting lower favourable
market value adjustments of underlying properties as
improvements in the housing market conditions were
less pronounced in 2015. This was partly offset by a fall
in LICs from lower levels of newly impaired loans and
Operating expenses
In addition to detailing operating expense items by category,
as set out in the table below, we also categorise adjusted
expenses as follows:
•
‘run-the-bank’ costs comprise business-as-usual running costs
that keep operations functioning at the required quality and
standard year-on-year, maintain IT infrastructure and support
revenue growth. Run-the-bank costs are split between front
office and back office, reflecting the way the Group is
organised into four global businesses (‘front office’) supported
by global functions (‘back office’);
• ‘change-the-bank’ costs comprise expenses relating to the
implementation of mandatory regulatory changes and other
Operating expenses
By expense category
Employee compensation and benefits
Premises and equipment (excluding depreciation and impairment)
General and administrative expenses
Administrative expenses
Depreciation and impairment of property, plant and equipment
Amortisation and impairment of intangible assets
Year ended 31 December
reduced lending balances from continued run-off and
sales. Additionally, collectively assessed LICs rose in
Indonesia following credit deterioration; and
• in Europe, collectively assessed LICs were $192m lower,
most notably in our GB&M business in the UK, as 2014
included additional impairment charges from revisions
to certain estimates used in our corporate collective
loan impairment calculation.
Individually assessed LICs were broadly unchanged from
2014 on an adjusted basis. This reflected decreases in Latin
America, Europe and Asia which were offset by increases in
Middle East and North Africa and in North America. This
included the following:
• in Latin America (down by $95m), Europe (down by
$44m) and Asia (down by $44m), we saw reductions in
individually assessed LICs in our GB&M business as 2014
included significant impairment charges related to
corporate clients in our respective regions. In Asia, the
reduction was partly offset by an increase in LICs against
a small number of CMB customers in Indonesia; and
• in Middle East and North Africa (up by $134m) and
North America (up by $47m), individually assessed LICs
increased in our CMB business. In the former, this
primarily related to higher LICs on food wholesalers,
while in North America LICs rose in the oil and gas
sector.
In 2015, there were lower net releases of credit risk
provisions than in 2014, down by $0.3bn, mainly on
available-for-sale asset-backed securities (‘ABS’s) in our
UK GB&M business.
•
investment costs incurred relating to projects to change
business-as-usual activity to enhance future operating
capabilities;
‘costs-to-achieve’ comprise those specific costs relating to the
achievement of the strategic actions set out in the Investor
Update in June 2015. They comprise costs incurred between
1 July 2015 and 31 December 2017 and do not include
ongoing initiatives such as Global Standards. Any costs arising
within this category have been incurred as part of a significant
transformation programme. Costs-to-achieve are included
within significant items and incorporate restructuring costs
which were identified as a separate significant item prior to
1 July 2015; and
•
the UK bank levy is reported as a separate category.
2015
$m
19,900
3,830
13,832
37,562
1,269
937
39,768
2014
$m
20,366
4,204
14,361
38,931
1,382
936
41,249
2013
$m
19,196
4,183
12,882
36,261
1,364
931
38,556
HSBC HOLDINGS PLC
58
By expense group
Run-the-bank – front office
Run-the-bank – back office
Change-the-bank
Bank levy
Significant items
Currency translation
Year ended 31 December
2015
$m
15,482
15,784
3,494
1,421
3,586
–
39,768
2014
$m
14,879
15,631
3,002
1,063
3,396
3,278
41,249
Reported operating expenses for 2015 of $39.8bn were
$1.5bn or 4% lower than in 2014. The reduction in reported
expenses was driven by the favourable effects of currency
translation between the years. Significant items increased
by $0.2bn, with a reduction in fines, penalties, redress and
associated provisions of $0.7bn, more than offset by
transformation costs (costs-to-achieve) of $0.9bn.
Costs-to-achieve, which relate to specific programmes
Significant items and currency translation
aimed at achieving the cost reduction and productivity
outcomes outlined in the Investor Update, comprise:
• severance costs of $0.4bn across a number of areas
including CMB ($147m), RBWM ($49m), Risk ($44m)
and GB&M ($45m);
• staff costs for the transformation programme in
progress of $0.1bn in the second half of 2015; and
• other costs of $0.4bn, including software write-offs,
US portfolio run-off costs and consultancy costs.
Significant items
Disposal costs of our Brazilian operations
Charge in relation to settlement agreement with Federal Housing Finance Authority
Costs-to-achieve
Cost to establish UK ring-fenced bank
Regulatory provisions in GPB
Restructuring and other related costs
Settlements and provisions in connection with legal matters
UK customer redress programmes
Acquisitions, disposals and dilutions
Currency translation
Year ended 31 December
On an adjusted basis, operating expenses of $36.2bn were
$1.6bn or 5% higher than in 2014, reflecting increases in
both run-the-bank and change-the-bank costs.
Run-the-bank costs totalled $31.3bn for 2015, an increase
of $0.8bn or 2% on 2014. This was primarily driven by
targeted investment in Latin America, Asia and Europe. We
recruited new staff to support growth in targeted areas as
follows:
• in GB&M we invested in Payments and Cash
Management (‘PCM’) mainly in Europe;
• in CMB, we invested in PCM revenue-generating full
time equivalent staff (‘FTEs’) in North America and Asia;
and
• in RBWM, we invested in additional FTEs in Asia in our
branch network to support revenue growth.
Our total expenditure on regulatory programmes and
compliance in 2015, including both run-the-bank and
change-the-bank elements, was $2.9bn, up by $0.7bn or
33% from 2014.
Run-the-bank costs associated with regulatory programmes
and compliance increased by $0.2bn reflecting the
continued implementation of our Global Standards
programme to enhance our financial crime risk controls
and capabilities, and to meet our external commitments.
HSBC HOLDINGS PLC
59
2015
$m
110
–
908
89
172
117
1,649
541
–
3,586
3,586
2014
$m
–
550
–
–
65
278
1,187
1,275
40
3,395
3,278
6,673
Change-the-bank costs totalled $3.5bn in 2015, an increase
of $0.5bn or 16% on 2014, primarily driven by regulatory
programmes and compliance costs. This reflected
investment in strategic IT infrastructure including systems
enhancements for customer due diligence, transaction
monitoring and sanctions screening as part of the Global
Standards programme. These actions were in line with our
strategic target to complete the implementation of Global
Standards in 2017. There was also further investment in
stress testing and other programmes to meet legal and
regulatory requirements.
The bank levy totalled $1.4bn, up by $0.4bn or 34% from
2014. Excluding the bank levy, operating expenses in the
second half of 2015 were broadly in line with the first half
of the year. Investment in regulatory programmes and
compliance and inflationary pressures were offset by cost
saving initiatives mainly driven by reduced staff costs. This
reflected a reduction in FTEs of 4,585 from 30 June 2015
to 31 December 2015. In addition we reduced travel and
entertainment costs through a strong focus on cost
management.
Excluding investment in regulatory programmes and
compliance, and the bank levy, adjusted operating expenses
grew by 2% compared with 2014.
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Financial summary (continued)
Group performance by income and expense item / Consolidated balance sheet
Staff numbers (full-time equivalents)
Geographical regions
Europe
Asia
Middle East and North Africa
North America
Latin America
At 31 December
The number of employees, expressed in FTEs, at
31 December 2015 was 255,203, a decrease of 4,585 from
30 June 2015 reflecting the initial impact of cost saving
initiatives. Compared with 31 December 2014, FTEs
decreased by 2,400. This was driven by reductions in global
businesses and global functions, offset by an increase in
compliance of 2,419 FTEs.
Reported cost efficiency ratios16
HSBC
Geographical regions
Europe
Asia
Middle East and North Africa
North America
Latin America
Global businesses
Retail Banking and Wealth Management
Commercial Banking
Global Banking and Markets
Global Private Banking
For footnote, see page 99.
Share of profit in associates and joint ventures
Associates
Bank of Communications Co., Limited
The Saudi British Bank
Other
Share of profit in associates
Share of profit in joint ventures
Year ended 31 December
2015
2014
2013
67,509
120,144
8,066
19,656
39,828
255,203
69,363
118,322
8,305
20,412
41,201
257,603
68,334
113,701
8,618
20,871
42,542
254,066
The average number of FTEs adjusted for business disposals
increased by 1.2% compared with 2014 due to additional FTE
requirements for regulatory programmes and compliance,
and investment in growth areas.
2015
%
66.5
93.7
43.0
48.1
84.9
72.6
72.4
45.4
59.4
84.3
2015
$m
2,011
462
45
2,518
38
2,556
2014
%
67.3
93.7
44.0
47.7
78.9
71.7
71.7
44.3
67.7
74.8
2014
$m
1,974
455
64
2,493
39
2,532
2013
%
59.6
84.0
40.7
51.5
72.9
56.1
64.7
41.7
51.9
91.4
2013
$m
1,878
403
5
2,286
39
2,325
Our reported share of profit in associates and joint
ventures was $2.6bn, an increase of $24m or 1%, driven by
higher contributions from Bank of Communications Co.,
Limited (‘BoCom’) and The Saudi British Bank.
Our share of profit from BoCom rose as a result of balance
sheet growth, partly offset by higher operating expenses.
Profits from The Saudi British Bank also rose, by $7m,
reflecting strong balance sheet growth.
Tax expense
Profit before tax
Tax expense
Profit after tax for the year ended 31 December
Effective tax rate
2015
$m
18,867
(3,771)
15,096
20.0%
2014
$m
18,680
(3,975)
14,705
21.3%
2013
$m
22,565
(4,765)
17,800
21.1%
The effective tax rate for the year was 20.0% (2014: 21.3%)
and was in line with expectations.
We expect the effective rate of tax to increase due to
the introduction of the 8% surcharge on UK banking
profits in 2016.
HSBC HOLDINGS PLC
60
Consolidated balance sheet
Five-year summary consolidated balance sheet
ASSETS
Cash and balances at central banks
Trading assets
Financial assets designated at fair value
Derivatives
Loans and advances to banks
Loans and advances to customers17
Reverse repurchase agreements – non-trading
Financial investments
Assets held for sale
Other assets
Total assets at 31 December
LIABILITIES AND EQUITY
Liabilities
Deposits by banks
Customer accounts
Repurchase agreements – non-trading
Trading liabilities
Financial liabilities designated at fair value
Derivatives
Debt securities in issue
Liabilities under insurance contracts
Liabilities of disposal groups held for sale
Other liabilities
Total liabilities at 31 December
Equity
Total shareholders’ equity
Non-controlling interests
Total equity at 31 December
2015
$m
98,934
224,837
23,852
288,476
90,401
924,454
146,255
428,955
43,900
139,592
2014
$m
2013
$m
2012
$m
2011
$m
129,957
304,193
29,037
345,008
112,149
974,660
161,713
415,467
7,647
154,308
166,599
303,192
38,430
282,265
120,046
992,089
179,690
425,925
4,050
159,032
141,532
408,811
33,582
357,450
117,085
962,972
70,112
421,101
19,269
160,624
129,902
330,451
30,856
346,379
139,078
899,010
83,328
400,044
39,558
156,973
2,409,656
2,634,139
2,671,318
2,692,538
2,555,579
54,371
1,289,586
80,400
141,614
66,408
281,071
88,949
69,938
36,840
102,961
77,426
1,350,642
107,432
190,572
76,153
340,669
95,947
73,861
6,934
114,525
86,507
1,361,297
164,220
207,025
89,084
274,284
104,080
74,181
2,804
117,377
95,480
1,311,396
40,567
304,563
87,720
358,886
119,461
68,195
5,018
118,123
95,205
1,223,140
48,402
265,192
85,724
345,380
131,013
61,259
22,200
111,971
2,212,138
2,434,161
2,480,859
2,509,409
2,389,486
188,460
9,058
197,518
190,447
9,531
199,978
181,871
8,588
175,242
7,887
190,459
183,129
158,725
7,368
166,093
Total liabilities and equity at 31 December
2,409,656
2,634,139
2,671,318
2,692,538
2,555,579
Five-year selected financial information
Called up share capital
Capital resources18,19
Undated subordinated loan capital
Preferred securities and dated subordinated loan capital20
Risk-weighted assets18
Financial statistics
Loans and advances to customers as a percentage of customer accounts
Average total shareholders’ equity to average total assets
Net asset value per ordinary share at year-end21 ($)
Number of $0.50 ordinary shares in issue (millions)
Closing foreign exchange translation rates to $:
$1: £
$1: €
For footnotes, see page 99.
2015
$m
9,842
189,833
2,368
42,844
1,102,995
71.7
7.31
8.73
19,685
0.675
0.919
2014
$m
9,609
190,730
2,773
47,208
1,219,765
2013
$m
9,415
194,009
2,777
48,114
1,092,653
2012
$m
9,238
180,806
2,778
48,260
1,123,943
2011
$m
8,934
170,334
2,779
49,438
1,209,514
72.2
7.01
9.28
19,218
0.642
0.823
72.9
6.55
9.27
18,830
0.605
0.726
73.4
6.16
9.09
18,476
0.619
0.758
73.5
5.64
8.48
17,868
0.646
0.773
A more detailed consolidated balance sheet is contained in the Financial Statements on page 339.
HSBC HOLDINGS PLC
61
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Financial summary (continued)
Consolidated balance sheet
Combined view of customer lending and customer deposits
Combined customer lending
Loans and advances to customers
Loans and advances to customers
reported in ‘Assets held for sale’
– Brazil22
– other
2015
$m
2014
$m
924,454
974,660
19,021
17,001
2,020
577
−
577
At 31 December
943,475
975,237
Combined customer deposits
Customer accounts
Customer accounts reported
in ‘Liabilities of disposal groups
held for sale’
– Brazil22
– other
1,289,586
1,350,642
16,682
15,094
1,588
145
−
145
At 31 December
1,306,268
1,350,787
For footnote, see page 99.
Movement in 2015
Total reported assets of $2.4 trillion were 9% lower than at
31 December 2014 on a reported basis and 4% lower on a
constant currency basis. One of the main drivers for this
reduction was a fall in trading assets which reflects our
ongoing focus on the efficient use of the balance sheet
in the context of new prudential regulations.
Our ratio of customer advances to customer accounts was
71.7%. Both customer loans and customer accounts fell
on a reported basis with these movements including:
• adverse currency translation movements of $52bn and
Derivative assets decreased by $57bn or 16%, driven by
valuation movements in interest rate contracts, reflecting
shifts in major yield curves, notably in France and the UK.
Loans and advances to customers decreased by $50bn on a
reported basis, driven by Latin America and Europe. This
included the following items:
• adverse currency translation movements of $52bn;
• reclassification of $17bn to ‘Assets held for sale’ relating
to our operations in Brazil; and
• a $13bn reduction in corporate overdraft balances in
Europe, with a corresponding fall in corporate customer
accounts.
Excluding these factors, customer lending balances grew
by $32bn, largely from growth in Europe of $20bn, North
America of $5bn and Asia of $4bn.
In Europe, the growth was from increased term lending to
CMB customers, notably in the UK and Germany and higher
balances in GB&M. In North America, the growth in
balances was driven by increased term lending to
corporate and commercial customers in CMB and GB&M,
partly offset by a decline in RBWM from the continued
reduction in the US run-off portfolio and the transfer to
‘Assets held for sale’ of US first lien mortgage balances. In
Asia, balances rose largely from residential mortgage
lending in Hong Kong and mainland China. CMB lending
balances also rose, although GB&M lending fell. Both of
these businesses were affected by weakening demand for
trade lending, while GB&M’s reduction also reflected our
active management of overall client returns.
$65bn, respectively;
Liabilities
• the transfer to ‘Assets held for sale’ and ‘Liabilities of
disposal groups held for sale’ of balances relating to the
planned disposal of our operations in Brazil of $17bn
and $15bn, respectively; and
• a $13bn reduction in corporate overdraft and current
account balances relating to a small number of clients in
our PCM business in the UK who settled their overdraft
and deposit balances on a net basis, with customers
increasing the frequency with which they settled their
positions.
Excluding these movements, customer lending grew by
$32bn (or 4%) driven by Europe, and customer accounts
grew by $32bn (or 3%), notably in Asia.
Assets
Cash and balances at central banks fell by $31bn, primarily
in North America as we managed the balance of our liquid
asset portfolio to maximise investment returns.
Trading assets decreased by $79bn, of which $16bn was
driven by adverse currency translation, as we continued
our reduction in trading inventory in the context of the
prudential regulation. This resulted in reductions in
holdings of debt securities by the Rates business, notably in
Europe and North America. In addition, lower settlement
balances also reflected our actions to improve efficiency of
balance sheet usage.
Repurchase agreements decreased by $27bn or 25%,
driven by falls in Europe, notably in the UK, and in North
America. We continued to closely manage these balances,
as we reassessed the overall returns on these activities in
light of the evolving regulatory landscape and overall client
returns.
Customer accounts decreased by $61bn and included the
following items:
• adverse currency translation movements of $65bn;
• reclassification of over $15bn to ‘Liabilities of disposal
groups held for sale’ relating to our operations in Brazil;
and
• a $13bn reduction in corporate current account
balances, in line with the fall in corporate overdraft
positions.
Excluding these factors, customer accounts grew by $32bn,
notably in Asia in the first half of the year, reflecting
growth in RBWM from increased savings balances by new
and existing Premier customers, together with a rise in our
PCM business in CMB.
Balances in Europe were broadly unchanged. Growth in
our PCM business in CMB and a rise in RBWM balances
reflecting customers’ continued preference for holding
balances in current and savings accounts were broadly
offset by a fall in GB&M.
HSBC HOLDINGS PLC
62
Trading liabilities fell by $49bn, mainly in North America
and Europe reflecting the reduction in trading assets and
our focus on optimising the funding of trading assets.
The decrease in derivative liabilities was in line with that of
derivative assets as the underlying risk was broadly
matched.
Equity
Total shareholders’ equity fell by $2.0bn or 1%. The effects
of profits generated in the year and the issue of new
contingent convertible securities were more than offset by
the combined effect of dividends paid and an increase in
accumulated foreign exchange losses, which reflected the
marked appreciation in the US dollar against a number of
currencies, notably sterling and the euro. We recorded fair
value gains in our available-for-sale reserve relating to our
equity interest in Visa Europe of $432m. These were more
than offset by fair value gains transferred to the income
statement and fair value losses on debt securities during
the year. The gains on Visa Europe were assessed against
the expected consideration to be received from the
proposed sale to Visa Inc. This transaction is expected to
complete in 2016, at which point we will transfer the fair
value gains to the income statement.
Customer accounts by country
Europe
– UK
– France23
– Germany
– Switzerland
– other
Asia
– Hong Kong
– Australia
– India
– Indonesia
– Mainland China
– Malaysia
– Singapore
– Taiwan
– other
Middle East and North Africa (excluding Saudi Arabia)
– Egypt
– United Arab Emirates
– other
North America
– US
– Canada
– other
Latin America
– Mexico
– other
included in other: Brazil22
At 31 December
For footnotes, see page 99.
Risk-weighted assets
Risk-weighted assets (‘RWA’s) totalled $1,103bn at
31 December 2015, a decrease of $117bn during 2015.
After foreign currency translation differences, RWAs
reduced by $65bn in 2015, driven by targeted RWA
initiatives of $124bn, partly offset by business growth of
$35bn, and from growth in our associates of $14bn. The
RWA initiatives included:
• the accelerated sell-down of our consumer mortgage
portfolio in the US and the GB&M legacy book, together
contributing $30bn to the reduction; and
• exposure reductions, process improvements and refined
calculations, which reduced RWAs by $93bn, 61% of
which were in GB&M.
The business growth of $35bn was from higher term
lending to corporate customers in CMB and from higher
general lending to corporates in GB&M. There was an
increase of $14bn in our associates, BoCom and The Saudi
British Bank.
2015
$m
497,876
404,084
35,635
13,873
10,448
33,836
598,620
421,538
17,703
11,795
5,366
46,177
14,114
41,307
11,812
28,808
36,468
6,602
18,281
11,585
135,152
86,322
39,727
9,103
21,470
15,798
5,672
–
2014
$m
545,959
439,313
40,750
15,757
11,058
39,081
577,491
389,094
19,312
11,678
5,788
46,588
16,292
43,731
14,901
30,107
39,720
7,663
19,771
12,286
138,884
84,894
43,871
10,119
48,588
18,360
30,228
23,204
1,289,586
1,350,642
HSBC HOLDINGS PLC
63
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Financial summary / Global businesses
Reconciliation of RoRWA / Critical estimates and judgements / Summary
Reconciliation of RoRWA
measures
Performance Management
During 2015, we targeted a return on average ordinary
shareholders’ equity of 10%. For internal management purposes
we monitor global businesses and geographical regions by pre-
tax return on average risk-weighted assets. This metric is
calibrated against return on equity (‘RoE’) and capital
requirements to ensure that we are best placed to achieve
capital strength and business profitability combined with
regulatory capital efficiency objectives. We targeted a return on
average RWAs of 2.3% in 2015.
Reconciliation of adjusted RoRWA (excluding run-off portfolios)
In addition to the return on average risk-weighted assets
(‘RoRWA’) we measure our performance internally using
the non-GAAP measure of adjusted RoRWA, which is
adjusted profit before tax as a percentage of average risk-
weighted assets adjusted for the effects of foreign currency
translation differences and significant items. Excluded from
adjusted RoRWA are certain items which distort year-on-
year performance as explained on page 48.
We also present the non-GAAP measure of adjusted
RoRWA excluding run-off portfolios.
Reported
Adjusted
Run-off portfolios
Legacy credit in GB&M
US CML and other26
Adjusted (excluding run-off portfolios)
Pre-tax
return
$m
18,867
20,418
447
(5)
452
19,971
2015
Average
RWAs25
$bn
RoRWA24
%
1,174
1,171
84
35
49
1,087
1.6
1.7
0.5
–
0.9
1.8
Pre-tax
return
$m
18,680
21,976
847
149
698
21,129
Reconciliation of reported and adjusted average risk-weighted assets
1,209
1,150
115
48
67
1,035
2014
Average
RWAs25
$bn
RoRWA24
%
1.5
1.9
0.7
0.3
1.0
2.0
Change
%
(2.9)
1.8
Year ended 31 December
2015
$bn
1,174
–
(3)
1,171
2014
$bn
1,209
(50)
(9)
1,150
Average reported RWAs25
Currency translation adjustment27
Significant items
Average adjusted RWAs25
For footnotes, see page 99.
Critical accounting
estimates and judgements
The results of HSBC reflect the choice of accounting
policies, assumptions and estimates that underlie the
preparation of HSBC’s consolidated financial statements.
The significant accounting policies, including the policies
which include critical accounting estimates and judgements,
are described in Note 1 and in the individual Notes on the
Financial Statements. The accounting policies listed below
are highlighted as they involve a high degree of judgement
and estimation uncertainty and have a material impact on
the financial statements:
• Impairment of loans and advances: Note 1(j) on
page 354;
• Deferred tax assets: Note 8 on page 370;
• Valuation of financial instruments: Note 13 on page 378;
• Impairment of interests in associates: Note 19 on
page 402;
• Goodwill impairment: Note 20 on page 406; and
• Provisions: Note 29 on page 421.
In view of the inherent uncertainties and the high level of
subjectivity involved in the recognition or measurement
of the items above, it is possible that the outcomes in
the next financial year could differ from those on which
management’s estimates are based, resulting in the
recognition and measurement of materially different
amounts from those estimated by management in the
2015 Financial Statements.
HSBC HOLDINGS PLC
64
Global businesses
Summary
Reconciliation of 2015 and 2014 reported and adjusted
items for global businesses
Retail Banking and Wealth Management
Commercial Banking
Global Banking and Markets
Global Private Banking
Other
Analysis by global business
65
66
68
70
71
72
73
74
Summary
HSBC reviews operating activity on a number of bases,
including by geographical region and by global business.
The tables and charts below present global businesses
followed by geographical regions (page 76). Performance
is analysed in this order because certain strategic themes,
business initiatives and trends affect more than one
geographical region. All tables are on a reported basis
unless stated otherwise.
Basis of preparation
The results of global businesses are presented in accordance
with the accounting policies used in the preparation of HSBC’s
consolidated financial statements. Our operations are closely
integrated and, accordingly, the presentation of global business
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 operational business lines. While such
allocations have been made on a systematic and consistent basis,
they necessarily involve a degree of subjectivity. Those costs
which are not allocated to global businesses are included in
‘Other’.
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 expense of the UK bank levy is included in the Europe
geographical region as HSBC regards the levy as a cost of being
headquartered in the UK. For the purposes of the presentation
by global business, the cost of the levy is included in ‘Other’.
Profit/(loss) before tax
Retail Banking and Wealth Management28
Commercial Banking28
Global Banking and Markets
Global Private Banking
Other29
Year ended 31 December
Total assets30
Retail Banking and Wealth Management
Commercial Banking
Global Banking and Markets
Global Private Banking
Other
Intra-HSBC items
At 31 December
Risk-weighted assets
Retail Banking and Wealth Management
Commercial Banking
Global Banking and Markets
Global Private Banking
Other
At 31 December
For footnotes, see page 99.
2015
$m
4,967
7,973
7,910
344
(2,327)
%
26.3
42.3
41.9
1.8
(12.3)
2014
$m
5,581
8,814
5,889
626
(2,230)
%
29.9
47.2
31.5
3.4
(12.0)
2013
$m
6,553
8,537
9,441
193
(2,159)
%
29.1
37.8
41.8
0.9
(9.6)
18,867
100.0
18,680
100.0
22,565
100.0
2015
$m
473,284
365,290
1,616,704
81,448
147,417
(274,487)
%
19.6
15.2
67.1
3.4
6.1
(11.4)
2014
$m
500,864
370,958
1,839,644
88,342
164,537
(330,206)
%
19.0
14.1
69.8
3.4
6.2
(12.5)
2,409,656
100.0
2,634,139
100.0
2015
$bn
189.5
421.0
440.6
19.3
32.6
%
17.2
38.2
39.9
1.7
3.0
2014
$bn
207.2
430.3
516.1
20.8
45.4
%
17.0
35.3
42.3
1.7
3.7
1,103.0
100.0
1,219.8
100.0
HSBC HOLDINGS PLC
65
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Global businesses (continued)
Reconciliations
Reconciliation of reported and adjusted items –
global businesses
2015 compared with 2014
Revenue1
Reported31
Significant items
– disposal costs of Brazilian operations
– DVA on derivative contracts
– fair value movements on non-qualifying hedges32
– gain on the partial sale of shareholding in Industrial Bank
– loss on sale of several tranches of real estate secured accounts in
the US
– own credit spread2
– provisions/(releases) arising from the ongoing review of
compliance with the Consumer Credit Act in the UK
Adjusted31
LICs
Reported
Adjusted
Operating expenses
Reported31
Significant items
– disposal costs of Brazilian operations
– costs-to-achieve
– costs to establish UK ring-fenced bank
– regulatory provisions in GPB
– restructuring and other related costs
– settlements and provisions in connection with legal matters
– UK customer redress programmes
Adjusted31
Share of profit in associates and joint ventures
Reported
Adjusted
Profit/(loss) before tax
Reported
Significant items
– revenue
– operating expenses
Adjusted
RBWM
$m
23,516
326
–
–
90
–
214
–
22
CMB
$m
14,870
17
–
–
(1)
–
–
–
18
2015
GB&M
$m
18,233
(199)
–
(230)
31
–
–
–
–
GPB
$m
Other
$m
Total
$m
2,172
(31)
–
–
(1)
–
7,604
(2,148)
18
–
208
(1,372)
59,800
(2,035)
18
(230)
327
(1,372)
–
–
–
(1,002)
214
(1,002)
(30)
–
10
23,842
14,887
18,034
2,141
5,456
57,765
(1,939)
(1,939)
(1,770)
(1,770)
–
–
(12)
(12)
–
–
(3,721)
(3,721)
(17,020)
1,537
66
198
–
–
32
700
541
(6,744)
202
16
163
–
–
5
–
18
(10,834)
1,035
14
69
–
–
22
949
(19)
(1,832)
206
1
16
–
171
18
–
–
(9,933)
606
13
462
89
1
40
–
1
(39,768)
3,586
110
908
89
172
117
1,649
541
(15,483)
(6,542)
(9,799)
(1,626)
(9,327)
(36,182)
410
410
4,967
1,863
326
1,537
6,830
1,617
1,617
7,973
219
17
202
8,192
511
511
7,910
836
(199)
1,035
8,746
16
16
344
175
(31)
206
2
2
2,556
2,556
(2,327)
(1,542)
(2,148)
606
18,867
1,551
(2,035)
3,586
519
(3,869)
20,418
HSBC HOLDINGS PLC
66
Revenue1
Reported31
Currency translation31
Significant items
– DVA on derivative contracts
– fair value movements on non-qualifying hedges32
– gain on sale of several tranches of real estate
secured accounts in the US
– gain on sale of shareholding in Bank of Shanghai
– impairment of our investment in Industrial Bank
– own credit spread2
– provisions arising from the ongoing review of compliance with
the Consumer Credit Act in the UK
– (gain)/loss and trading results from disposals and changes in
ownership levels
Adjusted31
LICs
Reported
Currency translation
Significant items
– trading results from disposals and changes in ownership levels
Adjusted
Operating expenses
Reported31
Currency translation31
Significant items
– charge in relation to the settlement agreement with the Federal
Housing Finance Authority
– regulatory provisions in GPB
– restructuring and other related costs
– settlements and provisions in connection with legal matters
– UK customer redress programmes
– trading results from disposals and changes in ownership levels
RBWM
$m
25,149
(2,209)
877
–
493
(168)
–
–
–
568
(16)
CMB
$m
15,748
(1,242)
9
–
(1)
–
–
–
–
24
(14)
2014
GB&M
$m
17,778
(1,296)
328
332
8
–
–
–
–
–
(12)
GPB
$m
Other
$m
Total
$m
2,377
(138)
41
–
1
–
–
–
–
40
–
6,365
(158)
(501)
–
40
–
(428)
271
(417)
–
33
61,248
(4,775)
754
332
541
(168)
(428)
271
(417)
632
(9)
23,817
14,515
16,810
2,280
5,706
57,227
(1,936)
340
2
2
(1,558)
256
(2)
(2)
(1,594)
(1,304)
(365)
86
–
–
(279)
8
3
–
–
11
–
(2)
–
–
(2)
(3,851)
683
–
–
(3,168)
(18,030)
1,851
1,118
(6,981)
627
189
(12,028)
782
1,896
(1,778)
100
71
(8,601)
186
121
(41,249)
3,278
3,395
17
–
88
–
992
21
–
–
37
–
138
14
533
–
27
1,187
145
4
–
65
6
–
–
–
–
–
120
–
–
1
550
65
278
1,187
1,275
40
Adjusted31
(15,061)
(6,165)
(9,350)
(1,607)
(8,294)
(34,576)
Share of profit in associates and joint ventures
Reported
Currency translation
Adjusted
Profit/(loss) before tax
Reported
Currency translation
Significant items
– revenue
– LICs
– operating expenses
Adjusted
For footnotes, see page 99.
398
(5)
393
5,581
(23)
1,997
877
2
1,118
7,555
1,605
(28)
1,577
8,814
(387)
196
9
(2)
189
8,623
504
(7)
497
5,889
(435)
2,224
328
–
1,896
7,678
19
–
19
626
(35)
112
41
–
71
703
6
1
7
(2,230)
27
(380)
(501)
–
121
2,532
(39)
2,493
18,680
(853)
4,149
754
–
3,395
(2,583)
21,976
HSBC HOLDINGS PLC
67
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Global businesses (continued)
RBWM
Retail Banking and Wealth Management
RBWM provides banking and wealth
management services for our personal
customers to help them secure their future
prosperity and realise their ambitions.
2015
Net interest income
Net fee income/(expense)
Other income/(expense)33
Net operating income1
LICs34
Net operating income
Total operating expenses
Operating profit/(loss)
Income from associates35
Profit/(loss) before tax
RoRWA24
2014
Net interest income
Net fee income/(expense)
Other income/(expense)33
Net operating income1
LICs34
Net operating income
Total operating expenses
Operating profit
Income from associates35
Profit before tax
RoRWA24
2013
Net interest income
Net fee income/(expense)
Other income/(expense)33
Net operating income1
LICs34
Net operating income
Total operating expenses
Operating profit/(loss)
Income/(expense) from associates35
Profit/(loss) before tax
RoRWA24
For footnotes, see page 99.
Total
RBWM28
$m
US run-off
portfolio
$m
Principal
RBWM
$m
Banking
operations
$m
Insurance
manufacturing
$m
Asset
management
$m
Principal RBWM consists of
15,926
6,218
1,372
23,516
(1,939)
21,577
(17,020)
4,557
410
4,967
2.5%
17,130
6,836
1,183
25,149
(1,936)
23,213
(18,030)
5,183
398
5,581
2.5%
18,808
7,211
1,434
27,453
(3,510)
23,943
(17,774)
6,169
384
6,553
2.6%
1,033
(4)
(203)
826
(62)
764
(1,384)
(620)
–
(620)
(1.3%)
1,390
(4)
(49)
1,337
(30)
1,307
(738)
569
–
569
0.8%
2,061
11
(400)
1,672
(705)
967
(1,166)
(199)
(1)
(200)
(0.2%)
14,893
6,222
1,575
22,690
(1,877)
20,813
(15,636)
5,177
410
5,587
3.7%
15,740
6,840
1,232
23,812
(1,906)
21,906
(17,292)
4,614
398
5,012
3.2%
16,747
7,200
1,834
25,781
(2,805)
22,976
(16,608)
6,368
385
6,753
4.2%
13,127
5,726
876
19,729
(1,877)
17,852
(14,459)
3,393
357
3,750
13,983
6,264
602
20,849
(1,906)
18,943
(16,060)
2,883
323
3,206
15,003
6,786
1,014
22,803
(2,806)
19,997
(15,307)
4,690
299
4,989
1,757
(560)
680
1,877
–
1,877
(432)
1,445
24
1,469
1,746
(534)
608
1,820
–
1,820
(453)
1,367
40
1,407
1,725
(625)
779
1,879
–
1,879
(554)
1,325
62
1,387
9
1,056
19
1,084
–
1,084
(745)
339
29
368
11
1,110
22
1,143
–
1,143
(779)
364
35
399
19
1,039
41
1,099
1
1,100
(747)
353
24
377
RBWM comprises the Principal RBWM business and the US run-off portfolio. We believe that highlighting Principal RBWM (and its constituent
business streams, Banking Operations, Insurance Manufacturing and Asset Management) allows management to identify more readily the
causes of material changes from year-to-year in the ongoing business and assess the factors and trends that are expected to have a material
effect on the business in future years.
Insurance manufacturing for RBWM excluded other global businesses which contributed net operating income of $286m (2014: $358m, 2013:
$397m) and profit before tax of $201m (2014: $263m, 2013: $266m) to overall insurance manufacturing. In 2015 insurance manufacturing net
operating income for RBWM included $1,686m within Wealth Management (2014: $1,529m) and $191m within other products (2014: $350m).
HSBC HOLDINGS PLC
68
Principal RBWM performance
Profit before tax ($m)
Principal RBWM: management view of adjusted revenue
Net operating income1
Current accounts, savings and deposits
Wealth management products
– investment distribution36
– life insurance manufacturing
– asset management
Personal lending
– mortgages
– credit cards
– other personal lending37
Other38
Year ended 31 December
For footnotes, see page 99.
2015
$m
5,602
6,282
3,512
1,686
1,084
9,962
2,873
3,868
3,221
841
22,687
2014
$m
5,530
5,825
3,271
1,529
1,025
10,218
2,956
3,961
3,301
759
22,332
762
6,349
5,587
1,830
6,819
5,012
(23)
2015
2014
Revenue ($m)
22,690
22,687
(3)
23,813
729
22,332
(2,210)
2015
2014
Operating expenses ($m)
15,636
14,871
(765)
17,292
14,342
(1,852)
(1,098)
2015
2014
Reported
Significant items
Adjusted
Currency translation
For details of significant items, see page 66.
HSBC HOLDINGS PLC
69
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Global businesses (continued)
CMB / GB&M
Commercial Banking
CMB serves more than two million
customers in 55 countries and
territories. Our customers range from
small enterprises focused primarily
on their domestic markets through to
corporates operating globally.
Net interest income
Net fee income
Other income33
Net operating income1
LICs34
Net operating income
Total operating expenses
Operating profit
Income from associates35
Profit before tax
RoRWA24
For footnotes, see page 99.
2015
$m
9,859
4,190
821
14,870
(1,770)
13,100
(6,744)
6,356
1,617
7,973
2014
$m
10,158
4,570
1,020
15,748
(1,558)
14,190
(6,981)
7,209
1,605
8,814
1.9%
2.1%
2013
$m
9,731
4,527
1,394
15,652
(2,101)
13,551
(6,523)
7,028
1,509
8,537
2.2%
Profit before tax ($m)
7,973
219
8,192
8,814
196
8,623
(387)
2015
2014
Revenue ($m)
14,870
17
14,887
15,748
9
14,515
(1,242)
Management view of adjusted revenue
2015
2014
Net operating income1
Global Trade and Receivables Finance
Credit and Lending
Payments and Cash Management, current
accounts and savings deposits
Markets products, Insurance and
Investments and Other39
Year ended 31 December
For footnotes, see page 99.
2015
$m
2,403
6,002
2014
$m
2,447
5,609
Operating expenses ($m)
6,744
6,542
6,981
4,568
4,423
(202)
6,165
(627)
(189)
1,914
2,036
14,887
14,515
2015
2014
Reported
Significant items
Adjusted
Currency translation
For details of significant items, see page 66.
HSBC HOLDINGS PLC
70
Global Banking and Markets
GB&M supports major government,
corporate and institutional clients worldwide
in achieving their long-term strategic goals
through tailored and innovative solutions.
GB&M
client-
facing
and BSM
$m
Legacy
$m
127
(11)
9
(64)
61
37
98
6,804
3,386
7,160
822
18,172
(37)
18,135
(103)
(10,731)
(5)
7,404
–
1.8%
Total
GB&M
$m
6,931
3,375
7,169
758
18,233
−
18,233
(10,834)
7,399
511
7,910
1.6%
2015
Net interest income
Net fee income/(expense)
Net trading income40
Other income/(expense)33
Net operating income1
LICs34
Net operating income
Total operating expenses
Operating profit/(loss)
Income from associates35
Profit/(loss) before tax
RoRWA24
2014
Net interest income/(expense)
Net fee income/(expense)
Net trading income/(expense)40
Other income33
7,022
3,560
5,861
1,335
(172)
(7)
(55)
232
7,194
3,567
5,916
1,103
Net operating income/
(expense)1
LICs34
Net operating income
Total operating expenses
Operating profit/(loss)
Income from associates35
Profit/(loss) before tax
RoRWA24
2013
Net interest income
Net fee income/(expense)
Net trading income40
Other income/(expense)33
Net operating income1
LICs34
Net operating income
Total operating expenses
Operating profit
Income from associates35
Profit before tax
RoRWA24
For footnotes, see page 99.
(2)
17,780
349
347
(714)
17,066
(708)
(11,320)
(361)
5,746
17,778
(365)
17,413
(12,028)
5,385
504
5,889
1.2%
(0.8%)
1.3%
6,766
3,482
6,780
2,148
19,176
(207)
18,969
(9,960)
9,009
432
9,441
2.3%
38
(7)
198
(80)
149
206
355
(170)
185
6,728
3,489
6,582
2,228
19,027
(413)
18,614
(9,790)
8,824
0.6%
2.5%
Management view of adjusted revenue
Total operating income1
Markets41
– Legacy credit
– Credit
– Rates
– Foreign Exchange
– Equities
Capital Financing
Payments and Cash Management
Securities Services
Global Trade and Receivables Finance
Balance Sheet Management
Principal Investments
Other42
2015
$m
6,882
61
659
1,638
2,918
1,606
1 606
3,789
1,801
1,698
718
2,943
243
(40)
2014
$m
5,775
(16)
532
1,419
2,722
1,118
1 118
3,777
1,680
1,589
701
2,845
498
(55)
Year ended 31 December
18,034
16,810
For footnotes, see page 99.
Profit before tax ($m)
836
8,746
7,910
2,224
7,678
5,889
(435)
2015
2014
Revenue ($m)
18,233
18,034
17,778
(199)
328
16,810
(1,296)
2015
2014
Operating expenses ($m)
12,028
10,834
9,799
(1,035)
(782)
9,350
(1,896)
The GB&M client-facing and Balance Sheet Management (‘BSM’)
businesses measure excludes the effects of the legacy credit portfolio
and income from associates. This allows GB&M management to
identify more readily the cause of material changes from year to year
in the ongoing businesses and assess the factors and trends that are
expected to have a material effect on the businesses in future years.
2015
2014
Reported
Significant items
Adjusted
Currency translation
For details of significant items, see page 66.
HSBC HOLDINGS PLC
71
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Global businesses (continued)
GPB / Other
Global Private Banking
GPB serves high net worth individuals and
families with complex and international
needs within the Group’s priority markets.
Profit before tax ($m)
175
519
344
112
703
626
(35)
2015
$m
870
959
343
2,172
(12)
2,160
(1,832)
328
16
344
2014
$m
994
1,056
327
2,377
8
2,385
(1,778)
607
19
626
2013
$m
1,146
1,150
143
2,439
(31)
2,408
(2,229)
179
14
193
1.7%
2.9%
0.9%
Net interest income
Net fee income
Other income33
Net operating income1
LICs34
Net operating income
Total operating expenses
Operating profit
Income from associates35
Profit before tax
RoRWA24
Reported client assets43
At 1 January
Net new money
Of which: areas targeted for growth
Value change
Disposals
Exchange and other
At 31 December
Reported client assets by geography
Europe
Asia
North America
Latin America
At 31 December
For footnotes, see page 99.
2015
$bn
365
1
14
1
–
(18)
349
2015
$bn
168
112
61
8
349
2014
$bn
382
(3)
14
8
(11)
(11)
365
2014
$bn
179
112
63
11
365
2015
2014
Revenue ($m)
2,172
2,141
(31)
2,377
41
2,280
(138)
2015
2014
Operating expenses ($m)
1,832
1,778
1,626
(206)
1,607
(100)
(71)
2015
2014
Reported
Significant items
Adjusted
Currency translation
For details of significant items, see page 66.
HSBC HOLDINGS PLC
72
Other29
‘Other’ contains the results of HSBC’s holding
company and financing operations, central
support and functional costs with associated
recoveries, unallocated investment activities,
centrally held investment companies, certain
property transactions and movements in fair
value of own debt.
Net interest expense
Net fee income/(expense)
Net trading income/(expense)
Changes in fair value of long-
term debt issued and
related derivatives
Changes in other financial
instruments designated
at fair value
Net income/(expense) from
financial instruments
designated at fair value
Other income
Net operating income1
LICs34
Net operating income
Total operating expenses
Operating loss
Income/(expense) from
associates35
Loss before tax
For footnotes, see page 99.
2015
$m
(710)
(37)
(192)
2014
$m
(501)
(65)
(92)
2013
$m
(737)
64
6
863
508
(1,228)
61
(9)
(576)
924
7,619
7,604
−
7,604
(9,933)
(2,329)
499
6,524
6,365
−
6,365
(8,601)
(2,236)
(1,804)
8,122
5,651
−
5,651
(7,796)
(2,145)
2
6
(14)
(2,327)
(2,230)
(2,159)
Loss before tax ($m)
27
(2,230)
(380)
(2,583)
(2,327)
(1,542)
(3,869)
2015
2014
Revenue ($m)
7,604
5,456
(2,148)
6,365
5,706
(158)
(501)
2015
2014
Operating expenses ($m)
9,933
9,327
(606)
8,601
8,294
(186)
(121)
2015
2014
Reported
Significant items
Adjusted
Currency translation
For details of significant items, see page 66.
HSBC HOLDINGS PLC
73
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Group businesses (continued)
Analysis by global business
Analysis by global business
HSBC profit/(loss) before tax and balance sheet data
Retail
Banking
and Wealth
Management
$m
Commercial
Banking
$m
Global
Banking and
Markets
$m
2015
Global
Private
Banking
$m
Inter-
segment
elimination44
$m
Other29
$m
Total
$m
32,531
14,705
6,948
1,775
8,723
863
669
1,532
2,068
123
10,355
1,055
71,092
(11,292)
59,800
(3,721)
56,079
(19,900)
(19,868)
(39,768)
16,311
2,556
18,867
%
100.0
66.5
(345)
−
−
345
345
−
−
−
−
−
−
(6,595)
(6,595)
−
(6,595)
−
(6,595)
−
6,595
6,595
−
−
−
(710)
(37)
(204)
12
(192)
863
61
924
1,342
33
(2)
6,246
7,604
−
7,604
−
7,604
(8,102)
(1,831)
(9,933)
(2,329)
2
(2,327)
%
(12.3)
130.6
$m
2,331
1,979
147,417
881
−
(274,487)
$m
924,454
19,021
2,409,656
1,289,586
16,682
870
959
327
(2)
325
−
−
−
23
11
42
3
2,233
(61)
2,172
(12)
2,160
(654)
(1,178)
(1,832)
328
16
344
%
1.8
84.3
$m
42,942
85
81,448
80,404
3,010
Profit/(loss) before tax
Net interest income/(expense)
Net fee income/(expense)
Trading income/(expense) excluding
net interest income
Net interest income/(expense) on
trading activities
Net trading income/(expense)40
Changes in fair value of long-term debt
issued and related derivatives
Net income/(expense) from other
financial instruments designated
at fair value
Net income/(expense) from financial
instruments designated at fair value
Gains less losses from financial
investments
Dividend income
Net insurance premium income
Other operating income
Total operating income
Net insurance claims45
Net operating income1
Loan impairment charges and other
credit risk provisions
Net operating income
Employee expenses46
Other operating expenses
Total operating expenses
Operating profit/(loss)
Share of profit in associates
and joint ventures
Profit/(loss) before tax
Share of HSBC’s profit before tax
Cost efficiency ratio
Balance sheet data22,30
Loans and advances to customers (net)
– reported in held for sale
Total assets
Customer accounts
– reported in held for sale
15,926
6,218
9,859
4,190
540
(19)
521
−
556
556
571
(16)
555
−
110
110
68
23
9,204
972
33,488
(9,972)
23,516
37
16
1,106
252
16,125
(1,255)
14,870
(1,939)
(1,770)
21,577
13,100
(2,443)
(4,301)
(6,744)
6,356
1,617
7,973
%
42.3
45.4
(4,966)
(12,054)
(17,020)
4,557
410
4,967
%
26.3
72.4
$m
340,009
5,258
473,284
584,872
7,758
6,931
3,375
5,714
1,455
7,169
−
(58)
(58)
598
40
5
177
18,237
(4)
18,233
−
18,233
(3,735)
(7,099)
(10,834)
7,399
511
7,910
%
41.9
59.4
$m
302,240
8,010
365,290
361,701
3,363
$m
236,932
3,689
1,616,704
261,728
2,551
HSBC HOLDINGS PLC
74
Retail
Banking
and Wealth
Management28
$m
Commercial
Banking28
$m
Global
Banking and
Markets
$m
Inter-
segment
elimination44
$m
Other29
$m
7,022
3,560
4,063
1,798
5,861
−
12
12
1,117
80
5
124
17,781
(3)
17,778
Profit/(loss) before tax
Net interest income/(expense)
Net fee income/(expense)
Trading income/(expense) excluding
net interest income
Net interest income/(expense) on
trading activities
Net trading income/(expense)40
Changes in fair value of long-term debt
issued and related derivatives
Net income/(expense) from other
financial instruments designated
at fair value
Net income/(expense) from financial
17,130
6,836
10,158
4,570
(26)
9
(17)
−
1,684
618
(2)
616
−
279
279
instruments designated at fair value
1,684
Gains less losses from financial
investments
Dividend income
Net insurance premium income
Other operating income
Total operating income
Net insurance claims45
Net operating income1
14
24
10,609
726
37,006
(11,857)
25,149
31
18
1,257
241
17,170
(1,422)
15,748
Loan impairment (charges)/recoveries
and other credit risk provisions
(1,936)
(1,558)
(365)
Net operating income
Employee expenses46
Other operating expenses
Total operating expenses
Operating profit/(loss)
Share of profit in associates
and joint ventures
Profit/(loss) before tax
Share of HSBC’s profit before tax
Cost efficiency ratio
Balance sheet data30
Loans and advances to customers (net)
– reported in held for sale
Total assets
Customer accounts
– reported in held for sale
For footnotes, see page 99.
23,213
14,190
(5,126)
(12,904)
(18,030)
5,183
398
5,581
%
29.9
71.7
(2,351)
(4,630)
(6,981)
7,209
1,605
8,814
%
47.2
44.3
17,413
(3,655)
(8,373)
(12,028)
5,385
504
5,889
%
31.5
67.7
$m
360,704
198
500,864
583,757
−
$m
313,039
−
370,958
361,318
−
$m
254,463
288
1,839,644
319,121
−
HSBC HOLDINGS PLC
75
2014
Global
Private
Banking
$m
994
1,056
298
(4)
294
(1)
(1)
9
5
50
33
2,440
(63)
2,377
8
2,385
(732)
(1,046)
(1,778)
607
19
626
%
3.4
74.8
$m
44,102
91
88,342
85,465
145
−
508
Total
$m
34,705
15,957
4,853
1,907
6,760
508
1,965
2,473
1,335
311
11,921
1,131
74,593
(13,345)
61,248
(3,851)
57,397
(20,366)
(20,883)
(41,249)
16,148
2,532
18,680
%
100.0
67.3
(98)
−
−
98
98
−
−
−
−
−
−
(6,169)
(6,169)
−
(6,169)
−
(6,169)
−
6,169
6,169
−
−
−
(501)
(65)
(100)
8
(92)
(9)
499
164
184
−
6,176
6,365
−
6,365
−
6,365
(8,502)
(99)
(8,601)
(2,236)
6
(2,230)
%
(12.0)
135.1
$m
2,352
–
164,537
981
–
(330,206)
$m
974,660
577
2,634,139
1,350,642
145
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Geographical regions
Summary / Reconciliations
Geographical regions
Summary
Reconciliation of 2015 and 2014 reported and adjusted
items for geographical regions
Europe
Asia
Middle East and North Africa
North America
Latin America
76
77
79
82
86
89
92
Summary
Additional information on results in 2015 may be found in
the Financial Summary on pages 48 to 64.
In the analysis of profit and loss by geographical regions that
follows, operating income and operating expenses include
intra-HSBC items of $3,375m (2014: $2,972m; 2013:
$2,628m).
All tables are on a reported basis unless otherwise stated.
Basis of preparation
The results of the geographical regions are presented in
accordance with the accounting policies used in the preparation
of HSBC's consolidated financial statements. Our operations are
closely integrated, and accordingly, the presentation of the
geographical data includes internal allocation 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 geographical regions.
While such allocations have been done on a systematic and
consistent basis, they necessarily involve a degree of subjectivity.
Where relevant, income and expense amounts presented include
the results of inter-segment funding along with inter-company
transactions. All such transactions are undertaken on an arm’s
length basis.
The expense of the UK bank levy is included in the Europe
geographical region as HSBC regards the levy as a cost of being
headquartered in the UK.
Profit/(loss) before tax
Europe
Asia
Middle East and North Africa
North America
Latin America
Year ended 31 December
Total assets30
Europe
Asia
Middle East and North Africa
North America
Latin America
Intra-HSBC items
At 31 December
Risk-weighted assets47
At 31 December
Europe
Asia
Middle East and North Africa
North America
Latin America
For footnotes, see page 99.
2015
$m
643
15,763
1,537
614
310
18,867
%
3.4
83.5
8.1
3.3
1.7
2014
$m
596
14,625
1,826
1,417
216
%
3.2
78.3
9.8
7.6
1.1
100.0
18,680
100.0
2015
$m
1,129,365
889,747
59,236
393,960
86,262
(148,914)
%
46.9
36.9
2.5
16.3
3.6
(6.2)
2013
$m
1,825
15,853
1,694
1,221
1,972
22,565
2014
$m
1,290,926
878,723
62,417
436,859
115,354
(150,140)
%
8.1
70.3
7.5
5.4
8.7
100.0
%
49.0
33.4
2.4
16.6
4.4
(5.8)
2,409,656
100.0
2,634,139
100.0
2015
$bn
%
2014
$bn
%
1,103.0
100.0
1,219.8
100.0
337.4
459.7
60.4
191.6
73.4
30.6
41.7
5.5
17.4
6.7
375.4
499.8
63.0
221.4
88.8
30.1
40.0
5.0
17.8
7.1
HSBC HOLDINGS PLC
76
Reconciliation of reported and adjusted items –
geographical regions
2015 compared with 2014
Revenue1
Reported31
Significant items
– disposal costs of Brazilian operations
– debit valuation adjustment (‘DVA’) on
derivative contracts
– fair value movements on non-qualifying
hedges32
– gain on the partial sale of shareholding
in Industrial Bank
– loss on sale of several tranches of real
estate secured accounts in the US
– own credit spread2
– provisions arising from the ongoing
review of compliance with
the Consumer Credit Act in the UK
Europe
$m
21,058
(656)
–
(95)
200
(58)
2
–
(1,372)
–
(771)
10
–
(3)
–
Asia
$m
MENA
$m
2015
North
America
$m
Latin
America
$m
Total
$m
UK
$m
Hong
Kong
$m
25,303
(1,431)
–
2,565
(10)
–
7,657
98
–
6,592
(36)
18
59,800
(2,035)
18
15,493
(595)
–
15,616
(1,383)
–
(1)
–
–
–
(9)
–
(21)
124
–
214
(219)
–
(55)
(230)
(78)
327
204
(13)
6
(1,372)
–
(1,372)
214
(1,002)
–
(731)
10
10
–
(4)
–
1
–
–
–
–
Adjusted31
20,402
23,872
2,555
7,755
6,556
57,765
14,898
14,233
Loan impairment charges and other credit
risk provisions (‘LIC’s)
Reported
Adjusted
Operating expenses
Reported31
Significant items
– disposal costs of Brazilian operations
– costs-to-achieve
– costs to establish UK ring-fenced bank
– regulatory provisions in GPB
– restructuring and other related costs
– settlements and provisions in
connection with legal matters
– UK customer redress programmes
(690)
(690)
(693)
(693)
(299)
(299)
(544)
(544)
(1,495)
(1,495)
(3,721)
(3,721)
(248)
(248)
(155)
(155)
(19,733)
2,405
–
600
89
172
68
935
541
(10,889)
130
–
122
–
–
8
–
–
(1,234)
15
–
14
–
–
1
–
–
(6,501)
851
–
103
–
–
34
714
–
(4,786)
185
110
69
–
–
6
(39,768)
3,586
110
908
89
172
117
(15,555)
2,151
–
536
89
–
50
(5,686)
49
–
43
–
–
6
–
–
1,649
541
935
541
–
–
Adjusted31
(17,328)
(10,759)
(1,219)
(5,650)
(4,601)
(36,182)
(13,404)
(5,637)
Share of profit in associates and joint ventures
Reported
Adjusted
Profit/(loss) before tax
Reported
Significant items
– revenue
– operating expenses
Adjusted
8
8
2,042
2,042
505
505
643
1,749
(656)
2,405
15,763
(1,301)
(1,431)
130
2,392
14,462
1,537
5
(10)
15
1,542
2
2
614
949
98
851
1,563
(1)
(1)
2,556
2,556
10
10
31
31
310
149
(36)
185
459
18,867
1,551
(2,035)
3,586
(300)
1,556
(595)
2,151
9,806
(1,334)
(1,383)
49
20,418
1,256
8,472
HSBC HOLDINGS PLC
77
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Geographical regions (continued)
Reconciliations / Europe
Reconciliation of reported and adjusted items (continued)
Revenue1
Reported31
Currency translation31
Significant items
– DVA on derivative contracts
– fair value movements on non-qualifying
hedges32
– gain on sale of several tranches of real
estate secured accounts in the US
– gain on sale of shareholding in Bank of
Shanghai
– impairment of our investment in
Industrial Bank
– own credit spread4
– provisions arising from the ongoing
review of compliance with the
Consumer Credit Act in the UK
– (gain)/loss and trading results from
disposals and changes in ownership
levels
Asia
$m
MENA
$m
23,677
(680)
(48)
69
2,548
(50)
(3)
5
Europe
$m
21,571
(2,013)
708
234
235
–
–
–
(393)
4
–
(428)
271
4
632
–
–
–
–
–
6
–
2014
North
America
$m
Latin
America
$m
Total
$m
61,248
(4,775)
754
332
UK
$m
15,727
(1,058)
353
203
541
(168)
(428)
271
(417)
(8)
–
–
–
(474)
632
632
8,272
(1,871)
(19)
8
–
–
–
–
–
–
Hong
Kong
$m
13,844
4
(119)
26
11
–
(428)
271
1
–
–
8,152
(252)
116
16
302
(168)
–
–
(34)
–
–
–
32
(14)
(27)
(9)
–
Adjusted31
20,266
22,949
2,495
8,016
6,382
57,227
15,022
13,729
LICs
Reported
Currency translation
Significant items
– trading results from disposals and
changes in ownership levels
Adjusted
Operating expenses
Reported31
Currency translation31
Significant items
– charge in relation to the settlement
agreement with the Federal Housing
Finance Authority
– regulatory provisions in GPB
– restructuring and other related costs
– settlements and provisions in
connection with legal matters
– UK customer redress programmes
– trading results from disposals and
changes in ownership levels
(764)
104
–
(647)
26
–
–
–
(660)
(621)
6
–
(2)
(2)
4
(322)
13
–
(2,124)
540
2
(3,851)
683
–
(214)
4
–
(320)
–
–
–
2
–
–
–
(309)
(1,582)
(3,168)
(210)
(320)
(20,217)
1,499
2,601
–
16
123
1,187
1,275
–
(10,427)
352
58
–
49
9
–
–
–
(1,216)
16
33
(6,429)
129
578
(5,932)
1,373
(41,249)
3,278
(15,576)
809
125
3,395
2,553
(5,424)
(1)
56
–
–
2
–
–
31
550
–
28
–
–
–
–
–
116
–
–
9
550
65
278
–
–
91
1,187
1,275
1,187
1,275
40
–
–
49
7
–
–
–
Adjusted31
(16,117)
(10,017)
(1,167)
(5,722)
(4,434)
(34,576)
(12,214)
(5,369)
Share of profit in associates and joint ventures
Reported
Currency translation
Adjusted
Profit/(loss) before tax
Reported
Currency translation
Significant items
– revenue
– LICs
– operating expenses
Adjusted
For footnotes, see page 99.
6
1
7
2,022
(38)
1,984
596
(409)
3,309
708
–
2,601
14,625
(340)
10
(48)
–
58
3,496
14,295
488
–
488
1,826
(34)
28
(3)
(2)
33
1,820
16
(2)
14
1,417
(112)
694
116
–
578
1,999
–
–
–
216
42
108
(19)
2
125
366
2,532
(39)
2,493
18,680
(853)
4,149
754
–
3,395
7
(1)
6
(56)
(246)
2,906
353
–
2,553
42
(1)
41
8,142
2
(63)
(119)
–
56
21,976
2,604
8,081
HSBC HOLDINGS PLC
78
Europe
Our principal banking operations in Europe
are HSBC Bank plc in the UK, HSBC France,
HSBC Private Bank (Suisse) SA and HSBC
Trinkaus & Burkhardt AG. Through these
operations we provide a wide range of
banking, treasury and financial services
to personal, commercial and corporate
customers across Europe.
Net interest income
Net fee income
Net trading income
Other income/(expense)
Net operating income1
LICs34
2015
$m
10,005
4,891
4,060
2,102
21,058
2014
$m
10,611
6,042
2,534
2,384
21,571
(690)
(764)
Net operating income
20,368
20,807
2013
$m
10,693
6,032
4,423
(181)
20,967
(1,530)
19,437
Total operating expenses
(19,733)
(20,217)
(17,613)
Operating profit
Income from associates35
Profit before tax
Cost efficiency ratio
RoRWA24
635
8
643
590
6
596
93.7%
0.2%
93.7%
0.2%
1,824
1
1,825
84.0%
0.6%
Year-end staff numbers
67,509
69,363
68,334
For footnotes, see page 99.
Country view of adjusted revenue
UK
France
Germany
Switzerland
Other
Year ended 31 December
2015
$m
14,898
2,619
827
631
1,427
20,402
2014
$m
15,022
2,487
788
698
1,271
20,266
Profit/(loss) before tax by country within global businesses
Profit before tax ($m)
1,749
2,392
3,309
3,496
643
596
(409)
2015
2014
Revenue ($m)
21,058
20,402
21,571
708
20,266
(656)
(2,013)
2015
2014
Operating expenses ($m)
19,733
20,217
17,328
(2,405)
(1,499)
16,117
(2,601)
2015
2014
Reported
Significant items
Adjusted
Currency translation
For details of significant items, see page 77.
UK
France23
Germany
Switzerland
Other
Year ended 31 December 2015
UK
France23
Germany
Switzerland
Other
Year ended 31 December 2014
UK
France23
Germany
Switzerland
Other
Year ended 31 December 2013
Retail Banking
and Wealth
Management
$m
964
388
23
−
(181)
1,194
Commercial
Banking
$m
2,040
152
66
8
53
2,319
Global
Banking and
Markets
$m
384
112
157
−
395
1,048
589
(181)
28
−
(122)
314
1,471
285
30
−
(33)
1,753
2,193
240
71
5
39
2,548
1,684
255
70
2
77
2,088
(801)
354
162
2
332
49
1,246
351
183
2
19
1,801
Global
Private
Banking
$m
169
14
20
(220)
31
14
191
−
27
38
59
315
252
21
44
(291)
(191)
(165)
Other
$m
(3,857)
(27)
(27)
(4)
(17)
(3,932)
(2,228)
(199)
(10)
(3)
(190)
(2,630)
(3,493)
(162)
(25)
−
28
(3,652)
Total
$m
(300)
639
239
(216)
281
643
(56)
214
278
42
118
596
1,160
750
302
(287)
(100)
1,825
HSBC HOLDINGS PLC
79
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Geographical regions (continued)
Europe
Profit/(loss) before tax and balance sheet data – Europe
Retail
Banking
and Wealth
Management
$m
Commercial
Banking
$m
Global
Banking and
Markets
$m
2015
Global
Private
Banking
$m
Inter-
segment
elimination44
$m
Other
$m
Total
$m
10,005
4,891
3,391
669
4,060
671
429
1,100
274
22
2,472
1,352
24,176
(3,118)
21,058
(689)
(30)
(203)
2
(201)
671
47
718
−
2
−
1,229
1,029
−
(186)
−
−
186
186
−
−
−
−
−
−
(312)
(312)
−
1,029
(312)
1
1,030
(4,962)
(3,932)
−
(3,932)
%
(20.9)
482.2
$m
427
57,943
476
−
(690)
(312)
20,368
312
(19,733)
−
−
−
635
8
643
%
3.4
93.7
(119,392)
$m
392,041
1,129,365
497,876
Profit/(loss) before tax
Net interest income/(expense)
Net fee income/(expense)
Trading income/(expense) excluding
net interest income
Net interest income/(expense)
on trading activities
Net trading income/(expense)40
Changes in fair value of long-term debt
issued and related derivatives
Net income/(expense) from other
financial instruments designated at
fair value
Net income/(expense) from financial
instruments designated at fair value
Gains less losses from financial
investments
Dividend income
Net insurance premium income
Other operating income
Total operating income
Net insurance claims45
Net operating income1
Loan impairment (charges)/recoveries
and other credit risk provisions
Net operating income
Total operating expenses
Operating profit/(loss)
Share of profit/(loss) in associates
and joint ventures
Profit/(loss) before tax
Share of HSBC’s profit before tax
Cost efficiency ratio
Balance sheet data30
Loans and advances to customers (net)
Total assets
Customer accounts
5,128
1,880
3,433
1,683
103
(3)
100
−
446
446
12
−
2,295
360
10,221
(2,918)
7,303
(260)
7,043
(5,851)
1,192
2
1,194
%
6.3
80.1
35
(6)
29
−
6
6
8
1
135
7
5,302
(139)
5,163
(475)
4,688
(2,368)
2,320
(1)
2,319
%
12.3
45.9
1,848
849
3,270
493
3,763
−
(70)
(70)
231
12
−
61
6,694
−
6,694
62
6,756
(5,715)
1,041
7
1,048
%
5.6
85.4
$m
156,156
205,866
200,437
$m
110,617
124,105
132,928
$m
101,568
804,373
126,225
471
509
186
(3)
183
−
−
−
23
7
42
7
1,242
(61)
1,181
(18)
1,163
(1,149)
14
−
14
%
0.1
97.3
$m
23,273
56,470
37,810
HSBC HOLDINGS PLC
80
Retail
Banking
and Wealth
Management
$m
Commercial
Banking
$m
Global
Banking and
Markets
$m
2014
Global
Private
Banking
$m
5,196
2,456
(260)
14
(246)
−
616
616
12
3
2,741
(127)
10,651
(3,450)
7,201
(268)
6,933
(6,621)
312
2
314
%
1.7
91.9
3,616
1,900
33
2
35
−
119
119
10
7
217
45
5,949
(306)
5,643
(502)
5,141
(2,594)
2,547
1
2,548
%
13.6
46.0
1,956
1,087
1,943
660
2,603
−
14
14
730
50
−
(3)
6,437
−
6,437
−
6,437
(6,391)
46
3
49
%
0.3
99.3
$m
165,112
221,679
202,413
$m
106,342
120,819
135,837
$m
113,136
948,951
166,075
594
626
140
(4)
136
−
(1)
(1)
9
2
50
29
1,445
(63)
1,382
4
1,386
(1,071)
315
−
315
%
1.7
77.5
$m
24,766
64,676
41,380
Inter-
segment
elimination44
$m
(97)
−
−
97
97
−
−
−
−
−
−
(186)
(186)
−
Other
$m
(654)
(27)
(92)
1
(91)
614
(11)
603
11
3
−
1,249
1,094
−
1,094
(186)
Total
$m
10,611
6,042
1,764
770
2,534
614
737
1,351
772
65
3,008
1,007
25,390
(3,819)
21,571
2
1,096
(3,726)
(2,630)
−
(2,630)
%
(14.1)
340.6
$m
377
64,182
254
−
(764)
(186)
20,807
186
(20,217)
−
−
−
590
6
596
%
3.2
93.7
(129,381)
$m
409,733
1,290,926
545,959
Profit/(loss) before tax
Net interest income/(expense)
Net fee income/(expense)
Trading income/(expense) excluding
net interest income
Net interest income/(expense)
on trading activities
Net trading income/(expense)40
Changes in fair value of long-term debt
issued and related derivatives
Net income/(expense) from other
financial instruments designated at
fair value
Net income/(expense) from financial
instruments designated at fair value
Gains less losses from financial
investments
Dividend income
Net insurance premium income
Other operating income/(expense)
Total operating income
Net insurance claims45
Net operating income1
Loan impairment (charges)/recoveries
and other credit risk provisions
Net operating income
Total operating expenses
Operating profit/(loss)
Share of profit in associates
and joint ventures
Profit/(loss) before tax
Share of HSBC’s profit before tax
Cost efficiency ratio
Balance sheet data30
Loans and advances to customers (net)
Total assets
Customer accounts
For footnotes, see page 99.
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
HSBC HOLDINGS PLC
81
Report of the Directors: Geographical regions (continued)
Asia
Asia
Our principal banking subsidiaries in Hong
Kong are The Hongkong and Shanghai
Banking Corporation Limited and Hang Seng
Bank Limited. The former is the largest bank
incorporated in Hong Kong and is our
flagship bank in Asia.
We offer a wide range of banking and
financial services in mainland China through
our local subsidiaries, HSBC Bank (China)
Company Limited and Hang Seng Bank
(China) Limited. We also participate indirectly
in mainland China through our associate,
Bank of Communications Co., Ltd.
Outside Hong Kong and mainland China in
Asia, we conduct business in 18 countries
and territories, with particularly strong
coverage in Australia, India, Indonesia,
Malaysia, Singapore and Taiwan.
Net interest income
Net fee income
Net trading income
Other income
Net operating income1
LICs34
2015
$m
12,184
6,032
3,090
3,997
25,303
2014
$m
12,273
5,910
2,622
2,872
23,677
(693)
(647)
Net operating income
24,610
23,030
Total operating expenses
(10,889)
(10,427)
Operating profit
13,721
12,603
Income from associates35
2,042
2,022
2013
$m
11,432
5,936
2,026
5,038
24,432
(498)
23,934
(9,936)
13,998
1,855
Profit before tax
Cost efficiency ratio
RoRWA24
15,763
14,625
15,853
43.0%
3.3%
44.0%
3.1%
40.7%
3.8%
Profit before tax ($m)
15,763
14,462
14,625
10
14,295
(1,301)
(340)
2015
2014
Revenue ($m)
25,303
23,872
23,677
(1,431)
22,949
(680)
(48)
2015
2014
Operating expenses ($m)
10,889
10,759
10,427
(130)
10,017
(352)
(58)
2015
2014
Year-end staff numbers
120,144
118,322
113,701
Reported
Significant items
Adjusted
Currency translation
For footnotes, see page 99.
For details of significant items, see page 77.
Country view of adjusted revenue
Hong Kong
Australia
India
Indonesia
Mainland China
Malaysia
Singapore
Taiwan
Other
Year ended 31 December
2015
$m
14,233
847
1,845
536
2,606
984
1,288
417
1,116
23,872
2014
$m
13,729
814
1,738
497
2,429
899
1,234
469
1,140
22,949
HSBC HOLDINGS PLC
82
Profit/(loss) before tax by country within global businesses
Retail
Banking
and Wealth
Management
$m
Commercial
Banking
$m
Global
Banking and
Markets
$m
Global
Private
Banking
$m
Hong Kong
Australia
India
Indonesia
Mainland China
Malaysia
Singapore
Taiwan
Other
Year ended 31 December 2015
Hong Kong
Australia
India
Indonesia
Mainland China
Malaysia
Singapore
Taiwan
Other
Year ended 31 December 2014
Hong Kong
Australia
India
Indonesia
Mainland China
Malaysia
Singapore
Taiwan
Other
Year ended 31 December 2013
3,799
61
(25)
(6)
297
119
80
11
50
4,386
3,727
78
4
10
292
156
129
19
57
4,472
3,742
100
(21)
12
223
148
147
7
61
4,419
2,384
79
97
(112)
1,569
95
122
24
250
4,508
2,264
126
121
53
1,533
122
168
35
320
4,742
2,110
131
113
106
1,536
105
120
30
207
4,458
2,119
238
379
80
1,062
215
259
133
449
4,934
1,807
232
442
110
954
190
243
166
432
4,576
1,971
189
418
126
842
236
262
158
473
4,675
177
−
14
−
(3)
−
65
−
(1)
252
146
−
11
−
(3)
−
57
−
−
211
208
−
7
−
(4)
−
74
−
(1)
284
Analysis of mainland China profit/(loss) before tax
BoCom and other associates
Mainland China operations
Year ended 31 December 2015
BoCom and other associates
Mainland China operations
Year ended 31 December 2014
BoCom and other associates
Mainland China operations
Industrial Bank
Ping An
Year ended 31 December 2013
Retail
Banking
and Wealth
Management
$m
Commercial
Banking
$m
260
37
297
255
37
292
247
(24)
–
–
223
1,448
121
1,569
1,421
112
1,533
1,360
176
–
–
1,536
Global
Banking and
Markets
$m
301
761
1,062
296
658
954
284
558
–
–
842
Global
Private
Banking
$m
−
(3)
(3)
–
(3)
(3)
–
(4)
–
–
(4)
Other
$m
1,327
(5)
141
31
135
13
(19)
(13)
73
1,683
198
(4)
122
25
175
28
(8)
1
87
624
58
26
136
36
1,644
25
22
5
65
2,017
Other
$m
−
135
135
1
174
175
(38)
40
1,089
553
1,644
Total
$m
9,806
373
606
(7)
3,060
442
507
155
821
15,763
8,142
432
700
198
2,951
496
589
221
896
14,625
8,089
446
653
280
4,241
514
625
200
805
15,853
Total
$m
2,009
1,051
3,060
1,973
978
2,951
1,853
746
1,089
553
4,241
HSBC HOLDINGS PLC
83
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Geographical regions (continued)
Asia
Profit before tax and balance sheet data – Asia
Retail
Banking
and Wealth
Management
$m
Commercial
Banking
$m
Global
Banking and
Markets
$m
2015
Global
Private
Banking
$m
Inter-
segment
elimination44
$m
Other
$m
Profit before tax
Net interest income/(expense)
Net fee income
Trading income excluding net interest
income
Net interest income/(expense)
on trading activities
Net trading income40
Changes in fair value of long-term debt
issued and related derivatives
Net income/(expense) from other
financial instruments designated
at fair value
Net income/(expense) from financial
instruments designated at fair value
Gains less losses from financial
investments
Dividend income
Net insurance premium income
/(expense)
Other operating income
Total operating income
Net insurance claims45
Net operating income1
Loan impairment (charges)/recoveries
and other credit risk provisions
Net operating income
Total operating expenses
Operating profit
Share of profit in associates
and joint ventures
Profit before tax
Share of HSBC’s profit before tax
Cost efficiency ratio
Balance sheet data30
Loans and advances to customers (net)
Total assets
Customer accounts
5,132
2,939
3,613
1,466
225
(23)
202
−
(329)
(329)
35
2
6,006
659
14,646
(5,925)
8,721
(307)
8,414
(4,320)
4,094
292
4,386
%
23.2
49.5
352
(11)
341
−
(30)
(30)
23
−
780
149
6,342
(837)
5,505
(425)
5,080
(2,020)
3,060
1,448
4,508
%
23.9
36.7
3,373
1,304
1,801
559
2,360
−
10
10
117
1
−
146
7,311
−
7,311
40
7,351
(2,719)
4,632
302
4,934
%
26.2
37.2
175
310
127
1
128
−
−
−
−
−
−
2
615
−
615
−
615
(363)
252
−
252
%
1.3
59.0
$m
117,807
172,719
303,536
$m
130,513
157,838
165,202
$m
93,007
540,404
100,998
$m
13,144
14,488
28,685
(70)
13
13
7
20
5
14
19
1,384
25
(2)
2,878
4,267
−
(39)
−
−
39
39
−
−
−
−
−
−
(1,116)
(1,116)
−
4,267
(1,116)
(1)
4,266
(2,583)
1,683
−
1,683
%
8.9
60.5
$m
1,904
69,080
199
−
(1,116)
1,116
−
−
−
(64,782)
Total
$m
12,184
6,032
2,518
572
3,090
5
(335)
(330)
1,559
28
6,784
2,718
32,065
(6,762)
25,303
(693)
24,610
(10,889)
13,721
2,042
15,763
%
83.5
43.0
$m
356,375
889,747
598,620
HSBC HOLDINGS PLC
84
Retail
Banking
and Wealth
Management
$m
Commercial
Banking
$m
Global
Banking and
Markets
$m
2014
Global
Private
Banking
$m
5,003
2,792
3,439
1,529
216
(13)
203
−
543
543
1
1
6,596
516
15,655
(6,979)
8,676
(317)
8,359
(4,191)
4,168
304
4,472
%
23.9
48.3
382
(9)
373
−
(6)
(6)
5
−
794
95
6,229
(782)
5,447
(228)
5,219
(1,897)
3,322
1,420
4,742
%
25.4
34.8
3,579
1,311
1,220
771
1,991
−
(2)
(2)
46
1
−
141
7,067
−
7,067
(103)
6,964
(2,686)
4,278
298
4,576
%
24.5
38.0
177
272
142
−
142
−
−
−
−
−
−
3
594
−
594
1
595
(384)
211
−
211
%
1.1
64.6
$m
115,643
166,577
286,670
$m
132,509
158,747
155,608
$m
99,934
548,865
104,896
$m
12,894
14,905
29,847
Profit before tax
Net interest income/(expense)
Net fee income
Trading income/(expense) excluding
net interest income
Net interest income/(expense)
on trading activities
Net trading income40
Changes in fair value of long-term debt
issued and related derivatives
Net income/(expense) from other
financial instruments designated
at fair value
Net income/(expense) from financial
instruments designated at fair value
Gains less losses from financial
investments
Dividend income
Net insurance premium income
Other operating income
Total operating income
Net insurance claims45
Net operating income1
Loan impairment (charges)/recoveries
and other credit risk provisions
Net operating income
Total operating expenses
Operating profit
Share of profit in associates
and joint ventures
Profit before tax
Share of HSBC’s profit before tax
Cost efficiency ratio
Balance sheet data30
Loans and advances to customers (net)
Total assets
Customer accounts
For footnotes, see page 99.
Inter-
segment
elimination44
$m
91
−
−
(91)
(91)
−
−
−
−
−
−
(1,158)
(1,158)
−
Other
$m
(16)
6
(5)
9
4
(4)
2
(2)
148
177
−
2,734
3,051
−
3,051
(1,158)
−
3,051
(2,427)
624
−
624
%
3.4
79.5
$m
1,975
79,477
470
−
(1,158)
1,158
−
−
−
(89,848)
Total
$m
12,273
5,910
1,955
667
2,622
(4)
537
533
200
179
7,390
2,331
31,438
(7,761)
23,677
(647)
23,030
(10,427)
12,603
2,022
14,625
%
78.3
44.0
$m
362,955
878,723
577,491
HSBC HOLDINGS PLC
85
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Geographical regions (continued)
Middle East and North Africa
Middle East and North Africa
The network of branches of HSBC Bank
Middle East Limited, together with HSBC’s
subsidiaries and associates, gives us wide
coverage in the region. Our associate in
Saudi Arabia, The Saudi British Bank (40%
owned), is the Kingdom’s fifth largest bank
by total assets.
Net interest income
Net fee income
Net trading income
Other income
Net operating income1
LICs34
Net operating income
Total operating expenses
Operating profit
Income from associates35
Profit before tax
Cost efficiency ratio
RoRWA24
Year-end staff numbers
For footnotes, see page 99.
2015
$m
1,531
633
325
76
2,565
(299)
2,266
(1,234)
1,032
505
1,537
48.1%
2.5%
8,066
2014
$m
1,519
650
314
65
2,548
6
2,554
(1,216)
1,338
488
1,826
47.7%
2.9%
8,305
Country view of adjusted revenue
Egypt
United Arab Emirates
Other
Year ended 31 December
2015
$m
610
1,407
538
2,555
2013
$m
1,486
622
357
38
2,503
42
2,545
(1,289)
1,256
438
1,694
51.5%
2.7%
8,618
2014
$m
493
1,446
556
2,495
Profit/(loss) before tax by country within global businesses
Profit before tax ($m)
1,826
28
1,820
1,537
5
1,542
(34)
2015
2014
Revenue ($m)
2,565
2,555
2,548
2,495
(10)
(50)
(3)
2015
2014
Operating expenses ($m)
1,234
1,219
1,216
(15)
1,167
(16)
(33)
2015
2014
Reported
Significant items
Adjusted
Currency translation
For details of significant items, see page 77.
Egypt
United Arab Emirates
Saudi Arabia
Other
Year ended 31 December 2015
Egypt
United Arab Emirates
Saudi Arabia
Other
Year ended 31 December 2014
Egypt
United Arab Emirates
Saudi Arabia
Other
Year ended 31 December 2013
Retail
Banking
and Wealth
Management
$m
Commercial
Banking
$m
Global
Banking and
Markets
$m
Global
Private
Banking
$m
Other
$m
−
−
16
−
16
−
−
19
−
19
−
1
15
−
16
3
(35)
1
(1)
(32)
−
(46)
5
(5)
(46)
(29)
(72)
7
−
(94)
50
91
112
19
272
64
154
91
14
323
31
142
82
3
258
101
19
169
119
408
94
190
168
152
604
37
290
146
172
645
256
292
202
123
873
177
364
203
182
926
166
275
188
240
869
HSBC HOLDINGS PLC
86
Total
$m
410
367
500
260
1,537
335
662
486
343
1,826
205
636
438
415
1,694
Profit/(loss) before tax and balance sheet data – Middle East and North Africa
Commercial
Banking
$m
Global
Banking and
Markets
$m
2015
Global
Private
Banking
$m
Inter-
segment
elimination44
$m
Other
$m
Retail
Banking
and Wealth
Management
$m
587
176
51
−
51
−
7
1
12
834
−
834
(121)
713
(557)
156
116
272
%
1.4
66.8
Profit/(loss) before tax
Net interest income
Net fee income/(expense)
Trading income excluding net interest
income
Net interest income/(expense) on
trading activities
Net trading income40
Net expense from financial instruments
designated at fair value
Gains less losses from financial
investments
Dividend income
Other operating income
Total operating income
Net insurance claims45
Net operating income1
Loan impairment (charges)/recoveries
and other credit risk provisions
Net operating income
Total operating expenses
Operating profit/(loss)
Share of profit in associates
and joint ventures
Profit/(loss) before tax
Share of HSBC’s profit before tax
Cost efficiency ratio
Balance sheet data30
Loans and advances to customers (net)
Total assets
Customer accounts
451
249
62
−
62
−
5
1
11
779
−
779
(183)
596
(357)
239
169
408
%
2.2
45.8
478
213
216
8
224
−
5
7
25
952
−
952
5
957
(286)
671
202
873
%
4.6
30.0
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
16
16
%
0.1
−
$m
−
92
−
3
(5)
−
−
−
6
−
−
99
103
−
103
−
103
(137)
(34)
2
(32)
%
(0.2)
133.0
$m
−
3,067
203
12
−
−
(12)
(12)
−
−
−
(103)
(103)
−
(103)
−
(103)
103
−
−
−
(2,592)
$m
6,374
7,194
17,172
$m
13,695
15,546
12,192
$m
9,825
35,929
6,901
HSBC HOLDINGS PLC
87
Total
$m
1,531
633
329
(4)
325
6
17
9
44
2,565
−
2,565
(299)
2,266
(1,234)
1,032
505
1,537
%
8.1
48.1
$m
29,894
59,236
36,468
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Geographical regions (continued)
Middle East and North Africa / North America
Retail
Banking
and Wealth
Management
$m
Commercial
Banking
$m
Global
Banking and
Markets
$m
2014
Global
Private
Banking
$m
Inter-
segment
elimination44
$m
Other
$m
615
152
58
−
58
−
1
1
8
835
−
835
(26)
809
(578)
231
92
323
%
1.7
69.2
467
268
68
−
68
−
1
1
−
805
−
805
(21)
784
(348)
436
168
604
%
3.2
43.2
410
240
207
10
217
−
20
12
27
926
−
926
53
979
(256)
723
203
926
%
5.0
27.6
$m
6,318
7,073
18,024
$m
13,104
14,911
11,809
$m
9,641
39,229
9,630
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
19
19
%
0.1
−
$m
−
77
−
3
(10)
(5)
−
(5)
(3)
−
−
108
93
−
93
−
93
(145)
(52)
6
(46)
%
(0.2)
155.9
$m
−
2,900
257
24
−
−
(24)
(24)
−
−
−
(111)
(111)
−
(111)
−
(111)
111
−
−
−
(1,773)
Total
$m
1,519
650
328
(14)
314
(3)
22
14
32
2,548
−
2,548
6
2,554
(1,216)
1,338
488
1,826
%
9.8
47.7
$m
29,063
62,417
39,720
Profit/(loss) before tax
Net interest income
Net fee income/(expense)
Trading income/(expense) excluding
net interest income
Net interest income/(expenses) on
trading activities
Net trading income/(expense)40
Net expense from financial instruments
designated at fair value
Gains less losses from financial
investments
Dividend income
Other operating income
Total operating income
Net insurance claims45
Net operating income1
Loan impairment (charges)/recoveries
and other credit risk provisions
Net operating income
Total operating expenses
Operating profit/(loss)
Share of profit in associates
and joint ventures
Profit/(loss) before tax
Share of HSBC’s profit before tax
Cost efficiency ratio
Balance sheet data30
Loans and advances to customers (net)
Total assets
Customer accounts
For footnotes, see page 99.
HSBC HOLDINGS PLC
88
North America
Our principal North American businesses are
located in the US and Canada. Operations in
the US are primarily conducted through HSBC
Bank USA, N.A., and HSBC Finance, a national
consumer finance company. HSBC Markets
(USA) Inc. is the intermediate holding company
of, inter alia, HSBC Securities (USA) Inc.
Canadian operations are conducted through
HSBC Bank Canada.
Net interest income
Net fee income
Net trading income
Other income/(expense)
Net operating income1
LICs34
Net operating income
Total operating expenses
Operating profit
Income from associates35
Profit before tax
Cost efficiency ratio
RoRWA24
2015
$m
4,532
2,018
545
562
7,657
(544)
7,113
(6,501)
612
2
614
84.9%
0.3%
2014
$m
5,015
1,940
411
786
8,152
(322)
7,830
(6,429)
1,401
16
1,417
78.9%
0.6%
2013
$m
5,742
2,143
948
(30)
8,803
(1,197)
7,606
(6,416)
1,190
31
1,221
72.9%
0.5%
Year-end staff numbers
19,656
20,412
20,871
For footnotes, see page 99.
Country view of adjusted revenue
US
Canada
Other
Year ended 31 December
2015
$m
5,926
1,585
244
7,755
2014
$m
6,083
1,663
270
8,016
Profit/(loss) before tax by country within global businesses
Profit before tax ($m)
694
1,999
949
1,563
1,417
(112)
614
2015
2014
Revenue ($m)
7,657
98
7,755
8,152
116
8,016
(252)
2015
2014
Operating expenses ($m)
6,501
6,429
5,650
(129)
5,722
(851)
(578)
2015
2014
Reported
Significant items
Adjusted
Currency translation
For details of significant items, see page 77.
Retail
Banking
and Wealth
Management
$m
Commercial
Banking
$m
Global
Banking and
Markets
$m
Global
Private
Banking
$m
(736)
58
33
(645)
513
96
23
632
(358)
131
20
(207)
302
259
12
573
400
514
(1)
913
296
506
(16)
786
355
189
49
593
(403)
242
49
(112)
633
280
16
929
65
−
(6)
59
82
−
3
85
53
−
4
57
Other
$m
55
(21)
−
34
(60)
(23)
(18)
(101)
(350)
(3)
9
(344)
Total
$m
41
485
88
614
532
829
56
1,417
274
914
33
1,221
US
Canada
Other
Year ended 31 December 2015
US
Canada
Other
Year ended 31 December 2014
US
Canada
Other
Year ended 31 December 2013
HSBC HOLDINGS PLC
89
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Geographical regions (continued)
North America
Profit/(loss) before tax and balance sheet data – North America
Retail
Banking
and Wealth
Management
$m
Commercial
Banking
$m
Global
Banking and
Markets
$m
Profit/(loss) before tax
Net interest income
Net fee income/(expense)
Trading income/(expense) excluding
net interest income
Net interest income on trading
activities
Net trading income/(expense)40
Changes in fair value of long-term debt
issued and related derivatives
Net income from other financial
instruments designated at
fair value
Net expense from financial instruments
designated at fair value
Gains less losses from financial
investments
Dividend income
Net insurance premium income
Other operating income
Total operating income
Net insurance claims45
Net operating income1
Loan impairment (charges)/recoveries
and other credit risk provisions
Net operating income
Total operating expenses
Operating profit/(loss)
Share of profit in associates
and joint ventures
Profit/(loss) before tax
Share of HSBC’s profit before tax
Cost efficiency ratio
Balance sheet data30
Loans and advances to customers (net)
Total assets
Customer accounts
2,188
499
1,365
539
12
7
19
−
−
−
−
16
−
(142)
2,580
−
2,580
(159)
2,421
(3,066)
(645)
−
(645)
%
(3.4)
118.8
$m
53,737
62,127
51,685
33
1
34
−
−
−
−
12
−
53
2,003
−
2,003
(323)
1,680
(1,109)
571
2
573
%
3.0
55.4
$m
40,696
47,009
45,475
2015
Global
Private
Banking
$m
206
117
11
−
11
−
−
−
−
4
−
(6)
332
−
332
6
338
(279)
59
−
59
%
0.3
84.0
Inter-
segment
elimination44
$m
(29)
−
−
29
29
−
−
−
−
−
−
(1,608)
(1,608)
−
Other
$m
31
(13)
(7)
−
(7)
181
−
181
(42)
6
−
1,804
1,960
−
1,960
(1,608)
−
1,960
(1,926)
−
(1,608)
1,608
−
−
−
34
−
34
%
0.3
98.3
Total
$m
4,532
2,018
237
308
545
181
−
181
147
57
−
177
7,657
−
7,657
(544)
7,113
(6,501)
612
2
614
%
3.3
84.9
771
876
188
271
459
−
−
−
189
19
−
76
2,390
−
2,390
(68)
2,322
(1,729)
593
−
593
%
3.1
72.3
$m
27,940
282,201
24,182
$m
6,478
8,629
13,807
$m
−
14,489
3
(20,495)
$m
128,851
393,960
135,152
HSBC HOLDINGS PLC
90
Total
$m
5,015
1,940
187
224
411
(99)
−
(99)
257
44
−
584
8,152
−
8,152
(322)
7,830
(6,429)
1,401
16
1,417
%
7.6
78.9
Inter-
segment
elimination44
$m
(33)
−
−
33
33
−
−
−
−
−
−
(1,719)
(1,719)
−
Other
$m
157
(34)
3
−
3
(99)
−
(99)
5
4
−
1,872
1,908
−
1,908
(1,719)
−
(1,719)
1,719
−
−
−
(2)
1,906
(2,007)
(101)
−
(101)
%
(0.5)
105.2
$m
–
16,823
–
(31,260)
$m
129,787
436,859
138,884
Retail
Banking
and Wealth
Management
$m
Commercial
Banking
$m
Global
Banking and
Markets
$m
2014
Global
Private
Banking
$m
2,645
497
(165)
7
(158)
−
−
−
−
13
−
268
3,265
−
3,265
(117)
3,148
(2,516)
632
−
632
%
3.4
77.1
1,455
572
34
1
35
−
−
−
15
8
−
61
2,146
−
2,146
(148)
1,998
(1,101)
897
16
913
%
4.9
51.3
587
775
302
183
485
−
−
−
237
16
−
101
2,201
−
2,201
(63)
2,138
(2,250)
(112)
−
(112)
%
(0.6)
102.2
204
130
13
−
13
−
−
−
−
3
−
1
351
−
351
8
359
(274)
85
−
85
%
0.5
78.1
$m
60,365
74,680
51,258
$m
41,966
48,411
45,275
$m
21,110
319,819
30,301
$m
6,346
8,386
12,050
Profit/(loss) before tax
Net interest income
Net fee income/(expense)
Trading income/(expense) excluding
net interest income
Net interest income on trading
activities
Net trading income/(expense)40
Changes in fair value of long-term debt
issued and related derivatives
Net income from other financial
instruments designated at
fair value
Net expense from financial instruments
designated at fair value
Gains less losses from financial
investments
Dividend income
Net insurance premium income
Other operating income
Total operating income
Net insurance claims45
Net operating income1
Loan impairment (charges)/recoveries
and other credit risk provisions
Net operating income
Total operating expenses
Operating profit/(loss)
Share of profit in associates
and joint ventures
Profit/(loss) before tax
Share of HSBC’s profit before tax
Cost efficiency ratio
Balance sheet data30
Loans and advances to customers (net)
Total assets
Customer accounts
For footnotes, see page 99.
HSBC HOLDINGS PLC
91
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Geographical regions (continued)
Latin America
Latin America
Our operations in Latin America principally
comprise HSBC Bank Brasil S.A.-Banco
Múltiplo and HSBC México, S.A. In addition
to banking services, we operate insurance
businesses in Brazil, Mexico and Argentina.
During the year our operations in Brazil were
classified as held for sale.
Other
Latin
America
$m
Total
Latin
America
$m
Total
Latin
America
$m
4,318
1,131
664
479
6,592
(1,495)
5,097
2015
Brazil
$m
2,225
560
370
429
3,584
(965)
2,619
Net interest income
Net fee income
Net trading income
Other income
Net operating income1
LICs34
Net operating income
2,093
571
294
50
3,008
(530)
2,478
Total operating expenses
(4,786)
(2,613)
(2,173)
Operating profit/(loss)
Income from associates35
Profit/(loss) before tax
Loans and advances to customers
(net)
– reported in held for sale22
Customer accounts
– reported in held for sale22
Cost efficiency ratio
RoRWA24
311
(1)
310
17,293
17,001
21,470
15,094
72.6%
0.4%
6
(1)
5
−
17,001
−
15,094
72.9%
–
Year-end staff numbers
39,828
19,145
For footnotes, see page 99.
305
−
305
17,293
−
21,470
−
72.2%
0.8%
20,683
2014
Brazil
$m
3,040
741
452
584
4,817
(1,500)
3,317
(3,564)
(247)
−
(247)
23,749
−
23,204
−
74.0%
(0.5%)
19,564
Other
Latin
America
$m
2,270
674
404
107
3,455
Total
Latin
America
$m
6,186
1,701
936
1,745
10,568
2013
Brazil
$m
3,542
862
469
491
5,364
Other
Latin
America
$m
2,644
839
467
1,254
5,204
(624)
(2,666)
(1,712)
(954)
2,831
(2,368)
463
−
463
19,373
−
25,384
−
68.5%
1.2%
21,637
7,902
3,652
4,250
(5,930)
(3,301)
(2,629)
1,972
−
1,972
43,918
−
51,389
−
56.1%
2.0%
351
1,621
−
−
351
1,621
24,924
−
23,999
−
61.5%
0.7%
18,994
−
27,390
−
50.5%
3.7%
42,542
19,869
22,673
5,310
1,415
856
691
8,272
(2,124)
6,148
(5,932)
216
−
216
43,122
−
48,588
−
71.7%
0.2%
41,201
Country view of adjusted revenue
Revenue ($m)
Argentina
Mexico
Other
– included in Other: Brazil
Year ended 31 December
Profit before tax ($m)
149
459
310
2015
$m
1,036
1,968
3,552
3,550
6,556
2014
$m
940
1,931
3,511
3,443
6,382
8,272
6,592
6,556
(36)
6,382
(1,871)
(19)
2015
2014
Operating expenses ($m)
5,932
108
366
42
216
4,786
4,601
2015
2014
(185)
2015
4,434
(1,373)
(125)
2014
Reported
Significant items
Adjusted
Currency translation
For details of significant items, see page 49.
HSBC HOLDINGS PLC
92
Profit/(loss) before tax by country within global businesses
Retail
Banking
and Wealth
Management28
Commercial
Banking28
Argentina
Brazil
Mexico
Other
Year ended 31 December 2015
Argentina
Brazil
Mexico
Other
Year ended 31 December 2014
Argentina
Brazil
Mexico
Other
Year ended 31 December 2013
For footnote, see page 99.
$m
43
(344)
73
(12)
(240)
68
(230)
7
(5)
(160)
112
(209)
138
289
330
$m
152
11
(5)
7
165
119
(97)
(23)
8
7
127
52
(144)
525
560
Global
Banking and
Markets
$m
Global
Private
Banking
$m
Other
$m
125
336
(15)
16
462
219
115
89
27
450
170
514
115
368
1,167
−
6
(3)
−
3
−
(2)
(2)
−
(4)
−
5
(3)
(1)
1
(3)
(4)
(18)
(55)
(80)
(22)
(33)
(20)
(2)
(77)
(1)
(11)
11
(85)
(86)
Total
$m
317
5
32
(44)
310
384
(247)
51
28
216
408
351
117
1,096
1,972
HSBC HOLDINGS PLC
93
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Geographical regions (continued)
Latin America
Profit/(loss) before tax and balance sheet data – Latin America
Retail
Banking
and Wealth
Management28
$m
Commercial
Banking28
$m
Global
Banking and
Markets
$m
2015
Global
Private
Banking
$m
Profit/(loss) before tax
Net interest income
Net fee income/(expense)
Trading income/(expense) excluding
net interest income
Net interest income on trading
activities
Net trading income/(expense)40
Changes in fair value of long-term debt
issued and related derivatives
Net income from other financial
instruments designated at fair value
Net income from financial instruments
designated at fair value
Gains less losses from financial
investments
Dividend income
Net insurance premium income
Other operating income
Total operating income
Net insurance claims45
Net operating income1
Loan impairment charges and other
credit risk provisions
Net operating income
Total operating expenses
Operating profit/(loss)
Share of loss in associates
and joint ventures
Profit/(loss) before tax
Share of HSBC’s profit before tax
Cost efficiency ratio
Balance sheet data22,30
Loans and advances to customers (net)
Total assets
Customer accounts
2,891
724
149
−
149
−
439
439
14
4
903
83
5,207
(1,129)
4,078
(1,092)
2,986
(3,226)
(240)
−
(240)
%
(1.3)
79.1
$m
5,935
25,378
12,042
997
253
89
−
89
−
134
134
1
2
191
32
1,699
(279)
1,420
(364)
1,056
(890)
166
(1)
165
%
0.9
62.7
461
133
239
124
363
−
2
2
56
1
5
12
1,033
(4)
1,029
(39)
990
(528)
462
−
462
%
2.4
51.3
$m
6,719
20,792
5,904
$m
4,592
36,953
3,422
18
23
3
−
3
−
−
−
−
−
−
−
44
−
44
−
44
(41)
3
−
3
%
−
93.2
$m
47
1,769
102
Inter-
segment
elimination44
$m
(64)
−
−
64
64
−
−
−
−
−
−
(224)
(224)
−
(224)
−
(224)
224
−
−
−
(1,468)
Other
$m
15
(2)
(7)
3
(4)
−
−
−
−
−
−
236
245
−
245
−
245
(325)
(80)
−
(80)
%
(0.3)
132.7
$m
−
2,838
–
Total
$m
4,318
1,131
473
191
664
−
575
575
71
7
1,099
139
8,004
(1,412)
6,592
(1,495)
5,097
(4,786)
311
(1)
310
%
1.7
72.6
$m
17,293
86,262
21,470
HSBC HOLDINGS PLC
94
Retail
Banking
and Wealth
Management28
$m
Commercial
Banking28
$m
Global
Banking and
Markets
$m
2014
Global
Private
Banking
$m
3,671
939
1,181
301
125
1
126
−
525
525
−
6
1,272
61
6,600
(1,428)
5,172
(1,208)
3,964
(4,124)
(160)
−
(160)
%
(0.8)
79.7
$m
13,266
30,855
25,392
101
4
105
−
166
166
−
2
246
40
2,041
(334)
1,707
(659)
1,048
(1,041)
7
−
7
%
−
61.0
$m
19,118
28,070
12,789
490
147
391
174
565
−
−
−
84
1
5
19
1,311
(3)
1,308
(252)
1,056
(606)
450
−
450
%
2.4
46.3
$m
10,642
55,827
8,219
19
28
3
−
3
−
−
−
−
−
−
−
50
−
50
(5)
45
(49)
(4)
−
(4)
%
−
98.0
$m
96
298
2,188
Profit/(loss) before tax
Net interest income
Net fee income
Trading income/(expense) excluding
net interest income
Net interest income/(expense) on
trading activities
Net trading income/(expense)40
Changes in fair value of long-term debt
issued and related derivatives
Net income from other financial
instruments designated at fair value
Net income from financial instruments
designated at fair value
Gains less losses from financial
investments
Dividend income
Net insurance premium income
Other operating income
Total operating income
Net insurance claims45
Net operating income1
Loan impairment charges and other
credit risk provisions
Net operating income
Total operating expenses
Operating profit/(loss)
Share of profit in associates
and joint ventures
Profit/(loss) before tax
Share of HSBC’s profit before tax
Cost efficiency ratio
Balance sheet data30
Loans and advances to customers (net)
Total assets
Customer accounts
For footnotes, see page 99.
Inter-
segment
elimination44
$m
(60)
−
−
60
60
−
−
−
−
−
−
(184)
(184)
−
(184)
−
(184)
184
−
−
−
Total
$m
5,310
1,415
619
237
856
−
691
691
84
9
1,523
149
10,037
(1,765)
8,272
(2,124)
6,148
(5,932)
216
−
216
%
1.1
71.7
(851)
$m
43,122
115,354
48,588
Other
$m
9
−
(1)
(2)
(3)
−
−
−
−
−
−
213
219
−
219
−
219
(296)
(77)
−
(77)
%
(0.5)
135.2
$m
–
1,155
−
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
HSBC HOLDINGS PLC
95
Report of the Directors: Other information
FuM / Disclosure philosophy / Taxes paid / Conduct-related matters
Other information
Funds under management and assets held in custody
Our disclosure philosophy
Taxes paid by region and country
Conduct-related matters
Carbon dioxide emissions
Property
96
96
97
97
98
98
Funds under management
and assets held in custody
Funds under management48
Funds under management
At 1 January
Net new money
Value change
Exchange and other
At 31 December
Funds under management
by business
Global Asset Management
Global Private Banking
Affiliates
Other
At 31 December
For footnote, see page 99.
2015
$bn
954
(3)
2
(57)
896
419
261
4
212
896
2014
$bn
921
38
40
(45)
954
445
275
5
229
954
Funds under management (‘FuM’) represents assets
managed, either actively or passively, on behalf of our
customers. At 31 December 2015, FuM amounted to
$896bn, a decrease of 6% primarily due to adverse foreign
exchange movements as the US dollar strengthened
against all major currencies. Excluding currency translation,
FuM was broadly unchanged compared with 31 December
2014 as a reduction in GPB and other FuM was broadly
offset by an increase in Global Asset Management FuM.
Global Asset Management FuM decreased by 6% to $419bn
compared with 31 December 2014. Excluding currency
translation, FuM increased by 2% as we attracted $8bn of
net new money, notably in fixed income products from our
customers in Asia and net inflows into liquidity funds in
North America and Europe.
GPB FuM decreased by 5% to $261bn compared with
31 December 2014. Excluding currency translation, FuM
decreased by 1%, reflecting the ongoing repositioning of
our client base. This was partly offset by favourable market
movements, principally in Europe, and from positive net
new money in areas targeted for growth.
Other FuM, of which the main element is a corporate trust
business in Asia, decreased by 7% to $212bn, primarily due
to net outflows.
Assets held in custody48 and under
administration
Custody is the safekeeping and servicing of securities and
other financial assets on behalf of clients. At 31 December
2015, we held assets as custodian of $6.2 trillion, 3%
lower than the $6.4 trillion held at 31 December 2014.
This decrease was driven by adverse foreign exchange
movements, primarily in Europe and Asia. Excluding this,
assets held as custodian increased by 2% compared with
31 December 2014, due to incremental net asset inflows
in Asia and Europe, partly offset by adverse market
movements, particularly in the second half of 2015.
Our Assets Under Administration business, which includes
the provision of bond and loan administration services and
the valuation of portfolios of securities and other financial
assets on behalf of clients, complements the Custody
business. At 31 December 2015, the value of assets
held under administration by the Group amounted to
$3.2 trillion. This was broadly unchanged compared
with 31 December 2014, which included adverse foreign
exchange movements, primarily in Europe. Excluding
the impact of currency translation, assets held under
administration increased by 4% driven by net asset inflows
in Europe and Asia.
Our disclosure philosophy
HSBC strives to maintain the highest standards of
disclosure in our reporting.
It has long been our policy to provide disclosures that help
investors and other stakeholders understand the Group’s
performance, financial position and changes thereto.
In accordance with this policy, the information provided in
the ‘Notes on the Financial Statements’ and the ‘Report of
the Directors’ goes beyond the minimum levels required by
accounting standards, statutory and regulatory requirements
and listing rules. In particular, we provide additional
disclosures having regard to the recommendations of
two Enhanced Disclosures Task Force reports. Enhancing
the Risk Disclosures of Banks, issued in October 2012, aims
to help financial institutions identify areas that investors
had highlighted as needing better and more transparent
information about banks’ risks, and how these risks relate
to performance measurement and reporting. We have
complied with all 32 recommendations in this report and in
our Pillar 3 Disclosures 2015 document. The ‘Risk’, ‘Capital’
and ‘Corporate Governance’ sections of this report and the
financial statements are accompanied by detailed tables
of contents to assist the reader to navigate through the
disclosures. Impact of Expected Credit Loss Approaches
on Bank Risk Disclosures, issued in December 2015,
provides further guidance on the application of the existing
recommendations in the context of an Expected Credit Loss
(‘ECL’) framework which we have considered in developing
the commentary under ‘Future accounting developments’
on page 347. In addition, we continue to enhance our
disclosures in line with good practice recommendations
issued by relevant regulators and standard setters and in
response to feedback received from users of our financial
statements.
HSBC HOLDINGS PLC
96
Taxes paid by region and
country
The following tables reflect a geographical view of
HSBC’s operations.
Breakdown of tax paid by region49
Region
UK
Rest of Europe
Asia
Middle East and North Africa
North America
Latin America
Total
For footnote, see page 99.
Taxes paid by country49
Asia
Home and priority markets
– Hong Kong
– Mainland China
– India
– Australia
– Malaysia
– Indonesia
– Singapore
– Taiwan
Other markets
Europe
Home and priority markets
– UK
– France
– Germany
– Switzerland
Turkey
Other markets
Middle East and North Africa
Priority markets
– Saudi Arabia
– UAE
– Egypt
Other markets
North America
Priority markets
– US
– Canada
Other markets
Latin America
Priority markets
– Argentina
– Mexico
Brazil
Other markets
Total
For footnote, see page 99.
2015
$bn
2.5
1.1
2.8
0.4
0.4
1.2
8.4
2014
$m
2,687
2,399
1,273
278
290
204
133
76
101
44
288
3,625
3,391
2,363
790
131
107
75
159
294
246
84
102
60
48
(108)
(108)
(377)
269
–
1,384
534
333
201
804
46
2015
$m
2,780
2,445
1,415
277
285
173
92
70
80
53
335
3,660
3,346
2,526
620
108
92
16
298
433
407
151
120
136
26
353
353
127
226
–
1,184
431
340
91
735
18
8,410
7,882
2014
$bn
2.4
1.2
2.7
0.3
(0.1)
1.4
7.9
2013
$m
2,536
2,185
1,248
207
318
105
106
74
88
39
351
3,500
3,244
2,107
844
151
142
82
174
321
283
70
98
115
38
414
410
125
285
4
1,836
643
318
325
1,002
191
8,607
Conduct-related matters
Conduct-related costs included in significant items
Income statement
Net interest income
Provisions arising from the
ongoing review of
compliance with the
Consumer Credit Act
in the UK
Operating expenses
Comprising:
Legal proceedings and
regulatory matters
– charge in relation to the
settlement agreement
with the Federal
Housing Finance
Authority
– regulatory provisions
in GPB
– settlements and
provisions in
connection with legal
matters
Customer remediation
– UK customer redress
programmes
– US customer
remediation provisions
relating to Card and
Retail Services
Total charge for the year
relating to significant items
Of which:
Total provisions charge
2015
$m
10
2014
$m
632
2013
$m
–
10
2,362
632
3,077
–
1,687
1,821
1,802
352
–
172
550
65
–
352
1,649
541
1,187
1,275
–
1,335
541
1,275
1,235
–
–
100
2,372
3,709
1,687
for the year
2,362
2,500
1,687
Total provisions utilised
during the year
Balance sheet at
31 December
Total provisions
– legal proceedings and
regulatory matters
– customer remediation
Accruals, deferred income
and other liabilities
1,021
2,503
1,238
3,926
2,545
2,793
2,729
1,197
1,154
1,391
657
2,136
168
379
–
The table above provides a summary of conduct-related
costs incurred and included within significant items
(see pages 66 and 77).
HSBC defines ‘conduct’ as ensuring that we deliver fair
outcomes for our customers and that we do not disrupt the
orderly and transparent operation of financial markets. The
Board places a strong emphasis on conduct, requiring
adherence to high behavioural standards and doing the
right thing. This includes ensuring that the lessons of
unexpected outcomes, mistakes and control failings are
both acknowledged and responded to in a timely and
effective manner.
Board oversight of conduct matters is provided by the
Conduct & Values Committee, which oversees the promotion
and embedding of HSBC Values and our required global
conduct outcomes, and the Remuneration Committee, which
HSBC HOLDINGS PLC
97
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Other information (continued)
Carbon dioxide emissions / Property / Footnotes
considers conduct and compliance-related matters relevant
to remuneration. The reports of these committees may be
found on pages 270 to 273.
An overview of our conduct framework is set out in page 41.
The management of conduct of business and the steps taken
to raise standards and deal with historical incidents are
described on page 178.
‘Regulatory focus on conduct of business and financial crime’
is one of the Group’s top and emerging risks which is
discussed on page 112.
Total conduct-related costs within significant items were
$2.4bn, a decrease of $1.3bn compared with 2014.
Provisions raised in 2015 resulted from the on-going
consequences of a small number of significant historical
events.
Operating expenses included significant items related to
conduct matters of $2.4bn, including $1.8bn in respect of
legal proceedings and regulatory matters, of which $0.2bn
related to regulatory matters in our private banking
operations and $1.6bn was in respect of settlements and
provisions in connection with legal matters. These are
discussed in Note 40 on the Financial Statements.
Customer remediation costs charged to operating expenses
included $0.5bn in respect of the mis-selling of payment
protection insurance (‘PPI’). Cumulative PPI provisions made
since the Judicial Review ruling in the first half of 2011
totalled $4.7bn, of which $3.6bn had been paid as at
31 December 2015 (see Note 29 on the Financial
Statements).
Carbon dioxide emissions
HSBC’s carbon dioxide emissions are calculated on
the basis of the energy used in our buildings and
employee business travel from over 28 countries
(covering about 91% of our operations by FTE).
The data, gathered on energy consumption and distance
travelled, are converted to carbon dioxide emissions using
conversion factors from the following sources, if available, in
order of preference:
1. electricity attribute certificates or equivalent instruments;
2. contracts for electricity, such as Power Purchase
Agreements;
3. supplier/utility emission rates;
4. residual mix (sub-national or national);
5. other grid-average emission factors (sub-national or
national); and
6. for other types of energy than electricity and travel, if no
specific factors can be obtained, we use the latest
available factors provided by the UK Department for
Environment, Food and Rural Affairs and/or the
Department of Energy and Climate Change in the UK.
This is the market-based methodology recommended by the
revised guidelines of the Greenhouse Gas Protocol for 2015
disclosure onwards.
To incorporate all of the operations over which we have
financial (management) control, the calculated carbon
dioxide emissions are scaled up on the basis of the FTE
coverage rate to account for any missing data (typically
less than 10% of FTEs). In addition, emission uplift rates
are applied to allow for uncertainty on the quality and
coverage of emission measurement and estimation. The
rates are 4% for electricity, 10% for other energy and 6% for
business travel, based on the Intergovernmental Panel on
Climate Change Good Practice Guidance and Uncertainty
Management in National Greenhouse Gas Inventories, and
our internal analysis of data coverage and quality.
Carbon dioxide emissions in tonnes
Total
From energy
From travel
2015
771,000
662,000
109,000
Carbon dioxide emissions in tonnes per FTE
Total
From energy
From travel
For footnote, see page 99.
2015
2.97
2.54
0.42
201450
795,000
676,000
119,000
201450
3.08
2.62
0.46
Our greenhouse gas reporting year runs from October
to September. For the year from 1 October 2014 to
30 September 2015, carbon dioxide emissions from our
global operations were 771,000 tonnes.
Independent assurance of our carbon dioxide emissions
will be available in the first half of 2016 on our website.
Property
At 31 December 2015, we operated from some 6,860
operational properties worldwide.
Approximately 1,840 were located in Europe, 1,760 in Asia,
430 in North America, 2,590 in Latin America and 240 in
Middle East and North Africa. These properties had an area
of approximately 51.9m square feet (2014: 54.3m square
feet).
Our freehold and long leasehold properties, together with
all our leasehold land in Hong Kong, were valued in 2015.
The value of these properties was $11.3bn (2014: $10.8bn)
in excess of their carrying amount in the consolidated
balance sheet on an historical cost based measure.
In addition, properties with a net book value of $1.4bn
(2014: $1.6bn) were held for investment purposes.
Our operational properties are stated at cost, being
historical cost or fair value at the date of transition to IFRSs
(their deemed cost) less any impairment losses, and are
depreciated on a basis calculated to write off the assets
over their estimated useful lives. Properties owned as a
consequence of an acquisition are recognised initially at
fair value.
HSBC HOLDINGS PLC
98
Footnotes to pages 48 to 98
Use of non-GAAP financial measures
1 Net operating income before loan impairment charges and other credit risk provisions, also referred to as revenue.
2 ‘Own credit spread’ includes the fair value movements on our long-term debt attributable to credit spread where the net result of such movements
will be zero upon maturity of the debt. This does not include fair value changes due to own credit risk in respect of trading liabilities or derivative
liabilities.
Consolidated income statement/Group performance by income and expense item
3 Dividends recorded in the financial statements are dividends per ordinary share declared in a year and are not dividends in respect of, or for, that
year.
4 Dividends per ordinary share expressed as a percentage of basic earnings per share.
5 Net interest income includes the cost of internally funding trading assets, while the related external revenues are reported in ‘Trading income’. In our
global business results, the cost of funding trading assets is included with Global Banking and Market’s net trading income as interest expense.
6 Gross interest yield is the average annualised interest rate earned on average interest-earning assets (‘AIEA’).
7 Net interest spread is the difference between the average annualised interest rate earned on AIEA, net of amortised premiums and loan fees, and the
average annualised interest rate paid on average interest-bearing funds.
8 Net interest margin is net interest income expressed as an annualised percentage of AIEA.
9 Interest income on trading assets is reported as ‘Net trading income’ in the consolidated income statement.
10 Interest income on financial assets designated at fair value is reported as ‘Net income from financial instruments designated at fair value’ in the
consolidated income statement.
11 Including interest-bearing bank deposits only.
12 Interest expense on financial liabilities designated at fair value is reported as ‘Net income on financial instruments designated at fair value’ in the
consolidated income statement, other than interest on own debt which is reported in ‘Interest expense’.
13 Including interest-bearing customer accounts only.
14 Trading income also includes movements on non-qualifying hedges. These hedges are derivatives entered into as part of a documented interest rate
management strategy for which hedge accounting was not, nor could be, applied. They are principally cross-currency and interest rate swaps used to
economically hedge fixed rate debt issued by HSBC Holdings and floating rate debt issued by HSBC Finance. The size and direction of the changes in
the fair value of non-qualifying hedges that are recognised in the income statement can be volatile from year-to-year, but do not alter the cash flows
expected as part of the documented interest rate management strategy for both the instruments and the underlying economically hedged assets and
liabilities if the derivative is held to maturity.
15 Net insurance claims and benefits paid and movement in liabilities to policyholders arise from both life and non-life insurance business. For non-life
business, amounts reported represent the cost of claims paid during the year and the estimated cost of incurred claims. For life business, the main
element of claims is the liability to policyholders created on the initial underwriting of the policy and any subsequent movement in the liability that
arises, primarily from the attribution of investment performance to savings-related policies. Consequently, claims rise in line with increases in sales of
savings-related business and with investment market growth.
16 The cost efficiency ratio is defined as total operating expenses divided by net operating income before loan impairment charges and other credit risk
provisions.
Consolidated balance sheet
17 Net of impairment allowances.
18 On 1 January 2014, CRD IV came into force and the calculation of capital resources and risk-weighted assets for 2014 and 2015 are calculated and
presented on this basis. 2011 to 2013 comparatives are on a Basel 2.5 basis.
19 Capital resources are total regulatory capital, the calculation of which is set out on page 234.
20 Including perpetual preferred securities, details of which can be found in Note 30 on the Financial Statements.
21 The definition of net asset value per ordinary share is total shareholders’ equity, less non-cumulative preference shares and capital securities, divided
by the number of ordinary shares in issue excluding shares the company has purchased and are held in treasury.
22 In the first half of 2015 our operations in Brazil were classified as held for sale. As a result, balance sheet accounts have been classified to ‘Assets held
for sale’ and ‘Liabilities of disposal groups held for sale’. There is no separate income statement classification.
23 France primarily comprises the domestic operations of HSBC Finance, HSBC Assurances Vie and the Paris branch of HSBC Bank plc.
Reconciliation of RoRWA measures
24 Pre-tax return on average risk-weighted assets (‘RoRWA’) is calculated using pre-tax return and reported average RWAs. Adjusted RoRWA is
calculated using adjusted pre-tax return and adjusted average RWAs.
25 Reported average risk-weighted assets (‘average RWAs’) are calculated using an average of RWAs at quarter-ends on a Basel 2.5 basis for
31 December 2013 and a CRD IV end point basis from all periods from 1 January 2014. Adjusted average RWAs are calculated using reported average
RWAs adjusted for the effects of currency translation differences and significant items.
26 ‘Other’ includes treasury services related to the US Consumer and Mortgage Lending business and commercial operations in run-off. US CML includes
loan portfolios within the run-off business that are designated held for sale.
27 ‘Currency translation adjustment’ is the effect of translating the assets and liabilities of subsidiaries and associates for the previous year-end at the
rates of exchange applicable at the current year-end.
Global businesses and geographical regions
28 In the first half of 2015, a portfolio of customers was transferred from CMB to RBWM in Latin America in order to better align the combined banking
needs of the customers with our established global businesses. Comparative data have been re-presented accordingly.
29 The main items reported under ‘Other’ are the results of HSBC’s holding company and financing operations, which includes net interest earned on
free capital held centrally, operating costs incurred by the head office operations in providing stewardship and central management services to HSBC,
along with the costs incurred by the Group Service Centres and Shared Service Organisations and associated recoveries. The results also include fines
and penalties as part of the settlement of investigations into past inadequate compliance with anti-money laundering and sanctions laws, the UK
bank levy together with unallocated investment activities, centrally held investment companies, gains arising from the dilution of interests in
associates and joint ventures and certain property transactions. In addition, ‘Other’ also includes part of the movement in the fair value of long-term
debt designated at fair value (the remainder of the Group’s movement on own debt is included in GB&M).
HSBC HOLDINGS PLC
99
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Other information / Risk
Footnotes / Managing risk
30 Assets by geographical region and global businesses include intra-HSBC items. These items are eliminated, where appropriate, under the heading
‘Intra-HSBC items’ or ‘Inter-segment elimination’, as appropriate.
31 Amounts are non-additive across geographical regions and global businesses due to inter-company transactions within the Group.
32 Excludes items where there are substantial offsets in the income statement for the same year.
33 Other income in this context comprises where applicable net trading income, net income/(expense) from other financial instruments designated at
fair value, gains less losses from financial investments, dividend income, net insurance premium income and other operating income less net
insurance claims and benefits paid and movement in liabilities to policyholders.
34 Loan impairment charges and other credit risk provisions.
35 Share of profit in associates and joint ventures.
36 ‘Investment distribution’ includes Investments, which comprises mutual funds (HSBC manufactured and third party), structured products and
securities trading, and Wealth Insurance distribution, consisting of HSBC manufactured and third-party life, pension and investment insurance
products.
37 ‘Other personal lending’ includes personal non-residential closed-end loans and personal overdrafts.
38 ‘Other’ mainly includes the distribution and manufacturing (where applicable) of retail and credit protection insurance.
39 ‘Markets products, Insurance and Investments and Other’ includes revenue from Foreign Exchange, insurance manufacturing and distribution,
interest rate management and GCF products.
40 Net interest income includes the cost of internally funding trading assets, while the related revenues are reported in net trading income. In our global
business results, the total cost of funding trading assets is included within GB&M’s net trading income as an interest expense. In the statutory
presentation, internal interest income and expense are eliminated.
41 In 2015, Markets included a favourable fair value movement of $202m on the widening of credit spreads on structured liabilities (2014: adverse fair
value movement of $15m; 2013: adverse fair value movement of $66m).
42 ‘Other’ in GB&M includes net interest earned on free capital held in the global business not assigned to products, allocated funding costs and gains
resulting from business disposals. Within the management view of total operating income, notional tax credits are allocated to the businesses to
reflect the economic benefit generated by certain activities which is not reflected within operating income, for example notional credits on income
earned from tax-exempt investments where the economic benefit of the activity is reflected in tax expense. In order to reflect the total operating
income on an IFRSs basis, the offset to these tax credits are included within ‘Other’.
43 ‘Client assets’ are translated at the rates of exchange applicable for their respective period-ends, with the effects of currency translation reported
separately. The main components of client assets were funds under management ($261bn at 31 December 2015) which were not reported on the
Group’s balance sheet, and customer deposits ($88bn at 31 December 2015), of which $80bn was reported on the Group’s balance sheet and $8bn
were off-balance sheet deposits.
44 Inter-segment elimination comprises (i) the costs of shared services and Group Service Centres included within ‘Other’ which are recovered from
global businesses, and (ii) the intra-segment funding costs of trading activities undertaken within GB&M. HSBC’s Balance Sheet Management
business, reported within GB&M, provides funding to the trading businesses. To report GB&M’s ‘Net trading income’ on a fully funded basis, ‘Net
interest income’ and ‘Net interest income/(expense) on trading activities’ are grossed up to reflect internal funding transactions prior to their
elimination in the inter-segment column.
45 Net insurance claims and benefits paid and movement in liabilities to policyholders.
46 ‘Employee expenses’ comprises costs directly incurred by each global business. The reallocation and recharging of employee and other expenses
directly incurred in the ‘Other’ category is shown in ‘Other operating expenses’.
47 RWAs are non-additive across geographical regions due to market risk diversification effects within the Group.
48 Funds under management and assets held in custody are not reported on the Group’s balance sheet, except where it is deemed that we are acting as
principal rather than agent in our role as investment manager, and these assets are consolidated as Structured entities (see Note 39 on the Financial
Statements).
49 Taxes paid by HSBC relate to HSBC’s own tax liabilities including tax on profits earned, employer taxes, bank levy and other duties/levies such as
stamp duty. Numbers are reported on a cash flow basis.
50 Following the release of the new GHG Protocol Scope 2 Guidance, we decided to use the state-specific eGRID emission factors for our US operations
until such time as we obtain supplier-specific emission factors. For 2014, therefore, our reported total carbon dioxide emissions have increased by
43,000 tonnes and our carbon dioxide emissions per FTE have increased by 0.16 tonnes.
HSBC HOLDINGS PLC
100
Risk
Managing risk
Risk management framework
Governance and structure
Responsibilities
Processes
Risk factors
Risk governance
Risk appetite
Top and emerging risks
Externally driven
Internally driven
Areas of special interest
Financial crime compliance and regulatory
compliance
The Monitor
Regulatory stress tests
Oil and gas prices
Metals and mining
Mainland China exposures
Credit risk
Liquidity and funding
Market risk
Operational risk
Compliance risk
Legal risk
Global security and fraud risk
Systems risk
Vendor risk management
Risk management of insurance operations
Other material risks
Reputational risk
Fiduciary risk
Pension risk
Sustainability risk
101
101
102
104
105
108
110
110
114
116
116
116
116
117
117
117
118
154
166
176
178
180
189
189
189
189
190
1 Appendix to Risk – risk policies and practices.
For details of HSBC’s policies and practices regarding risk
management and governance see the Appendix to Risk on
page 193.
Page
App1
Managing risk
All of our activities involve, to varying degrees, the
measurement, evaluation and management of risk
or combinations of risks.
Our conservative risk profile
We maintain a conservative risk profile which
encompasses the following:
193
194
Financial position
• Strong capital position, defined by regulatory and
internal capital ratios.
• Liquidity and funding management for each operating
entity, on a stand-alone basis.
Operating model
• Returns generated in line with risk taken.
• Sustainable and diversified earnings mix, delivering
consistent returns for shareholders.
Business practice
• Zero tolerance for knowingly engaging in any business,
activity or association where foreseeable reputational
risk or damage has not been considered and/or
mitigated.
• No appetite for deliberately or knowingly causing
detriment to consumers arising from our products and
services or incurring a breach of the letter or spirit of
regulatory requirements.
• No appetite for inappropriate market conduct by a
member of staff or by any Group business.
Risk management framework
Managing risk effectively is fundamental to the delivery
of our strategic priorities. In doing so, we employ a risk
management framework at all levels of the organisation and
across all risk types. It fosters the continuous monitoring of
the risk environment and an integrated evaluation of risks
and their interactions. It also ensures that we have a
consistent approach to risk management across the Group.
Our enterprise risk management framework is
underpinned by our risk culture and is reinforced by
the HSBC Values and our Global Standards. These are
instrumental in aligning the behaviours of individuals with
the Group’s attitude to assuming and managing risk and
helping to ensure that our risk profile remains in line with
our risk appetite.
Our enterprise risk management framework is set out
overleaf.
195
204
210
217
217
218
218
219
219
219
224
224
225
226
HSBC HOLDINGS PLC
101
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Managing risk
HSBC Culture and Values
Role of Board and its Committees
Group Risk
Committee
(‘GRC’)
Financial System
Vulnerabilities Committee
(‘FSVC’)
Conduct & Values
Committee
(‘CVC’)
Role of senior management
Risk appetite
Risk governance framework
The Board approves risk appetite, plans and performance targets
(page 256), which sets the ‘tone from the top’.
GRC advises on risk appetite, risk governance and other high-level
risk-related matters (page 266).
FSVC advises on financial crime and financial systems abuse (page 268).
CVC advises on polices and procedures to ensure we adhere to HSBC
Values (page 272).
Formulate and implement strategy within risk appetite.
Responsible for risk governance and controls
Describes the types and quantum of risks we are prepared to accept in
achieving our medium- and long-term strategic goals (page 102).
Ensures appropriate oversight of and accountability for management of
risk (page 102).
Enterprise-wide risk management tools
Processes to identify, monitor and mitigate risks to ensure we remain
within our risk appetite (page 103).
Risk map
Top and emerging risks
Stress testing
Three lines of defence
model
People
Independent Risk
function
Our ‘Three lines of defence’ model defines roles and responsibilities
for risk management (page 104).
Our risk culture empowers our people to do the right thing for our
customers, reinforced by our approach to remuneration (page 104).
An independent Risk function ensures the necessary balance in
risk/return decisions (page 104).
Identification
and Assessment
Monitoring
Mitigation/
Management
Reporting
Essential for the effective management of risk.
Banking and insurance risks
Risk Policies and Practices
Internal Controls
Risks arising from our business activities that are measured,
monitored and managed (page 105).
Set by Risk Stewards for each of our material banking and insurance
risks (page 105).
The Operational Risk Management Framework defines minimum standards
and processes for operational risks and internal controls across the Group
(page 176).
Tools, Technology and Infrastructure
e
r
u
t
c
u
r
t
S
d
n
a
e
c
n
a
n
r
e
v
o
G
s
e
i
t
i
l
i
b
i
s
n
o
p
s
e
R
s
e
s
s
e
c
o
r
P
Governance and structure
Corporate and risk governance
Robust risk governance and accountability are embedded
throughout the Group through an established framework
that ensures appropriate oversight of and accountability
for the effective management of risk.
The Board has ultimate responsibility for the effective
management of risk and approves HSBC’s risk appetite.
The Board is advised on risk-related matters by the
following committees:
• The Group Risk Committee advises the Board on
risk appetite and its alignment with strategy, risk
governance and internal controls, and high-level risk
related matters.
• The Financial System Vulnerabilities Committee reports
to the Board on matters relating to financial crime and
financial system abuse and provides a forward-looking
perspective on financial crime risk.
• The Conduct & Values Committee oversees the design
and application of HSBC’s policies, procedures and
standards to ensure that we conduct business responsibly
and consistently adhere to HSBC Values, and advises the
Board accordingly.
Executive accountability for the ongoing monitoring,
assessment and management of the risk environment and
the effectiveness of our risk management policies resides
with the RMM, the Risk Management Meeting of the
Group Management Board (‘GMB’). Day-to-day risk
management activities are the responsibility of senior
managers of individual businesses, supported by global
functions as described under ‘Three lines of defence’
below.
The consistency of governance structures across HSBC is
enforced through risk management committees, as set
out in our enterprise risk management framework, and
adherence to consistent standards and risk management
policies.
The executive and non-executive risk governance
structures and their interactions are set out on page 193,
with similar arrangements in place for major operating
subsidiaries.
The report of the Group Risk Committee is on page 266, of the
Financial System Vulnerabilities Committee is on page 268, and
of the Conduct & Values Committee is on page 272.
Risk appetite
The Group’s Risk Appetite Statement (‘RAS’) is the written
articulation of the aggregated level and types of risk that
we are willing to accept in our business activities in order
HSBC HOLDINGS PLC
102
to achieve our medium to long-term business objectives.
It is a key component of our management of risk and is
reviewed on an ongoing basis, with formal approval from
the Board every six months on the recommendation of the
Group Risk Committee.
The Group’s actual risk appetite profile is reported to the
RMM on a monthly basis to enable senior management to
monitor the risk profile and guide business activity in order
to balance risk and return, allowing risks to be promptly
identified and mitigated, and inform risk-adjusted
remuneration to drive a strong risk culture across the
Group.
The RAS is established and monitored as part of the Global
Risk Appetite Framework, which provides a globally
consistent and structured approach to the management,
measurement and control of risk by detailing the
processes, governance and other features of how risk
appetite is cascaded to drive day-to-day decision-making
through policies, limits and the control framework.
Risk appetite informs the strategic and financial planning
process, defining the desired forward-looking risk profile
of the Group. It is also embedded in other enterprise risk
tools such as top and emerging risks and stress testing, to
ensure consistency in risk management.
Global businesses, geographical regions and strategic
countries are required to have their own RASs, which are
subject to assurance to ensure they remain directionally
aligned to the Group’s. All RASs and business activities are
guided and underpinned by a set of qualitative principles,
outlined in the Appendix to Risk on page 194. Additionally,
quantitative metrics are defined along with appetite and
tolerance thresholds for 10 risk areas.
Enterprise-wide risk management tools
The following processes to identify, manage and mitigate
risks are integral to risk management at HSBC, helping to
ensure that we remain within our risk appetite.
Risk map
The risk map process provides a point-in-time view of the
risk profile of the Group across a suite of risk categories
including our material banking risks and insurance risks
(see page 105). It assesses the potential for these risks
to materially affect our financial results, reputation or
business sustainability on current and projected bases.
The risk categories presented on the risk map are regularly
assessed through our risk appetite profile, are stress tested
and, where thematic issues arise, are considered for
classification as top or emerging risks.
Top and emerging risks
Identifying, managing and monitoring risks are integral to
our approach to risk management. Our top and emerging
risks process provides a forward-looking view of those risks
which have the potential to threaten the execution of our
strategy and our global operations. Top and emerging risks
are generally described thematically, and may have an
impact across multiple risk map categories, global
businesses or regions.
We define a ‘top risk’ as a thematic issue arising across
any combination of risk map categories, regions or global
businesses which has the potential to have a material
effect on the Group’s financial results, reputation or long-
term business model, and which may form and crystallise
between six months and one year. The risk impact may
be well understood by senior management, with some
mitigating actions already in place. Stress tests of varying
granularity may also have been carried out to assess the
effect.
An ‘emerging risk’ is defined as a thematic issue that
has large unknown components which may form and
crystallise beyond a one-year time horizon. If it were to
materialise, it could have a significant material effect on a
combination of the Group’s long-term strategy, profitability
and reputation. Existing management action plans are
likely to be minimal, reflecting the uncertain nature of
these risks at this stage. Some high-level analysis and/or
stress testing may have been carried out to assess the
impact.
Our top and emerging risk framework enables us to identify
and manage current and forward-looking risks to ensure
our risk appetite remains appropriate. The ongoing
assessment of our top and emerging risks is informed by a
comprehensive suite of risk factors (see page 108) and the
results of our stress testing programme. When our top and
emerging risks result in our risk appetite being exceeded,
or have the potential to exceed, we take steps to mitigate
them, including reducing our exposure to areas of stress.
Our current top and emerging risks are discussed on page 110.
Stress testing
Our stress testing and scenario analysis programme
examines the sensitivities of our capital plans and
unplanned demand for regulatory capital under a number
of scenarios and ensures that top and emerging risks are
appropriately considered. These scenarios include, but
are not limited to, adverse macroeconomic events, failures
at country, sector and counterparty levels, geopolitical
occurrences and a variety of projected major operational
risk events.
At Board level, the Group Chief Risk Officer and the Group
Finance Director are the two executive Directors jointly
accountable for oversight of stress testing in HSBC. The
Stress Testing Management Board, which is chaired by the
Group Finance Director, is responsible for stress testing
strategy and stewardship. Updates on stress testing are
provided regularly to the RMM. The Group Risk Committee
is informed and consulted on the bank’s stress testing
activities, as appropriate, and approves the key elements
of the Bank of England concurrent stress test, including
final results.
The development of macroeconomic scenarios is a critical
part of the process. Potential scenarios are defined and
generated by a panel of economic experts from various
global teams, including Risk and Finance. Scenarios are
translated into financial impacts, such as on our forecast
profitability and RWAs, using a suite of stress testing
models and methodologies. Models are subject to
independent model review and go through a process of
HSBC HOLDINGS PLC
103
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Managing risk
validation and approval. Model overlays may be considered
where necessary.
Responsibilities
Three lines of defence
Stress testing results are subject to a review and challenge
process at regional, global business and Group levels and
action plans are developed to mitigate identified risks. The
extent to which these action plans would be implemented
in the event of particular scenarios occurring depends on
senior management’s evaluation of the risks and their
potential consequences, taking into account HSBC’s risk
appetite.
In addition to the Group-wide risk scenarios, each major
HSBC subsidiary conducts regular macroeconomic and
event-driven scenario analyses specific to their region.
They also participate in local regulatory stress testing
programmes, where required.
Stress testing is applied to risks such as operational risk,
including market risk, liquidity and funding risk, credit risk
and conduct to evaluate the potential effects of stress
scenarios on portfolio values, structural long-term funding
positions, income or capital.
Reverse stress testing is run annually on both Group and,
where required, subsidiary entity bases. This stress test is
conducted by assuming the business model is non-viable
and works backwards to identify a range of occurrences
that could bring that event about. Non-viability might occur
before the bank’s capital is depleted, and could result from
a variety of events, including idiosyncratic or systemic
events or combinations thereof. It could imply failure
of the Group’s holding company or one of its major
subsidiaries. Reverse stress testing is used to strengthen
our resilience by identifying potential stresses and
vulnerabilities which the Group might face and helping to
inform early-warning triggers, management actions and
contingency plans designed to mitigate their effect, were
they to occur.
HSBC participated in regulatory stress testing programmes
in a number of jurisdictions during 2015, as outlined on
page 116. In addition, we have conducted an internal stress
test, incorporating the latest portfolio developments and
business plan. For this exercise management considers
that the Bank of England 2015 scenario reflects key risks
which merit examination at this time. The results of this
exercise are used for internal risk and capital management
processes, including the Internal Capital Adequacy
Assessment Process (‘ICAAP’).
We use the three lines of defence model to underpin
our approach to strong risk management. It defines
responsibilities for: identifying, assessing, measuring,
managing, monitoring and mitigating risks; encouraging
collaboration; and enabling efficient coordination of risk
and control activities.
For details of the three lines of defence model, see page 177.
People
All employees are required to identify, assess and manage
risk within the scope of their assigned responsibilities and,
as such, they are critical to the effectiveness of the three
lines of defence.
Clear and consistent employee communication on risk
conveys strategic messages and sets the tone from senior
leadership. We deploy a suite of mandatory training on
critical risk and compliance topics to embed skills and
understanding and strengthen the risk culture within HSBC.
It reinforces the attitude to risk in the behaviour expected
of employees, as described in our risk policies. The training
is updated regularly, describing technical aspects of the
various risks assumed by the Group and how they should
be managed effectively. A confidential disclosure line
enables staff to raise concerns (see page 179).
Our risk culture is reinforced by our approach to
remuneration. Individual awards, including those for
executives, are based on compliance with HSBC Values and
the achievement of financial and non-financial objectives
which are aligned to our risk appetite and global strategy.
For further information on risk and remuneration, see the Report
of the Group Remuneration Committee on page 270.
Independent Risk function
Global Risk, headed by the Group Chief Risk Officer,
is responsible for the enterprise risk management
framework. This includes establishing global policy,
monitoring risk profiles and forward-looking risk
identification and management. Global Risk also has
functional responsibility for risk management in support of
HSBC’s global businesses and regions through its Risk sub-
functions, which are independent from the sales and trading
functions of the Group’s businesses. This independence
ensures the necessary balance in risk/return decisions.
HSBC HOLDINGS PLC
104
Processes
Banking and insurance risks
The material risk types associated with our banking and
insurance manufacturing operations are described in
the tables below.
Description of risks – banking operations
Risks
Arising from
Measurement, monitoring and management of risk
Credit risk (page 118)
The risk of financial loss if a
customer or counterparty fails to
meet an obligation under a
contract.
Credit risk arises principally
from direct lending, trade
finance and leasing
business, but also from
certain other products such
as guarantees and
derivatives.
Liquidity and funding risk (page 154)
The risk that we do not have
sufficient financial resources to
meet our obligations as they fall
due or that we can only do so at
excessive cost.
Liquidity risk arises from
mismatches in the timing of
cash flows.
Funding risk arises when the
liquidity needed to fund
illiquid asset positions
cannot be obtained at the
expected terms and when
required.
Market risk (page 166)
The risk that movements in
market factors, including foreign
exchange rates and commodity
prices, interest rates, credit
spreads and equity prices, will
reduce our income or the value of
our portfolios.
Exposure to market risk is
separated into two
portfolios:
•
trading portfolios
comprise positions
arising from market-
making and warehousing
of customer-derived
positions.
• non-trading portfolios
comprise positions
that primarily arise
from the interest rate
management of our
retail and commercial
banking assets and
liabilities, financial
investments designated
as available for sale and
held to maturity, and
exposures arising from
our insurance operations
(page 180).
Credit risk is:
• measured as the amount which could be lost if a customer or
counterparty fails to make repayments. In the case of derivatives,
the measurement of exposure takes into account the current
mark-to-market value to HSBC of the contract and the expected
potential change in that value over time caused by movements in
market rates;
• monitored within limits approved by individuals within a
framework of delegated authorities. These limits represent the
peak exposure or loss to which HSBC could be subjected should the
customer or counterparty fail to perform its contractual
obligations; and
• managed through a robust risk control framework which outlines
clear and consistent policies, principles and guidance for risk
managers.
Liquidity and funding risk is:
• measured using internal metrics including stressed operational
cash flow projections, coverage ratios and advances to core
funding ratios;
• monitored against the Group’s liquidity and funding risk
framework and overseen by regional Asset and Liability
Management Committees (‘ALCO’s), Group ALCO and the RMM;
and
• managed on a stand-alone basis with no reliance on any Group
entity (unless pre-committed) or central bank unless this
represents routine established business-as-usual market practice.
Market risk is:
• measured in terms of value at risk, which is used to estimate
potential losses on risk positions as a result of movements in
market rates and prices over a specified time horizon and to a
given level of confidence, augmented with stress testing to
evaluate the potential impact on portfolio values of more extreme,
though plausible, events or movements in a set of financial
variables;
• monitored using measures including the sensitivity of net interest
income and the sensitivity of structural foreign exchange which are
applied to the market risk positions within each risk type; and
• managed using risk limits approved by the GMB for HSBC Holdings
and our various global businesses. These units are allocated across
business lines and to the Group’s legal entities.
HSBC HOLDINGS PLC
105
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Managing risk
Risks
Arising from
Measurement, monitoring and management of risk
Operational risk (page 176)
The risk of loss resulting from
inadequate or failed internal
processes, people and systems or
from external events, including
legal risk.
Compliance risk (page 178)
The risk that we fail to observe
the letter and spirit of all relevant
laws, codes, rules, regulations
and standards of good market
practice, and incur fines and
penalties and suffer damage to
our business as a consequence.
Other material risks
Reputational risk (page 189)
The risk of failure to meet
stakeholder expectations as a
result of any event, behaviour,
action or inaction, either by HSBC
itself, our employees or those
with whom we are associated,
that might cause stakeholders to
form a negative view of the
Group. This may result in financial
or non-financial impacts, loss of
confidence, or other
consequences.
Fiduciary risk (page 189)
The risk of breaching our fiduciary
duties, defined as any duty where
HSBC holds, manages, oversees or
has responsibilities for assets for
a third party that involves a legal
and/or regulatory duty to act
with the highest standard of care
and with utmost good faith.
Operational risk arises from
day to day operations or
external events, and is
relevant to every aspect of
our business.
Compliance risk and
Fiduciary risk are discussed
below. Other operational
risks are covered in the
Appendix to Risk (page 217).
Operational risk is:
• measured using both the top risk analysis process and the risk
and control assessment process, which assess the level of risk and
effectiveness of controls;
• monitored using key indicators and other internal control
activities; and
• managed primarily by global business and functional managers.
They identify and assess risks, implement controls to manage
them and monitor the effectiveness of these controls utilising
the operational risk management framework. Global Operational
Risk is responsible for the framework and for overseeing the
management of operational risks within global businesses and
global functions.
Compliance risk is part of
operational risk, and arises
from rules, regulations,
other standards and Group
policies, including those
relating to anti-money
laundering, anti-bribery and
corruption, counter-terrorist
and proliferation financing,
sanctions compliance and
conduct of business.
The US DPA is discussed on
page 113 and the Monitor
on page 116.
Compliance risk is:
• measured by reference to identified metrics, incident assessments
(whether affecting HSBC or the wider industry), regulatory
feedback and the judgement and assessment of compliance
officers in our global businesses, regions and functions;
• monitored against our compliance risk assessments and metrics,
the results of the monitoring and control activities of the second
line of defence functions, including the Financial Crime Compliance
and Regulatory Compliance sub-functions, and the results of
internal and external audits and regulatory inspections; and
• managed by establishing and communicating appropriate policies
and procedures, training employees in them, and monitoring
activity to assure their observance. Proactive risk control and/or
remediation work is undertaken where required.
Primary reputational risks
arise directly from an action
or inaction by HSBC, its
employees or associated
parties that are not the
consequence of another
type of risk. Secondary
reputational risks are those
arising indirectly and are a
result of another risk
caused either by HSBC, its
employees or associated
third parties.
Reputational risk is:
• measured by reference to our reputation as indicated by our
dealings with all relevant stakeholders, including media, regulators,
customers and employees;
• monitored through a reputational risk management framework
that is integrated into the Group’s broader risk taxonomy; and
• managed by every member of staff and is covered by a number of
policies and guidelines. There is a clear structure of committees
and individuals charged with mitigating reputational risk, including
the Group Reputational Risk Policy Committee, the Global Risk
Resolution Committee and reputational risk committees in the
regions and global businesses.
Fiduciary risk is part of
operational risk, and arises
from our business activities
where we act in a fiduciary
capacity (‘designated
businesses’) as Trustee,
Investment Manager or
as mandated by law or
regulation.
Fiduciary risk is:
• measured by each designated business monitoring against their
own risk appetite statements and by the operational risk and
control assessment process, which assesses the level of risk and
the effectiveness of the key controls;
• monitored through a combination of testing, key indicators and
other metrics such as client and regulatory feedback; and
• managed within the designated businesses via established
governance frameworks, and comprehensive policies, procedures
and training programmes.
HSBC HOLDINGS PLC
106
Risks
Arising from
Measurement, monitoring and management of risk
Pension risk (page 189)
The risk that contributions from
Group companies and members
fail to generate sufficient funds to
meet the cost of accruing benefits
for the future service of active
members, and the risk that
the performance of assets held
in pension funds is insufficient
to cover existing pension
liabilities.
Sustainability risk (page 190)
The risk that financial services
provided to customers by the
Group indirectly result in
unacceptable impacts on people
or on the environment.
Pension risk arises from
investments delivering an
inadequate return,
economic conditions leading
to corporate failures,
adverse changes in interest
rates or inflation, or
members living longer than
expected (longevity risk).
Pension risk includes
operational risks listed
above.
Sustainability risk arises
from the provision of
financial services to
companies or projects
which indirectly result in
unacceptable impacts on
people or on the
environment.
Our insurance manufacturing subsidiaries are separately
regulated from our banking operations. Risks in the
insurance entities are managed using methodologies and
processes appropriate to insurance activities, but remain
subject to oversight at Group level. Our insurance
Description of risks – insurance manufacturing operations
Pension risk is:
• measured in terms of the schemes’ ability to generate sufficient
funds to meet the cost of their accrued benefits;
• monitored through the specific risk appetite that has been
developed at both Group and regional levels; and
• managed locally through the appropriate pension risk governance
structure and globally through the RMM.
Sustainability risk is:
• measured by assessing the potential sustainability effect of a
customer’s activities and assigning a Sustainability Risk Rating to
all high risk transactions;
• monitored quarterly by the RMM and monthly by Group
Sustainability Risk; and
• managed using sustainability risk policies covering project finance
lending and sector-based sustainability policies for sectors and
themes with potentially high environmental or social impacts.
operations are also subject to the operational risks and
the other material risk types presented above in relation to
the banking operations, and these are covered by the
Group’s risk management processes.
Risks
Arising from
Measurement, monitoring and management of risk
Financial risks (page 183)
Our ability to effectively match
the liabilities arising under
insurance contracts with the
asset portfolios that back
them is contingent on the
management of financial risks
such as market, credit and
liquidity risks, and the extent
to which these risks are borne by
the policyholders.
Liabilities to policyholders under
unit-linked contracts move in line
with the value of the underlying
assets, and as such the
policyholder bears the majority
of the financial risks.
Contracts with DPF share the
performance of the underlying
assets between policyholders and
the shareholder in line with the
type of contract and the specific
contract terms.
Exposure to financial risks
arises from:
• market risk of changes
in the fair values of
financial assets or their
future cash flows from
fluctuations in variables
such as interest rates,
foreign exchange rates
and equity prices;
• credit risk and the
•
potential for financial
loss following the default
of third parties in
meeting their
obligations; and
liquidity risk of entities
not being able to
make payments to
policyholders as they
fall due as there are
insufficient assets that
can be realised as cash.
Financial risks are:
• measured separately for each type of risk:
− market risk is measured in terms of exposure to fluctuations in
key financial variables;
− credit risk is measured as the amount which could be lost if a
customer or counterparty fails to make repayments; and
−
liquidity risk is measured using internal metrics including
stressed operational cash flow projections.
• monitored within limits approved by individuals within a
framework of delegated authorities; and
• managed through a robust risk control framework which outlines
clear and consistent policies, principles and guidance for risk
managers. Subsidiaries manufacturing products with guarantees
are usually exposed to falls in market interest rates and equity
prices to the extent that the market exposure cannot be managed
by utilising any discretionary participation (or bonus) features
within the policy contracts they issue.
HSBC HOLDINGS PLC
107
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Risks managed by HSBC
Risks
Arising from
Measurement, monitoring and management of risk
Insurance risk (page 188)
The risk that, over time, the cost
of the contract, including claims
and benefits may exceed the total
amount of premiums and
investment income received.
The cost of claims and
benefits can be influenced
by many factors, including
mortality and morbidity
experience, lapse and
surrender rates.
Insurance risk is:
• measured in terms of life insurance liabilities;
• monitored by the RBWM Risk Management Committee, which
checks the risk profile of the insurance operations against a
risk appetite for insurance business agreed by the GMB; and
• managed both centrally and locally using product design,
underwriting, reinsurance and claims-handling procedures.
Risks incurred in our business activities
The chart below provides a high level guide to how our
business activities are reflected in our risk measures and
in the Group’s balance sheet. The third-party assets and
liabilities indicate the contribution each business makes to
the balance sheet, while RWAs illustrate the relative size of
the risks incurred in respect of each business.
Exposure to risks arising from the business activities of global businesses
HSBC
Other
(including Holding Company)
Global
business
Business
activities
RBWM
CMB
GB&M
GPB
− Deposits
− Accounts services
− Credit and lending
− Asset management
− Wealth solutions and
financial planning
− Broking
− Insurance
(distribution; life
manufacturing)
− Deposits
− Payments and cash
management
− Credit and lending
− International trade
and receivables
finance
− Insurance
(distribution; life
manufacturing)
− Deposits
− Payments and cash
management
− Balance sheet
management
− Credit and lending
− Asset and trade
finance
− Corporate finance
− Markets
− Securities services
− Deposits
− Account services
− Credit and lending
− Investment
management
− Financial advisory
− Broking
− Corporate finance
(via GB&M)
− Alternative
investments
− Trusts and estate
planning
− Insurance
− HSBC holding
company and
central operations
Balance
sheet1
RWAs
− Assets
− Customer
accounts
− Credit risk
− Operational risk
$bn
473
585
$bn
154
36
− Assets
− Customer
accounts
− Credit risk
− Operational risk
$bn
365
362
$bn
390
31
− Assets
− Customer
accounts
− Credit risk
− Counterparty
credit risk
− Operational risk
− Market risk
$bn
1,617
262
$bn
285
69
44
43
− Assets
− Customer
accounts
− Credit risk
− Operational risk
$bn
81
80
$bn
16
3
− Assets
− Customer
accounts
− Credit risk
− Operational risk
$bn
147
1
$bn
32
–
Risk
profile
Liquidity and funding risk (page 154), Pension risk (page 189), Fiduciary risk (page 189), Reputational risk (page 189),
Compliance risk (page 178), Sustainability risk (page 190) and Insurance risk (page 180). The latter is predominantly in RBWM and CMB.
For footnote, see page 191.
Risk factors
We have identified a comprehensive suite of risk factors
which covers the broad range of risks our businesses are
exposed to.
A number of the risk factors have the potential to affect
the results of our operations or financial condition, but
may not necessarily be deemed as top or emerging risks.
However, they inform the ongoing assessment of our top
and emerging risks. The risk factors are:
Macroeconomic and geopolitical risk
• Current economic and market conditions may adversely
affect our results.
• We are subject to political and economic risks in the
countries in which we operate, including the risk of
government intervention.
• We may suffer adverse effects as a result of the
interaction between market perceptions surrounding
mainland China’s slowdown, the course of global
HSBC HOLDINGS PLC
108
monetary policies, economic conditions in the eurozone
and damage from plummeting oil prices, all of which may
result in further capital outflows from emerging markets.
• Changes in foreign currency exchange rates may affect
our results.
Macro-prudential, regulatory and legal risks to our
business model
• Failure to implement and adhere to our obligations under
the deferred prosecution agreements could have a
material adverse effect on our results and operations.
• We may fail to effectively manage affiliate risk.
• Failure to comply with certain regulatory requirements
could have a material adverse effect on our results and
operations.
• We may fail to meet the requirements of regulatory
stress tests.
• We are subject to a number of legal and regulatory
actions and investigations, the outcomes of which
are inherently difficult to predict.
• We are subject to unfavourable legislative or regulatory
developments and changes in the policy of regulators or
governments.
• We may fail to comply with all applicable regulations,
particularly any changes thereto.
• We and our UK subsidiaries may become subject to
stabilisation provisions under the Banking Act 2009, as
amended, in certain significant stress situations.
• Structural separation of banking and trading activities
proposed or enacted in a number of jurisdictions could
have a material adverse effect on us.
• We are subject to tax-related risks in the countries in
which we operate.
Risks related to our business, business operations,
governance and internal control systems
• The delivery of our strategic actions is subject to
execution risk.
• We may not achieve any of the expected benefits of our
strategic initiatives.
• We may fail to increase the cross-selling and/or business
synergies required to achieve our growth strategy.
• We operate in markets that are highly competitive.
• Our risk management measures may not be successful.
• Operational risks are inherent in our business.
• Our operations are subject to the threat of fraudulent
activity.
• Our operations are subject to disruption from the
external environment.
• Our operations utilise third-party suppliers and service
providers.
• Our operations are highly dependent on our information
technology systems.
• We may not be able to meet regulatory requests for data.
• Our operations have inherent reputational risk.
• We may suffer losses due to employee misconduct.
• We rely on recruiting, retaining and developing
appropriate senior management and skilled personnel.
• Our financial statements are based in part on
judgements, estimates and assumptions which are
subject to uncertainty.
• We could incur losses or be required to hold additional
capital as a result of model limitations or failure.
• Third parties may use us as a conduit for illegal activities
without our knowledge.
• We have significant exposure to counterparty risk.
• Market fluctuations may reduce our income or the value
of our portfolios.
• Liquidity, or ready access to funds, is essential to our
businesses.
• Any reduction in the credit rating assigned to HSBC
Holdings, any subsidiaries of HSBC Holdings or any of
their respective debt securities could increase the cost
or decrease the availability of our funding and adversely
affect our liquidity position and interest margin.
• Risks concerning borrower credit quality are inherent
in our businesses.
• Our insurance businesses are subject to risks relating
to insurance claim rates and changes in insurance
customer behaviour.
• HSBC Holdings is a holding company and, as a result,
is dependent on loan payments and dividends from
its subsidiaries to meet its obligations, including
obligations with respect to its debt securities, and
to provide profits for payment of future dividends
to shareholders.
• We may be required to make substantial contributions
to our pension plans.
HSBC HOLDINGS PLC
109
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Top and emerging risks
Top and emerging risks
Our approach to identifying and monitoring top and
emerging risks is described on page 103. Our current
top and emerging risks are as follows:
Externally driven
• Economic outlook and capital flows
• Geopolitical risk
• Turning of the credit cycle
• Regulatory developments with adverse impact on
business model and profitability
• Regulatory focus on conduct of business and
financial crime
• Dispute risk
• Regulatory commitments and consent orders
• Cyber threat and unauthorised access to systems
Economic outlook and capital flows
Economic growth remained subdued in 2015, with a number
of headwinds adversely affecting both developed and
emerging market countries.
The slowdown of the mainland Chinese economy has
dampened global trade flows and caused volatility in
currency and global stock markets. Market concerns persist
as to the scale of the slowdown and the potential for further
depreciation of the renminbi and emerging market
currencies.
Oil and gas prices fell further during 2015 and early 2016 as a
result of continuing global supply and demand imbalances,
raising the risk that any recovery in oil prices over the
medium term will be even more gradual than currently
expected. Although oil importers benefit from low prices,
low oil prices increase fiscal and financing challenges for
exporters and accentuate deflationary risks.
Emerging market economies have been affected by falling
commodity prices, the economic slowdown in mainland
China and a vulnerability to monetary policy normalisation
in the US. This has led to steep depreciation in several key
emerging market currencies against the US dollar and
substantial capital outflows.
The economic recovery in the eurozone remains fragile,
driven by a combination of low oil prices, a weak euro,
slowing growth and loose monetary policy. Populist parties
are in the ascendancy in several EU countries, helped by the
subdued economic backdrop as well as other issues such
as migration. A referendum on the UK’s EU membership
is expected to occur within the lifetime of the current
Parliament, and may be held as early as mid-2016 (see
‘Geopolitical risk’ below). While the risk of Greece exiting
the EU has faded, the implementation of required structural
reforms could prove politically challenging.
Potential impact on HSBC
• We earn a significant proportion of our profits from
our operations in Asia. Our results could be adversely
affected by a prolonged or severe slowdown in regional
economic growth or contraction in global trade and
capital flows as a consequence.
• HSBC’s results could be impacted by a prolonged period
of low oil prices, particularly in conjunction with a low
inflation environment and/or low or negative interest
rates.
• The intensification of fragmentation risks in the EU could
have both political and economic consequences for
Europe.
Mitigating actions
• We closely monitor economic developments in key
markets and sectors with the aim of ensuring trends
are identified, the implications for specific customers,
customer segments or portfolios are assessed, and
appropriate mitigating action – which may include
revising key risk appetite metrics or limits – is taken
as circumstances evolve.
• We use internal stress testing and scenario analysis as
well as regulatory stress test programmes to evaluate
the impact of macroeconomic shocks on our businesses
and portfolios. Analyses undertaken on our oil and gas
portfolio and mainland China exposures are discussed
on page 117.
Geopolitical risk
Our operations and portfolios are exposed to risks arising
from political instability, civil unrest and military conflict in
many parts of the world.
In the Middle East, the intervention of Russia and the rise of
the terrorist group, Daesh, have added to an already complex
civil war in Syria and further destabilised Iraq. These are
conflicts which show few signs of resolution. Daesh has
proved capable of carrying out attacks in neighbouring
countries and further afield. The lifting of sanctions following
a deal between Iran and the five permanent members of the
UN Security Council on the country’s nuclear programme has
done little to calm regional tensions.
Violence in Ukraine has abated but the conflict in the east of
the country has not been resolved. Sanctions imposed by the
US and EU against the Russian government, institutions and
individuals have damaged the Russian economy.
European states are experiencing heightened political
tension, reflecting concerns over migration, fears of
terrorism and the possibility that the UK may vote to exit the
EU following a referendum. An exit could have a significant
impact on UK, European and global macroeconomic
conditions, as well as substantial political ramifications.
In Asia, territorial disputes between Japan and China and
other states have strained diplomatic relations and are
testing the resolve of the US to defend freedom of
navigation.
Potential impact on HSBC
• Our results are subject to the risk of loss from physical
conflicts or terrorist attacks, unfavourable political
developments, currency fluctuations, social instability
and changes in government policies in the jurisdictions
in which we operate.
HSBC HOLDINGS PLC
110
Mitigating actions
• We closely monitor economic developments in key
markets and sectors, taking portfolio actions where
necessary including enhanced monitoring or reducing
limits and exposures.
• We stress test those portfolios of particular concern to
identify sensitivity to loss, with management actions
taken to control appetite where necessary.
• Where customers are either individually or collectively
assessed, regular portfolio reviews are undertaken for
sensitive portfolios to ensure that individual customer
or portfolio risks are understood and that the level of
facilities offered and our ability to manage through any
downturn are appropriate.
Regulatory developments with adverse impact on
business model and profitability
Financial service providers continue to face stringent
and costly regulatory and supervisory requirements,
particularly in the areas of capital and liquidity management,
conduct of business, financial crime, operational structures
and the integrity of financial services delivery. Government
intervention and control over financial institutions both on a
sector-wide basis and individually, together with measures
to reduce systemic risk, may significantly affect the
competitive landscape locally, regionally and/or globally
for some or all of the Group’s businesses. These measures
may be introduced with different, potentially conflicting
requirements and to differing timetables by different
regulatory regimes. Regulatory changes may affect our
activities, both of the Group as a whole and of some or all
of our principal subsidiaries. These changes include:
• the UK’s Financial Services (Banking Reform) Act 2013,
which requires the ring-fencing of our UK retail banking
activities from wholesale banking, together with the
structural separation of other activities required by
US legislation and rules (including the Volcker Rule
implemented in December 2013 under the Dodd-Frank
Act), and potential further changes under the European
Commission’s Banking Structural Reform Regulation
which proposes similar structural reform for larger EU
banks as well as structural changes in other jurisdictions;
• revisions in the regime for the operation of capital
markets, notably mandatory central clearing of over
the counter (‘OTC’) derivatives and mandatory margin
requirements for non-cleared derivatives under the
Dodd-Frank Act, the EU’s European Market Infrastructure
Regulation (‘EMIR’) and similar local measures being
progressed in Hong Kong, Singapore and Canada;
• Physical conflicts or terrorist attacks could expose our
staff to physical risk and/or result in physical damage to
our assets and disruption to our operations.
• The effect of a UK exit from the EU on HSBC would
depend on the manner in which the exit occurs.
A disorderly exit could force changes to HSBC’s operating
model, affect our ability to access ECB and high value
euro payments, and affect our transaction volumes due
to possible disruption to global trade flows.
Mitigating actions
• We continuously monitor the geopolitical outlook,
in particular in countries where we have material
exposures and/or a physical presence.
• Our internal credit risk ratings of sovereign counterparties
take geopolitical factors into account and drive our
appetite for conducting business in those countries.
Where necessary, we adjust our country limits and
exposures to reflect our risk appetite and mitigate risks
as appropriate.
• We run internal stress tests and scenario analyses,
including reverse stress tests, on our portfolios that take
into account geopolitical scenarios, such as conflicts in
countries where we have a significant presence, or
political developments that could disrupt our operations,
including the potential effect of a UK exit on our business
model.
Turning of the credit cycle
The long-anticipated move by the US Federal Reserve Board
(‘FRB’) to raise interest rates and the slowdown in mainland
China’s economy, which is expected to continue, have
increased risk aversion in global markets. This tendency
has deepened since the turn of 2016, with market volatility
increasing. In 2015, emerging markets experienced net
capital outflows for the first time since 1988, with several
major currencies at decade-plus lows against the US dollar
and global corporate defaults rose to the highest since 2009.
2016 could see an intensification of these trends and the
appearance of stress in a wide array of credit segments,
particularly if monetary policy is tightened quickly, sentiment
regarding China worsens and oil prices fail to recover. The
combination of these factors with substantial amounts of
external refinancing being due in emerging markets in
2016-18 increases the risk of sharper and more protracted
volatility.
Potential impact on HSBC
• Impairment allowances or losses could begin to rise from
their historical lows in 2014 and 2015 if the credit quality
of our customers is affected by less favourable global
economic conditions in some markets.
• There may be impacts on the delinquency and losses in
some portfolios which may be impacted by worsening
macroeconomic conditions and their possible effects on
particular geographies or industry sectors.
• Particular portfolios such as oil and gas may come under
particular strain which is partly cyclical and partly driven
by geopolitical concerns.
HSBC HOLDINGS PLC
111
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Top and emerging risks
• those arising from the Markets in Financial Instruments
Regulation/Directive (‘MiFID II’), which includes
mandatory trading of derivatives on organised venues,
enhanced transparency and reporting requirements,
controls on high frequency and algorithmic trading,
changes to the use of dealing commissions and potential
future restrictions on the ability of non-EU Group
companies to provide certain services to EU based clients.
Aspects of MiFID II also further enhance protections for
investors in line with many regulators’ focus on the wider
conduct of business and delivery of fair outcomes for
customers;
• changes aimed at promoting effective competition in the
interests of consumers, including investigations ordered
by the UK Competition and Markets Authority and work
to increase competition more generally;
• the recommendations arising out of the Final Report
on the Fair and Effective Financial Markets Review
undertaken by the Bank of England, which include
changes to market conduct rules and forward looking
supervision in the operation of wholesale financial
markets in the UK;
• continued focus in the UK and elsewhere on matters
relating to management accountability, institutional
culture, employee conduct and increased obligations
on market abuse and whistleblowing. In the UK, this
includes implementing the individual accountability
regime and wider recommendations made by the
Parliamentary Commission on Banking Standards and
the activities of the Banking Standards Board;
• the Basel Committee on Banking Supervision (‘Basel
Committee’) initiatives to enhance the risk sensitivity and
robustness of the standardised approaches, to minimise
reliance on internal models, and to incorporate capital
floors in the Basel capital framework;
• the implementation of the Capital Requirements Directive
(‘CRD IV’), notably the UK application of the capital
framework and its interaction with Pillar 2;
• proposals from the Financial Stability Board for global
systemically important banks (‘G-SIB’s) to hold minimum
levels of capital and debt as total loss absorbing
capacity (‘TLAC’), together with the Bank of England’s
consultation on UK implementation of MREL (for further
details, see ‘Capital’ on page 239);
• requirements flowing from arrangements for the
resolution strategy of the Group and its individual
operating entities, which may have different effects
in different countries; and
• the continued risk of further changes to regulation
relating to taxes affecting financial service providers,
including financial transaction taxes and ongoing
implementation of initiatives to share tax information
such as the Common Reporting Standard introduced
by the Organisation for Economic Co-operation and
Development (‘OECD’).
Potential impact on HSBC
• Proposed changes in and/or the implementation of
regulations including mandatory central clearing of OTC
derivatives, EMIR, ring-fencing and similar requirements,
MiFID II, the Volcker Rule, recovery and resolution plans,
tax information sharing initiatives and findings from
competition orientated enquiries and investigations may
affect the manner in which we conduct our activities and
how the Group is structured.
• Requirements for higher levels of capital or TLAC may
increase the funding costs for the Group and reduce our
return on equity.
• Mandatory central clearing of OTC derivatives also brings
new risks to HSBC in its role as a clearing member, as we
will be required to underwrite losses incurred by central
clearing counterparties from the default of other clearing
members and their clients. Hence central clearing brings
with it a new element of interconnectedness between
clearing members and clients which we believe may
increase rather than reduce our exposure to systemic risk.
• Increased regulatory scrutiny of conduct of business
and management accountability may affect the industry
in areas such as employee recruitment and retention,
product pricing and profitability in both retail and
wholesale markets. HSBC’s businesses may be affected by
these developments.
• These measures have the potential to increase our cost
of doing business and curtail the types of business we
can carry out, which may adversely affect future
profitability.
Mitigating actions
• We are engaged closely with governments and regulators
in the countries in which we operate to help ensure that
the new requirements are considered properly and can
be implemented in an effective manner.
• We have enhanced our governance around central
clearing counterparties and appointed specialists to
manage the associated liquidity and collateral risks.
• We continue to enhance and strengthen governance and
resourcing more generally around regulatory change
management and the implementation of required
measures to actively address this ongoing and significant
agenda of regulatory change.
Regulatory focus on conduct of business and
financial crime
Financial service providers are at risk of regulatory sanctions
or fines related to conduct of business and financial crime.
The incidence of regulatory proceedings against financial
service firms has become more common-place and may
increase in frequency due to increased media attention and
higher expectations from prosecutors and the public, with a
consequent increase also in civil litigation arising from or
relating to issues which are subject to regulatory
investigation, sanction or fine.
Regulators in the UK and other countries have continued
to increase their focus on conduct matters relating to fair
HSBC HOLDINGS PLC
112
outcomes for customers and orderly and transparent
operations in financial markets. For further details, see
‘Compliance risk’ on page 178.
Potential impact on HSBC
• HSBC may face regulatory censure or sanctions including
fines and/or be exposed to legal proceedings and
litigation.
• Regulators in the UK and other countries may identify
future industry-wide mis-selling, market conduct or other
issues that could affect the Group. This may lead from
time to time to significant direct costs or liabilities
and/or changes in the practices of such businesses. Also,
decisions taken by the Financial Ombudsman Service in
the UK (or similar overseas bodies) could, if applied to a
wider class or grouping of customers, have a material
adverse effect on the operating results, financial
condition and prospects of the Group.
Mitigating actions
• We have taken a number of steps including introduction
of new global policies, enhancement to the product
governance processes, establishment of a global conduct
programme and review of sale processes and incentive
schemes (see ‘Compliance risk’ on page 178).
US deferred prosecution agreement and related
agreements and consent orders
An independent compliance monitor (‘the Monitor’) was
appointed in 2013 under the 2012 agreements entered
into with the US Department of Justice (‘DoJ’) and the UK
Financial Conduct Authority (‘FCA’) to produce annual
assessments of the effectiveness of our AML and sanctions
compliance programme. Additionally, the Monitor is serving
as HSBC’s independent consultant under the consent order
of the FRB. HSBC Bank USA is also subject to an agreement
entered into with the Office of the Comptroller of the
Currency (‘OCC’) in December 2012, the Gramm-Leach-Bliley
Act Agreement and other consent orders. In January 2016,
the Monitor delivered his second annual follow-up review
report as required by the US DPA. The Monitor’s report is
discussed on page 116.
Potential impact on HSBC
• The design and execution of AML and sanctions
remediation plans are complex and require major
investments in people, systems and other infrastructure.
This complexity creates significant execution risk, which
could affect our ability to effectively identify and manage
financial crime risk and remedy AML and sanctions
compliance deficiencies in a timely manner. This could, in
turn, impact our ability to satisfy the Monitor or comply
with the terms of the US DPA and related agreements
and consent orders, and may require us to take additional
remedial measures in the future.
• Under the terms of the US DPA, upon notice and an
opportunity to be heard, the DoJ has sole discretion to
determine whether HSBC has breached the US DPA.
Potential consequences of breaching the US DPA could
include the imposition of additional terms and conditions
on HSBC, an extension of the agreement, including its
monitorship, or the criminal prosecution of HSBC, which
could, in turn, entail further financial penalties and
collateral consequences.
• Breach of the US DPA or related agreements and consent
orders could have a material adverse effect on our
business, financial condition and results of operations,
including loss of business and withdrawal of funding,
restrictions on performing dollar-clearing functions
through HSBC Bank USA or revocation of bank licences.
Even if we are not determined to have breached these
agreements, but the agreements are amended or their
terms extended, our business, reputation and brand
could suffer materially.
Mitigating actions
• We are continuing to take concerted action to remedy
AML and sanctions compliance deficiencies and to
implement Global Standards. We are also working to
implement the agreed recommendations flowing
from the Monitor’s 2013 and 2014 reviews, and will
implement the agreed recommendations from the
2015 review.
• During 2015, we continued to make progress toward
putting in place a robust and sustainable AML and
sanctions compliance programme, including continuing
to build a strong Financial Crime Compliance sub-
function, rolling out improved systems and infrastructure
to manage financial crime risk and improve transaction
monitoring and enhancing internal audits.
Dispute risk
HSBC is party to legal proceedings and regulatory matters in
a number of jurisdictions arising out of its normal business
operations. Further details are provided in Note 40 on the
Financial Statements.
Potential impact on HSBC
• Dispute risk may give rise to potential financial loss as
well as significant reputational damage. This in turn could
adversely affect customer, investor and other stakeholder
confidence.
Mitigating actions
• We continue to focus on identifying emerging regulatory
and judicial trends, and sharing globally lessons learned in
an effort to avoid or limit future litigation exposure and
regulatory enforcement action.
• We continue to review and enhance our financial crime
and regulatory compliance controls and resources.
HSBC HOLDINGS PLC
113
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Top and emerging risks
Cyber threat and unauthorised access to systems
Like other public and private organisations, we continue to
be a target of cyber attacks which, in some cases, disrupt
services including the availability of our external facing
websites, compromise organisational and customer
information or expose security weaknesses. Management of
cyber risks is coming under increased regulatory scrutiny.
Potential impact on HSBC
• A major cyber attack, which could result from
unauthorised access to our systems, may result in
financial loss as well as significant reputational damage
which could adversely affect customer and investor
confidence in HSBC. Any loss of customer data would also
trigger regulatory breaches which could result in fines and
penalties being incurred.
Mitigating actions
• The security of our information and technology
infrastructure is crucial for maintaining our banking
applications and processes and protecting our customers
and the HSBC brand. We continue to strengthen our
ability to prevent, detect and respond to the ever-
increasing and sophisticated threat of cyber attacks by
enhancing our governance and controls framework and
technology infrastructure, processes and controls.
• We took part in the PRA‘s Cyber Vulnerability Testing
exercise during 2015 and are making further
enhancements to improve our resilience to, and
ability to recover from, cyber attacks.
• We have realigned the responsibilities and
accountabilities for cyber and information risk
management to align with the operational risk lines of
defence operational model and instigated a number of
security improvement programmes within IT.
Internally driven
• People risk
• Execution risk
• Third-party risk management
• Model risk
• Data management
People risk
Significant demands continue to be placed on our staff. The
cumulative workload arising from regulatory reform and
remediation programmes together with those related to the
delivery of our strategy is hugely consumptive of human
resources, placing increasingly complex and conflicting
demands on a workforce in a world where expertise is
often in short supply and globally mobile.
Potential impact on HSBC
• Changes in remuneration policy and practice resulting
from CRD IV regulations, European Banking Authority
(‘EBA’) Guidelines and PRA remuneration rules apply on a
Group-wide basis for any material risk takers. This
presents significant challenges for HSBC because a
significant number of our material risk takers are based
outside the EU.
• The Senior Managers and Certification regimes and the
related Rules of Conduct, which come into force in 2017
for other employees, set clear expectations of the
accountabilities and behaviour of both senior and more
junior employees.
• Organisational changes to support the Group’s strategy
and/or implement regulatory reform programmes have
the potential to lead to increased staff turnover.
Mitigating actions
• The changes in remuneration under the CRD IV
regulations, EBA guidelines and PRA remuneration rules
have necessitated a review of our remuneration policy,
especially the balance between fixed and variable pay, to
ensure we can remain globally competitive on a total
compensation basis and retain our key talent.
• We continue to increase the level of specialist resource in
key areas, and to engage with our regulators as they
finalise new regulations.
• Risks related to organisational change and disposals are
subject to close management oversight, especially in
those countries where staff turnover is particularly high.
Execution risk
Execution risk heightened during 2015 due to a number of
factors. Significant programmes are under way to deliver
nine business actions to capture value from our global
presence, announced at the Investor Update in June 2015.
These, along with the regulatory reform agenda and our
commitments under the US DPA require the management
of complex projects that are resource demanding and time
sensitive. In addition, the risks arising from the disposal of
our business in Brazil require careful management.
Potential impact on HSBC
• Risks arising from the number, magnitude and complexity
of projects underway to meet these demands may
include financial losses, reputational damage or
regulatory censure.
• The potential risks of disposals include regulatory
breaches, industrial action, loss of key personnel
and interruption to systems and processes during
business transformation. They can have both financial
and reputational implications.
Mitigating actions
• We have strengthened our prioritisation and governance
processes for significant projects, which are monitored by
the GMB.
• We have invested in our project implementation and
IT capabilities and increased our focus on resource
management.
• Risks relating to disposals are carefully assessed and
monitored and are subject to close management
oversight.
HSBC HOLDINGS PLC
114
Third-party risk management
HSBC, in common with peers in the financial services
industry, utilises third parties for the provision of a range of
goods and services. Global regulators have raised concerns
regarding the dependency on third parties, and expect firms
to be able to demonstrate adequate control over the
selection, governance and oversight of their third parties
(including affiliates). Risks arising from the use of third-party
service providers may be less transparent and therefore
more challenging to manage or influence.
Potential impact on HSBC
• Any deficiency in the management of third-party risk
could affect our ability to meet strategic, regulatory
and client expectations. This may lead to a range of
consequences including regulatory censure, civil
penalties or reputational damage.
Mitigating actions
• HSBC is undertaking a multi-year strategic plan to
enhance its third-party risk management capability. We
are implementing a programme that will provide a holistic
view of third-party risks. This will enable the consistent
risk assessment of any third-party service against key
criteria, along with the associated control monitoring,
testing and assurance throughout the third-party
lifecycle.
• The Group’s most critical third parties were identified and
subjected to enhanced risk assessment, with remediation
plans agreed where necessary. Plans are in place to
extend the assessment to a broader group of third
parties.
• In addition, the highest priority third-party vendors in the
US went through enhanced risk assessment with findings
remediated in 2015. A risk monitoring solution was
implemented for all vendors and a due diligence solution
is in the process of being implemented.
Model risk
We use models for a range of purposes in managing our
business, including regulatory and economic capital
calculations, stress testing, credit approvals, pricing, financial
crime and fraud risk management and financial reporting.
Model risk is the potential for adverse consequences as a
result of decisions based on incorrect model outputs and
reports or the use of such information for purposes for which
it was not designed. This risk can arise from models that
are poorly developed, implemented or used, or from the
modelled outcome being misunderstood and acted upon
inappropriately by management. The regulatory
environment and supervisory concerns over banks’ use
of internal models to determine regulatory capital is also
considerable, and further contributes to model risk.
Potential impact on HSBC
• HSBC could incur losses, be required to hold additional
capital, fail to meet regulatory standards or incur higher
operating expenses due to the use of inappropriate
models or poor model risk management.
• Supervisory concerns over the internal models and
assumptions used by banks in the calculation of
regulatory capital have led to the imposition of floors in
risk weight and model parameters such as the loss given
default. Such changes have the potential to increase our
capital requirement and/or make it more volatile.
• Our reputation may be questioned due to our inability
to comply with specific modelling and model risk
management requirements.
Mitigating actions
• We have strengthened our model risk governance
framework by establishing global model oversight
committees and implementing policies and standards in
accordance with key regulatory requirements.
• We have strengthened our governance over the
development, usage and validation of models including
the creation of centralised global analytical functions with
necessary subject-matter expertise.
• We have hired additional subject matter experts as
part of our independent model review function and
empowered the function to ensure appropriate challenge
and feedback are given to models prior to and as part of
their ongoing use.
Data management
Regulators require more frequent and granular data
submissions, which must be produced on a consistent,
accurate and timely basis. As a G-SIB, HSBC must comply
with the principles for effective risk data aggregation and risk
reporting set out by the Basel Committee.
Potential impact on HSBC
• Ineffective data management capabilities could impact
our ability to aggregate and report complete, accurate
and consistent data to regulators, investors and senior
management on a timely basis.
• Financial institutions that fail to meet their Basel
Committee data obligations by the required deadline may
face supervisory measures.
Mitigating actions
• We have set a data strategy for the Group and defined
Group-level principles, standards and policies to enable
consistent data aggregation, reporting and management.
We continue to focus on enhancing data governance,
quality and architecture to support our objectives of
ensuring reliability of information used in support of
internal controls and external financial reporting.
• A number of key initiatives and projects to implement
our data strategy and work towards meeting our Basel
Committee data obligations are in progress.
HSBC HOLDINGS PLC
115
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Areas of special interest
Areas of special interest
During 2015, we considered a number of particular
areas because of the effect they may have on the
Group. Whilst these areas may already have been
identified in top and emerging risks, further details of
the actions taken during the year are provided below.
Financial crime compliance and regulatory
compliance
We continued to experience increased levels of compliance
risk as regulators and other agencies pursued investigations
into historical activities. Examples include continued
engagement with respect to compliance with AML and
sanctions law (historical investigations gave rise to the US
DPA and related FCA Direction), on-going interaction with
regulators relating to mis-selling of the PPI policies and
allegations of pressure selling in the UK, investigations in
relation to conduct in the foreign exchange market, and
benchmark interest rate and commodity price setting.
Details of these investigations and legal proceedings may
be found in Note 40 on the Financial Statements. The
work of the Monitor, who was appointed to assess
the effectiveness of our AML and sanctions compliance
programme, is discussed below.
The level of inherent compliance risk remained high in 2015
as the industry continued to experience greater regulatory
scrutiny and heightened levels of regulatory oversight and
supervision.
For further information about the Group’s compliance risk
management, see page 178.
The Monitor
Under the agreements entered into with the DoJ and the
FCA in 2012, including the five-year US DPA, the Monitor
was appointed to produce annual assessments of the
effectiveness of the Group’s AML and sanctions compliance
programme.
In January 2016, the Monitor delivered his second annual
follow-up review report based on various thematic and
country reviews he had conducted over the course of 2015.
In his report, the Monitor concluded that, in 2015, HSBC
made progress in developing an effective and sustainable
financial crime compliance programme. However, he
expressed significant concerns about the pace of that
progress, instances of potential financial crime and systems
and controls deficiencies, whether HSBC is on track to meet
its goal to the Monitor’s satisfaction within the five-year
period of the US DPA and, pending further review and
discussion with HSBC, did not certify as to HSBC’s
implementation of and adherence to remedial measures
specified in the US DPA. The ‘US deferred prosecution
agreement and related agreements and consent orders’
are discussed in top and emerging risks on page 113.
Regulatory stress tests
Stress testing is an important tool for regulators to assess
vulnerabilities in the banking sector and in individual banks,
the results of which could have a significant effect on
minimum capital requirements, risk and capital management
practices and planned capital actions, including the payment
of dividends, going forward.
We are subject to regulatory stress testing in many
jurisdictions. These have increased both in frequency and in
the granularity of information required by supervisors. They
include the programmes of the Bank of England (‘BoE’), the
FRB, the OCC, the EBA and the Hong Kong Monetary
Authority and other regulators. Assessment by regulators
is on both quantitative and qualitative bases, the latter
focusing on portfolio quality, data provision, stress testing
capability, forward-looking capital management processes
and internal management processes.
In 2015, the Group took part in the BoE’s concurrent stress
test exercise involving major UK banks. The 2015 stress
scenario incorporates a global recession in which
disinflationary pressures and weakening expectations of
growth lead to diminished risk appetite, falling commodity
prices and lower market liquidity. Several emerging
economies are adversely affected, as is the eurozone,
where the rate of deflation increases. The UK experiences
a downturn as the global recession affects exports and as
financial linkages and weaker confidence affects other parts
of the economy.
Selected key economic variables for the BoE 2015 concurrent
stress test, as specified by the BoE
GDP
growth1
%
(5.6)
1.7
(3.1)
Hong Kong
China
UK
Unemploy-
ment2
%
House
Price Index
Equity
prices3
%
65
–
36
%
40
35
20
5.8
–
9.2
1 Worst quarter (percentage quarter on quarter – year earlier).
2 Peak percentage.
3 Price fall percentage (start to trough).
The results were published by the BoE alongside the
Financial Stability Report on 1 December 2015. The stressed
CET1 capital ratio of HSBC was deemed by the BoE to fall
to a minimum of 7.7%, taking into account management
mitigating actions accepted by the BoE for this exercise. This
was above the hurdle ratio of 4.5% set for this exercise. The
leverage ratio fell to a minimum of 3.7% after management
actions, also above the minimum hurdle ratio of 3%.
HSBC North America Holdings Inc. (‘HNAH’) participated
in the 2015 Comprehensive Capital Analysis and Review
(‘CCAR’) and the annual Dodd-Frank Act Stress Test (‘DFAST’)
programmes as required by the FRB. In addition, HSBC Bank
USA N.A. (‘HSBC Bank USA’) participated in the OCC’s 2015
DFAST programme. The CCAR and DFAST submissions were
made on 5 January 2015 and their results publically disclosed
on 5 March 2015. On 11 March 2015, HNAH received notice
that the FRB did not object to its 2015 Capital Plan – a key
component of the CCAR submission. Under DFAST, HNAH is
also required to conduct a company-run mid-cycle stress
test, the results of which were disclosed on 16 July 2015.
Under this test HNAH maintained capital levels in excess of
regulatory minimums; specifically, the stressed common
equity tier 1 ratio fell to a minimum of 7.5% compared with
a required level of 4.5%.
HSBC HOLDINGS PLC
116
Other entities in the Group, including The Hongkong
and Shanghai Banking Corporation Limited and HSBC Bank
plc, continue to participate in regulatory stress tests
conducted at a subsidiary level by local regulators.
In October 2015, the BoE published details of its medium-
term approach to stress testing the UK banking system. Key
features of the approach include an annual cyclical stress
test and a biennial exploratory stress test, starting in 2017.
The EBA plan to conduct stress tests in 2016. Details of their
proposed approach were published by them in November
2015.
Oil and gas prices
Oil and commodity prices have remained low since the
middle of 2014 as a result of existing global supply and
demand imbalances, with significant price declines in late
2015 and early 2016. Continued lower oil prices cause
increased credit risks within oil-related industries together
with fiscal and financing challenges for energy exporters.
The overall portfolio of exposures directly exposed to oil and
gas companies had drawn risk exposures amounting to
about $29bn (2014: $34bn) with sub-sectoral distributions as
follows: integrated producers 48%, service companies 28%,
pure producers 17% and infrastructure companies 7%.
The credit quality distribution of the oil and gas portfolio was
as follows: ‘strong’ and ‘good’ categories made up 56% of
the portfolio, ‘satisfactory’ 35%, ‘sub-standard’ 7% and
‘impaired’ 2%. The majority of the exposures were located in
North America, Asia and Europe.
Oil and gas related counterparties have responded rapidly to
the changing economic outlook, cutting back on capital
expenditure as well as reducing operating expenses in order
to manage cash flows and sustain profitability.
Large integrated producers remained resilient. Within the
pure producers sector, the higher cost entities such as shale
and oil sands producers showed more evidence of stress,
resulting in credit grade deterioration. Similarly, service
companies continued to be more vulnerable as producers
curtailed capital expenditures.
Individually assessed loan impairment charges in 2015
remained contained at approximately $0.3bn. Oil prices are
now predicted to remain lower for longer and the oil price
recovery is dependent on the removal of the excess supply
that currently exists in the market. In view of these factors
collective allowances for exposures related to oil and gas
were increased by $0.2bn at the end of the year. Total
allowances in respect of the oil and gas portfolio were
$0.6bn.
The sector remains under enhanced monitoring with risk
appetite and new lending has been significantly curtailed.
Metals and mining
Metals prices declined during 2015 although the pace and
extent of the price decline was more gradual than for oil
and gas.
Precious metals, copper, nickel and zinc prices are generally
forecast to improve slightly in 2016. The outlook for steel,
aluminium and bulk metals is more negative due to a
combination of oversupply and reduction in demand. The
low oil and gas prices benefit most metals and mining
customers given that they are large consumers of energy.
Our total drawn risk exposure to metals and mining was
$18bn (steel and aluminium $9bn, copper, nickel and zinc
$4bn, iron ore and metallurgical coal $3bn, precious metals
$2bn). Individually assessed loan impairments were $0.1bn.
Given the pressures in metals prices the metals and mining
sector is under heightened management review.
Mainland China exposures
Mainland China’s economic growth rate slowed in 2014 and
2015 with a gross domestic product of 6.9% in 2015
compared with 7.3% in 2014 (2013: 7.7%). China’s economic
growth rate remains very strong when compared with
developed western economies. Although the largest foreign
bank in China, HSBC’s overall lending market share is very
small at about 0.2%. This allows us to be selective in our
lending to mainland China-related exposures, targeting high
quality lending centred around specific priority sectors.
The portfolio has continued to perform well with loan
impairment charges remaining at their existing low levels.
The total mainland China portfolio had drawn risk exposures
of $143bn, of which $77bn was booked onshore, with the
remainder mainly booked in Hong Kong. Retail lending
amounted to $8bn, focused primarily on residential
mortgages in selected geographical areas. Wholesale lending
amounted to $135bn. 51% of the wholesale portfolio was
corporate lending with 26% to banks and the remainder to
China sovereign. The lending to banks was 99% investment
grade. The corporate portfolio was also of high quality with
62% of the portfolio of investment grade. Only 2% of the
corporate portfolio was rated substandard which compares
favourably with the Group as a whole. The corporate
portfolio was well diversified with less than 40% of lending to
state owned enterprises. The corporate real estate portfolio
amounted to about $15bn. This portfolio which is primarily
focused on tier 1 and tier 2 cities and the Pearl River Delta,
was managed carefully under a series of caps ensuring that
the lending to this sector remained within our risk appetite.
Our resultant ability to be selective in our lending and apply
our traditionally strong underwriting standards means we
have a high quality portfolio which we would expect to be
resilient even in a situation where mainland China’s growth
rate slows further.
HSBC HOLDINGS PLC
117
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Credit risk
Credit risk
Page
App1
Tables
Page
Credit risk
120
195
Summary of credit risk
Gross loans to customers and banks over five years
Loan impairment charge over five years
Loan impairment charges by geographical region
Loan impairment charges by industry
Loan impairment allowances over five years
Credit risk management
Assets held for sale
195
121
Loans and advances to customers and banks measured
Credit exposure
Maximum exposure to credit risk
Other credit risk mitigants
Concentration of exposure
Financial investments
Trading assets
Derivatives
Loans and advances
Credit quality of financial instruments
Credit quality classification
Past due but not impaired gross financial instruments
at amortised cost
Gross loans and impairment allowances on loans and
advances to customers and banks reported in ‘Assets
held for sale’
Loan impairment charges and other credit risk provisions
Maximum exposure to credit risk
Loan and other credit-related commitments
Gross loans and advances by industry sector and by
geographical region
Distribution of financial instruments by credit quality
Past due but not impaired gross financial instruments by
geographical region
Ageing analysis of days for past due but not impaired
gross financial instruments
122
122
122
123
123
124
124
124
125
127
196
196
196
Impaired loans
Renegotiated loans and forbearance
128
129
197
Movement in impaired loans by geographical region
Renegotiated loans and advances to customers by
Impairment of loans and advances
132
Loan impairment charge to the income statement by
geographical region
Movement in renegotiated loans and advances to
customers by geographical region
Renegotiated loans by arrangement type:
corporate and commercial and financial
Renegotiated loans by arrangement type:
personal lending
Impairment assessment
Wholesale lending
Commercial real estate
201
135
137
industry sector
Loan impairment charge to the income statement by
assessment type
Charge for impairment losses as a percentage of
average gross loans and advances to customers
by geographical region
Movement in impairment allowances by industry sector
and geographical region
Movement in impairment allowances on loans and
advances to customers and banks
Total wholesale lending
Commercial real estate lending
Commercial real estate loans and advances maturity
analysis
Commercial real estate loans and advances including loan
commitments by level of collateral
Other corporate, commercial and non-bank financial
institutions loans and advances including loan
commitments by level of collateral rated CRR/EL8 to
10 only
120
121
121
121
121
121
121
122
122
123
123
124
125
127
127
128
130
131
132
132
132
132
133
134
135
136
137
138
139
140
HSBC HOLDINGS PLC
118
Page
App1
Tables
Page
Other credit risk exposures
Derivatives
Reverse repos – non-trading by geographical region
Loan Management Unit
Personal lending
Mortgage lending
Other personal lending
HSBC Finance loan modifications and re-age
programmes
Collateral and other credit enhancements held
Supplementary information
141
141
143
143
144
145
146
147
148
202
Notional contract amounts and fair values of derivatives
by product type
OTC collateral agreements by type
Reverse repos – non-trading by geographical region
Total personal lending
UK interest-only mortgage loans
HSBC Finance US Consumer and Mortgage Lending
residential mortgages
Trends in two months and over contractual delinquency
in the US
Gross loan portfolio of HSBC Finance real estate secured
balances
Number of renegotiated real estate secured accounts
remaining in HSBC Finance’s portfolio
Residential mortgage loans including loan commitments
by level of collateral
Gross loans and advances by industry sector over 5 years
Reconciliation of reported and constant currency impaired
loans, allowances and charges by geographical region
Reconciliation of reported and constant currency loan
impairment charges to the income statement
Loan impairment charges by industry sector over 5 years
Charge for impairment losses as a percentage of average
gross loans and advances to customers
Movement in impairment allowances over 5 years
Gross loans and advances to customers by country
Refinance risk
HSBC Holdings
203
152
HSBC Holdings – maximum exposure to credit risk
Securitisation exposures and other structured
products
1 Appendix to Risk – risk policies and practices.
152
203
Carrying amount of HSBC’s consolidated holdings of ABSs
Definitions and classifications of ABSs and CDOs
142
142
143
143
145
145
146
146
146
147
148
149
149
150
150
150
151
152
153
203
HSBC HOLDINGS PLC
119
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Credit risk
Credit risk
Summary of credit risk
Credit risk is the risk of financial loss if a customer
or counterparty fails to meet an obligation under a
contract. It arises principally from direct lending, trade
finance and leasing business, but also from other
products such as guarantees and credit derivatives
and from holding assets in the form of debt securities.
There have been no material changes to the policies and
practices for the management of credit risk in 2015.
A summary of our current policies and practices regarding credit
risk is provided in the Appendix to Risk on page 193.
Our maximum exposure to credit risk is presented on
page 122 and credit quality on page 125. While credit risk
arises across most of our balance sheet, losses have
typically been incurred on loans and advances and
securitisation exposures and other structured products. As
a result, our disclosures focus primarily on these two areas.
Our exposures to mainland China and the effects of the
decline in ‘metals and mining’ and ‘oil and gas’ prices are
provided in ‘Areas of special interest’ on page 116.
In 2015, reported gross loans and advances declined by
$75bn, mainly due to foreign exchange effects reducing
balances by $51bn and the reclassification of Brazilian
assets as ‘Assets held for sale’ reducing balances by a
further $31bn. Additional details relating to the Brazilian
reclassification are provided on page 121. Excluding foreign
exchange movements and the reclassification, both
wholesale and personal lending grew.
Loan impairment charges reduced by $0.5bn or 11%
compared with 2014 with notable decreases in Latin
America from favourable foreign exchange effects.
Information on constant currency movements is provided
on page 148. While tables are presented on a reported
basis, the commentary that follows in this summary section
excludes the effects of the Brazilian reclassification and is
on a constant currency basis.
At year-end
Maximum exposure to credit risk
– total assets subject to
credit risk
– off-balance sheet
commitments subject
to credit risk2
Gross loans and advances
– personal lending
– wholesale lending
Impaired loans
– personal lending
– wholesale lending
Impaired loans as a % of
gross loans and advances
– personal lending
– wholesale lending
– total
Impairment allowances
– personal lending
– wholesale lending
Loans and advances net of
impairment allowances
For year ended 31 December
Loan impairment charge
– personal lending
– wholesale lending
Other credit risk provisions
For footnote, see page 191.
2015
$bn
2014
$bn
Page
2,234
2,434
713
2,947
374
650
1,024
12
12
24
3.1%
1.9%
2.3%
$bn
2.9
6.7
9.6
699
3,133
393
706
1,099
15
14
29
3.9%
2.0%
2.7%
$bn
4.6
7.8
12.4
1,015
1,087
3.6
1.8
1.8
0.1
3.7
4.1
1.8
2.3
(0.2)
3.9
123
143
136
124
128
128
128
135
136
134
133
132
132
In 2015, wholesale and personal gross loans and advances
grew by $0.5bn and $7bn, respectively.
In wholesale lending, Asia balances decreased by $9.6bn
and were partly offset by an increase of $7.5bn in North
America and $3.2bn in Europe. Middle East and North
Africa decreased $1.2bn and Latin America remained
relatively unchanged.
In personal lending, Asia balances grew by $7.4bn across
both its mortgage and other personal lending, and there
was a $1.9bn increase in the Premier mortgage portfolio
in the US and Canada. The increase was partly offset by a
$5.0bn reduction in the US CML portfolio as a result of the
ongoing run-off of the portfolio and continued loan sales.
Loan impairment charges increased by $0.2bn compared
with 2014, notably in Middle East and North Africa and
North America.
HSBC HOLDINGS PLC
120
Gross loans to customers and banks over five years ($bn)
Impaired
Not impaired
14
18
15
15
12
12
15
19
24
27
362
378
392
391
367
638
692
698
666
647
2015
2014
2013
2012
2011
2015
2014
2013
2012
2011
Personal
Wholesale
Loan impairment charge over five years ($bn)
9.3
5.4
3.1
1.8
1.8
2.3
1.8
2.9
2.8
2.2
2015
2014
2013
2012
2011
2015
2014
2013
2012
2011
Personal
Wholesale
Loan impairment charges by geographical region ($bn)
2015
2014
2.0
1.4
1.1
0.7
0.7
0.6
0.3
0.5
0.3
Europe
Asia
MENA
North
America
Latin
America
Loan impairment charges by industry ($bn)
2015
2014
1.9
1.7
2.0
1.6
0.2
0.3
Other
personal
lending
Commercial
real
estate
Other
corporate
commercial
–
–
Financial
0.1
(0.1)
First lien
residential
mortgages
Loan impairment allowances over five years
Loan impairment allowances ($bn)
Loan impairment allowances as a % of impaired loans
54%
55%
48%
53% 51%
35% 35%
37%
30%
25%
2.9
4.6
6.6
8.2
9.8
6.7
7.8
8.6
8.0
7.9
2015
2014
2013
2012
2011
2015
2014
2013
2012
2011
Personal
Wholesale
Assets held for sale
(Audited)
During 2015, gross loans and advances and related
impairment allowances arising in our Brazilian operations
were reclassified from ‘Loans and advances to customers’
and ‘Loans and advances to banks’ to ‘Assets held for sale’
in the balance sheet.
Disclosures relating to assets held for sale are provided in
the following credit risk management tables, primarily
where the disclosure is relevant to the measurement of
these financial assets:
• Maximum exposure to credit risk (page 122);
• Distribution of financial instruments by credit quality
(page 125);
• Past due but not impaired gross financial instruments by
geographical region (page 127); and
• Ageing analysis of days past due but not impaired gross
financial instruments (page 127).
Although there was a reclassification on the balance sheet,
there was no separate income statement reclassification.
As a result, charges for loan impairment losses shown in
the credit risk disclosures include loan impairment charges
relating to financial assets classified as ‘Assets held for sale’.
Loans and advances to customers and banks measured at
amortised cost
(Audited)
Total gross
loans and
advances
$m
Impairment
allowances
on loans and
advances
$m
1,024,428
24,544
1,048,972
(9,573)
(1,454)
(11,027)
As reported
Reported in ‘Assets held for sale’
At 31 December 2015
At 31 December 2014, the gross loans and advances and
related impairment allowances of our Brazilian operations
were $31bn and $1.7bn, respectively. Gross loans and
advances reduced by $8.5bn, mainly as a result of foreign
exchange movements.
Lending balances held for sale continue to be measured
at amortised cost less allowances for impairment; such
carrying amounts may differ from fair value. Any difference
between the carrying amount and the sales price, which is
the fair value at the time of sale, would be recognised as a
gain or loss at the time of sale.
See Note 23 on the Financial Statements for the carrying amount
and the fair value at 31 December 2015 of loans and advances to
banks and customers classified as held for sale.
HSBC HOLDINGS PLC
121
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Credit risk
Gross loans and impairment allowances on loans and advances to customers and banks reported in ‘Assets held for sale’
(Audited)
Gross loans
Loans and advances to customers
– personal
– corporate and commercial
Financial
– non-bank financial institutions
– banks
At 31 December 2015
Impairment allowances
Loans and advances to customers
– personal
– corporate and commercial
Financial
– non-bank financial institutions
– banks
b k
At 31 December 2015
The table below analyses the amount of LICs arising from
assets held for sale. The held for sale assets primarily relate
to the Brazilian operations.
Loan impairment charges and other credit risk provisions
(Audited)
LICs arising from:
– assets held for sale
– assets not held for sale
Year ended 31 December
Credit exposure
Maximum exposure to credit risk
(Audited)
2015
$m
965
2,757
3,722
The table on page 123 provides information on balance sheet
items, offsets and loan and other credit-related commitments.
Commentary on balance sheet movements is provided on page 62.
The offset in derivatives decreased in line with the
decrease in maximum exposure amounts.
The offset on corporate and commercial loans to customers
decreased by $15bn. This reduction was mainly related to
corporate overdraft balances where a small number of
clients benefited from the use of net interest arrangements
across overdrafts and deposits. As a result, while net risk
exposures are generally stable, gross balances can be
volatile.
Brazil
$m
18,103
5,571
12,532
4,399
331
4,068
22,502
(1,433)
(664)
(769)
–
–
–
Other
$m
2,042
40
2,002
–
–
–
2,042
(21)
–
(21)
–
–
–
Total
$m
20,145
5,611
14,534
4,399
331
4,068
24,544
(1,454)
(664)
(790)
–
–
–
(1,433)
(21)
(1,454)
‘Maximum exposure to credit risk’ table (page 123)
The table presents our maximum exposure to credit risk from
balance sheet and off-balance sheet financial instruments
before taking account of any collateral held or other credit
enhancements (unless such enhancements meet accounting
offsetting requirements). For financial assets recognised on the
balance sheet, the maximum exposure to credit risk equals their
carrying amount; for financial guarantees and similar contracts
granted, it is the maximum amount that we would have to pay
if the guarantees were called upon. For loan commitments and
other credit-related commitments, it is generally the full amount
of the committed facilities.
The offset in the table relates to amounts where there is a legally
enforceable right of offset in the event of counterparty default
and where, as a result, there is a net exposure for credit risk
purposes. However, as there is no intention to settle these
balances on a net basis under normal circumstances, they do
not qualify for net presentation for accounting purposes. No
offset has been applied to off-balance sheet collateral. In the
case of derivatives the offset column also includes collateral
received in cash and other financial assets.
Other credit risk mitigants
While not disclosed as an offset in the ‘Maximum exposure
to credit risk’ table, other arrangements are in place which
reduce our maximum exposure to credit risk. These include
a charge over collateral over borrowers’ specific assets
such as residential properties. Other credit risk mitigants
include short positions in securities and financial assets
held as part of linked insurance/investment contracts
where the risk is predominantly borne by the policyholder.
In addition, we hold collateral in the form of financial
instruments that are not recognised on the balance sheet.
See Note 32 and from page 139 and page 147 respectively on the
Financial Statements for further details on collateral in respect of
certain loans and advances and derivatives.
HSBC HOLDINGS PLC
122
Maximum exposure to credit risk
(Audited)
Maximum
exposure
$m
2015
Offset
$m
Cash and balances at central banks
Items in the course of collection from other banks
Hong Kong Government certificates of indebtedness
Trading assets
– Treasury and other eligible bills
– debt securities
– loans and advances to banks
– loans and advances to customers
Financial assets designated at fair value
– Treasury and other eligible bills
– debt securities
– loans and advances to banks
– loans and advances to customers
Derivatives
Loans and advances to customers held at amortised cost
– personal
– corporate and commercial
– non-bank financial institutions
Loans and advances to banks held at amortised cost
Reverse repurchase agreements – non-trading
Financial investments
– Treasury and other similar bills
– debt securities
Assets held for sale
– disposal groups
– non-current assets held for sale
Other assets
– endorsements and acceptances
– other
98,934
5,768
28,410
158,346
7,829
99,038
22,303
29,176
4,857
396
4,341
120
–
288,476
924,454
371,203
493,078
60,173
90,401
146,255
423,120
104,551
318,569
40,078
38,097
1,981
25,310
9,149
16,161
–
–
–
–
–
–
–
–
–
–
–
–
–
(258,755)
(52,190)
(5,373)
(44,260)
(2,557)
(53)
(900)
–
–
–
–
–
–
–
–
–
Maximum
exposure
$m
2014
Offset
$m
129,957
4,927
27,674
228,944
16,170
141,532
27,581
43,661
9,031
56
8,891
84
–
–
–
–
–
–
–
–
–
–
–
–
–
–
345,008
(313,300)
974,660
388,954
535,184
50,522
112,149
161,713
404,773
81,517
323,256
1,375
889
486
33,889
10,775
23,114
(67,094)
(4,412)
(59,197)
(3,485)
(258)
(5,750)
–
–
–
–
–
–
–
–
–
Net
$m
98,934
5,768
28,410
158,346
7,829
99,038
22,303
29,176
4,857
396
4,341
120
–
29,721
872,264
365,830
448,818
57,616
90,348
145,355
423,120
104,551
318,569
40,078
38,097
1,981
25,310
9,149
16,161
Net
$m
129,957
4,927
27,674
228,944
16,170
141,532
27,581
43,661
9,031
56
8,891
84
–
31,708
907,566
384,542
475,987
47,037
111,891
155,963
404,773
81,517
323,256
1,375
889
486
33,889
10,775
23,114
Total balance sheet exposure to credit risk
Total off-balance sheet2
– financial guarantees and similar contracts
– loan and other credit-related commitments2
2,234,409
(311,898)
1,922,511
2,434,100
(386,402)
2,047,698
712,546
46,116
666,430
–
–
–
712,546
46,116
666,430
698,458
47,078
651,380
–
–
–
698,458
47,078
651,380
At 31 December
For footnote, see page 191.
Loan and other credit-related commitments2
2,946,955
(311,898)
2,635,057
3,132,558
(386,402)
2,746,156
Personal
Corporate and commercial
Financial
At 31 December 2015
Personal
Corporate and commercial
Financial
At 31 December 2014
For footnote, see page 191.
Europe
$m
70,013
105,303
20,230
195,546
86,247
98,045
26,605
210,897
Asia
$m
103,153
159,947
11,619
274,719
96,497
138,366
9,355
244,218
MENA
$m
3,092
20,139
186
23,417
2,995
20,141
711
23,847
North
America
$m
14,510
102,369
24,543
141,422
15,636
102,911
23,559
142,106
Latin
America
$m
12,175
18,155
996
31,326
11,679
17,540
1,093
30,312
Total
$m
202,943
405,913
57,574
666,430
213,054
377,003
61,323
651,380
Concentration of exposure
Financial investments
The geographical diversification of our lending portfolio
and our broad range of global businesses and products
ensured that we did not overly depend on a few markets
to generate growth in 2015. This diversification also
supported our strategy for growth in faster-growing
markets and those with international connectivity.
Our holdings of available-for-sale government and
government agency debt securities, corporate debt
securities, ABSs and other securities were spread across
a wide range of issuers and geographical regions in 2015,
with 14% invested in securities issued by banks and
other financial institutions and 75% in government or
HSBC HOLDINGS PLC
123
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Credit risk
government agency debt securities. We also held assets
backing insurance and investment contracts.
For an analysis of financial investments, see Note 17 on the
Financial Statements.
Trading assets
Trading securities remained the largest concentration
within trading assets at 77% in 2015 and 2014. The largest
concentration within the trading securities portfolio was in
government and government agency debt securities. We
had significant exposures to US Treasury and government
agency debt securities ($15bn) and UK ($10bn) and Hong
Kong ($6.5bn) government debt securities.
For an analysis of debt and equity securities held for trading, see
Note 12 on the Financial Statements.
Derivatives
Derivative assets were $288bn at 31 December 2015 (2014:
$345bn). Details of derivative amounts cleared through an
exchange, central counterparty and non-central
counterparty are shown on page 142.
For an analysis of derivatives, see page 141 and Note 16 on the
Financial Statements.
Loans and advances
The following tables analyse loans by industry sector and
by the location of the principal operations of the lending
subsidiary or, in the case of the operations of The
Hongkong and Shanghai Banking Corporation, HSBC Bank,
HSBC Bank Middle East Limited and HSBC Bank USA, by the
location of the lending branch. Excluding the effect of the
classification of Brazilian assets as ‘Assets held for sale’,
the distribution of loans across geographical regions
and industries remained similar to last year.
For an analysis of loans and advances by country see page 151.
Gross loans and advances by industry sector and by geographical region
(Audited)
Personal
– first lien residential mortgages
– other personal3
Wholesale
Corporate and commercial
– manufacturing
– international trade and services
– commercial real estate
– other property-related
– government
– other commercial4
Financial
– non-bank financial institutions
– banks
Europe
$m
170,526
125,544
44,982
191,765
39,003
62,667
26,256
7,323
3,653
52,863
51,969
33,621
18,348
Asia
$m
132,707
94,606
38,101
211,224
34,272
72,199
32,371
35,206
1,132
36,044
68,321
13,969
54,352
Total wholesale
243,734
279,545
Total gross loans and advances
at 31 December 2015
Percentage of total gross loans and advances
Personal
– first lien residential mortgages
– other personal3
Wholesale
Corporate and commercial
– manufacturing
– international trade and services
– commercial real estate
– other property-related
– government
– other commercial4
Financial
– non-bank financial institutions
– banks
Total wholesale
Total gross loans and advances
at 31 December 2014
Percentage of total gross loans and advances
For footnotes, see page 191.
414,260
40.4%
178,531
131,000
47,531
212,523
39,456
76,629
28,187
7,126
2,264
58,861
45,081
23,103
21,978
412,252
40.3%
129,515
93,147
36,368
220,799
37,767
72,814
35,678
34,379
1,195
38,966
76,957
13,997
62,960
257,604
297,756
436,135
39.7%
427,271
38.9%
MENA
$m
6,705
2,258
4,447
22,268
2,504
9,552
690
1,908
1,695
5,919
10,239
2,321
7,918
32,507
39,212
3.8%
6,571
2,647
3,924
20,588
2,413
9,675
579
1,667
1,552
4,702
13,786
3,291
10,495
34,374
40,945
3.7%
North
America
$m
58,186
50,117
8,069
62,882
17,507
11,505
7,032
8,982
203
17,653
16,308
9,822
6,486
79,190
137,376
13.4%
65,400
55,577
9,823
57,993
15,299
13,484
6,558
8,934
164
13,554
16,439
9,034
7,405
74,432
Latin
America
$m
Total
As a %
of total
$m gross loans
5,958
1,986
3,972
11,374
2,572
3,096
1,577
45
772
3,312
3,996
681
3,315
15,370
374,082
274,511
99,571
499,513
95,858
159,019
67,926
53,464
7,455
115,791
150,833
60,414
90,419
650,346
36.5
26.8
9.7
48.8
9.4
15.5
6.7
5.2
0.7
11.3
14.7
5.9
8.8
63.5
21,328
1,024,428
100.0
2.1%
100.0%
13,537
4,153
9,384
30,722
12,051
8,189
2,291
281
968
6,942
10,753
1,393
9,360
41,475
393,554
286,524
107,030
542,625
106,986
180,791
73,293
52,387
6,143
123,025
163,016
50,818
112,198
705,641
35.8
26.0
9.8
49.4
9.7
16.4
6.7
4.8
0.6
11.2
14.8
4.6
10.2
64.2
139,832
12.7%
55,012
1,099,195
100.0
5.0%
100.0%
HSBC HOLDINGS PLC
124
Credit quality of financial instruments
(Audited)
We assess credit quality on all financial instruments
which are subject to credit risk. Additional credit quality
information in respect of our consolidated holdings of
ABSs is provided on page 153.
Distribution of financial instruments by credit quality
(Audited)
For the purpose of the following disclosure, retail loans
which are past due up to 90 days and are not otherwise
classified as impaired in accordance with our disclosure
convention are not disclosed within the expected loss
grade to which they relate, but are separately classified
as past due but not impaired.
Cash and balances at central banks
Items in the course of collection from
other banks
Hong Kong Government certificates of
indebtedness
Trading assets6
– treasury and other eligible bills
– debt securities
– loans and advances:
to banks
to customers
Financial assets designated at fair
value6
– treasury and other eligible bills
– debt securities
– loans and advances:
to banks
to customers
Derivatives6
Loans and advances to customers held
at amortised cost7
– personal
– corporate and commercial
– non-bank financial institutions
Loans and advances to banks held
at amortised cost
Reverse repurchase agreements
– non-trading
Financial investments
– treasury and other similar bills
– debt securities
Assets held for sale
– disposal groups
– non-current assets held for sale
Other assets
– endorsements and acceptances
– accrued income and other
Total
gross
amount
Impairment
allowances5
$m
$m
Neither past due nor impaired
Strong
$m
Good Satisfactory
$m
$m
Sub-
standard
$m
Past due
but not
impaired
$m
Impaired
$m
–
–
–
–
–
–
97,365
583
5,318
28,410
116,633
6,749
77,088
32
–
21,243
790
10,995
14,546
18,250
4,391
5,067
3,037
139
2,898
–
–
701
193
508
–
–
939
416
–
19,894
190
10,656
3,239
5,809
736
–
616
120
–
47
2
–
576
100
299
127
50
383
64
319
–
–
248,101
32,056
7,209
1,110
472,691 214,152
29,322
309,720
127,673 168,772
16,058
35,298
194,393
15,021
171,466
7,906
16,836
944
15,379
513
12,179
7,568
4,274
337
23,758
11,507
11,949
302
98,934
5,768
28,410
158,346
7,829
99,038
22,303
29,176
4,857
396
4,341
120
–
288,476
934,009
374,082
499,513
60,414
Total
$m
98,934
5,768
28,410
158,346
7,829
99,038
22,303
29,176
4,857
396
4,341
120
–
288,476
(9,555)
(2,879)
(6,435)
(241)
924,454
371,203
493,078
60,173
73,226
11,929
4,836
407
108,238
16,552
382,328
93,562
288,766
18,600
3,963
14,637
10,177
10,149
28
8,306
1,084
7,222
9,605
8,815
790
5,688
3,850
1,838
20,931
16,341
4,756
11,585
17,279
16,213
1,066
10,204
3,798
6,406
46
4,525
2,270
2,255
1,635
1,567
68
632
343
289
1
–
–
–
–
703
701
2
147
22
125
20
90,419
(18)
90,401
488
146,255
–
146,255
1,326
–
1,326
2,133
2,085
48
333
52
281
423,120
104,551
318,569
41,532
39,530
2,002
25,310
9,149
16,161
423,120
104,551
318,569
40,078
38,097
1,981
25,310
9,149
16,161
(1,454)
(1,433)
(21)
–
At 31 December 2015
1,553,830 331,141
293,178
26,199
13,030
28,058 2,245,436
(11,027) 2,234,409
Percentage of total gross amount
%
69.2
%
14.7
%
13.1
%
1.2
%
0.6
%
1.2
%
100.0
HSBC HOLDINGS PLC
125
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Credit risk
Distribution of financial instruments by credit quality (continued)
Neither past due nor impaired
Cash and balances at central banks
Items in the course of collection from
other banks
Hong Kong Government certificates
of indebtedness
Trading assets6
– treasury and other eligible bills
– debt securities
– loans and advances:
to banks
to customers
Financial assets designated at fair
value6
– treasury and other eligible bills
– debt securities
– loans and advances:
to banks
to customers
Derivatives6
Loans and advances to customers held
at amortised cost7
– personal
– corporate and commercial
– non-bank financial institutions
Loans and advances to banks held
at amortised cost
Reverse repurchase agreements
– non-trading
Financial investments
– treasury and other similar bills
– debt securities
Assets held for sale
– disposal groups
– non-current assets held for sale
Other assets
– endorsements and acceptances
– accrued income and other
Strong
$m
Good Satisfactory
$m
$m
127,971
1,438
4,515
27,674
168,521
13,938
111,138
46
–
35,042
1,641
17,786
17,492
25,953
4,961
10,654
3,017
5
3,011
4,476
–
4,476
1
–
–
–
195
365
–
24,740
559
12,305
5,016
6,860
1,207
–
1,124
83
–
269,490
58,596
15,962
Sub-
standard
$m
353
1
–
641
32
303
112
194
331
51
280
–
–
960
Past due
but not
impaired
$m
Impaired
$m
Total
gross
amount
Impairment
allowances5
$m
$m
Total
$m
129,957
4,927
27,674
228,944
16,170
141,532
27,581
43,661
9,031
56
8,891
84
–
345,008
129,957
4,927
27,674
228,944
16,170
141,532
27,581
43,661
9,031
56
8,891
84
–
345,008
986,997
393,554
542,625
50,818
487,734 239,136
320,678
32,601
141,375 192,799
13,736
25,681
196,685
15,109
171,748
9,828
20,802
1,130
18,986
686
13,357
8,876
3,922
559
29,283
15,160
13,795
328
(12,337)
(4,600)
(7,441)
(296)
974,660
388,954
535,184
50,522
83,766
19,525
7,945
914
98,470
28,367
347,218
68,966
278,252
27,373
6,294
21,079
802
768
34
12,213
1,507
10,706
43
43
–
7,521
4,644
2,877
33,283
22,600
4,431
18,169
79
79
–
12,897
4,281
8,616
1,593
5,304
1,826
3,478
–
–
–
631
298
333
1
–
–
–
–
2
–
2
208
34
174
47
112,198
(49)
112,149
–
161,713
–
161,713
2,278
–
2,278
404,773
81,517
323,256
465
–
465
419
11
408
1,391
890
501
33,889
10,775
23,114
(16)
–
(16)
404,773
81,517
323,256
1,375
890
485
33,889
10,775
23,114
At 31 December 2014
1,631,391 421,563
315,958
31,530
13,568
32,492 2,446,502
(12,402) 2,434,100
Percentage of total gross amount
For footnotes, see page 191.
%
66.7
%
17.2
%
12.9
%
1.3
%
0.6
%
1.3
%
100.0
HSBC HOLDINGS PLC
126
Past due but not impaired gross financial instruments
(Audited)
Past due but not impaired gross financial instruments are
those loans where, although customers have failed to make
payments in accordance with the contractual terms of their
facilities, they have not met the impaired loan criteria
described on page 128.
In personal lending, past due but not impaired balances
decreased, mainly due to the Brazilian reclassification and
the continued run-off and loan sales in the CML portfolio.
Past due but not impaired gross financial instruments by geographical region
(Audited)
North
America
$m
5,392
3,287
1,843
262
2
–
2
80
Latin
America
$m
545
376
169
–
701
701
–
4
Total
$m
12,179
7,568
4,274
337
703
701
2
148
5,474
1,250
13,030
4,634
3,759
623
252
2
–
2
95
1,350
896
445
9
–
–
–
25
4,731
1,375
13,357
8,876
3,922
559
2
–
2
209
13,568
Total
$m
12,179
7,568
4,274
337
703
701
2
148
21
–
19
2
–
–
–
9
30
13,030
18
1
15
2
1
–
1
17
36
13,357
8,876
3,922
559
2
–
2
209
13,568
60-89
days
$m
90-179
days
$m
180 days
and over
$m
727
502
225
–
90
89
1
14
831
801
676
114
11
–
–
–
18
819
111
–
93
18
–
–
–
10
121
54
5
48
1
1
–
1
11
66
Loans and advances to customers held at amortised cost
– personal
– corporate and commercial
– non-bank financial institutions
Assets held for sale
– disposal group
– non-current assets held for sale
Other financial instruments
At 31 December 2015
Loans and advances to customers held at amortised cost
– personal
– corporate and commercial
– non-bank financial institutions
Assets held for sale
– disposal group
– non-current assets held for sale
Other financial instruments
At 31 December 2014
Europe
$m
1,928
1,152
762
14
–
–
–
10
1,938
2,409
1,159
1,244
6
–
–
–
6
Asia
$m
3,405
2,573
790
42
–
–
–
39
3,444
4,260
2,880
1,102
278
–
–
–
52
2,415
4,312
MENA
$m
909
180
710
19
–
–
–
15
924
704
182
508
14
–
–
–
31
735
Ageing analysis of days for past due but not impaired gross financial instruments
(Audited)
Loans and advances to customers held at amortised cost
– personal
– corporate and commercial
– non-bank financial institutions
Assets held for sale
– disposal group
– non-current assets held for sale
Other financial instruments
At 31 December 2015
Loans and advances to customers held at amortised cost
– personal
– corporate and commercial
– non-bank financial institutions
Assets held for sale
– disposal group
– non-current assets held for sale
Other financial instruments
At 31 December 2014
Up to 29
days
$m
9,403
5,665
3,432
306
476
476
–
80
30-59
days
$m
1,917
1,401
505
11
137
136
1
35
9,959
2,089
10,427
6,477
3,417
533
–
–
–
130
10,557
2,057
1,717
328
12
–
–
–
33
2,090
HSBC HOLDINGS PLC
127
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Credit risk
Impaired loans
(Audited)
Impaired loans and advances are those that meet any of
the following criteria:
• wholesale loans and advances classified as Customer
Risk Rating (‘CRR’) 9 or CRR 10. These grades are
assigned when the bank considers that either the
customer is unlikely to pay their credit obligations in full
without recourse to security, or when the customer is
more than 90 days past due on any material credit
obligation to HSBC.
• retail loans and advances classified as Expected Loss
(‘EL’) 9 or EL 10. These grades are typically assigned to
retail loans and advances more than 90 days past due
Movement in impaired loans by geographical region
Impaired loans at 1 January 2015
– personal
– corporate and commercial
– financial
Classified as impaired during the year
– personal
– corporate and commercial
– financial
Transferred from impaired to unimpaired during
the year
– personal
– corporate and commercial
– financial
Amounts written off
– personal
– corporate and commercial
– financial
Net repayments and other
– personal
– corporate and commercial
– financial
Impaired loans at 31 December 2015
– personal
– corporate and commercial
– financial
Impaired loans as a percentage of gross loans
– personal
– corporate and commercial
– financial
Europe
$m
10,242
2,544
7,385
313
313
3,909
1,257
2,567
85
(964)
(211)
(734)
(19)
(870)
(280)
(577)
(13)
(2,640)
(780)
(1,778)
(82)
9,677
2,530
6,863
284
%
2.3
1.5
3.6
0.5
unless individually they have been assessed as not
impaired.
• renegotiated loans and advances that have been subject
to a change in contractual cash flows as a result of a
concession which the lender would not otherwise
consider, and where it is probable that without the
concession the borrower would be unable to meet the
contractual payment obligations in full, unless the
concession is insignificant and there are no other
indicators of impairment. Renegotiated loans remain
classified as impaired until there is sufficient evidence to
demonstrate a significant reduction in the risk of non-
payment of future cash flows, and there are no other
indicators of impairment.
Asia
$m
2,048
491
1,545
12
1,893
813
1,079
1
(204)
(169)
(35)
–
(595)
(416)
(179)
–
(767)
(203)
(562)
(2)
2,375
516
1,848
11
%
0.6
0.4
0.9
0.0
MENA
$m
1,981
242
1,696
43
338
178
159
1
(107)
(82)
(6)
(19)
(335)
(113)
(222)
–
(111)
–
(110)
(1)
1,766
225
1,517
24
%
4.5
3.4
6.8
0.2
North
America
$m
Latin
America
$m
11,694
10,826
862
6
2,986
2,245
740
1
(1,786)
(1,699)
(87)
–
(589)
(493)
(95)
(1)
(3,375)
(2,885)
(486)
(4)
8,930
7,994
934
2
%
6.5
13.7
1.5
0.0
3,365
1,057
2,307
1
2,434
1,502
924
8
(245)
(185)
(60)
–
(1,312)
(961)
(351)
–
(3,212)
(1,171)
(2,033)
(8)
1,030
242
787
1
%
4.8
4.1
6.9
0.0
Total
$m
29,330
15,160
13,795
375
11,560
5,995
5,469
96
(3,306)
(2,346)
(922)
(38)
(3,701)
(2,263)
(1,424)
(14)
(10,105)
(5,039)
(4,969)
(97)
23,778
11,507
11,949
322
%
2.3
3.1
2.4
0.2
HSBC HOLDINGS PLC
128
Impaired loans at 1 January 2014
– personal
– corporate and commercial
– financial
Classified as impaired during the year
– personal
– corporate and commercial
– financial
Transferred from impaired to unimpaired during
the year
– personal
– corporate and commercial
– financial
Amounts written off
– personal
– corporate and commercial
– financial
Net repayments and other
– personal
– corporate and commercial
– financial
Impaired loans at 31 December 2014
– personal
– corporate and commercial
– financial
Impaired loans as a percentage of gross loans
– personal
– corporate and commercial
– financial
Europe
$m
13,228
2,938
9,714
576
3,367
1,168
2,166
33
(1,661)
(282)
(1,319)
(60)
(2,037)
(631)
(1,201)
(205)
(2,655)
(649)
(1,975)
(31)
10,242
2,544
7,385
313
%
2.3
1.4
3.5
0.7
At 31 December 2014, our Brazilian impaired loans were
$1.4bn in corporate and commercial and $0.8bn in
personal.
Excluding the Brazilian reclassification to ‘Assets held for
sale’, corporate and commercial impaired loans decreased
$0.4bn including the favourable effects of a $0.8bn foreign
exchange reduction. In personal, the continued run-off of
the US CML portfolio reduced collectively assessed impaired
loan balances by a further $2.7bn. ‘Net repayments and
other’ included $2.1bn of CML portfolio assets that were
reclassified as held for sale or sold during the year. Whilst
there was a reduction in total personal impaired loans,
there was a marginal increase in the UK resulting from
improved identification of impaired residential mortgages.
Renegotiated loans and forbearance
The contractual terms of a loan may be modified for
a number of reasons, including changes in market
conditions, customer retention and other factors not
related to the current or potential credit deterioration of
a customer. ‘Forbearance’ describes concessions made on
the contractual terms of a loan in response to an obligor’s
financial difficulties. We classify and report loans on which
concessions have been granted under conditions of credit
distress as ‘renegotiated loans’ when their contractual
payment terms have been modified because we have
Asia
$m
1,623
526
1,082
15
1,970
857
1,113
–
(230)
(184)
(46)
–
(617)
(470)
(147)
–
(698)
(238)
(457)
(3)
2,048
491
1,545
12
%
0.5
0.4
0.7
0.0
MENA
$m
2,285
317
1,765
203
346
193
153
–
(320)
(178)
(53)
(89)
(111)
(77)
(29)
(5)
(219)
(13)
(140)
(66)
1,981
242
1,696
43
%
4.8
3.7
8.2
0.3
North
America
$m
Latin
America
$m
15,123
13,669
1,427
27
4,724
4,360
354
10
(2,609)
(2,551)
(57)
(1)
(1,369)
(1,007)
(356)
(6)
(4,175)
(3,645)
(506)
(24)
11,694
10,826
862
6
%
8.4
16.6
1.5
0.0
4,244
1,348
2,889
7
3,342
1,958
1,383
1
(730)
(364)
(366)
–
(2,048)
(1,371)
(673)
(4)
(1,443)
(514)
(926)
(3)
3,365
1,057
2,307
1
%
6.1
7.8
7.5
0.0
Total
$m
36,503
18,798
16,877
828
13,749
8,536
5,169
44
(5,550)
(3,559)
(1,841)
(150)
(6,182)
(3,556)
(2,406)
(220)
(9,190)
(5,059)
(4,004)
(127)
29,330
15,160
13,795
375
%
2.7
3.9
2.5
0.2
significant concerns about the borrowers’ ability to meet
contractual payments when due. On renegotiation, where
the existing agreement is cancelled and a new agreement
is made on substantially different terms, or if the terms
of an existing agreement are modified such that the
renegotiated loan is substantially a different financial
instrument, the loan would be derecognised and
recognised as a new loan for accounting purposes.
However, the newly recognised financial asset will retain
the renegotiated loan classification. Concessions on loans
made to customers which do not affect the payment
structure or basis of repayment, such as waivers of
financial or security covenants, do not directly provide
concessionary relief to customers in terms of their ability
to service obligations as they fall due and are therefore
not included in this classification.
The most significant portfolio of renegotiated loans
remained in North America, substantially all of which
were retail loans held by HSBC Finance Corporation
(‘HSBC Finance’).
The following tables show the gross carrying amounts of
the Group’s holdings of renegotiated loans and advances
to customers by industry sector, geography, credit quality
classification and by arrangement type.
HSBC HOLDINGS PLC
129
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Credit risk
Renegotiated loans and advances to customers by geographical region
Europe
$m
Asia
$m
MENA
$m
First lien residential mortgages
– neither past due nor impaired
– past due but not impaired
– impaired
Other personal lending3
– neither past due nor impaired
– past due but not impaired
– impaired
Corporate and commercial
– neither past due nor impaired
– past due but not impaired
– impaired
Non-bank financial institutions
– neither past due nor impaired
– past due but not impaired
– impaired
Renegotiated loans at 31 December 2015
– neither past due nor impaired
– past due but not impaired
– impaired
Impairment allowances on renegotiated loans
– renegotiated loans as % of total gross loans
First lien residential mortgages
– neither past due nor impaired
– past due but not impaired
– impaired
Other personal lending3
– neither past due nor impaired
– past due but not impaired
– impaired
Corporate and commercial
– neither past due nor impaired
– past due but not impaired
– impaired
Non-bank financial institutions
– neither past due nor impaired
– past due but not impaired
– impaired
Renegotiated loans at 31 December 2014
– neither past due nor impaired
– past due but not impaired
– impaired
Impairment allowances on renegotiated loans
– renegotiated loans as % of total gross loans
For footnote, see page 191.
1,461
512
174
775
298
131
51
116
5,215
1,467
109
3,639
340
143
–
197
7,314
2,253
334
4,727
1,402
1.8%
1,605
529
221
855
324
184
40
100
5,469
1,383
68
4,018
413
219
–
194
7,811
2,315
329
5,167
1,458
1.9%
68
47
5
16
272
141
16
115
599
119
–
480
4
–
–
4
943
307
21
615
193
0.3%
94
63
8
23
292
173
22
97
501
102
–
399
4
–
–
4
891
338
30
523
170
0.2%
36
11
4
21
33
24
2
7
1,411
343
14
1,054
272
248
24
–
1,752
626
44
1,082
575
5.6%
58
19
1
38
27
16
5
6
1,439
483
31
925
323
305
–
18
1,847
823
37
987
458
6.1%
North
America
$m
10,680
3,376
1,567
5,737
1,054
410
173
471
638
93
–
545
–
–
–
–
12,372
3,879
1,740
6,753
Latin
America
$m
37
27
3
7
35
10
1
24
506
130
–
376
–
–
–
–
578
167
4
407
1,014
9.5%
155
3.2%
13,540
3,695
1,894
7,951
1,267
453
214
600
427
36
1
390
1
–
–
1
15,235
4,184
2,109
8,942
60
32
5
23
326
14
1
311
1,324
303
1
1,020
1
–
–
1
1,711
349
7
1,355
1,499
11.5%
704
3.7%
Total
$m
12,282
3,973
1,753
6,556
1,692
716
243
733
8,369
2,152
123
6,094
616
391
24
201
22,959
7,232
2,143
13,584
3,339
2.5%
15,357
4,338
2,129
8,890
2,236
840
282
1,114
9,160
2,307
101
6,752
742
524
–
218
27,495
8,009
2,512
16,974
4,289
2.8%
The following table shows movements in renegotiated
loans during the year. Renegotiated loans decreased
by $4.5bn to $23bn in 2015, partly due to the Brazilian
reclassification of $1bn. Renegotiated loans in personal
lending reduced by $3.6bn. Included within ‘other’
movements is $2.1bn of CML portfolio assets that were
transferred to ‘Assets held for sale’. Write-offs reduced as
a result of improvements in US economic conditions and
housing market.
HSBC HOLDINGS PLC
130
Movement in renegotiated loans and advances to customers by geographical region
Renegotiated loans at 1 January 2015
– personal
– corporate and commercial
– non-bank financial institutions
Loans renegotiated in the year without derecognition
– personal
– corporate and commercial
– non-bank financial institutions
Loans renegotiated in the year resulting in recognition
of a new loan
– personal
– corporate and commercial
– non-bank financial institutions
Repayments
– personal
– corporate and commercial
– non-bank financial institutions
Amounts written off
– personal
– corporate and commercial
– non-bank financial institutions
Other
– personal
– corporate and commercial
– non-bank financial institutions
At 31 December 2015
– personal
– corporate and commercial
– non-bank financial institutions
Renegotiated loans at 1 January 2014
– personal
– corporate and commercial
– non-bank financial institutions
Loans renegotiated in the year without derecognition
– personal
– corporate and commercial
– non-bank financial institutions
Loans renegotiated in the year resulting in recognition
of a new loan
– personal
– corporate and commercial
– non-bank financial institutions
Repayments
– personal
– corporate and commercial
– non-bank financial institutions
Amounts written off
– personal
– corporate and commercial
– non-bank financial institutions
Other
– personal
– corporate and commercial
– non-bank financial institutions
At 31 December 2014
– personal
– corporate and commercial
– non-bank financial institutions
Europe
$m
7,811
1,929
5,469
413
1,970
471
1,494
5
222
57
156
9
(1,675)
(574)
(1,054)
(47)
(294)
(45)
(249)
–
(720)
(79)
(601)
(40)
7,314
1,759
5,215
340
9,756
2,251
7,270
235
1,543
433
939
171
500
69
381
50
(2,416)
(635)
(1,757)
(24)
(828)
(88)
(740)
–
(744)
(101)
(624)
(19)
7,811
1,929
5,469
413
Asia
$m
891
386
501
4
421
87
334
–
16
–
16
–
(351)
(88)
(263)
–
(52)
(24)
(28)
–
18
(21)
39
–
943
340
599
4
767
435
330
2
371
83
288
–
5
2
–
3
(246)
(96)
(149)
(1)
(42)
(28)
(14)
–
36
(10)
46
–
891
386
501
4
MENA
$m
1,847
85
1,439
323
115
7
89
19
196
–
4
192
(276)
(32)
(159)
(85)
(11)
(5)
(6)
–
(119)
14
44
(177)
1,752
69
1,411
272
2,094
149
1,583
362
296
10
286
–
79
–
61
18
(562)
(47)
(445)
(70)
(23)
(7)
(16)
–
(37)
(20)
(30)
13
1,847
85
1,439
323
North
America
$m
Latin
America
$m
15,235
14,807
427
1
999
625
374
–
(1)
(1)
–
–
(1,304)
(1,166)
(138)
–
(254)
(241)
(12)
(1)
(2,303)
(2,290)
(13)
–
12,372
11,734
638
–
18,789
18,130
658
1
862
774
78
10
–
–
–
–
(1,518)
(1,319)
(189)
(10)
(640)
(568)
(72)
–
(2,258)
(2,210)
(48)
–
15,235
14,807
427
1
1,711
386
1,324
1
553
250
303
–
175
18
157
–
(467)
(185)
(282)
–
(290)
(139)
(150)
(1)
(1,104)
(258)
(846)
–
578
72
506
–
2,769
607
2,161
1
725
310
415
–
92
28
64
–
(1,036)
(288)
(747)
(1)
(510)
(223)
(286)
(1)
(329)
(48)
(283)
2
1,711
386
1,324
1
Total
$m
27,495
17,593
9,160
742
4,058
1,440
2,594
24
608
74
333
201
(4,073)
(2,045)
(1,896)
(132)
(901)
(454)
(445)
(2)
(4,228)
(2,634)
(1,377)
(217)
22,959
13,974
8,369
616
34,175
21,572
12,002
601
3,797
1,610
2,006
181
676
99
506
71
(5,778)
(2,385)
(3,287)
(106)
(2,043)
(914)
(1,128)
(1)
(3,332)
(2,389)
(939)
(4)
27,495
17,593
9,160
742
A range of forbearance strategies are employed in order
to improve the management of customer relationships,
maximise collection opportunities and, if possible, avoid
default, foreclosure or repossession.
The table below shows the arrangement type as a percentage
of the total value of arrangements offered. Corporate
renegotiated loans often require the granting of more than
one arrangement type as part of an effective strategy. The
HSBC HOLDINGS PLC
131
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Credit risk
percentages reported in the table below includes the effect
of loans being reported in more than one arrangement
type.
Renegotiated loans by arrangement type: corporate and
commercial and financial
Maturity term extensions
Reductions in margin, principal forgiveness, debt
equity swaps and interest, fees or penalty
payment forgiveness
Other changes to repayment profile
Interest only conversion
Other
At 31 December 2015
%
42.4
19.6
14.1
13.9
10.0
100.0
In personal lending, renegotiated loans have been
allocated to the single most dominant arrangement type.
Renegotiated loans by arrangement type: personal lending
Personal
– interest rate and terms modifications
– payment concessions
– collection re-age8
– modification re-age9
– other
At 31 December 2015
For footnotes, see page 191.
%
11.4
6.0
35.0
42.9
4.7
100.0
Impairment of loans and advances
(Audited)
For an analysis of loan impairment charges and other credit risk
provisions by global business, see page 65.
The tables below analyse the loan impairment charges
for the year by industry sector, for impaired loans and
advances that are either individually or collectively
assessed, and collective impairment allowances on loans
and advances that are classified as not impaired.
Loan impairment charge to the income statement by industry sector
Personal
– first lien residential mortgages
– other personal3
Corporate and commercial
– manufacturing and international trade and services
– commercial real estate and other property-related
– other commercial4
Financial
Total loan impairment charge for the year ended
31 December 2015
Personal
– first lien residential mortgages
– other personal3
Corporate and commercial
– manufacturing and international trade and services
– commercial real estate and other property-related
– other commercial4
Financial
Total loan impairment charge for the year ended
31 December 2014
For footnotes, see page 191.
Europe
$m
263
(7)
270
432
158
33
241
14
709
245
(75)
320
790
520
78
192
44
1,079
Asia
$m
309
(1)
310
372
250
18
104
–
681
321
6
315
327
197
29
101
(4)
644
Loan impairment charge to the income statement by assessment type
Individually assessed impairment allowances
– new allowances
– release of allowances no longer required
– recoveries of amounts previously written off
Collectively assessed impairment allowances10
– new allowances net of allowance releases
– recoveries of amounts previously written off
Total loan impairment charge for the year ended
31 December 2015
For footnote, see page 191.
Europe
$m
495
991
(455)
(41)
214
561
(347)
Asia
$m
300
518
(179)
(39)
381
507
(126)
709
681
HSBC HOLDINGS PLC
132
MENA
$m
North
America
$m
Latin
America
$m
Total
$m
1,834
152
1,682
1,769
846
171
752
(11)
983
41
942
451
305
47
99
–
1,434
3,592
1,095
15
1,080
937
382
176
379
1
1,803
(52)
1,855
2,256
1,251
282
723
(4)
157
70
87
319
26
24
269
(7)
469
117
26
91
196
116
27
53
(13)
300
2,033
4,055
MENA
$m
North
America
$m
Latin
America
$m
227
290
(46)
(17)
242
301
(59)
322
401
(93)
14
1,112
1,272
(160)
Total
$m
1,505
2,416
(825)
(86)
2,087
2,809
(722)
469
1,434
3,592
122
49
73
195
107
49
39
(18)
299
25
(24)
49
6
36
(28)
(2)
(32)
(1)
161
216
(52)
(3)
138
168
(30)
299
Individually assessed impairment allowances
– new allowances
– release of allowances no longer required
– recoveries of amounts previously written off
Collectively assessed impairment allowances10
– new allowances net of allowance releases
– recoveries of amounts previously written off
Total loan impairment charge for the year ended
31 December 2014
For footnote, see page 191.
Europe
$m
617
1,112
(486)
(9)
462
757
(295)
Asia
$m
351
542
(171)
(20)
293
426
(133)
MENA
$m
32
134
(95)
(7)
(33)
2
(35)
North
America
$m
Latin
America
$m
190
298
(88)
(20)
110
205
(95)
590
738
(90)
(58)
1,443
1,726
(283)
Total
$m
1,780
2,824
(930)
(114)
2,275
3,116
(841)
1,079
644
(1)
300
2,033
4,055
On a reported basis, loan impairment charges of $3.6bn
were $0.5bn lower than in 2014, primarily due to favourable
currency translation in Latin America and Europe.
The commentary that follows is on a constant currency basis,
while tables are presented on a reported basis.
Loan impairment charges increased by $219m compared
with 2014. Notably, in the fourth quarter of 2015, our loan
impairment charges increased compared with the third
quarter following a rise in individually assessed loan
impairment charges in a small number of countries. This was
reflective of specific circumstances associated with those
countries with no common underlying theme. In addition,
we increased our collectively assessed loan impairment
allowances on exposures related to the oil and gas industry
by $0.2bn. This was primarily in North America, Middle East
and North Africa, and Asia.
The commentary that follows sets out in more detail the
factors that have contributed to movements in loan
impairment charges compared with 2014.
Collectively assessed loan impairment allowances rose by
$221m, mainly in Middle East and North Africa, North
America and Asia, partly offset in Europe. It arose from
the following:
• in Middle East and North Africa (up by $167m), this was
mainly in the UAE and reflected increased impairment
allowances on our residential mortgage book following a
review of the quality and value of collateral. In addition,
loan impairment allowances increased on our corporate
and commercial exposures, notably in the oil and
foodstuffs industries;
• in North America (up by $132m) and Asia (up by $108m),
the increase was in the ‘other commercial’ sector. This
reflected an increase in allowances against our oil and
gas exposures in the regions. In our US CML portfolio,
loan impairment allowances on residential mortgages
were higher than in 2014 following lower favourable
market value adjustments of underlying properties as
improvements in housing market conditions were less
pronounced in 2015.
• in Europe, collectively assessed loan impairment
allowances were $192m lower as 2014 included
additional impairment charges from revisions to certain
estimates used in our corporate collective loan
impairment calculation.
Individually assessed loan impairment allowances were
broadly unchanged from 2014. This reflected decreases in
Latin America, Europe and Asia which were offset by
increases in Middle East and North Africa and in North
America. This included the following:
• in Latin America (down by $95m), Europe (down by
$44m) and Asia (down by $44m), we saw reductions in
individually assessed loan impairment allowances as 2014
included significant impairment charges related to
corporate and commercial exposures in our respective
regions. In Asia, the reduction was partly offset by an
increase in loan impairment allowances against a small
number of customers in Indonesia; and
• in Middle East and North Africa (up by $134m) and North
America (up by $47m), individually assessed loan
impairment allowances increased. In the former, this
primarily related to higher loan impairment allowances
on food wholesalers, while in North America the rise was
in the oil and gas sector.
Charge for impairment losses as a percentage of average gross loans and advances to customers by geographical region
New allowances net of allowance releases
Recoveries
Total charge for impairment losses at 31 December 2015
Amount written off net of recoveries
New allowances net of allowance releases
Recoveries
Total charge for impairment losses at 31 December 2014
Amount written off net of recoveries
Europe
%
Asia
%
MENA
%
America
%
America
%
North
Latin
0.31
(0.11)
0.20
0.25
0.37
(0.08)
0.29
0.49
0.23
(0.05)
0.18
0.12
0.22
(0.04)
0.18
0.13
1.07
(0.11)
0.96
0.97
0.14
(0.14)
–
0.58
0.41
(0.06)
0.35
0.45
0.32
(0.09)
0.23
0.97
5.37
(0.50)
4.87
3.94
5.00
(0.72)
4.28
3.59
Total
%
0.48
(0.09)
0.39
0.37
0.53
(0.10)
0.43
0.58
HSBC HOLDINGS PLC
133
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Credit risk
Movement in impairment allowances by industry sector and by geographical region
Impairment allowances at 1 January 2015
Amounts written off
Personal
– first lien residential mortgages
– other personal3
Corporate and commercial
– manufacturing and international trade and services
– commercial real estate and other property-related
– other commercial4
Financial
Total amounts written off
Recoveries of amounts written off in previous years
Personal
– first lien residential mortgages
– other personal3
Corporate and commercial
– manufacturing and international trade and services
– commercial real estate and other property-related
– other commercial4
Financial
Total recoveries of amounts written off in previous years
Charge to income statement
Exchange and other movements11
Impairment allowances at 31 December 2015
Impairment allowances against banks:
– individually assessed
Impairment allowances against customers:
– individually assessed
– collectively assessed10
Impairment allowances at 31 December 2015
Impairment allowances at 1 January 2014
Amounts written off
Personal
– first lien residential mortgages
– other personal3
Corporate and commercial
– manufacturing and international trade and services
– commercial real estate and other property-related
– other commercial4
Financial
Total amounts written off
Recoveries of amounts written off in previous years
Personal
– first lien residential mortgages
– other personal3
Corporate and commercial
– manufacturing and international trade and services
– commercial real estate and other property-related
– other commercial4
Financial
Total recoveries of amounts written off in previous years
Charge to income statement
Exchange and other movements11
Impairment allowances at 31 December 2014
Impairment allowances against banks:
– individually assessed
Impairment allowances against customers:
– individually assessed
– collectively assessed10
Impairment allowances at 31 December 2014
For footnotes, see page 191.
Europe
$m
4,455
(627)
(12)
(615)
(657)
(234)
(244)
(179)
(12)
(1,296)
340
6
334
46
16
24
6
2
388
709
(387)
3,869
–
2,661
1,208
3,869
5,598
(724)
(21)
(703)
(1,202)
(732)
(342)
(128)
(203)
(2,129)
271
3
268
29
19
11
(1)
4
304
1,079
(397)
4,455
31
2,981
1,443
4,455
HSBC HOLDINGS PLC
134
Asia
$m
1,356
MENA
$m
1,406
(416)
(6)
(410)
(179)
(149)
(5)
(25)
–
(595)
135
4
131
30
20
5
5
–
165
681
(82)
(114)
(1)
(113)
(222)
(214)
(8)
–
–
(336)
30
–
30
3
2
–
1
–
33
299
16
1,525
1,418
–
908
617
1,525
1,214
(463)
(17)
(446)
(146)
(86)
(53)
(7)
–
(609)
143
3
140
9
7
–
2
1
153
644
(46)
18
1,068
332
1,418
1,583
(157)
(4)
(153)
(47)
(41)
(6)
–
(8)
35
–
35
7
7
–
–
–
42
(1)
(6)
North
America
$m
Latin
America
$m
Total
$m
2,640
2,529
12,386
(554)
(344)
(210)
(106)
(28)
(57)
(21)
(2)
(662)
57
26
31
18
8
5
5
1
76
469
(482)
2,041
–
327
1,714
2,041
4,242
(1,030)
(731)
(299)
(346)
(81)
(153)
(112)
(6)
(996)
(24)
(972)
(309)
(213)
(30)
(66)
–
(2,707)
(387)
(2,320)
(1,473)
(838)
(344)
(291)
(14)
(1,305)
(4,194)
119
(17)
136
27
15
2
10
–
146
1,434
(2,084)
720
–
438
282
720
681
19
662
124
61
36
27
3
808
3,592
(3,019)
9,573
18
5,402
4,153
9,573
2,564
15,201
(1,359)
(40)
(1,319)
(684)
(428)
(39)
(217)
(4)
(3,733)
(813)
(2,920)
(2,425)
(1,368)
(593)
(464)
(221)
(6,379)
818
79
739
128
85
15
28
9
955
4,055
(1,446)
12,386
(212)
(1,382)
(2,047)
86
40
46
25
6
3
16
4
115
300
(635)
2,640
283
33
250
58
46
1
11
–
341
2,033
(362)
2,529
1,356
1,406
–
812
544
1,356
18
1,110
278
1,406
–
–
49
276
2,364
2,640
1,016
1,513
2,529
6,195
6,142
12,386
Movement in impairment allowances on loans and advances to customers and banks
(Audited)
At 1 January 2015
Amounts written off
Recoveries of loans and advances previously written off
Charge to income statement
Exchange and other movements11
At 31 December 2015
Impairment allowances:
on loans and advances to customers
– personal
– corporate and commercial
– non-bank financial institutions
as a percentage of loans and advances
At 1 January 2014
Amounts written off
Recoveries of loans and advances previously written off
Charge to income statement
Exchange and other movements11
At 31 December 2014
Impairment allowances:
on loans and advances to customers
– personal
– corporate and commercial
– non-bank financial institutions
as a percentage of loans and advances
For footnotes, see page 191.
Wholesale lending
On a reported basis and excluding the effects of the
Brazilian reclassification of loans and advances to ‘Assets
held for sale’, gross loans decreased by $32bn, mainly due
to adverse foreign exchange effects.
The commentary that follows is on a constant currency
basis, while tables are presented on a reported basis.
Wholesale lending increased by $0.5bn in the year.
However, in Asia it fell by $9.6bn, mainly in Hong Kong and,
to a lesser extent, mainland China and Taiwan. In Asia, the
fourth quarter of 2015 saw lower than expected credit
growth with a continuation of the slowdown in trade, the
repayment of some existing corporate loans and slower
demand for new lending.
In Europe, lending increased by $3.2bn, mainly in the UK
and Germany. In the UK it rose by $1.9bn with increases in
‘financial’ partly offset by decreases in ‘corporate and
commercial’, mainly relating to corporate overdraft
Banks
individually
assessed
$m
Customers
Individually
assessed
$m
Collectively
assessed10
$m
49
–
–
(11)
(20)
18
%
–
$m
58
(6)
–
4
(7)
49
%
–
6,195
(1,368)
86
1,516
(1,027)
5,402
5,402
426
4,800
176
%
0.6
$m
7,072
(2,313)
114
1,776
(454)
6,195
6,195
468
5,532
195
%
0.6
6,142
(2,826)
722
2,087
(1,972)
4,153
4,153
2,453
1,635
65
%
0.4
$m
8,071
(4,060)
841
2,275
(985)
6,142
6,142
4,132
1,909
101
%
0.6
Total
$m
12,386
(4,194)
808
3,592
(3,019)
9,573
9,555
2,879
6,435
241
%
0.9
$m
15,201
(6,379)
955
4,055
(1,446)
12,386
12,337
4,600
7,441
296
%
1.1
balances where a small number of clients benefit from
the use of net interest arrangements between overdrafts
and deposits.
In Middle East and North Africa, overall lending reduced by
$1.2bn with decreases of $3.2bn in ‘financial’ offset by
increases of $2.0bn in ‘corporate and commercial’.
In North America, lending increased by $7.5bn, mainly
comprising $3.7bn in the US and $4.9bn in Canada.
The increase in Canada included: $3.8bn following a change
in balance sheet presentation where certain bankers’
acceptances previously disclosed under ‘Trading assets’
were included in ‘Loans and advances’; and $1.0bn relating
to corporate overdraft balances and the use of net interest
arrangements between overdraft and deposits.
Comparatives have not been restated.
Excluding the effects of the Brazilian reclassification,
lending in Latin America increased by $0.6bn, mainly in
Argentina.
HSBC HOLDINGS PLC
135
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Credit risk
Total wholesale lending
Corporate and commercial (A)
– manufacturing
– international trade and services
– commercial real estate
– other property-related
– government
– other commercial4
Financial
– non-bank financial institutions (B)
– banks (C)
Europe
$m
191,765
39,003
62,667
26,256
7,323
3,653
52,863
51,969
33,621
18,348
Asia
$m
211,224
34,272
72,199
32,371
35,206
1,132
36,044
68,321
13,969
54,352
Gross loans at 31 December 2015 (D)
243,734
279,545
Impairment allowances on wholesale lending
Corporate and commercial (a)
– manufacturing
– international trade and services
– commercial real estate
– other property-related
– government
– other commercial
Financial
– non-bank financial institutions (b)
– banks (c)
2,735
528
813
613
237
6
538
194
194
–
1,256
254
599
35
72
–
296
13
13
–
MENA
$m
22,268
2,504
9,552
690
1,908
1,695
5,919
10,239
2,321
7,918
32,507
1,157
135
439
145
267
–
171
22
4
18
Impairment allowances at 31 December 2015 (d)
2,929
1,269
1,179
(a) as a percentage of (A)
(b) as a percentage of (B)
(c) as a percentage of (C)
(d) as a percentage of (D)
Corporate and commercial (E)
– manufacturing
– international trade and services
– commercial real estate
– other property-related
– government
– other commercial4
Financial
– non-bank financial institutions (F)
– banks (G)
%
1.4
0.6
–
1.2
$m
212,523
39,456
76,629
28,187
7,126
2,264
58,861
45,081
23,103
21,978
%
0.6
0.1
–
0.5
$m
220,799
37,767
72,814
35,678
34,379
1,195
38,966
76,957
13,997
62,960
Gross loans at 31 December 2014 (H)
257,604
297,756
Impairment allowances on wholesale lending
Corporate and commercial (e)
– manufacturing
– international trade and services
– commercial real estate
– other property-related
– government
– other commercial
Financial
– non-bank financial institutions (f)
– banks (g)
3,112
529
877
909
203
4
590
252
221
31
1,089
242
533
44
55
–
215
13
13
–
%
5.2
0.2
0.2
3.6
$m
20,588
2,413
9,675
579
1,667
1,552
4,702
13,786
3,291
10,495
34,374
1,171
141
536
147
219
1
127
39
21
18
Impairment allowances at 31 December 2014 (h)
3,364
1,102
1,210
(e) as a percentage of (E)
(f) as a percentage of (F)
(g) as a percentage of (G)
(h) as a percentage of (H)
For footnote, see page 191.
%
1.5
0.9
0.1
1.3
%
0.5
0.1
–
0.4
%
5.7
0.6
0.2
3.5
HSBC HOLDINGS PLC
136
North
America
Latin
America
$m
62,882
17,507
11,505
7,032
8,982
203
17,653
16,308
9,822
6,486
79,190
777
140
123
76
55
–
383
30
30
–
807
%
1.2
0.3
–
1.0
$m
57,993
15,299
13,484
6,558
8,934
164
13,554
16,439
9,034
7,405
74,432
608
152
157
101
57
–
141
39
39
–
647
%
1.0
0.4
–
0.9
$m
11,374
2,572
3,096
1,577
45
772
3,312
3,996
681
3,315
Total
$m
499,513
95,858
159,019
67,926
53,464
7,455
115,791
150,833
60,414
90,419
15,370
650,346
510
49
48
343
1
2
67
–
–
–
510
%
4.5
–
–
3.3
$m
30,722
12,051
8,189
2,291
281
968
6,942
10,753
1,393
9,360
6,435
1,106
2,022
1,212
632
8
1,455
259
241
18
6,694
%
1.3
0.4
–
1.0
$m
542,625
106,986
180,791
73,293
52,387
6,143
123,025
163,016
50,818
112,198
41,475
705,641
1,461
348
237
476
12
–
388
2
2
–
7,441
1,412
2,340
1,677
546
5
1,461
345
296
49
1,463
7,786
%
4.8
0.1
–
3.5
%
1.4
0.6
–
1.1
Commercial real estate
Commercial real estate lending
Neither past due nor impaired
Past due but not impaired
Impaired loans
Total gross loans and advances at 31 December 2015
Of which:
– renegotiated loans12
Impairment allowances
Neither past due nor impaired
Past due but not impaired
Impaired loans
Total gross loans and advances at 31 December 2014
Of which:
– renegotiated loans12
Impairment allowances
For footnote, see page 191.
Europe
$m
24,533
89
1,634
26,256
1,586
613
25,860
18
2,309
28,187
1,954
909
Asia
$m
32,182
119
70
32,371
6
35
35,430
170
78
35,678
19
44
MENA
$m
North
America
$m
Latin
America
$m
466
25
199
690
182
145
333
47
199
579
183
147
6,659
212
161
7,032
150
76
6,136
100
322
6,558
191
101
1,086
9
482
1,577
210
343
1,535
28
728
2,291
377
476
Total
$m
64,926
454
2,546
67,926
2,134
1,212
69,294
363
3,636
73,293
2,724
1,677
Commercial real estate lending includes the financing of
corporate, institutional and high net worth individuals who
are investing primarily in income-producing assets and, to a
lesser extent, in their construction and development. The
business focuses mainly on traditional core asset classes
such as retail, offices, light industrial and residential
building projects. The portfolio is globally diversified with
larger concentrations in Hong Kong, the UK, the US and
Canada.
In more developed markets, our exposure mainly
comprises the financing of investment assets, the
redevelopment of existing stock and the augmentation
of both commercial and residential markets to support
economic and population growth. In lesser developed
commercial real estate markets our exposures comprise
lending for development assets on relatively short tenors
with a particular focus on supporting the larger, better
capitalised developers involved in residential construction
or in assets supporting economic expansion.
Our global exposure is centred largely on cities representing
key locations of economic, political or cultural significance.
In many lesser developed markets, industry is evolving to
move away from the development and rapid construction
of recent years to increasingly focus on investment stock
consistent with more developed markets.
Excluding the effects of the Brazilian reclassification,
commercial real estate lending was lower by $4.5bn
including decreases of $3.2bn relating to adverse foreign
exchange movements.
The commentary that follows is on a constant currency
basis, while tables are presented on a reported basis.
The commercial real estate lending was lower by $1.3bn,
largely due to a decrease of $2.6bn in Asia, mainly in
Hong Kong and, to a lesser extent, mainland China and
Singapore. The decrease in Asia was mainly due to the
repayment and maturity of loans and was partly offset by
increases of $1.0bn in North America and $0.4bn in
Mexico. Europe and Middle East and Africa remained
largely unchanged.
Refinance risk in commercial real estate
Commercial real estate lending tends to require the
repayment of a significant proportion of the principal at
maturity. Typically, a customer will arrange repayment
through the acquisition of a new loan to settle the existing
debt. Refinance risk is the risk that a customer, being unable
to repay the debt on maturity, fails to refinance it at
commercial rates. We monitor our commercial real estate
portfolio closely, assessing those drivers that may indicate
potential issues with refinancing. The principal driver is the
vintage of the loan, when origination reflected previous
market norms which do not apply in the current market.
Examples might be higher loan-to-value (‘LTV’) ratios and/or
lower interest cover ratios. The range of refinancing sources
in the local market is also an important consideration, with
risk increasing when lenders are restricted to banks and
when bank liquidity is limited. In addition, underlying
fundamentals such as the reliability of tenants, the ability to
let and the condition of the property are important as they
influence property values.
HSBC HOLDINGS PLC
137
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Credit risk
Commercial real estate loans and advances maturity analysis
On demand, overdrafts or revolving
< 1 year13
1-2 years
2-5 years
> 5 years
At 31 December 2015
On demand, overdrafts or revolving
< 1 year13
1-2 years
2-5 years
> 5 years
At 31 December 2014
For footnote, see page 191.
Europe
$m
6,830
4,367
11,459
3,600
26,256
7,382
4,643
11,686
4,476
28,187
Asia
$m
8,811
5,934
11,399
6,227
32,371
9,810
6,689
12,156
7,023
35,678
MENA
$m
North
America
$m
Latin
America
$m
252
66
235
137
690
264
24
156
135
579
2,992
939
2,037
1,064
7,032
1,855
1,158
2,131
1,414
6,558
694
102
138
643
1,577
1,325
205
320
441
2,291
Total
$m
19,579
11,408
25,268
11,671
67,926
20,636
12,719
26,449
13,489
73,293
Collateral on loans and advances
Collateral held is analysed separately below for commercial
real estate and for other corporate, commercial and
financial (non-bank) lending. This reflects the greater
correlation between collateral performance and principal
repayment in the commercial real estate sector than
applies to other lending. In each case, the analysis includes
off-balance sheet loan commitments, primarily undrawn
credit lines.
The collateral measured in the tables below consists of
fixed first charges on real estate and charges over cash and
marketable financial instruments. The values in the tables
represent the expected market value on an open market
basis; no adjustment has been made to the collateral for
any expected costs of recovery. Cash is valued at its
nominal value and marketable securities at their fair
value. The LTV ratios presented are calculated by directly
associating loans and advances with the collateral that
individually and uniquely supports each facility. When
collateral assets are shared by multiple loans and advances,
whether specifically or, more generally, by way of an all
monies charge, the collateral value is pro-rated across
the loans and advances protected by the collateral.
Other types of collateral which are commonly taken for
corporate and commercial lending such as unsupported
guarantees and floating charges over the assets of a
customer’s business are not measured in the tables below.
While such mitigants have value, often providing rights in
insolvency, their assignable value is not sufficiently certain
and they are therefore assigned no value for disclosure
purposes.
For impaired loans the collateral values cannot be directly
compared with impairment allowances recognised. The LTV
tables below use open market values with no adjustments.
Impairment allowances are calculated on a different basis,
by considering other cash flows and adjusting collateral
values for costs of realising collateral as explained further
on page 202.
Commercial real estate loans and advances
The value of commercial real estate collateral is determined
by using a combination of professional and internal valuations
and physical inspections. Due to the complexity of valuing
collateral for commercial real estate, local valuation policies
determine the frequency of review on the basis of local market
conditions. Revaluations are sought with greater frequency as
concerns over the performance of the collateral or the direct
obligor increase. Revaluations may also be sought where
customers amend their banking requirements, resulting in
the Group extending further funds or other significant
rearrangements of exposure or collateral, which may change
the customer risk profile. As a result, the real estate collateral
values used for CRR1-7 might date back to the last point at
which such considerations applied. For CRR 8 and 9-10 almost
all collateral would have been revalued within the last
three years.
In Hong Kong, market practice is typically for lending
to major property companies to be either secured
by guarantees or unsecured. In Europe, facilities of
a working capital nature are generally not secured by
a first fixed charge and are therefore disclosed as not
collateralised.
HSBC HOLDINGS PLC
138
Commercial real estate loans and advances including loan commitments by level of collateral
(Audited)
Rated CRR/EL 1 to 7
Not collateralised
Fully collateralised
Partially collateralised (A)
– collateral value on A
Rated CRR/EL 8
Not collateralised
Fully collateralised
LTV ratio:
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (B)
– collateral value on B
Rated CRR/EL 9 to 10
Not collateralised
Fully collateralised
LTV ratio:
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (C)
– collateral value on C
At 31 December 2015
Rated CRR/EL 1 to 7
Not collateralised
Fully collateralised
Partially collateralised (D)
– collateral value on D
Rated CRR/EL 8
Not collateralised
Fully collateralised
LTV ratio:
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (E)
– collateral value on E
Rated CRR/EL 9 to 10
Not collateralised
Fully collateralised
LTV ratio:
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (F)
– collateral value on F
At 31 December 2014
Europe
$m
4,498
25,773
3,025
2,106
33,296
28
668
86
377
174
31
120
87
816
65
900
174
425
140
161
716
397
1,681
35,793
5,351
25,873
1,384
1,032
32,608
34
568
64
222
132
150
365
296
967
369
992
78
593
167
154
1,085
664
2,446
36,021
Asia
$m
12,329
26,270
1,924
1,175
40,523
MENA
$m
499
36
–
–
535
North
America
Latin
America
$m
$m
8
9,997
1,264
981
500
542
52
8
11,269
1,094
–
4
–
4
–
–
1
–
5
51
18
10
2
2
4
5
3
74
40,602
16,132
26,323
1,599
901
44,054
7
23
–
11
9
3
–
–
30
48
15
6
2
2
5
15
5
78
44,162
–
–
–
–
–
–
–
–
–
5
7
7
–
–
–
181
89
193
728
361
23
–
–
384
–
–
–
–
–
–
–
–
–
6
7
7
–
–
–
181
89
194
578
–
9
5
4
–
–
1
–
10
2
76
15
27
10
24
66
35
144
11,423
87
9,093
1,819
1,199
10,999
9
30
16
10
4
–
7
2
46
1
166
28
91
17
30
37
30
–
1
1
–
–
–
–
–
1
299
123
15
59
4
45
64
31
486
1,581
1,719
556
152
47
2,427
2
1
1
–
–
–
–
–
3
499
178
10
43
53
72
50
13
204
11,249
727
3,157
Total
$m
17,834
62,618
6,265
4,270
86,717
28
682
92
385
174
31
122
87
832
422
1,124
221
513
156
234
1,032
555
2,578
90,127
23,650
61,868
4,954
3,179
90,472
52
622
81
243
145
153
372
298
1,046
923
1,358
129
729
239
261
1,368
801
3,649
95,167
HSBC HOLDINGS PLC
139
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Credit risk
Other corporate, commercial and financial (non-bank) loans
are analysed separately below. For financing activities in
other corporate and commercial lending, collateral value is
not strongly correlated to principal repayment performance.
Collateral values are generally refreshed when an obligor’s
general credit performance deteriorates and we have to
assess the likely performance of secondary sources of
repayment should it prove necessary to rely on them.
Accordingly, the table below reports values only for
customers with CRR 8 to 10, recognising that these
loans and advances generally have valuations which
are comparatively recent.
Other corporate, commercial and non-bank financial institutions loans and advances including loan commitments by level of
collateral rated CRR/EL 8 to 10 only
(Audited)
MENA
$m
North
America
Latin
America
$m
$m
Rated CRR/EL 8
Not collateralised
Fully collateralised
LTV ratio:
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (A)
– collateral value on A
Rated CRR/EL 9 to 10
Not collateralised
Fully collateralised
LTV ratio:
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (B)
– collateral value on B
At 31 December 2015
Rated CRR/EL 8
Not collateralised
Fully collateralised
LTV ratio:
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (C)
– collateral value on C
Rated CRR/EL 9 to 10
Not collateralised
Fully collateralised
LTV ratio:
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised (D)
– collateral value on D
At 31 December 2014
Europe
$m
1,618
434
65
337
28
4
109
73
2,161
2,850
824
283
346
96
99
1,702
795
5,376
7,537
2,051
629
120
293
51
165
105
46
2,785
4,185
615
169
136
168
142
624
341
5,424
8,209
Asia
$m
164
41
13
8
18
2
47
17
252
889
440
94
149
74
123
506
236
36
–
–
–
–
–
1
–
37
814
188
46
3
25
114
441
55
1,835
2,087
1,443
1,480
237
56
13
–
9
34
44
17
337
939
143
68
27
16
32
364
169
15
72
–
–
69
3
1
1
88
813
147
25
19
6
97
547
92
1,446
1,783
1,507
1,595
Total
$m
2,529
930
174
430
214
112
336
148
3,795
4,877
1,853
514
553
231
555
3,079
1,374
9,809
13,604
2,850
1,099
324
371
175
229
304
136
102
1
1
–
–
–
–
–
103
244
78
44
8
9
17
7
5
329
432
227
11
5
6
–
–
6
4
244
4,253
1,420
124
48
35
26
15
140
46
1,684
1,928
7,419
1,260
358
256
251
395
1,926
789
10,605
14,858
609
454
95
85
168
106
179
58
1,242
80
323
47
47
27
202
423
283
826
2,068
320
331
186
72
46
27
148
68
68
799
62
231
48
39
35
109
251
141
544
1,343
HSBC HOLDINGS PLC
140
Other credit risk exposures
In addition to collateralised lending, other credit
enhancements are employed and methods used to
mitigate credit risk arising from financial assets. These
are described in more detail below:
• some securities issued by governments, banks and other
financial institutions benefit from additional credit
enhancement provided by government guarantees
that cover the assets.
• debt securities issued by banks and financial institutions
include ABSs and similar instruments which are supported
by underlying pools of financial assets. Credit risk
associated with ABSs is reduced through the purchase
of credit default swap (‘CDS’) protection.
Disclosure of the Group’s holdings of ABSs and associated CDS
protection is provided on page 153.
• trading assets include loans and advances held
with trading intent. These mainly consist of cash
collateral posted to satisfy margin requirements on
derivatives, settlement accounts, reverse repos and
stock borrowing. There is limited credit risk on cash
collateral posted since in the event of default of the
counterparty these would be set-off against the related
liability. Reverse repos and stock borrowing are by their
nature collateralised.
Collateral accepted as security that the Group is permitted
to sell or repledge under these arrangements is described on
page 162 on the Financial Statements.
• the Group’s maximum exposure to credit risk includes
financial guarantees and similar contracts granted, as
well as loan and other credit-related commitments.
Depending on the terms of the arrangement, we may
have recourse to additional credit mitigation in the
event that a guarantee is called upon or a loan
commitment is drawn and subsequently defaults.
For further information on these arrangements, see Note 37
on the Financial Statements.
Derivatives
HSBC participates in transactions exposing us to
counterparty credit risk. Counterparty credit risk is the
risk of financial loss if the counterparty to a transaction
defaults before satisfactorily settling it. It arises principally
from OTC derivatives and securities financing transactions
and is calculated in both the trading and non-trading books.
Transactions vary in value by reference to a market factor
such as interest rate, exchange rate or asset price.
The counterparty risk from derivative transactions is taken
into account when reporting the fair value of derivative
positions. The adjustment to the fair value is known as the
credit value adjustment (‘CVA’).
For an analysis of CVA, see Note 13 on the Financial Statements.
The table below reflects by risk type the fair values and
gross notional contract amounts of derivatives cleared
through an exchange, central counterparty and non-central
counterparty.
HSBC HOLDINGS PLC
141
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Credit risk
Notional contract amounts and fair values of derivatives by product type
Foreign exchange
– exchange traded
– central counterparty cleared OTC
– non-central counterparty cleared OTC
Interest rate
– exchange traded
– central counterparty cleared OTC
– non-central counterparty cleared OTC
Equity
– exchange traded
– non-central counterparty cleared OTC
Credit
– central counterparty cleared OTC
– non-central counterparty cleared OTC
Commodity and other
– exchange traded
– non-central counterparty cleared OTC
Notional
amount
$m
5,690,354
195,612
29,263
5,465,479
14,675,036
1,259,888
8,774,674
4,640,474
501,834
265,129
236,705
463,344
90,863
372,481
51,683
8,136
43,547
2015
Fair value
Assets
$m
96,341
167
406
95,768
279,154
49
117,877
161,228
8,732
1,888
6,844
6,961
1,779
5,182
3,148
38
3,110
Liabilities
$m
95,598
76
443
95,079
271,367
8
117,695
153,664
10,383
2,601
7,782
6,884
2,069
4,815
2,699
–
2,699
Notional
amount
$m
5,573,415
81,785
18,567
5,473,063
22,328,518
1,432,333
15,039,001
5,857,184
568,932
289,140
279,792
550,197
126,115
424,082
77,565
7,015
70,550
2014
Fair value
Assets
$m
97,312
229
321
96,762
473,243
112
261,880
211,251
11,694
2,318
9,376
9,340
1,999
7,341
3,884
80
3,804
Liabilities
$m
95,759
369
349
95,041
468,152
161
264,509
203,482
13,654
3,201
10,453
10,061
2,111
7,950
3,508
23
3,485
Total OTC derivatives
19,653,486
392,194
384,246
27,288,354
592,735
587,379
– total OTC derivatives cleared by central
counterparties
– total OTC derivatives not cleared by central
counterparties
Total exchange traded derivatives
Gross
Offset
Total at 31 December
8,894,800
120,062
120,207
15,183,683
264,200
266,968
10,758,686
272,132
264,039
12,104,671
328,535
320,411
1,728,765
21,382,251
2,142
394,336
2,685
1,810,273
2,739
3,755
386,931
29,098,627
595,473
591,134
(105,860)
(105,860)
288,476
281,071
(250,465)
(250,465)
345,008
340,669
The purposes for which HSBC uses derivatives are described in
Note 16 on the Financial Statements.
The International Swaps and Derivatives Association
(‘ISDA’) Master Agreement is our preferred agreement
for documenting derivatives activity. It provides the
contractual framework within which dealing activity
across a full range of OTC products is conducted, and
contractually binds both parties to apply close-out
netting across all outstanding transactions covered by an
agreement if either party defaults or another pre-agreed
termination event occurs. It is common, and our preferred
practice, for the parties to execute a Credit Support Annex
(‘CSA’) in conjunction with the ISDA Master Agreement.
Under a CSA, collateral is passed between the parties to
mitigate the counterparty risk inherent in outstanding
positions.
We manage the counterparty exposure arising from market
risk on our OTC derivative contracts by using collateral
agreements with counterparties and netting agreements.
Currently, we do not actively manage our general OTC
derivative counterparty exposure in the credit markets,
although we may manage individual exposures in certain
circumstances.
We place strict policy restrictions on collateral types and as
a consequence the types of collateral received and pledged
are, by value, highly liquid and of a strong quality, being
predominantly cash.
Where a collateral type is required to be approved outside
the collateral policy (which includes collateral that includes
wrong way risks), a submission to one of three regional
Documentation Approval Committees (‘DAC’s) for approval
is required. These DACs require the participation and sign-
off of senior representatives from regional Markets Chief
Operating Officers, Legal and Risk.
The majority of our CSAs are with financial institutional
clients.
As a consequence of our policy, the type of agreement
we enter into is predominately ISDA CSAs, the majority
of which are written under English law. The table below
provides a breakdown of OTC collateral agreements by
agreement type:
OTC collateral agreements by type
ISDA CSA (English law)
ISDA CSA (New York law)
ISDA CSA (Japanese law)
French Master Agreement and CSA equivalent14
German Master Agreement and CSA equivalent15
Others
At 31 December 2015
For footnotes, see page 191.
Number of
agreements
2,670
1,702
17
223
93
395
5,100
HSBC HOLDINGS PLC
142
See page 122 and Note 32 on the Financial Statements for details
regarding legally enforceable right of offset in the event of
counterparty default and collateral received in respect of
derivatives.
Reverse repos – non-trading by geographical region
The amount of non-trading reverse repos include
transactions with customers and banks and is set out
below.
Reverse repos – non-trading by geographical region
(Audited)
Europe
$m
28,366
15,824
44,190
25,841
34,748
60,589
Asia
$m
5,650
21,804
27,454
5,409
22,813
28,222
MENA
$m
–
779
779
–
19
19
North
America
$m
Latin
America
$m
40,316
32,034
72,350
35,060
29,008
64,068
–
1,482
1,482
–
8,815
8,815
Total
$m
74,332
71,923
146,255
66,310
95,403
161,713
loans are secured by the assets being acquired. We also
offer loans secured on existing assets, such as first liens on
residential property, and unsecured lending products such
as overdrafts, credit cards and payroll loans.
With customers
With banks
At 31 December 2015
With customers
With banks
At 31 December 2014
Personal lending
We provide a broad range of secured and unsecured
personal lending products to meet customer needs.
Personal lending includes advances to customers for
asset purchases such as residential property where the
Total personal lending
First lien residential mortgages (A)
Of which:
– interest only (including offset)
– affordability including ARMs
Other personal lending (B)
– other
– credit cards
– second lien residential mortgages
– motor vehicle finance
Europe
$m
125,544
40,906
356
44,982
32,862
12,115
–
5
Asia
$m
94,606
936
3,966
38,101
27,682
10,189
33
197
Total gross loans at 31 December 2015 (C)
170,526
132,707
Impairment allowances on personal lending
First lien residential mortgages (a)
Other personal lending (b)
– other
– credit cards
– second lien residential mortgages
– motor vehicle finance
Total impairment allowances at 31 December 2015 (c)
(a) as a percentage of A
(b) as a percentage of B
(c) as a percentage of C
278
667
401
265
–
1
945
%
0.2
1.5
0.6
29
227
104
122
–
1
256
%
0.0
0.6
0.2
MENA
$m
2,258
–
–
4,447
3,147
929
2
369
6,705
24
214
180
29
–
5
238
%
1.1
4.8
3.5
North
America
$m
50,117
180
17,041
8,069
3,284
996
3,762
27
58,186
991
241
31
30
180
–
1,232
%
2.0
3.0
2.1
Latin
America
$m
Total
$m
1,986
274,511
–
–
3,972
1,816
1,780
–
376
5,958
22
186
80
102
–
4
208
%
1.1
4.7
3.5
42,022
21,363
99,571
68,791
26,009
3,797
974
374,082
1,344
1,535
796
548
180
11
2,879
%
0.5
1.5
0.8
HSBC HOLDINGS PLC
143
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Credit risk
Total personal lending (continued)
First lien residential mortgages (D)
Of which:
– interest only (including offset)
– affordability including ARMs
Other personal lending (E)
– other
– credit cards
– second lien residential mortgages
– motor vehicle finance
Total gross loans at 31 December 2014 (F)
Impairment allowances on personal lending
First lien residential mortgages (d)
Other personal lending (e)
– other
– credit cards
– second lien residential mortgages
– motor vehicle finance
Total impairment allowances at 31 December 2014 (f)
(d) as a percentage of D
(e) as a percentage of E
(f) as a percentage of F
Europe
$m
131,000
44,163
337
47,531
34,567
12,959
–
5
Asia
$m
93,147
956
5,248
36,368
25,695
10,289
56
328
178,531
129,515
306
786
438
347
–
1
1,092
%
0.2
1.7
0.6
46
208
87
119
–
2
254
%
–
0.6
0.2
MENA
$m
2,647
–
–
3,924
2,633
897
2
392
6,571
97
97
59
33
–
5
194
%
3.7
2.5
3.0
North
America
$m
55,577
276
16,452
9,823
4,328
1,050
4,433
12
65,400
1,644
350
43
36
271
–
1,994
%
3.0
3.6
3.0
Latin
America
$m
4,153
–
–
9,384
4,846
3,322
–
1,216
13,537
36
1,030
672
298
–
60
1,066
%
0.9
11.0
7.9
Total
$m
286,524
45,395
22,037
107,030
72,069
28,517
4,491
1,953
393,554
2,129
2,471
1,299
833
271
68
4,600
%
0.7
2.3
1.2
On a reported basis, total personal lending was $374bn at
31 December 2015, down from $394bn at the end of 2014.
The reduction of $20bn was mainly due to adverse foreign
exchange movements of $19bn, the reclassification of
$7.6bn of assets of our Brazilian operations as ‘Assets held
for sale’ and the run-off of our CML portfolio in North
America of $5bn during the year. Excluding these factors,
personal lending balances grew by $12bn in 2015. This was
primarily driven by increased mortgage and other lending
in Asia.
Loan impairment allowances reduced by $1.7bn on a
reported basis, mainly due to the Brazilian reclassification
($0.8bn) and the run-off of the US CML portfolio ($0.7bn).
Personal lending loan impairment charges were largely
unchanged at $1.8bn on a reported basis. On a constant
currency basis, they were $0.3bn higher than in 2014,
reflecting increased write-offs in the UAE following a
review of the quality and value of residential mortgage
collateral and the effects of adverse macroeconomic
conditions in Brazil.
Mortgage lending
We offer a wide range of mortgage products designed
to meet customer needs, including capital repayment,
interest-only, affordability and offset mortgages.
Group credit policy prescribes the range of acceptable
residential property LTV thresholds with the maximum
upper limit for new loans set at between 75% and 95%.
Specific LTV thresholds and debt-to-income ratios are
managed at regional and country levels and, although the
parameters must comply with Group policy, strategy and
risk appetite, they differ in the various locations in which
we operate to reflect the local economic and housing
market conditions, regulations, portfolio performance,
pricing and other product features.
Reported gross mortgage lending balances declined by
$12bn. Adverse foreign exchange differences and the
Brazilian reclassification reduced the gross mortgage
lending balances by further $13bn and $2.1bn respectively.
The commentary that follows is on a constant currency
basis, while tables are presented on a reported basis.
Excluding the effect of the Brazilian reclassification and the
US CML run-off portfolio, mortgage lending balances
increased by $7.7bn during the year.
Mortgage lending in Asia, excluding the reclassification to
other personal lending discussed on page 145, grew by
$6.4bn. The increases were primarily attributable to
continued growth in Hong Kong ($4.2bn), mainland China
($1.7bn) and Australia ($1.1bn) as a result of strong
demand and our competitive customer offerings. During
the year, mortgage lending in Singapore fell by $1.1bn
due to a business decision to constrain the level of our
mortgage portfolio, coupled with the effect of a range of
personal lending regulations. The quality of our Asian
mortgage book remained high with negligible defaults and
impairment allowances. The average LTV ratio on new
mortgage lending in Hong Kong was 43% compared with an
estimated 29% for the overall portfolio.
In North America, the US CML portfolio, including second
lien mortgages, declined by $5.2bn in 2015 as we
continued to run it off. The US Premier mortgage portfolio
increased by $1.1bn during 2015 as we focused on growth
in our core portfolios of higher quality mortgages. Our
Canadian mortgage lending balances also grew by $0.8bn
during the year. Collectively assessed impairment
allowances reduced during the year due to continued
improvements in the credit quality of the mortgage
portfolio and continued loan sales.
In Europe, UK mortgage balances were unchanged and our
products remained competitive in the prolonged low
interest rate market environment. In the UK, the credit
HSBC HOLDINGS PLC
144
quality of our mortgage portfolio remained high, the LTV
ratio on new lending was 57.8% compared with an average
of 42.6% for the overall portfolio.
Exposure to UK interest-only mortgage loans
Interest-only mortgage products made up $40bn of total
UK mortgage lending, including $16bn of offset mortgages
in First Direct and $1.7bn of endowment mortgages.
The following information is presented for HSBC Bank plc’s
UK interest-only mortgage loans with balances of $18bn
at the end of 2015. $0.2bn of interest-only mortgages
matured during 2015. Of these, 2,636 loans with total
balances of $0.1bn were repaid in full, 164 loans with
balances of $0.03bn have agreed future repayment plans
and 550 loans with balances of $0.1bn are subject to
ongoing individual assessments.
The profile of expiring UK interest-only loans was as
follows:
UK interest-only mortgage loans
2015 expired interest-only mortgage loans
Interest-only mortgage loans by maturity
– 2016
– 2017
– 2018
– 2019
– 2020
– 2021-2025
– Post 2025
Total at 31 December 2015
Other personal lending
$m
266
314
384
723
801
805
3,997
10,390
17,680
Reported other personal lending balances declined
by $7.5bn during the year, mainly due to adverse foreign
exchange movements of $5.8bn and the Brazilian
reclassification of $5.5bn. The reduction was offset by
the growth in other personal lending in Hong Kong.
The commentary that follows is on a constant currency
basis, while tables are presented on a reported basis.
Excluding the Brazilian reclassification, other personal
lending increased by $4bn in 2015. This was driven by
strong growth in personal loans and overdrafts in Hong
Kong ($1.5bn), other unsecured personal lending portfolio
in UK ($0.7bn) and other personal lending in France
($0.6bn). In Mexico, other unsecured personal lending
grew by $0.6bn mainly in payroll and personal loans as a
result of various sales and credit initiatives. In addition, we
reclassified a total of $1.8bn of loans in Malaysia and India,
and $0.4bn in the UAE, from residential mortgages to other
personal lending following a review of the supporting
collateral.
HSBC Finance
HSBC Finance US Consumer and Mortgage Lending –
residential mortgages16
Residential mortgages:
– first lien
Other personal lending:
– second lien
Total (A) at 31 December
Impairment allowances
– as a percentage of A
For footnote, see page 191.
2015
$m
2014
$m
17,157
21,915
2,089
19,246
986
5.1%
2,509
24,424
1,679
6.9%
Mortgage lending balances in HSBC Finance declined by
$5.2bn or 21% during 2015. In addition to the continued
loan sales in the CML portfolio, we transferred a further
$2.4bn to ‘Assets held for sale’ during the year, and these
loans were sold in May, August and November 2015.
There was a decrease in impairment allowances reflecting
reduced levels of delinquency, and lower levels of both
new impaired loans and loan balances outstanding as a
result of continued liquidation of the portfolio.
Among the first and second lien residential mortgages in
our CML portfolio, two months and over delinquent
balances halved to $1.2bn during 2015.
At 31 December 2015, renegotiated real estate secured
accounts in HSBC Finance represented 91% (2014: 93%)
of North America’s total renegotiated loans. $5.1bn of
renegotiated real estate secured loans was classified as
impaired (2014: $7.6bn).
HSBC Bank USA
In HSBC Bank USA, mortgage balances grew by $1.1bn
to $18bn at 31 December 2015 as we continued to
implement our strategy to grow the HSBC Premier and
Advance customer base. We continued to sell all agency-
eligible new originations in the secondary market.
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
HSBC HOLDINGS PLC
145
Report of the Directors: Risk (continued)
Credit risk
Trends in two months and over contractual delinquency in the US
In personal lending in the US
First lien residential mortgages
– Consumer and Mortgage Lending
– other mortgage lending
Second lien residential mortgages
– Consumer and Mortgage Lending
– other mortgage lending
Credit card
Personal non-credit card
Total at 31 December
As a percentage of the equivalent loans and receivables balances
First lien residential mortgages
Second lien residential mortgages
Credit card
Personal non-credit card
Total at 31 December
Gross loan portfolio of HSBC Finance real estate secured balances
2015
$m
1,954
1,049
905
161
106
55
16
3
2,134
%
5.7
4.4
2.3
0.7
5.4
2014
$m
3,271
2,210
1,061
216
154
62
17
7
3,511
%
8.6
5.0
2.4
1.4
8.1
Re-aged17
$m
4,858
6,637
Modified
and re-aged
$m
5,257
6,581
Total
renegotiated
loans
$m
Total non-
renegotiated
loans
$m
Modified
$m
Total
gross
loans
$m
Total
impairment
allowances
$m
Impairment
allowances/
gross loans
%
519
587
10,634
13,805
8,612
10,619
19,246
24,424
986
1,679
5.1
6.9
At 31 December 2015
At 31 December 2014
For footnote, see page 191.
Number of renegotiated real estate secured accounts remaining in HSBC Finance’s portfolio
At 31 December 2015
At 31 December 2014
Number of renegotiated loans (000s)
Re-aged
66
85
Modified
and re-aged
54
64
Modified
6
6
Total number
of loans
(000s)
240
297
Total
126
155
HSBC Finance loan modifications and re-age
programmes
HSBC Finance maintains loan modification and re-age (‘loan
renegotiation’) programmes in order to manage customer
relationships, improve collection opportunities and, if
possible, avoid foreclosure.
Qualifying criteria
For an account to qualify for renegotiation it must meet
certain criteria, and HSBC Finance retains the right to
decline a renegotiation.
Renegotiated real estate secured loans are not eligible for a
subsequent renegotiation for six or 12 months depending
upon the action, with a maximum of five renegotiations
permitted within a five-year period. Borrowers must be
approved for a modification and, to activate it, must
generally make two minimum qualifying monthly payments
within 60 days. In certain circumstances where the debt
has been restructured in bankruptcy proceedings, fewer or
no payments may be required. Real estate secured loans
involving a bankruptcy and accounts whose borrowers are
subject to a Chapter 13 plan filed with a bankruptcy court
generally may be considered current upon receipt of one
qualifying payment, while accounts whose borrowers have
filed for Chapter 7 bankruptcy protection may be re-aged
upon receipt of a signed reaffirmation agreement. In
addition, any account may be re-aged without receipt of a
payment in certain special circumstances (for example, in
the event of a natural disaster or a hardship programme).
Within the constraints of our Group credit policy, we allow
for multiple renegotiations under certain circumstances.
Consequently, a significant proportion of loans included in
the table above have undergone multiple re-ages or
modifications. In this regard, multiple modifications have
remained consistent at 70% to 75% of total modifications.
The accounts that received second or subsequent
renegotiations during the year do not appear in the
statistics presented. These statistics treat a loan as an
addition to the volume of renegotiated loans on its first
renegotiation only.
HSBC HOLDINGS PLC
146
Types of loan renegotiation programmes in HSBC Finance
• A temporary modification is a change to the contractual terms of
a loan that results in HSBC Finance giving up a right to contractual
cash flows over a pre-defined period, typically two years. With a
temporary modification the loan is expected to revert back to the
original contractual terms, including the interest rate charged,
after the modification period. An example is reduced interest
payments.
A substantial number of HSBC Finance modifications involve
interest rate reductions, which lower the amount of interest
income HSBC Finance is contractually entitled to receive in future
periods. Historically, modifications were granted for terms as low
as six months, although more recent modifications have a
minimum term of two years.
• A permanent modification is a change to the contractual terms of
a loan that results in HSBC Finance giving up a right to contractual
cash flows over the life of the loan.
An example is a permanent reduction in the interest rate charged.
HSBC Finance also offers a ‘re-age’ renegotiation programme,
which results in the resetting of an account’s contractual
delinquency status to current (non-delinquent) upon fulfilment
of certain requirements and without additional concessions. The
overdue principal and/or interest is deferred and paid at a later
date. Loan re-ageing enables customers who have been unable
to make a small number of payments to have their loan
delinquency status reset to current so that their credit score is
not affected by the overdue balances. Re-aging may be offered
to customers either without any modification of original loan
terms, or as part of a loan modification transaction.
All renegotiation transactions described above with the
exception of first time re-ages on accounts that are less than 60
days past due are classified as impaired. These remain classified
as impaired until they have demonstrated a history of payment
performance against their original contracted terms for at least
12 months, with the exception of permanent modifications. All
modified loans with terms over two years are considered to be
permanently impaired.
Collateral and other credit enhancements held
(Audited)
The tables below provide a quantification of the value
of fixed charges we hold over specific assets where we
have a history of enforcing, and are able to enforce,
collateral in satisfying a debt in the event of the borrower
failing to meet its contractual obligations, and where
the collateral is cash or can be realised by sale in an
established market. The collateral valuation excludes any
adjustments for obtaining and selling the collateral and, in
particular, loans shown as not collateralised or partially
collateralised may also benefit from other forms of credit
mitigants. UK and Hong Kong are shown, both within
regional figures and separately, due to the size of their
portfolios.
Residential mortgage loans including loan commitments by level of collateral
(Audited)
Non-impaired loans and advances
Fully collateralised
LTV ratio:
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised:
– greater than 100% LTV (A)
– collateral value on A
Impaired loans and advances
Fully collateralised
LTV ratio:
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised:
– greater than 100% LTV (B)
– collateral value on B
Europe
$m
Asia
$m
MENA
$m
North
America
$m
Latin
America
$m
Total
$m
UK
$m
Hong
Kong
$m
128,113
100,102
2,144
41,567
1,869
273,795
122,221
61,784
70,851
47,933
8,322
1,007
59,212
33,237
6,522
1,131
540
434
168
155
595
985
535
29
46
37
12,369
22,071
5,502
1,625
1,208
1,147
710
903
222
34
13
11
143,737
105,129
21,103
3,826
68,362
45,762
7,584
513
42,589
15,961
2,254
980
1,975
1,784
321
221
97
95
128,653
100,270
2,190
42,775
1,882
275,770
122,542
61,881
1,407
518
619
183
87
178
160
222
105
76
34
7
8
6
1,585
230
44
18
13
8
5
18
13
62
6,713
1,247
2,819
1,811
836
628
547
7,341
50,116
109
8,495
1,191
90
14
4
1
1
–
110
1,992
1,978
3,541
2,040
936
833
726
469
540
133
49
49
36
9,328
1,240
285,098
123,782
61,927
46
42
3
1
–
–
–
46
At 31 December 2015
130,238
100,500
2,252
HSBC HOLDINGS PLC
147
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Europe
$m
Asia
$m
MENA
$m
North
America
$m
Latin
America
$m
Total
$m
UK
$m
Hong
Kong
$m
135,875
99,257
2,431
43,317
3,759
284,639
130,333
57,703
66,075
56,178
11,856
1,766
60,315
31,142
6,906
894
537
532
99
81
1,324
856
212
39
60
44
14,003
20,872
5,994
2,448
2,209
1,999
1,454
1,777
480
48
167
24
143,171
110,825
25,448
5,195
63,533
54,095
11,141
1,564
42,894
12,135
2,298
376
3,072
2,680
388
415
–
–
136,412
99,356
2,491
45,526
3,926
287,711
130,721
57,703
Report of the Directors: Risk (continued)
Credit risk
Residential mortgage loans including loan commitments by level of collateral (continued)
Non-impaired loans and advances
Fully collateralised
LTV ratio:
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised:
– greater than 100% LTV (C)
– collateral value on C
Impaired loans and advances
Fully collateralised
LTV ratio:
– less than 50%
– 51% to 75%
– 76% to 90%
– 91% to 100%
Partially collateralised:
– greater than 100% LTV (D)
– collateral value on D
906
232
417
163
94
55
40
256
130
90
32
4
7
5
122
8,618
53
29
19
21
31
23
1,291
3,462
2,471
1,394
1,395
1,181
10,013
55,539
At 31 December 2014
961
263
137,373
99,619
153
2,644
Supplementary information
Gross loans and advances by industry sector over five years
Currency
translation
adjustment18 Movement
$m
$m
760
1,684
(924)
(12,616)
(3,085)
(11,624)
(1,884)
2,333
1,666
(22)
(2,606)
11,806
(14,412)
(20,232)
(13,697)
(6,535)
(30,496)
(8,043)
(10,148)
(3,483)
(1,256)
(354)
(7,212)
(9,577)
(2,210)
(7,367)
(60,305)
(1,868)
Personal
– first lien residential mortgages
– other personal3
Corporate and commercial
– manufacturing
– international trade and services
– commercial real estate
– other property-related
– government
– other commercial4
Financial
– non-bank financial institutions
– banks
2015
$m
374,082
274,511
99,571
499,513
95,858
159,019
67,926
53,464
7,455
115,791
150,833
60,414
90,419
Total gross loans and advances
Impaired loans and advances to customers
Impairment allowances on loans and
advances to customers
Loan impairment charge
– new allowances net of allowance releases
– recoveries
1,024,428
23,758
9,555
3,592
4,400
(808)
For footnotes, see page 191.
154
103
35
10
6
2
1
156
4,082
10,056
781
1,809
4,033
2,695
1,519
1,490
1,250
197
376
131
77
44
30
11,546
825
48
45
3
–
–
–
–
48
299,257
131,546
57,751
2014
$m
393,554
286,524
107,030
542,625
106,986
180,791
73,293
52,387
6,143
123,025
163,016
50,818
112,198
2013
$m
410,728
299,875
110,853
545,981
113,850
184,668
74,846
44,832
7,277
120,508
170,627
50,523
120,104
2012
$m
415,093
301,862
113,231
517,120
112,149
169,389
76,760
40,532
10,785
107,505
164,013
46,871
117,142
2011
$m
393,625
278,963
114,662
478,064
96,054
152,709
73,941
39,539
11,079
104,742
184,035
44,832
139,203
(14,462)
1,099,195
1,127,336
1,096,226
1,055,724
(3,657)
29,283
36,428
38,671
41,584
(1,189)
(1,593)
12,337
15,143
16,112
(682)
(821)
139
219
211
8
4,055
5,010
(955)
6,048
7,344
(1,296)
8,160
9,306
(1,146)
17,511
11,505
12,931
(1,426)
The personal lending currency effect on gross loans and
advances of $20bn was made up as follows: Europe $10bn,
Asia $4.2bn, Latin America $2.5bn and North America
$3.3bn. The wholesale lending currency effect on gross
loans and advances of $40bn was made up as follows:
Europe $17bn, Asia $8.7bn, Latin America $11bn, North
America $2.7bn and Middle East and North Africa $0.7bn.
In the following two tables, negative percentage numbers
are favourable, positive numbers are unfavourable.
HSBC HOLDINGS PLC
148
Reconciliation of reported and constant currency impaired loans, allowances and charges by geographical region
31 December
2014
as reported
$m
10,242
2,048
1,981
11,694
3,365
29,330
4,455
1,356
1,406
2,640
2,529
Currency
translation
adjustment18
$m
(748)
(118)
(19)
(71)
(913)
(1,869)
(364)
(64)
(11)
(51)
(702)
31 December
2014 at
31 December
2015
exchange
rates
$m
9,494
1,930
1,962
11,623
2,452
27,461
4,091
1,292
1,395
2,589
1,827
12,386
(1,192)
11,194
1,079
644
(1)
300
2,033
4,055
(134)
(27)
(1)
(10)
(510)
(682)
945
617
(2)
290
1,523
3,373
Movement
– constant
currency
basis
$m
31 December
2015
as reported
$m
Reported
change
%
Constant
currency
change
%
183
445
(196)
(2,693)
(1,422)
(3,683)
(222)
233
23
(548)
(1,107)
(1,621)
(236)
64
301
179
(89)
219
9,677
2,375
1,766
8,930
1,030
23,778
3,869
1,525
1,418
2,041
720
9,573
709
681
299
469
1,434
3,592
(5.5)
16.0
(10.9)
(23.6)
(69.4)
(18.9)
(13.2)
12.5
0.9
(22.7)
(71.5)
(22.7)
(34.3)
5.7
–
56.3
(29.5)
(11.4)
1.9
23.1
(10.0)
(23.2)
(58.0)
(13.4)
(5.4)
18.0
1.6
(21.2)
(60.6)
(14.5)
(25.0)
10.4
–
61.7
(5.8)
6.5
Impaired loans
Europe
Asia
Middle East and North Africa
North America
Latin America
Impairment allowances
Europe
Asia
Middle East and North Africa
North America
Latin America
Loan impairment charge
Europe
Asia
Middle East and North Africa
North America
Latin America
For footnote, see page 191.
Reconciliation of reported and constant currency loan impairment charges to the income statement
31 December
2014
as reported
$m
Currency
translation
adjustment18
Loan impairment charge
Europe
– new allowances
– releases
– recoveries
Asia
– new allowances
– releases
– recoveries
Middle East and North Africa
– new allowances
– releases
– recoveries
North America
– new allowances
– releases
– recoveries
Latin America
– new allowances
– releases
– recoveries
Total
– new allowances
– releases
– recoveries
For footnote, see page 191.
1,079
2,445
(1,062)
(304)
644
1,115
(318)
(153)
(1)
355
(314)
(42)
300
908
(493)
(115)
2,033
2,707
(333)
(341)
4,055
7,530
(2,520)
(955)
31 December
2014 at
31 December
2015
exchange
rates
$m
Movement
– constant
currency
basis
$m
31 December
2015
as reported
$m
Reported
change
%
Constant
currency
change
%
945
2,142
(922)
(275)
617
1,054
(297)
(140)
(2)
348
(308)
(42)
290
888
(485)
(113)
1,523
2,033
(264)
(246)
3,373
6,465
(2,276)
(816)
(236)
(97)
(26)
(113)
64
224
(135)
(25)
301
144
148
9
179
(157)
299
37
(89)
(239)
50
100
219
(125)
336
8
709
2,045
(948)
(388)
681
1,278
(432)
(165)
299
492
(160)
(33)
469
731
(186)
(76)
1,434
1,794
(214)
(146)
3,592
6,340
(1,940)
(808)
(34.3)
(16.4)
(10.7)
27.6
5.7
14.6
35.8
7.8
–
38.6
(49.0)
(21.4)
56.3
(19.5)
(62.3)
(33.9)
(29.5)
(33.7)
(35.7)
(57.2)
(11.4)
(15.8)
(23.0)
(15.4)
(25.0)
(4.5)
2.8
41.1
10.4
21.3
45.5
17.9
–
41.4
(48.1)
(21.4)
61.7
(17.7)
(61.6)
(32.7)
(5.8)
(11.8)
(18.9)
(40.7)
6.5
(1.9)
(14.8)
(1.0)
$m
(134)
(303)
140
29
(27)
(61)
21
13
(1)
(7)
6
–
(10)
(20)
8
2
(510)
(674)
69
95
(682)
(1,065)
244
139
HSBC HOLDINGS PLC
149
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
2013
$m
2012
$m
3,196
2,974
(122)
6,048
2013
%
0.81
(0.14)
0.67
0.59
5,362
2,802
(4)
8,160
2012
%
1.00
(0.12)
0.88
0.93
2013
$m
2012
$m
16,169
(6,655)
(4,367)
(2,229)
(59)
1,296
1,097
198
1
6,048
(1,657)
15,201
7,130
8,071
15,201
17,636
(9,812)
(6,905)
(2,677)
(230)
1,146
966
172
8
8,160
(961)
16,169
6,629
9,540
16,169
%
%
0.6
1.0
2011
$m
9,318
2,114
73
11,505
2011
%
1.34
(0.15)
1.19
1.14
2011
$m
20,241
(12,480)
(10,431)
(2,009)
(40)
1,426
1,175
242
9
11,505
(3,056)
17,636
6,662
10,974
17,636
%
1.2
Charge for impairment losses as a percentage of average gross loans and advances to customers
Report of the Directors: Risk (continued)
Credit risk
Loan impairment charges by industry sector over five years
Loan impairment charge/(release)
Personal
Corporate and commercial
Financial
Year ended 31 December
2015
$m
1,834
1,769
(11)
3,592
2014
$m
1,803
2,256
(4)
4,055
New allowances net of allowance releases
Recoveries
Total charge for impairment losses
Amount written off net of recoveries
Movement in impairment allowances over five years
Impairment allowances at 1 January
Amounts written off
– personal
– corporate and commercial
– financial
Recoveries of amounts written off in previous years
– personal
– corporate and commercial
– financial
Loan impairment charge
Exchange and other movements11
Impairment allowances at 31 December
Impairment allowances
– individually assessed
– collectively assessed
Impairment allowances at 31 December
Amount written off net of recoveries as a percentage of average gross
loans and advances to customers
For footnote, see page 191.
2015
%
0.48
(0.09)
0.39
0.37
2015
$m
12,386
(4,194)
(2,707)
(1,473)
(14)
808
681
124
3
3,592
(3,019)
9,573
5,420
4,153
9,573
%
0.4
2014
%
0.53
(0.10)
0.43
0.58
2014
$m
15,201
(6,379)
(3,733)
(2,425)
(221)
955
818
128
9
4,055
(1,446)
12,386
6,244
6,142
12,386
%
0.6
HSBC HOLDINGS PLC
150
Gross loans and advances to customers by country
Europe
UK
France
Germany
Switzerland
Other
Asia
Hong Kong
Australia
India
Indonesia
Mainland China
Malaysia
Singapore
Taiwan
Other
Middle East and North Africa (excluding Saudi Arabia)
Egypt
UAE
Other
North America
US
Canada
Other
Latin America
Mexico
Other
At 31 December 2015
Europe
UK
France
Germany
Switzerland
Other
Asia
Hong Kong
Australia
India
Indonesia
Mainland China
Malaysia
Singapore
Taiwan
Other
Middle East and North Africa (excluding Saudi Arabia)
Egypt
UAE
Other
North America
US
Canada
Other
Latin America
Mexico
Other
Included in Other: Brazil
At 31 December 2014
For footnote, see page 191.
First lien
residential
mortgages
$m
125,544
117,346
3,606
4
511
4,077
94,606
60,943
9,297
1,248
56
5,716
2,792
7,743
3,866
2,945
2,258
1
1,854
403
50,117
34,382
14,418
1,317
1,986
1,881
105
274,511
131,000
123,239
2,914
6
298
4,543
93,147
56,656
9,154
1,235
64
4,238
5,201
9,521
3,920
3,158
2,647
1
2,263
383
55,577
37,937
16,236
1,404
4,153
1,967
2,186
2,067
Other
personal3
$m
Property-
related
$m
Commercial,
international
trade and other
$m
44,982
20,797
12,130
203
8,045
3,807
38,101
24,389
726
431
346
1,645
3,113
5,392
629
1,430
4,447
549
2,286
1,612
8,069
4,813
3,029
227
3,972
2,828
1,144
99,571
47,531
21,023
12,820
212
8,149
5,327
36,368
22,891
815
285
469
1,981
1,750
5,878
626
1,673
3,924
510
1,782
1,632
9,823
5,482
4,085
256
9,384
2,642
6,742
5,531
33,579
25,700
6,070
347
224
1,238
67,577
50,825
1,592
637
71
6,185
1,993
3,334
126
2,814
2,598
104
1,833
661
16,014
11,435
4,315
264
1,622
1,498
124
191,807
149,327
20,380
7,941
834
13,325
157,616
80,609
6,448
5,728
4,965
23,703
4,947
11,021
5,291
14,904
21,991
2,097
14,199
5,695
56,690
42,439
13,490
761
10,433
7,844
2,589
121,390
438,537
35,313
25,927
7,341
304
225
1,516
70,057
52,208
2,130
613
202
6,606
1,988
4,210
118
1,982
2,246
98
1,545
603
15,492
11,461
3,708
323
2,572
1,336
1,236
1,077
200,313
156,577
21,834
7,275
614
14,013
164,739
82,362
6,360
5,099
5,476
24,875
5,217
11,951
7,057
16,342
21,633
2,272
13,814
5,547
51,535
38,632
11,825
1,078
29,543
9,503
20,040
16,814
Total
$m
395,912
313,170
42,186
8,495
9,614
22,447
357,900
216,766
18,063
8,044
5,438
37,249
12,845
27,490
9,912
22,093
31,294
2,751
20,172
8,371
130,890
93,069
35,252
2,569
18,013
14,051
3,962
934,009
414,157
326,766
44,909
7,797
9,286
25,399
364,311
214,117
18,459
7,232
6,211
37,700
14,156
31,560
11,721
23,155
30,450
2,881
19,404
8,165
132,427
93,512
35,854
3,061
45,652
15,448
30,204
25,489
286,524
107,030
125,680
467,763
986,997
HSBC HOLDINGS PLC
151
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Credit risk
The above tables analyse loans and advances by industry
sector and by the location of the principal operations of the
lending subsidiary or, in the case of the operations of The
Hongkong and Shanghai Banking Corporation, HSBC Bank,
HSBC Bank Middle East and HSBC Bank USA, by the location
of the lending branch.
HSBC Holdings
(Audited)
Risk in HSBC Holdings is overseen by the HSBC Holdings
Asset and Liability Management Committee (‘HALCO’).
The major risks faced by HSBC Holdings are credit risk,
liquidity risk and market risk (in the form of interest
rate risk and foreign exchange risk), of which the most
significant is credit risk.
Credit risk in HSBC Holdings primarily arises from
transactions with Group subsidiaries and from guarantees
issued in support of obligations assumed by certain Group
HSBC Holdings – maximum exposure to credit risk
(Audited)
operations in the normal conduct of their business. It is
reviewed and managed within regulatory and internal
limits for exposures by our Global Risk function, which
provides high-level centralised oversight and management
of credit risks worldwide.
HSBC Holdings’ maximum exposure to credit risk at
31 December 2015 is shown below. Its financial assets
principally represent claims on Group subsidiaries in
Europe and North America.
All the derivative transactions are with HSBC undertakings
that are banking counterparties (2014: 100%) and for
which HSBC Holdings has in place master netting
arrangements. Since 2012, the credit risk exposure has
been managed on a net basis and the remaining net
exposure is specifically collateralised in the form of cash.
Cash at bank and in hand:
– balances with HSBC undertakings
Derivatives
Loans and advances to HSBC undertakings
Financial investments in HSBC undertakings
Other assets
Financial guarantees and similar contracts
Loan and other credit-related commitments
At 31 December
2015
2014
Exposure to
credit risk
(net)
$m
Maximum
exposure
$m
242
–
44,350
4,285
109
68,333
–
249
2,771
43,910
4,073
52,023
16
Exposure to
credit risk
(net)
$m
249
161
43,910
4,073
52,023
16
Offset
$m
–
(2,610)
–
–
–
–
117,319
103,042
(2,610)
100,432
Offset
$m
–
(2,467)
–
–
–
–
–
(2,467)
Maximum
exposure
$m
242
2,467
44,350
4,285
109
68,333
–
119,786
The credit quality of loans and advances and financial
investments, both of which consist of intra-Group lending,
is assessed as ‘strong’ or ‘good’, with 100% of the exposure
being neither past due nor impaired (2014: 100%).
Securitisation exposures and other
structured products
The following table summarises the carrying amount of our
ABS exposure by categories of collateral and includes
assets held in the GB&M legacy credit portfolio with a
carrying value of $15bn (2014: $23bn).
At 31 December 2015, the available-for-sale reserve in
respect of ABSs was a deficit of $1,021m (2014: deficit of
$777m). For 2015, the impairment write-back in respect of
ABSs was $85m (2014: write-back of $276m).
HSBC HOLDINGS PLC
152
Designated
at fair value
through
profit or loss
$m
Loans and
receivables
$m
Of which
held through
consolidated
SEs
$m
1,075
1,796
–
253
1,656
1,310
2,679
565
9,334
2,075
2,411
–
652
2,854
2,526
3,284
758
Total
$m
2,453
2,051
29,245
1,700
3,099
2,683
3,252
2,215
46,698
3,511
3,239
23,919
2,478
4,797
4,050
3,906
3,043
132
55
–
108
201
149
25
128
798
308
110
–
330
516
218
119
646
2,247
48,943
14,560
1
–
–
–
–
–
–
23
24
–
–
–
–
–
–
–
19
19
Carrying amount of HSBC’s consolidated holdings of ABSs
Mortgage-related assets:
Sub-prime residential
US Alt-A residential
US Government agency and
sponsored enterprises:
MBSs
Other residential
Commercial property
Leveraged finance-related assets
Student loan-related assets
Other assets
At 31 December 2015
Mortgage-related assets:
Sub-prime residential
US Alt-A residential
US Government agency and
sponsored enterprises:
MBSs
Other residential
Commercial property
Leveraged finance-related assets
Student loan-related assets
Other assets
At 31 December 2014
Trading
$m
Available
for sale
$m
73
–
2,247
1,989
166
812
590
240
236
1,184
3,301
15,082
780
2,308
2,294
2,991
880
28,571
122
96
3,081
3,022
82
928
654
172
242
1,264
3,560
10,401
1,220
3,627
3,660
3,545
1,114
29,670
Held to
maturity
$m
–
7
13,997
–
–
–
–
–
14,004
–
11
13,436
–
–
–
–
–
13,447
HSBC HOLDINGS PLC
153
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Liquidity and funding
Liquidity and funding
Liquidity and funding
Primary sources of funding
Liquidity and funding in 2015
Wholesale senior funding markets
Liquidity regulation
Liquidity coverage ratio – EC LCR Delegated Regulation
Management of liquidity and funding risk
Forward-looking framework
2015 framework
Inherent liquidity risk categorisation
Core deposits
Advances to core funding ratio
Stressed coverage ratios
Stressed scenario analysis
Liquid assets of HSBC’s principal operating entities
Net contractual cash flows
Wholesale debt monitoring
Liquidity behaviouralisation
Funds transfer pricing
Contingent liquidity risk arising from committed
lending facilities
Sources of funding
Repos and stock lending
Cross-border intra-Group and cross-currency liquidity
and funding risk
Wholesale term debt maturity profile
Analysis of on-balance sheet encumbered and
unencumbered assets and off-balance sheet
collateral
On-balance sheet encumbered and unencumbered
assets
Off-balance sheet collateral
Additional contractual obligations
Contractual maturity of financial liabilities
Management of cross-currency liquidity and funding
risk
HSBC Holdings
1 Appendix to Risk – risk policies and practices.
Page
155
App1
204
204
Tables
Page
155
155
155
155
156
156
156
156
157
157
158
159
159
160
162
Operating entities’ LCRs
204
204
205
205 Advances to core funding ratios
205
205
206
206 Net cash inflows/(outflows) for interbank loans and
Liquid assets of HSBC’s principal entities
Stressed one-month and three-month coverage ratios
intra-Group deposits and reverse repo, repo and short
positions
207
207
207
The Group’s contractual undrawn exposures monitored
under the contingent liquidity risk limit structure
208
Funding sources and uses
Advances to core funding ratios by material currency
Wholesale funding cash flows payable by HSBC under
156
157
157
158
159
159
160
160
financial liabilities by remaining contractual maturities
161
Analysis of on-balance sheet encumbered and
unencumbered assets
Cash flows payable by HSBC under financial liabilities
by remaining contractual maturities
163
164
162
209
162
162
164
164
210
165
210 Cash flows payable by HSBC Holdings under financial
liabilities by remaining contractual maturities
165
HSBC HOLDINGS PLC
154
Liquidity and funding
Liquidity risk is the risk that the Group will not have
sufficient financial resources to meet its obligations as
they fall due, or will have to do so at an excessive cost.
The risk arises from mismatches in the timing of cash
flows.
The risk arises when the funding needed for illiquid
asset positions cannot be obtained at the expected
terms and when required.
A summary of our current policies and practices regarding liquidity
and funding is provided in the Appendix to Risk on page 204.
Liquidity and funding risk management framework
The objective of our liquidity framework is to allow us to
withstand very severe liquidity stresses. It is designed to be
adaptable to changing business models, markets and
regulations.
Our Liquidity and Funding Risk Management Framework
(‘LFRF’) requires:
• liquidity to be managed by operating entities on a
stand-alone basis with no implicit reliance on the Group
or central banks;
• all operating entities to comply with their limits for the
advances to core funding ratio; and
• all operating entities to maintain a positive stressed
cash flow position out to three months under prescribed
Group stress scenarios.
Liquidity and funding in 2015
The liquidity position of the Group remained strong in
2015. Our ratio of customer advances to customer deposits
was 72% (2014: 72%). Both customer loans and customer
accounts fell on a reported basis with these movements
including:
• the transfer to ‘Assets held for sale’ and ‘Liabilities of
disposal groups held for sale’ of balances relating to the
planned disposal of our operations in Brazil;
• a reduction in corporate overdraft and current account
balances relating to a small number of clients in our
Payments and Cash Management business in the UK
who settled their overdraft and deposit balances on a
net basis, with customers increasing the frequency with
which they settled their positions; and
• movements in currency markets, which changed the
value of our customer loans and customer accounts
when translated from their local currency into US
dollars.
The HSBC UK liquidity group recorded an increase in
its advances to core funding (‘ACF’) ratio to 101%
at 31 December 2015 (2014: 97%), mainly because of
higher wholesale lending while core funding remained
unchanged.
The Hongkong and Shanghai Banking Corporation recorded
a decrease in its ACF ratio to 69% at 31 December 2015
(2014: 75%), mainly because of an increase in core deposits
coupled with a decrease in corporate loans.
HSBC USA recorded a decrease in its ACF ratio to 89%
at 31 December 2015 (2014: 100%), mainly because of
growth in core funding, which was partially offset by higher
loans to customers.
The HSBC UK liquidity group, The Hongkong and Shanghai Banking
Corporation and HSBC USA are defined in footnotes 19 to 21 on
page 191. The ACF ratio is discussed on page 205.
Wholesale senior funding markets
Conditions in the bank wholesale debt markets were
generally positive in 2015. Periods of volatility remained,
however, particularly during the latter months of the year
when concerns over the decline in oil prices and economic
growth in Europe and mainland China combined with a
variety of other factors to leave the outlook uncertain,
affecting market confidence.
In 2015, a number of Group entities issued the equivalent
of $22bn (2014: $20bn) of long-term debt securities in the
public capital markets in a range of currencies and
maturities.
Liquidity regulation
Under European Commission (‘EC’) Delegated Regulation
2015/61, the consolidated liquidity coverage ratio (‘LCR’)
became a minimum regulatory standard from 1 October
2015.
The European calibration of the net stable funding ratio
(‘NSFR’) is still pending following the Basel Committee’s
final recommendation in October 2014, and therefore
external disclosure of this metric is currently on hold.
Non-EU regulators are expected to apply the LCR and NSFR
reporting requirement locally and there is the potential for
local requirements to diverge from the rules applicable to
the Group.
Liquidity coverage ratio – EC LCR Delegated
Regulation
The calculation of the EC LCR metric involves two key
assumptions: the definition of operational deposits and the
ability to transfer liquidity from non-EU legal entities.
• We define operational deposits as transactional
(current) accounts arising from the provision of custody
services by HSBC Security Services or Payments and
Cash Management services, where the operational
component is assessed to be the lower of the current
balance and the separate notional values of debits and
credits across the account in the previous calculation
period.
• No transferability of liquidity from non-EU entities is
assumed other than to the extent currently permitted.
This results in $94bn of high-quality liquid assets
(‘HQLA’) being excluded from the Group’s LCR.
On the basis of these assumptions, we reported to the PRA
a Group EC LCR at 31 December 2015 (on the basis of the
Delegated Regulation) of 116%.
The ratio of total consolidated HQLAs to the EC LCR
denominator at 31 December 2015 was 142%, reflecting
the additional $94bn of HQLAs excluded from the Group
LCR.
HSBC HOLDINGS PLC
155
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Liquidity and funding
The liquidity position of the Group can also be represented
by the stand-alone ratios of each of our principal operating
entities. The table below displays the individual LCR levels
for the principal HSBC operating entities on an EC LCR
Delegated Regulation basis. The ratios shown for operating
entities in non-EU jurisdictions can vary from their local LCR
measures due to differences in the way non-EU regulators
have implemented the Basel III recommendations.
Operating entities’ LCRs
HSBC UK liquidity group19
The Hongkong and Shanghai Banking Corporation –
Hong Kong Branch20
The Hongkong and Shanghai Banking Corporation –
Singapore Branch20
HSBC Bank USA21
HSBC France22
Hang Seng Bank
HSBC Canada22
HSBC Bank China
For footnotes, see page 191.
At
31 December
2015
%
107
150
189
116
127
199
142
183
At 31 December 2015, all the Group’s operating entities
were individually within the risk tolerance level established
by the Board and applicable under the new internal
framework which took effect from 1 January 2016.
Management of liquidity and funding risk
Forward-looking framework
From 1 January 2016, the Group implemented a new
internal LFRF, using the external LCR and NSFR regulatory
framework as a foundation, but adding extra metrics/limits
and overlays to address the risks that we consider are not
adequately reflected by the external regulatory framework.
The key aspects of the new internal LFRF are:
i.
stand-alone management of liquidity and funding by
operating entity;
ii. operating entity classification by inherent liquidity risk
(‘ILR’) categorisation;
iii. minimum operating entity EC LCR requirement
depending on ILR categorisation (EC LCR Delegated
Regulation basis);
iv. minimum operating entity NSFR requirement
depending on ILR categorisation (on the basis of the
Basel 295 publication, pending finalisation of the EC
NSFR delegated regulation);
legal entity depositor concentration limit;
v.
vi. operating entity three-month and twelve-month
cumulative rolling term contractual maturity limits
covering deposits from banks, deposits from non-bank
financials and securities issued;
vii. annual individual liquidity adequacy assessment
(‘ILAA’) by operating entity; and
viii. during 2016, we will also introduce a minimum
operating entity LCR requirement by currency.
The new internal LFRF and the risk tolerance (limits) were
approved by the RMM and the Board on the basis of
recommendations made by the Group Risk Committee.
Our ILAA process has been designed to identify risks that
are not reflected in the Group framework and where
additional limits are assessed to be required locally, and to
validate the risk tolerance at the operating entity level.
The decision to create an internal framework modelled
around the external regulatory framework was driven by
the need to ensure that the external and internal
frameworks are directionally aligned and that the Group’s
internal funds transfer pricing framework incentivises the
global businesses within each operating entity to
collectively comply with both the external (regulatory) and
the internal risk tolerance.
Current framework
The 2015, LFRF employed two key measures to define,
monitor and control the liquidity and funding risk of each
of our operating entities. The ACF ratio was used to
monitor the structural long-term funding position, and the
stressed coverage ratio, incorporating Group-defined stress
scenarios, was used to monitor the resilience to severe
liquidity stresses. Although in place before and during
2015, this framework and its accompanying metrics will
be demised as the new framework outlined above is
implemented.
The three principal entities listed in the tables below
represented 65% (2014: 66%) of the Group’s customer
accounts. Including the other principal entities, the
percentage was 88% (2014: 88%).
Advances to core funding ratio
The table overleaf shows the extent to which loans and
advances to customers in our principal banking entities
were financed by reliable and stable sources of funding.
ACF limits set for principal operating entities at
31 December 2015 ranged between 80% and 120%.
Core funding represents the core component of customer
deposits and any term professional funding with a residual
contractual maturity beyond one year. Capital is excluded
from our definition of core funding.
HSBC HOLDINGS PLC
156
Advances to core funding ratios23
Stressed coverage ratios
HSBC UK liquidity group19
Year-end
Maximum
Minimum
Average
The Hongkong and Shanghai Banking
Corporation20
Year-end
Maximum
Minimum
Average
HSBC USA21
Year-end
Maximum
Minimum
Average
Total of HSBC’s other principal entities24
Year-end
Maximum
Minimum
Average
For footnotes, see page 191.
At 31 December
2015
%
101
101
96
98
69
75
69
72
89
100
89
94
91
95
91
93
2014
%
97
102
97
100
75
75
72
74
100
100
85
95
92
94
92
93
Stressed one-month and three-month coverage ratios23
HSBC UK liquidity group19
Year-end
Maximum
Minimum
Average
The Hongkong and Shanghai Banking Corporation20
Year-end
Maximum
Minimum
Average
HSBC USA21
Year-end
Maximum
Minimum
Average
Total of HSBC’s other principal entities24
Year-end
Maximum
Minimum
Average
For footnotes, see page 191.
The ratios tabulated below express stressed cash inflows
as a percentage of stressed cash outflows over both
one-month and three-month time horizons. Operating
entities are required to maintain a ratio of 100% or more
out to three months.
Inflows included in the numerator of the stressed coverage
ratio are generated from liquid assets (net of assumed
haircuts) and cash inflows relating to assets contractually
maturing within the time period.
In general, customer loans and advances are assumed to be
renewed on maturity and as a result do not generate a cash
inflow.
The stressed coverage ratios for The Hongkong and Shanghai
Banking Corporation increased due to higher deposits and
lower advances year-on-year. The ratios for HSBC USA
increased due to a growth in core funding.
The stressed coverage ratios for the other entities remained
broadly unchanged.
Stressed one-month coverage
ratios at 31 December
Stressed three-month coverage
ratios at 31 December
2015
%
2014
%
2015
%
2014
%
113
127
112
117
129
129
113
119
126
126
109
117
126
126
110
116
117
117
102
107
117
119
114
116
111
122
108
115
122
126
114
118
105
114
105
108
120
120
111
115
116
116
101
108
111
111
105
108
109
109
103
104
112
114
111
112
104
111
104
107
108
120
108
111
Liquid assets of HSBC’s principal operating entities
The table below shows the estimated liquidity value
(before assumed haircuts) of assets categorised as liquid
and used for the purposes of calculating the three-month
stressed coverage ratios, as defined under the LFRF.
The level of liquid assets reported reflects the stock
of unencumbered liquid assets at the reporting date
adjusted for the effect of reverse repo, repo and collateral
swaps maturing within three months as the liquidity value
of these transactions is reflected as a contractual cash flow
reported in the net contractual cash flow table. Repos are
sale and repurchase transactions while reverse repos are
transactions under which securities are purchased under
commitments to sell.
Like reverse repo transactions with residual contractual
maturities within three months, unsecured interbank loans
maturing within three months are not included in liquid
assets, but are treated as contractual cash inflows.
Liquid assets are held and managed on a stand-alone
operating entity basis. Most of the liquid assets shown
are held directly by each operating entity’s Balance Sheet
Management (‘BSM’) department, primarily for the
purpose of managing liquidity risk, in line with the LFRF.
The liquid asset buffer may also include securities held in
held-to-maturity portfolios. In order to qualify as part of
the liquid asset buffer, all held-to-maturity portfolios must
have a deep and liquid repo market in the underlying
security.
HSBC HOLDINGS PLC
157
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Liquidity and funding
Liquid assets also include any unencumbered liquid
assets held outside BSM for any other purpose. The LFRF
gives ultimate control of all unencumbered assets and
sources of liquidity to BSM.
Liquid assets of HSBC’s principal entities
For a summary of our liquid asset policy and definitions of the
classifications shown in the table below, see the Appendix to Risk
on page 206.
HSBC UK liquidity group19
Level 1
Level 2
Level 3
The Hongkong and Shanghai Banking Corporation20
Level 1
Level 2
Level 3
HSBC USA21
Level 1
Level 2
Level 3
Other
Total of HSBC’s other principal entities24
Level 1
Level 2
Level 3
For footnotes, see page 191.
Estimated liquidity value25
31 December
2015
$m
31 December
2014
$m
118,193
4,722
59,378
182,293
132,870
6,029
7,346
146,245
42,596
11,798
9
5,557
59,960
108,789
10,764
5,486
125,039
131,756
4,688
66,011
202,455
109,683
4,854
7,043
121,580
51,969
15,184
197
9,492
76,842
115,770
7,940
9,360
133,070
All assets held within the liquid asset portfolio are
unencumbered.
• The quantum of liquid assets held by the HSBC UK
liquidity group on a constant currency basis was broadly
unchanged.
• Liquid assets held by The Hongkong and Shanghai
Banking Corporation increased due to added holdings of
government securities and higher regulatory reserves.
This was driven by the investment of surplus deposits.
• Liquid assets held by HSBC USA decreased, mainly due
to a switch from regulatory reserves to reverse repo
placements. A corresponding improvement can be seen
in HSBC USA’s net repo cash flow shown in the net
contractual cash flow table.
Net contractual cash flows
The following table quantifies the contractual cash flows
from interbank and intra-Group loans and deposits, and
reverse repo, repo (including intra-Group transactions)
and short positions for the principal entities shown. These
contractual cash inflows and outflows are reflected gross in
the numerator and denominator, respectively, of the one
and three-month stressed coverage ratios and should be
considered alongside the level of liquid assets.
Outflows included in the denominator of the stressed
coverage ratios include the principal outflows associated
with the contractual maturity of wholesale debt securities
reported in the table headed ‘Wholesale funding cash flows
payable by HSBC under financial liabilities by remaining
contractual maturities’ on page 161.
For a summary of our policy and definitions of the classifications
shown in the table on page 159, see the Appendix to Risk on
page 206.
HSBC HOLDINGS PLC
158
Net cash inflows/(outflows) for interbank and intra-Group loans and deposits and reverse repo, repo and short positions
Interbank and intra-Group loans and deposits
HSBC UK liquidity group19
The Hongkong and Shanghai Banking Corporation20
HSBC USA21
Total of HSBC’s other principal entities24
Reverse repo, repo, stock borrowing, stock lending and outright
short positions (including intra-Group)
HSBC UK liquidity group19
The Hongkong and Shanghai Banking Corporation20
HSBC USA21
Total of HSBC’s other principal entities24
For footnotes, see page 191.
Contingent liquidity risk arising from
committed lending facilities
The Group’s operating entities provide commitments
to various counterparties. The most significant liquidity
risk relates to committed lending facilities which, whilst
undrawn, give rise to contingent liquidity risk as they could
be drawn during a period of liquidity stress. Commitments
are given to customers and committed lending facilities are
provided to consolidated multi-seller conduits established
to enable clients to access flexible market-based sources of
finance (see page 442), consolidated securities investment
conduits and third-party sponsored conduits.
The consolidated securities investment conduits include
Solitaire Funding Limited (‘Solitaire’) and Mazarin Funding
Limited (‘Mazarin’). They issue asset-backed commercial
paper secured against the portfolio of securities held by
them. At 31 December 2015, the HSBC UK liquidity
At 31 December 2015
At 31 December 2014
Cash flows
within 1 month
$m
Cash flows from
1 to 3 months
$m
Cash flows
within 1 month
$m
Cash flows from
1 to 3 months
$m
(18,534)
3,702
(12,432)
2,875
(16,861)
15,068
19,431
(22,571)
(3,712)
6,027
937
6,123
1,313
12,326
–
5,240
(14,110)
(1,277)
(18,353)
(1,522)
(16,070)
8,139
(4,928)
(33,235)
(2,846)
6,862
1,648
7,310
11,551
8,189
–
(11,528)
group had undrawn committed lending facilities to these
conduits of $8.2bn (2014: $11bn), of which Solitaire
represented $7.7bn (2014: $9.5bn) and the remaining
$0.5bn (2014: $1.6bn) pertained to Mazarin. Although the
HSBC UK liquidity group provides a liquidity facility,
Solitaire and Mazarin have no need to draw on it so long
as HSBC purchases the commercial paper issued, which it
intends to do for the foreseeable future. At 31 December
2015, the commercial paper issued by Solitaire and Mazarin
was entirely held by the HSBC UK liquidity group. Since
HSBC controls the size of the portfolio of securities held by
these conduits, no contingent liquidity risk exposure arises
as a result of these undrawn committed lending facilities.
The table below shows the level of undrawn commitments
to customers outstanding for the five largest single facilities
and the largest market sector, and the extent to which they
are undrawn.
The Group’s contractual undrawn exposures at 31 December monitored under the contingent liquidity risk limit structure
(Audited)
HSBC UK liquidity group19
2014
$bn
2015
$bn
HSBC USA21
2015
$bn
2014
$bn
HSBC Canada22
2015
$bn
2014
$bn
The Hongkong and
Shanghai Banking
Corporation20
2015
$bn
2014
$bn
13.4
0.4
8.2
–
4.9
17.9
9.8
0.9
11.1
–
2.6
16.6
3.3
0.5
–
0.1
6.4
9.7
2.3
0.5
–
0.1
7.1
10.0
0.2
0.1
–
–
1.4
3.4
0.2
0.2
–
–
1.7
3.5
–
–
–
–
1.7
3.4
–
–
–
–
1.5
3.2
Commitments to conduits
Consolidated multi-seller conduits
– total lines
– largest individual lines
Consolidated securities investment
conduits – total lines
Third-party conduits – total lines
Commitments to customers
– five largest26
– largest market sector27
For footnotes, see page 191.
Sources of funding
(Audited)
Our primary sources of funding are customer current
accounts and customer savings deposits payable on
demand or at short notice. We issue wholesale securities
(secured and unsecured) to supplement our customer
deposits and change the currency mix, maturity profile
or location of our liabilities.
The ‘Funding sources and uses’ table below, which provides
a consolidated view of how our balance sheet is funded,
should be read in light of the LFRF, which requires
operating entities to manage liquidity and funding risk
on a stand-alone basis.
The table analyses our consolidated balance sheet
according to the assets that primarily arise from operating
activities and the sources of funding primarily supporting
these activities. The assets and liabilities that do not arise
HSBC HOLDINGS PLC
159
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Liquidity and funding
from operating activities are presented as a net balancing
source or deployment of funds.
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
(cash and balances with central banks and financial
investments) as required by the LFRF.
Loans and other receivables due from banks continued to
exceed deposits taken from banks. The Group remained a
net unsecured lender to the banking sector.
For a summary of sources and utilisation of repos and stock
lending, see the Appendix to Risk on page 208.
Funding sources and uses28
Sources
Customer accounts
Deposits by banks
Repurchase agreements – non-trading
Debt securities issued
Liabilities of disposal groups held for
sale
Subordinated liabilities
Financial liabilities designated
at fair value
Liabilities under insurance contracts
Trading liabilities
– repos
– stock lending
– settlement accounts
– other trading liabilities
Total equity
At 31 December
Uses
Loans and advances to customers
Loans and advances to banks
Repurchase agreements – non-trading
Assets held for sale
Trading assets
– reverse repos
– stock borrowing
– settlement accounts
– other trading assets
Financial investments
Cash and balances with central banks
Net deployment in other balance sheet
assets and liabilities
At 31 December
For footnote, see page 191.
2015
$m
2014
$m
1,289,586
54,371
80,400
88,949
1,350,642
77,426
107,432
95,947
36,840
22,702
66,408
69,938
141,614
442
8,859
10,530
121,783
197,518
6,934
26,664
76,153
73,861
190,572
3,798
12,032
17,454
157,288
199,978
2,048,326
2,205,609
924,454
90,401
146,255
43,900
224,837
438
7,118
12,127
205,154
428,955
98,934
974,660
112,149
161,713
7,647
304,193
1,297
7,969
21,327
273,600
415,467
129,957
90,590
99,823
2,048,326
2,205,609
Cross-border, intra-Group and cross-currency liquidity
and funding risk
The stand-alone operating entity approach to liquidity and
funding mandated by the LFRF restricts the exposure of our
operating entities to the risks that can arise from extensive
reliance on cross-border funding. Operating entities manage
their funding sources locally, focusing predominantly on the
local customer deposit base. The RBWM, CMB and GPB
customer relationships that give rise to core deposits within
an operating entity generally reflect a local customer
relationship with that operating entity. Access to public debt
markets is coordinated globally by the Global Head of Balance
Sheet Management and the Group Treasurer with Group
ALCO monitoring all planned public debt issuance on a
monthly basis. As a general principle, operating entities
are only permitted to issue in their local currency and are
encouraged to focus on local private placements. The public
issuance of debt instruments in foreign currency is tightly
controlled and generally restricted to HSBC Holdings plc and
HSBC Bank plc.
A central principle of our stand-alone approach to LFRF is that
operating entities place no future reliance on other Group
entities. However, operating entities may, at their discretion,
utilise their respective committed facilities from other Group
entities if necessary. In addition, intra-Group large exposure
limits are applied by national regulators to individual legal
entities locally, which restrict the unsecured exposures of
legal entities to the rest of the Group to a percentage of
the lender’s regulatory capital.
Our LFRF also considers the ability of each entity to continue
to access foreign exchange markets under stress when
a surplus in one currency is used to meet a deficit in another
currency, for example, by using the foreign currency swap
markets. Where appropriate, operating entities are required
to monitor stressed coverage ratios and ACF ratios for
non-local currencies and set limits for them. Foreign
currency swap markets in currency pairs settled through
the Continuous Link Settlement Bank are considered to be
extremely deep and liquid and it is assumed that capacity
to access these markets is not exposed to idiosyncratic risks.
The table below shows the ACF ratios by material currencies
for the year ended 31 December 2015.
Advances to core funding ratios by material currency23
HSBC UK liquidity group19
Local currency (sterling)
US dollars
Euros
Consolidated
The Hongkong and Shanghai Banking Corporation20
Local currency (Hong Kong dollars)
US dollars
Consolidated
HSBC USA21
Local currency (US dollars)
Consolidated
Total of HSBC’s other principal entities24
Local currency
US dollars
Consolidated
For footnotes, see page 191.
At
31 December
2015
%
98
128
111
101
76
60
69
89
89
96
89
91
For all HSBC’s operating entities, the only material currencies
(those that exceed 5% of Group balance sheet liabilities) are
the Hong Kong dollar, euro, sterling and US dollar.
HSBC HOLDINGS PLC
160
Wholesale funding cash flows payable by HSBC under financial liabilities by remaining contractual maturities
Due not
more than
1 month
$m
Due over
1 month
but not
more than
3 months
$m
Due over
3 months
but not
more than
6 months
$m
Due over
6 months
but not
more than
9 months
$m
Due over
9 months
but not
more than
1 year
$m
Due over
1 year
but not
more than
2 years
$m
Due over
2 years
but not
more than
5 years
$m
Debt securities issued
– unsecured CDs and CP
– unsecured senior MTNs
– unsecured senior structured notes
– secured covered bonds
– secured asset-backed commercial paper
– secured ABS
– others
Subordinated liabilities
– subordinated debt securities
– preferred securities
At 31 December 2015
Debt securities issued
– unsecured CDs and CP
– unsecured senior MTNs
– unsecured senior structured notes
– secured covered bonds
– secured asset-backed commercial paper
– secured ABS
– others
Subordinated liabilities
– subordinated debt securities
– preferred securities
1
6
1
H
S
B
C
H
O
L
D
N
G
S
P
L
C
I
19,447
5,830
4,229
883
–
8,414
20
71
–
–
–
19,447
17,336
5,637
1,300
1,363
–
8,602
212
222
–
–
–
11,803
8,426
2,240
964
–
–
173
–
816
–
816
12,619
17,161
9,337
5,679
1,082
–
–
1,063
–
150
150
–
20,565
11,250
7,130
1,544
–
–
195
446
–
–
–
20,565
19,030
9,237
7,684
2,049
–
–
60
–
–
–
–
6,712
2,944
2,687
875
–
–
206
–
–
–
–
6,712
9,352
4,793
2,922
1,149
205
–
283
–
3
3
–
At 31 December 2014
17,336
17,311
19,030
9,355
5,274
1,224
1,711
2,166
–
–
173
–
34
34
–
5,308
9,055
3,010
4,794
979
–
–
272
–
185
185
–
9,240
20,150
955
10,850
4,158
2,074
–
313
1,800
648
648
–
20,798
27,312
3,506
17,676
4,757
–
–
915
458
113
113
–
27,425
43,463
108
27,239
9,741
1,619
–
1,554
3,202
6,826
6,338
488
50,289
40,855
4,158
23,523
8,444
2,765
–
1,562
403
5,556
5,556
–
46,411
Due over
5 years
$m
27,398
10
18,407
5,262
2,577
–
114
1,028
34,423
32,494
1,929
61,821
31,928
185
20,715
6,789
2,942
–
–
1,297
40,487
34,750
5,737
72,415
Total
$m
154,812
30,747
74,493
25,593
6,270
8,414
2,748
6,547
42,747
39,514
3,233
197,559
172,029
39,863
84,293
26,612
5,912
8,602
4,367
2,380
46,494
40,757
5,737
218,523
Shareholder Information
Financial Statements
Corporate Governance
Financial Review
Strategic Report
Report of the Directors: Risk (continued)
Liquidity and funding
Wholesale term debt maturity profile
The maturity profile of our wholesale term debt obligations
is set out in the table on page 161, ‘Wholesale funding
principal cash flows payable by HSBC under financial
liabilities by remaining contractual maturities’.
The balances in the table do not agree directly with those
in the consolidated balance sheet as the table presents
gross cash flows relating to principal payments and not the
balance sheet carrying value, which includes debt securities
and subordinated liabilities measured at fair value.
Analysis of on-balance sheet encumbered
and unencumbered assets and off-balance
sheet collateral
On-balance sheet encumbered and unencumbered
assets
The table on page 163, ‘Analysis of on-balance sheet
encumbered and unencumbered assets’, summarises
the total on-balance sheet assets that are capable of
supporting future funding and collateral needs and shows
the extent to which these assets are currently pledged for
this purpose. The objective of this disclosure is to facilitate
an understanding of available and unrestricted assets that
could be used to support potential future funding and
collateral needs.
Under ‘Off-balance sheet collateral’ below we discuss the
off-balance sheet collateral received and re-pledged, and
the level of available unencumbered off-balance sheet
collateral.
The disclosure is not designed to identify assets which
would be available to meet the claims of creditors or to
predict assets that would be available to creditors in the
event of a resolution or bankruptcy.
The table has been significantly updated since 2014
following the issuance of a ‘Dear CFO’ letter by the PRA,
and acknowledgement by the Enhanced Disclosure Task
Force that its Recommendation 19 and Figure 5 could be
met without providing disclosure that has the potential to
reveal the use or non-use of emergency liquidity assistance
provided by central banks on a confidential basis. There are
two key changes. The first is to segregate out any assets
positioned with central banks for the specific purpose of
emergency liquidity provision irrespective of whether any
liquidity has actually been drawn and assets encumbered.
The second is to include an analysis of the source of
encumbrance for those assets reported as encumbered.
An asset is defined as encumbered if it has been pledged
as collateral against an existing liability and, as a result,
is no longer available to the Group to secure funding,
satisfy collateral needs or be sold to reduce our funding
requirement. An asset is therefore categorised as
unencumbered if it has not been pledged against an
existing liability. Unencumbered assets are further
analysed into four separate sub-categories: ‘Readily
realisable assets’, ‘Other realisable assets’, ‘Reverse
repo/stock borrowing receivables and derivative assets’
and ‘Cannot be pledged as collateral’.
For a summary of our policy on collateral management and
definition of encumbrance, see the Appendix to Risk on page 209.
Off-balance sheet collateral
Off-balance sheet collateral received and pledged for
reverse repo, stock borrowing and derivative transactions
The fair value of assets accepted as collateral that we are
permitted to sell or repledge in the absence of default was
$228bn at 31 December 2015 (2014: $257bn). The fair value
of any such collateral actually sold or repledged was
$150bn (2014: $176bn). We are obliged to return
equivalent securities. These transactions are conducted
under terms that are usual and customary to standard
reverse repo, stock borrowing and derivative transactions.
The fair value of collateral received and repledged in relation
to reverse repos, stock borrowing and derivatives is reported
on a gross basis. The related balance sheet receivables and
payables are reported on a net basis where required under
IFRSs offset criteria.
As a consequence of reverse repo, stock borrowing and
derivative transactions where the collateral received could
be but had not been sold or repledged, we held $78bn
(2014: $81bn) of unencumbered collateral available to
support potential future funding and collateral needs at
31 December 2015.
HSBC HOLDINGS PLC
162
Analysis of on-balance sheet encumbered and unencumbered assets
Assets encumbered as a result of transactions
with counterparties other than central banks
Unencumbered assets not
positioned at central banks
Cash and balances at central banks
Items in the course of collection from other banks
Hong Kong Government certificates of indebtedness
Trading assets
– Treasury and other eligible bills
– Debt securities
– Equity securities
– Loans and advances to banks
– Loans and advances to customers
1
6
3
H
S
B
C
H
O
L
D
N
G
S
P
L
C
I
Financial assets designated at fair value
– Treasury and other eligible bills
– Debt securities
– Equity securities
– Loans and advances to banks and customers
Derivatives
Loans and advances to banks
Loans and advances to customers
Reverse repurchase agreements - non-trading
Financial investments
– Treasury and other eligible bills
– Debt securities
– Equity securities
Prepayments, accrued income and other assets
Current tax assets
Interest in associates and joint ventures
Goodwill and intangible assets
Deferred tax
As a
result of
covered
bonds
$m
As a
result of
securitisations
$m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6,947
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,329
15,288
–
–
–
–
–
–
–
–
–
–
Assets
positioned
at central
banks (i.e. pre-
positioned plus
encumbered)
$m
Assets readily
available for
encumbrance
$m
Other assets
capable
of being
encumbered
$m
Reverse
repos/stock
borrowing
receivables
and derivative
assets
$m
Assets that
cannot be
encumbered
$m
98
–
–
1,573
984
492
–
–
97
–
–
–
–
–
–
1,702
20,683
–
8,150
3,675
4,475
–
–
–
–
–
–
95,545
–
–
138,070
5,618
72,377
59,430
456
189
1,775
258
1,327
178
12
–
2,054
60,031
–
325,101
98,866
224,355
1,880
4,685
–
51
–
–
350
–
–
8,269
128
233
2,445
2,890
2,573
1,244
–
265
979
–
–
61,992
792,650
–
14,753
1,177
11,124
2,452
65,190
–
18,794
–
–
–
–
–
7,520
–
–
–
2,763
4,757
–
–
–
–
–
288,476
815
1,531
146,255
–
–
–
–
–
–
–
–
–
2,941
5,768
28,410
37,800
–
46
–
16,194
21,560
20,833
138
2,749
17,838
108
–
22,509
20,476
–
55,873
324
54,054
1,495
28,360
1,221
294
24,605
6,051
Other
$m
–
–
–
31,605
1,099
25,890
4,616
–
–
–
–
–
–
–
–
–
6,848
–
25,078
509
24,561
8
63
–
–
–
–
Total
$m
98,934
5,768
28,410
224,837
7,829
99,038
66,491
22,303
29,176
23,852
396
4,341
18,995
120
288,476
90,401
924,454
146,255
428,955
104,551
318,569
5,835
98,298
1,221
19,139
24,605
6,051
At 31 December 2015
6,947
16,617
63,594
32,206
627,312
963,242
444,597
255,141
2,409,656
Shareholder Information
Financial Statements
Corporate Governance
Financial Review
Strategic Report
Report of the Directors: Risk (continued)
Liquidity and funding
Additional contractual obligations
Under the terms of our current collateral obligations under
derivative contracts (which are ISDA compliant CSA
contracts and contracts entered into for pension
obligations and exclude the contracts entered for
special purpose vehicles and additional termination
events), and based on the positions at 31 December 2015,
we estimate that we could be required to post additional
collateral of up to $0.4bn (2014: $0.5bn) in the event of
a one-notch downgrade in credit ratings, which would
increase to $0.7bn (2014: $1.2bn) in the event of a
two-notch downgrade.
Contractual maturity of financial liabilities
The balances in the table below do not agree directly with
those in our consolidated balance sheet as the table
incorporates, on an undiscounted basis, all cash flows
relating to principal and future coupon payments (except
for trading liabilities and derivatives not treated as hedging
derivatives). Undiscounted cash flows payable in relation to
hedging derivative liabilities are classified according to their
contractual maturities. Trading liabilities and derivatives
not treated as hedging derivatives are included in the ‘On
demand’ time bucket and not by contractual maturity.
A maturity analysis of repos and debt securities in issue included in
trading liabilities is presented in Note 31 on the Financial
Statements.
In addition, loans and other credit-related commitments
and financial guarantees and similar contracts are generally
not recognised on our balance sheet. The undiscounted
cash flows potentially payable under financial guarantees
and similar contracts are classified on the basis of the
earliest date they can be called.
Cash flows payable by HSBC under financial liabilities by remaining contractual maturities
(Audited)
On
demand
$m
Due within
3 months
$m
Due between 3
and 12 months
$m
Due between
1 and 5 years
$m
Due after
5 years
$m
Deposits by banks
Customer accounts
Repurchase agreements – non-trading
Trading liabilities
Financial liabilities designated at fair value
Derivatives
Debt securities in issue
Subordinated liabilities
Other financial liabilities
Loan and other credit-related commitments
Financial guarantees and similar contracts
At 31 December 2015
Deposits by banks
Customer accounts
Repurchase agreements – non-trading
Trading liabilities
Financial liabilities designated at fair value
Derivatives
Debt securities in issue
Subordinated liabilities
Other financial liabilities
Loan and other credit-related commitments
Financial guarantees and similar contracts
At 31 December 2014
42,182
1,076,595
13,181
141,614
327
276,141
377
–
59,298
1,609,715
425,000
12,579
2,047,294
52,682
1,088,769
8,727
190,572
365
335,168
9
–
41,517
1,717,809
406,561
13,166
2,137,536
6,643
160,368
64,109
–
4,077
255
25,910
803
17,476
279,641
93,149
5,727
378,517
17,337
187,207
91,542
–
2,201
375
32,513
737
23,228
355,140
101,156
6,306
462,602
1,452
43,289
2,144
–
6,149
970
23,886
971
7,226
86,087
73,115
15,091
4,029
10,964
535
–
24,642
1,721
35,499
10,151
10,188
97,729
60,078
9,915
174,293
167,722
3,600
61,687
6,180
–
9,192
1,257
30,194
1,256
4,740
118,106
64,582
13,753
196,441
3,580
15,826
23
–
28,260
4,231
37,842
10,003
1,893
101,658
62,312
9,575
173,545
107
263
543
–
41,365
1,652
6,993
28,132
1,014
80,069
15,089
2,805
97,963
390
390
1,057
–
39,397
1,517
7,710
42,328
988
93,777
16,769
4,278
114,824
HSBC HOLDINGS PLC
164
HSBC Holdings
Liquidity risk in HSBC Holdings is overseen by Holdings
ALCO (‘HALCO’). Liquidity risk arises because of HSBC
Holdings’ obligation to make payments to debt holders as
they fall due. The liquidity risk related to these cash flows is
managed by matching external debt obligations with
internal loan cash flows and by maintaining an appropriate
liquidity buffer that is monitored by HALCO.
At 31 December 2015, the Group had new issuance of
$6.8bn of CRD IV compliant non-common equity capital
instruments, of which $3.2bn were classified as tier 2 and
$3.6bn were classified as additional tier 1 (for details on
tier 2 and additional tier 1 instruments see Notes 30 and 35
on the Financial Statements).
The balances in the table below do not agree directly with
those on the balance sheet of HSBC Holdings as the table
incorporates, on an undiscounted basis, all cash flows
relating to principal and future coupon payments (except
for derivatives not treated as hedging derivatives).
Undiscounted cash flows payable in relation to hedging
derivative liabilities are classified according to their
contractual maturities. Derivatives not treated as hedging
derivatives are included in the ‘On demand’ time bucket.
In addition, loan commitments and financial guarantees
and similar contracts are generally not recognised on our
balance sheet. The undiscounted cash flows potentially
payable under financial guarantees and similar contracts
are classified on the basis of the earliest date on which
they can be called.
Cash flows payable by HSBC Holdings under financial liabilities by remaining contractual maturities
(Audited)
Amounts owed to HSBC undertakings
Financial liabilities designated at fair value
Derivatives
Debt securities in issue
Subordinated liabilities
Other financial liabilities
Loan commitments
Financial guarantees and similar contracts
At 31 December 2015
Amounts owed to HSBC undertakings
Financial liabilities designated at fair value
Derivatives
Debt securities in issue
Subordinated liabilities
Other financial liabilities
Loan commitments
Financial guarantees and similar contracts
At 31 December 2014
On
demand
$m
Due within
3 months
$m
Due between
3 and 12
months
$m
257
–
2,065
–
–
–
2,322
–
68,333
70,655
1,441
–
1,066
–
–
–
2,507
16
52,023
54,546
1,375
1,145
–
15
229
1,426
4,190
–
–
4,190
985
210
–
16
252
1,132
2,595
–
–
2,595
424
655
–
47
699
152
1,977
–
–
1,977
42
642
–
50
770
158
1,662
–
–
1,662
Due between
1 and 5 years
$m
110
5,202
213
250
5,149
–
10,924
–
–
10,924
449
6,345
103
263
5,815
–
12,975
–
–
12,975
Due after
5 years
$m
–
20,779
–
1,176
25,474
–
47,429
–
–
47,429
–
19,005
–
1,303
28,961
–
49,269
–
–
49,269
HSBC HOLDINGS PLC
165
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Page
211
213
168
168
168
169
169
169
170
171
172
173
173
174
174
175
Report of the Directors: Risk (continued)
Market risk
Market risk
Page
App1
Tables
Market risk in 2015
Market risk in global businesses
Market risk governance
Market risk measures
Monitoring and limiting market risk exposures
Sensitivity analysis
Value at risk
Stress testing
Trading portfolios
Volcker Rule
Value at risk of the trading portfolios
167
167
167
167
167
167
167
Types of risk by global business
211
211
212
212
212
212
213 Market risk stress testing
213
213
Back-testing
Gap risk
De-peg risk
ABS/MBS exposures
Non-trading portfolios
Value at risk of the non-trading portfolios
Equity securities classified as available for sale
Market risk balance sheet linkages
Structural foreign exchange exposures
Non-trading interest rate risk
Interest rate risk behaviouralisation
Balance Sheet Management
Third-party assets in Balance Sheet Management
Sensitivity of net interest income
Sensitivity of capital and reserves
169
169
169
170
171
171
172
172
172
173
168
214
214
214
214
214
215
215
215
215
216
Daily VaR (trading portfolios)
Trading VaR
Back-testing of trading VaR against hypothetical
profit and loss for the Group
Daily VaR (non-trading portfolios)
Non-trading VaR
Fair value of equity securities
Balances included and not included in trading VaR
Market risk linkages to the accounting balance sheet
Third-party assets in Balance Sheet Management
216
Sensitivity of projected net interest income
Sensitivity of cash flow hedging reported reserves to interest
rate movements
Defined benefit pension schemes
174
216
Additional market risk measures
applicable only to the parent company
Foreign exchange risk
Sensitivity of net interest income
Interest rate repricing gap table
1 Appendix to Risk – risk policies and practices.
216
174
174
174
175
HSBC Holdings – foreign exchange VaR
Sensitivity of HSBC Holdings net interest income to
interest rate movements
Repricing gap analysis of HSBC Holdings
HSBC HOLDINGS PLC
166
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.
There were no material changes to our policies and
practices for the management of market risk in 2015.
Exposure to market risk
Exposure to market risk is separated into two portfolios:
• Trading portfolios comprise positions arising from
market-making and warehousing of customer-derived
positions. The interest rate risk on fixed-rate securities
issued by HSBC Holdings is not included in Group VaR.
The management of this risk is described on page 171.
• Non-trading portfolios comprise positions that primarily
arise from the interest rate management of our retail
and commercial banking assets and liabilities, financial
investments designated as available for sale and held to
maturity, and exposures arising from our insurance
operations (see page 180).
Monitoring and limiting market risk exposures
Our objective is to manage and control market risk exposures
while maintaining a market profile consistent with our risk
appetite.
We use a range of tools to monitor and limit market risk
exposures, including:
• Sensitivity analysis includes the sensitivity of net interest
income and the sensitivity of structural foreign exchange,
which are used to monitor the market risk positions within
each risk type;
• Value at risk (‘VaR’) is a technique that estimates the
potential losses that could occur on risk positions as a result
of movements in market rates and prices over a specified
time horizon and to a given level of confidence; and
• Stress testing: in recognition of VaR’s limitations we augment
VaR with stress testing to evaluate the potential impact on
portfolio values of more extreme, though plausible, events or
movements in a set of financial variables. Examples of
scenarios reflecting current market concerns are the
slowdown in mainland China and the potential effects of a
sovereign debt default, including its wider contagion effects.
A summary of our market risk management framework including
current policies is provided in the Appendix to Risk on page 210.
Market risk in 2015
Global economic growth remained subdued in 2015, with
a number of headwinds present. The slowdown of the
mainland Chinese economy dampened global trade flows
and caused volatility in currency and global stock markets.
Market concerns persist as to the scale of the slowdown
and the potential for further depreciation of the renminbi.
Performance among developed markets was uneven,
with the US and UK performing better than the eurozone,
where the risk of a Greek exit faded in the second half of
the year and ECB monetary policy remained supportive.
Emerging market economies were affected by falling
commodity prices as mainland Chinese demand slowed
along with the prospect of monetary policy normalisation
in the US. This led to capital outflows from emerging
markets and a significant depreciation in several key
currencies against the US dollar.
Against this backdrop, we maintained an overall defensive
risk profile in our trading businesses. Defensive positions
are characterised by low net open positions or the purchase
of volatility protection via options trades. Non-trading VaR
increased during the year as higher interest rates, especially
in US dollars, caused the duration of non-trading assets to
increase.
Trading portfolios
Value at risk of the trading portfolios
Trading VaR predominantly resides within Global Markets.
This was lower at 31 December 2015 than at 31 December
2014 due to a decrease in interest rate trading VaR. During
the year, trading VaR remained relatively stable trading in a
tight range, with the effects of increased market volatility
on VaR offset by reduced positions.
The daily levels of total trading VaR over the last year are
set out in the graph below.
HSBC HOLDINGS PLC
167
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Market risk
Daily VaR (trading portfolios), 99% 1 day ($m)
90
70
50
30
10
-10
-30
-50
Trading VaR
IR trading
EQ trading
CS trading
FX trading
Portfolio
diversification
Jan-15
Feb-15
Apr-15
May-15
Jul-15
Aug-15
Oct-15
Dec-15
The Group trading VaR for the year is shown in the table below.
Trading VaR, 99% 1 day29
(Audited)
At 31 December 2015
Average
Maximum
Minimum
At 31 December 2014
Average
Maximum
Minimum
For footnotes, see page 192.
Foreign
exchange (FX)
and commodity
$m
Interest
rate
(IR)
$m
8.0
14.7
25.4
6.3
9.8
16.9
34.2
8.7
34.9
46.0
57.0
32.6
45.4
39.5
50.6
26.9
Equity
(EQ)
$m
21.4
19.6
29.0
11.9
7.3
6.9
15.6
3.2
Credit
spread
(CS)
$m
13.9
15.5
23.3
9.8
12.5
13.7
20.9
8.8
Portfolio
diversification30
$m
(24.9)
(35.7)
(14.3)
(17.8)
Total31
$m
53.3
60.1
77.9
47.5
60.7
59.2
77.8
38.5
The Risk not in VaR (‘RNIV’) framework captures risks from
exposures in the HSBC trading book which are not captured
well by the VaR model. For 2015, the VaR-based RNIVs are
included within metrics for each asset class whereas in
2014 they were included within portfolio diversification.
Adjusting for the impact of the RNIV reclassification,
portfolio diversification reduced in comparison to 2014.
Back-testing
In 2015, the Group experienced one profit exception, due
primarily to profits from increased volatility in foreign
exchange currencies arising from the sharp fall in the
Chinese stock market and its effect on global markets.
There was no evidence of model errors or control failures.
The graph below shows the daily trading VaR against
hypothetical profit and loss for the Group during 2015. The
back-testing result excludes exceptions due from changes
in fair value adjustments.
Back-testing of trading VaR against hypothetical profit and loss for the Group ($m)
100
50
0
-50
-100
Jan 2015
Feb 2015
Mar 2015
May 2015
Jun 2015
Aug 2015
Sep 2015
Oct 2015
Dec 2015
Hypothetical profit and loss
VaR (99%)
Back-testing exception
HSBC HOLDINGS PLC
168
Non-trading portfolios
Value at risk of the non-trading portfolios
Non-trading VaR of the Group includes contributions from
all global businesses. There is no commodity risk in the
non-trading portfolios. The increase of non-trading VaR
during 2015 was due primarily to the lengthening of the
duration in the non-trading book from higher interest
rates, especially US rates. There was no overall trend in
the non-trading VaR during the year and no significant
movements. The increase in non-trading interest rate and
credit spread VaR components were offset by an increase
in portfolio diversification effects.
Daily VaR (non-trading portfolios), 99% 1 day ($m)
Non-trading VaR also includes the interest rate risk of
non-trading financial instruments held in portfolios
managed by Balance Sheet Management (‘BSM’). The
management of interest rate risk in the banking book is
described further in ‘Non-trading interest rate risk’ below,
including the role of BSM.
Non-trading VaR excludes the insurance operations which
are discussed further on page 180.
The daily levels of total non-trading VaR over the last year
are set out in the graph below.
160
120
80
40
0
-40
-80
Non-trading VAR
IR non-trading
CS non-trading
Portfolio
diversification
Jan-15
Feb-15
Apr-15
May-15
Jul-15
Aug-15
Oct-15
Dec-15
The Group non-trading VaR for the year is shown in the table below.
Non-trading VaR, 99% 1 day
(Audited)
At 31 December 2015
Average
Maximum
Minimum
At 31 December 2014
Average
Maximum
Minimum
Non-trading VaR excludes equity risk on available-for-sale
securities, structural foreign exchange risk and interest rate
risk on fixed-rate securities issued by HSBC Holdings. This
section and the sections below describe the scope of HSBC’s
management of market risks in non-trading books.
Interest
Rate (IR)
$m
Credit
Spread (CS)
$m
Portfolio
diversification
$m
114.1
97.5
131.5
70.5
88.2
103.3
147.7
83.3
72.7
65.7
89.4
52.1
62.5
73.3
91.9
49.6
(54.0)
(42.0)
(28.5)
(37.4)
Equity securities classified as available for sale
Fair value of equity securities
(Audited)
Private equity holdings32
Investment to facilitate ongoing
business33
Other strategic investments
At 31 December
For footnotes, see page 192.
2015
$bn
1.9
1.9
2.1
5.9
Total
$m
132.8
121.2
156.8
91.5
122.2
139.2
189.0
92.3
2014
$bn
2.0
1.2
7.5
10.7
HSBC HOLDINGS PLC
169
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Market risk
The table above sets out the maximum possible loss on
shareholders’ equity from available-for-sale equity
securities. The fair value of equity securities classified as
available for sale reduced from $10.7bn to $5.9bn. The
decrease in Other strategic investments was largely due to
the disposal of the Industrial Bank investment.
Market risk balance sheet linkages
The information below and on page 171 aims to facilitate
an understanding of linkages between line items in the
balance sheet and positions included in our market risk
disclosures, in line with recommendations made by the
Enhanced Disclosure Task Force.
Balances included and not included in trading VaR
At 31 December 2015
Assets
Cash and balances at central banks
Trading assets
Financial assets designated at fair value
Derivatives
Loans and advances to banks
Loans and advances to customers
Reverse repurchase agreements – non-trading
Financial investments
Liabilities
Deposits by banks
Customer accounts
Repurchase agreements – non-trading
Trading liabilities
Financial liabilities designated at fair value
Derivatives
Debt securities in issue
Balance
sheet
$m
98,934
224,837
23,852
288,476
90,401
924,454
146,255
428,955
54,371
1,289,586
80,400
141,614
66,408
281,071
88,949
Balances
included in
trading VaR
$m
Balances not
included in
trading VaR
$m
Primary
market risk
sensitivities
203,194
282,972
130,427
275,007
98,934
21,643
23,852
5,504
90,401
924,454
146,255
428,955
54,371
1,289,586
80,400
11,187
66,408
6,064
88,949
B
A
A
A
B
B
C
A
B
B
C
A
A
A
C
The table represents account lines where there is some exposure to market risk according to the following asset classes:
A Foreign exchange, interest rate, equity and credit spread.
B Foreign exchange and interest rate.
C Foreign exchange, interest rate and credit spread.
The table above splits the assets and liabilities into two
categories:
• those that are included in the trading book and are
measured by VaR; and
• those that are not in the trading book and/or are not
measured by VaR.
The breakdown of financial instruments included and
not included in trading VaR provides a linkage with market
risk to the extent that it is reflected in our risk framework.
However, it is important to highlight that the table does
not reflect how we manage market risk, since we do not
discriminate between assets and liabilities in our VaR
model.
The assets and liabilities included in trading VaR give rise
to a large proportion of the income included in net trading
income. As set out on page 54, HSBC’s net trading income
in 2015 was $8,723m (2014: $6,760m). Adjustments to
trading income such as valuation adjustments do not feed
the trading VaR model.
HSBC HOLDINGS PLC
170
Market risk linkages to the accounting balance sheet
Trading assets and liabilities
The Group’s trading assets and liabilities are in almost all cases
originated by GB&M. The assets and liabilities are classified as
held for trading if they have been acquired or incurred principally
for the purpose of selling or repurchasing in the near term, or
form part of a portfolio of identified financial instruments that
are managed together and for which there is evidence of a recent
pattern of short-term profit-taking. These assets and liabilities
are treated as traded risk for the purposes of market risk
management, other than a limited number of exceptions,
primarily in Global Banking where the short-term acquisition
and disposal of the assets are linked to other non-trading related
activities such as loan origination.
Financial assets designated at fair value
Financial assets designated at fair value within HSBC are
predominantly held within the Insurance entities. The majority
of these assets are linked to policyholder liabilities for either
unit-linked or insurance and investment contracts with DPF. The
risks of these assets largely offset the market risk on the liabilities
under the policyholder contracts, and are risk managed on a
non-trading basis.
Financial liabilities designated at fair value
Financial liabilities designated at fair value within HSBC are
primarily fixed-rate securities issued by HSBC entities for
funding purposes. An accounting mismatch would arise if the
debt securities were accounted for at amortised cost because
the derivatives which economically hedge market risks on the
securities would be accounted for at fair value with changes
recognised in the income statement. The market risks of these
liabilities are treated as non-traded risk, the principal risks being
interest rate and/or foreign exchange risks. We also incur
liabilities to customers under investment contracts, where the
liabilities on unit-linked contracts are based on the fair value of
assets within the unit-linked funds. The exposures on these funds
are treated as non-traded risk and the principal risks are those of
the underlying assets in the funds.
Derivative assets and liabilities
We undertake derivative activity for three primary purposes;
to create risk management solutions for clients, to manage the
portfolio risks arising from client business and to manage and
hedge our own risks. Most of our derivative exposures arise
from sales and trading activities within GB&M and are treated
as traded risk for market risk management purposes.
Within derivative assets and liabilities there are portfolios of
derivatives which are not risk managed on a trading intent basis
and are treated as non-traded risk for VaR measurement
For information on the accounting policies applied to financial
instruments at fair value, see Note 13 on the Financial Statements.
Structural foreign exchange exposures
For our policies and procedures for managing structural foreign
exchange exposures, see page 215 of the Appendix to Risk.
For details of structural foreign exchange exposures see Note 33
on the Financial Statements.
Non-trading interest rate risk
For our policies regarding the funds transfer pricing process for
non-trading interest rate risk and liquidity and funding risk, see
page 207 of the Appendix to Risk.
purposes. These arise when the derivative was entered into in
order to manage risk arising from non-traded exposures. They
include non-qualifying hedging derivatives and derivatives
qualifying for fair value and cash flow hedge accounting. The use
of non-qualifying hedges whose primary risks relate to interest
rate and foreign exchange exposure is described on page 171.
Details of derivatives in fair value and cash flow hedge accounting
relationships are given in Note 16 on the Financial Statements.
Our primary risks in respect of these instruments relate to
interest rate and foreign exchange risks.
Loans and advances to customers
The primary risk on assets within loans and advances to
customers is the credit risk of the borrower. The risk of
these assets is treated as non-trading risk for market risk
management purposes.
Financial investments
Financial investments include assets held on an available-for-sale
and held-to-maturity basis. An analysis of the Group’s holdings
of these securities by accounting classification and issuer type is
provided in Note 17 on the Financial Statements and by business
activity on page 398. The majority of these securities are mainly
held within Balance Sheet Management in GB&M. The positions
which are originated in order to manage structural interest rate
and liquidity risk are treated as non-trading risk for the purposes
of market risk management. Available-for-sale security holdings
within insurance entities are treated as non-trading risk and are
largely held to back non-linked insurance policyholder liabilities.
The other main holdings of available-for-sale assets are the
ABSs within GB&M’s legacy credit business, which are treated
as non-trading risk for market risk management purposes, the
principal risk being the credit risk of the obligor.
The Group’s held-to-maturity securities are principally held
within the Insurance business. Risks of held-to-maturity assets
are treated as non-trading for risk management purposes.
Repurchase (repo) and reverse repurchase (reverse repo)
agreements non-trading
Reverse repo agreements, classified as assets, are a form of
collateralised lending. HSBC lends cash for the term of the reverse
repo in exchange for receiving collateral (normally in the form of
bonds).
Repo agreements, classified as liabilities, are the opposite of
reverse repos, allowing HSBC to obtain funding by providing
collateral to the lender.
Both transaction types are treated as non-trading risk for market
risk management and the primary risk is counterparty credit risk.
Asset, Liability and Capital Management (‘ALCM’)
is responsible for measuring and controlling non-trading
interest rate risk under the supervision of the RMM. Its
primary responsibilities are:
• to define the rules governing the transfer of non-trading
interest rate risk from the global businesses to BSM;
• to define the rules governing the interest rate risk
behaviouralisation applied to non-trading assets/
liabilities (see below);
• to ensure that all market interest rate risk that can be
neutralised is transferred from the global businesses to
BSM; and
HSBC HOLDINGS PLC
171
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Market risk
• to define the rules and metrics for monitoring the
residual interest rate risk in the global businesses,
including any market risk that cannot be neutralised.
The different types of non-trading interest rate risk and the
controls which we use to quantify and limit exposure to
these risks can be categorised as follows:
• risk which is transferred to BSM and managed by BSM
within a defined market risk mandate, predominantly
through the use of fixed-rate liquid assets (government
bonds) held in held to maturity or available-for-sale
portfolios and/or interest rate derivatives which are
part of fair value hedging or cash flow hedging
relationships. This non-trading interest rate risk is
reflected in non-trading VaR, as well as in our net
interest income (see below) or economic value of
equity (‘EVE’) sensitivity;
• risk which remains outside BSM because it cannot be
hedged or which arises due to our behaviouralised
transfer pricing assumptions. This risk is not reflected
in non-trading VaR, but is captured by our net interest
income or EVE sensitivity and corresponding limits
are part of our global and regional risk appetite
statements for non-trading interest rate risk. A typical
example would be margin compression created by
unusually low rates in key currencies;
• basis risk which is transferred to BSM when it can be
hedged. Any residual basis risk remaining in the global
businesses is reported to ALCO. This risk is not reflected
in non-trading VaR, but is captured by our net interest
income or EVE sensitivity. A typical example would be a
managed rate savings product transfer-priced using a
Libor-based interest rate curve; and
• model risks which cannot be captured by non-trading
VaR, net interest income or EVE sensitivity, but are
controlled by our stress testing framework. A typical
example would be prepayment risk on residential
mortgages or pipeline risk.
Interest rate risk behaviouralisation
For our policies regarding interest risk behaviouralisation, see page
215 of the Appendix to Risk.
Third-party assets in Balance Sheet Management
For our BSM governance framework, see page 216 of the Appendix
to Risk.
Third-party assets in BSM decreased by 9% during 2015.
Deposits with central banks reduced by $32bn,
predominantly in North America and Europe, in line with
reduced repo and reverse repo activity. This reduced
activity is also reflected in a reduction of $29bn in
non-trading reverse repurchase agreements. Financial
investments increased by $29bn mainly due to increased
deployment of funds into securities in Asia.
Third-party assets in Balance Sheet Management
Cash and balances at central banks
Trading assets
Loans and advances:
– to banks
– to customers
Reverse repurchase agreements
Financial investments
Other
At 31 December
2015
$m
71,116
639
42,059
2,773
29,760
335,543
4,277
486,167
2014
$m
103,008
4,610
53,842
1,931
59,172
306,763
2,470
531,796
Sensitivity of net interest income
The table on the next page sets out the effect on our
accounting net interest income (excluding insurance)
projections of a series of four quarterly parallel shocks of
25 basis points to the current market-implied path of
interest rates worldwide at the beginning of each quarter
from 1 January 2016. The sensitivities shown represent the
change in the expected base case net interest income that
would be expected under the two rate scenarios assuming
that all other non-interest rate risk variables remain
constant, and there are no management actions. In
deriving our base case net interest income projections, the
re-pricing rates of assets and liabilities used are derived
from current yield curves, thereby reflecting current
market expectations of the future path of interest rates.
The scenarios therefore represent interest rate shocks
which occur to the current market implied path of rates.
The interest rate sensitivities are indicative and based on
simplified scenarios. The limitations of this analysis are
discussed in the Appendix to Risk on page 216.
Assuming no management response, a sequence of such
rises (‘up-shock’) would increase expected net interest
income for 2016 by $1,251m (2015: $885m), while a
sequence of such falls (‘down-shock’) would decrease
planned net interest income by $2,258m (2015: $2,089m).
The net interest income (‘NII’) sensitivity of the Group can
be split into three key components; the structural sensitivity
arising from the four global businesses excluding BSM and
Markets, the sensitivity of the funding of the trading book
(Markets) and the sensitivity of BSM.
The structural sensitivity is positive in a rising rate
environment and negative in a falling rate environment.
The sensitivity of the funding of the trading book is
negative in a rising rate environment and positive in a
falling rate environment, and in terms of the impact on
profit the change in NII would be expected to be offset by
a similar change in net trading income. The sensitivity of
BSM will depend on its position. Typically, assuming no
management response, the sensitivity of BSM is negative
in a rising rate environment and positive in a falling rate
environment.
The NII sensitivity figures on the next page also incorporate
the effect of any interest rate behaviouralisation applied
and the effect of any assumed repricing across products
under the specific interest rate scenario. They do not
incorporate the effect of any management decision
to change the HSBC balance sheet composition.
HSBC HOLDINGS PLC
172
See page 215 in the Risk Appendix for more information about
interest rate behaviouralisation and the role of BSM.
The NII sensitivity in BSM arises from a combination of
the techniques that BSM use to mitigate the transferred
interest rate risk and the methods they use to optimise
net revenues in line with their defined risk mandate. The
figures in the table below do not incorporate the effect of
any management decisions within BSM, but in reality it is
likely that there would be some short-term adjustment in
BSM positioning to offset the NII effects of the specific
interest rate scenario where necessary.
Sensitivity of net interest income34
(Audited)
The NII sensitivity arising from the funding of the trading
book is comprised of the expense of funding trading assets,
while the revenue from these trading assets is reported in
net trading income. This leads to an asymmetry in the NII
sensitivity figures which is cancelled out in our global
business results, where we include both net interest
income and net trading income. It is likely, therefore, that
the overall effect on profit before tax of the funding of the
trading book will be much less pronounced than shown in
the figures below.
Change in 2015 net interest income arising from
a shift in yield curves of:
+25 basis points at the beginning of each quarter
–25 basis points at the beginning of each quarter
Change in 2014 net interest income arising from
a shift in yield curves of:
+25 basis points at the beginning of each quarter
–25 basis points at the beginning of each quarter
For footnote, see page 191.
US dollar
bloc
$m
Rest of
Americas
bloc
$m
Hong Kong
dollar
bloc
$m
Rest of
Asia
bloc
$m
Sterling
bloc
$m
Euro
bloc
$m
Total
$m
410
(691)
209
(521)
72
(74)
(9)
(1)
217
(645)
369
(290)
135
(528)
49
(30)
1,251
(2,258)
245
(494)
265
(259)
321
(783)
(146)
(31)
885
(2,089)
These estimates are based on certain assumptions,
principally:
• all non-interest rate risk variables remain constant; and
• the size and composition of HSBC’s balance sheet
remains as it was at 31 December 2015.
We expect NII to rise in the rising rate scenario and fall in
the falling rate scenario. This is due to a structural mismatch
between our assets and liabilities (on balance we would
expect our assets to reprice more quickly, and to a greater
extent, than our liabilities).
We are more sensitive to both up and down shocks relative
to 31 December 2014. In the up-shock we benefit from
BSM positioning in US dollars. In the down-shock we lose
due to larger rate decreases on deployment of US and
HK dollar deposits given the higher rate environment.
Sensitivity of capital and reserves
Under CRD IV, available-for-sale (‘AFS’) reserves are
included as part of CET1 capital. We measure the potential
downside risk to the CET1 ratio due to interest rate and
credit spread risk in the AFS portfolio by the portfolio’s
stressed VaR, using a 99% confidence level and an assumed
holding period of one quarter. At December 2015, the
stressed VaR of the portfolio was $2.8bn.
We monitor the sensitivity of reported cash flow hedging
reserves to interest rate movements on a monthly basis by
assessing the expected reduction in valuation of cash flow
hedges due to parallel movements of plus or minus 100bps
in all yield curves. These particular exposures form only a
part of our overall interest rate exposures.
The table below describes the sensitivity of our cash flow
hedge reported reserves to the stipulated movements in
yield curves and the maximum and minimum month-end
figures during the year. The sensitivities are indicative and
based on simplified scenarios.
Sensitivity of cash flow hedging reported reserves to interest rate movements
At 31 December 2015
+ 100 basis point parallel move in all yield curves
As a percentage of total shareholders’ equity
– 100 basis point parallel move in all yield curves
As a percentage of total shareholders’ equity
At 31 December 2014
+ 100 basis point parallel move in all yield curves
As a percentage of total shareholders’ equity
– 100 basis point parallel move in all yield curves
As a percentage of total shareholders’ equity
HSBC HOLDINGS PLC
173
Maximum
impact
$m
Minimum
impact
$m
(1,259)
(0.67%)
1,232
0.65%
(1,478)
(0.78%)
1,463
0.77%
(1,137)
(0.60%)
1,133
0.60%
(1,131)
(0.60%)
1,126
0.59%
$m
(1,235)
(0.66%)
1,224
0.65%
(1,260)
(0.66%)
1,232
0.65%
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Market risk
Defined benefit pension schemes
Market risk arises within our defined benefit pension
schemes to the extent that the obligations of the schemes
are not fully matched by assets with determinable cash
flows.
For details of our defined benefit schemes, including asset
allocation, see Note 6 on the Financial Statements, and for pension
risk management see page 189.
Additional market risk measures applicable
only to the parent company
The principal tools used in the management of market risk
are VaR for foreign exchange rate risk and the projected
sensitivity of HSBC Holdings’ net interest income to future
changes in yield curves and interest rate gap repricing
tables for interest rate risk.
Foreign exchange risk
Total foreign exchange VaR arising within HSBC Holdings
in 2015 was as follows:
HSBC Holdings – foreign exchange VaR
At 31 December
Average
Minimum
Maximum
2015
$m
45.6
42.3
32.9
47.1
2014
$m
29.3
42.1
29.3
50.0
The foreign exchange risk largely arises from loans to
subsidiaries of a capital nature that are not denominated
in the functional currency of either the provider or the
recipient and which are accounted for as financial assets.
Changes in the carrying amount of these loans due to
foreign exchange rate differences are taken directly to
HSBC Holdings’ income statement. These loans, and
most of the associated foreign exchange exposures,
are eliminated on consolidation.
Sensitivity of net interest income
HSBC Holdings monitors NII sensitivity over a five-year time
horizon reflecting the longer-term perspective on interest
rate risk management appropriate to a financial services
holding company. These sensitivities assume that any
issuance where HSBC Holdings has an option to reimburse at
a future call date is called at this date. The table below sets
out the effect on HSBC Holdings’ future NII over a five-year
time horizon of incremental 25 basis point parallel falls or
rises in all yield curves worldwide at the beginning of each
quarter during the 12 months from 1 January 2015.
Assuming no management actions, a sequence of such
rises would increase planned NII for the next five years by
$247m (2014: increase of $600m), while a sequence of
such falls would decrease planned NII by $266m (2014:
decrease of $539m).
Sensitivity of HSBC Holdings’ net interest income to interest rate movements34
US dollar
bloc
$m
Sterling
bloc
$m
Euro
bloc
$m
Total
$m
Change in projected net interest income as at 31 December arising from
a shift in yield curves
2015
of + 25 basis points at the beginning of each quarter
0-1 year
2-3 years
4-5 years
of – 25 basis points at the beginning of each quarter
0-1 year
2-3 years
4-5 years
2014
of + 25 basis points at the beginning of each quarter
0-1 year
2-3 years
4-5 years
of – 25 basis points at the beginning of each quarter
0-1 year
2-3 years
4-5 years
For footnote, see page 191.
57
118
(23)
(57)
(118)
23
78
281
138
(58)
(276)
(138)
15
43
43
(14)
(43)
(43)
9
17
17
(9)
(16)
(17)
–
7
(12)
(6)
(22)
15
2
34
24
(1)
(12)
(12)
72
168
8
(77)
(183)
(5)
89
332
179
(68)
(304)
(167)
The interest rate sensitivities tabulated above are indicative
and based on simplified scenarios. The figures represent
hypothetical movements in NII based on our projected
yield curve scenarios, HSBC Holdings’ current interest rate
risk profile and assumed changes to that profile during the
next five years. Changes to assumptions concerning the
risk profile over the next five years can have a significant
impact on the NII sensitivity for that period. However, the
figures do not take into account the effect of actions that
could be taken to mitigate this interest rate risk.
HSBC HOLDINGS PLC
174
Interest rate repricing gap table
The interest rate risk on the fixed-rate securities issued by
HSBC Holdings is not included within the Group VaR but is
managed on a re-pricing gap basis. The interest rate re-pricing
gap table below analyses the full-term structure of interest
rate mismatches within HSBC Holdings’ balance sheet.
Repricing gap analysis of HSBC Holdings
Cash at bank and in hand:
– balances with HSBC undertakings
Derivatives
Loans and advances to HSBC undertakings
Financial investments in HSBC undertakings
Investments in subsidiaries
Other assets
Total assets
Amounts owed to HSBC undertakings
Financial liabilities designated at fair values
Derivatives
Debt securities in issue
Other liabilities
Subordinated liabilities
Total equity
Total liabilities and equity
Off-balance sheet items attracting interest rate
sensitivity
Net interest rate risk gap at 31 December 2015
Cumulative interest rate gap
Cash at bank and in hand:
– balances with HSBC undertakings
Derivatives
Loans and advances to HSBC undertakings
Financial investments in HSBC undertakings
Investments in subsidiaries
Other assets
Total assets
Amounts owed to HSBC undertakings
Financial liabilities designated at fair values
Derivatives
Debt securities in issue
Other liabilities
Subordinated liabilities
Total equity
Total liabilities and equity
Off-balance sheet items attracting interest rate
sensitivity
Net interest rate risk gap at 31 December 2014
Cumulative interest rate gap
Total
$m
242
2,467
44,350
4,285
97,770
1,080
150,194
(2,152)
(19,853)
(2,278)
(960)
(15,895)
(1,642)
(107,414)
(150,194)
–
–
–
249
2,771
43,910
4,073
96,264
597
14 8641
147,864
(2,892)
(18,679)
(1,169)
(1,009)
(1,415)
(17,255)
(105,445)
(
(147,864)
–
–
–
Up to
1 year
$m
From over 1
to 5 years
$m
242
–
42,661
2,985
–
–
45,888
(781)
(1,741)
–
–
–
–
–
(2,522)
(22,748)
20,618
20,618
–
–
41,603
3,010
–
–
44,613
(1
(1,877)
(850)
–
–
–
(779)
–
(3,506)
(21,525)
19,582
19,582
–
–
279
–
–
109
388
–
(3,239)
–
–
(3,374)
–
–
(6,613)
5,351
(874)
19,744
–
–
290
–
–
–
290
–
(5,472)
–
–
–
(3,766)
–
(9,238)
7,295
(1,653)
17,929
From over 5
to 10 years
$m
–
–
405
731
–
–
1,136
–
(7,032)
–
(963)
(3,500)
–
–
More than
10 years
$m
Non-interest
bearing
$m
–
–
–
–
–
–
–
(4,312)
–
–
(9,119)
–
–
–
2,467
1,005
569
97,770
971
102,782
(1,371)
(3,628)
(2,278)
3
98
(1,642)
(107,414)
(11,495)
(13,332)
(116,232)
10,722
363
20,107
–
–
1,093
731
–
–
1,824
–
(5,400)
–
(1,013)
–
(2,000)
–
(8,413)
7,400
811
18,740
5,763
(7,569)
12,538
912
(12,538)
–
–
–
–
–
–
–
–
–
(4,263)
–
–
–
(10,195)
–
(14,458)
5,763
(8,695)
10,045
249
2,771
924
332
96,264
597
101,137
(1,015)
(2,694)
(1,169)
4
(1,415)
(515)
(105,445)
(112,249)
1,067
(10,045)
–
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
HSBC HOLDINGS PLC
175
Report of the Directors: Risk (continued)
Operational risk
Operational risk
Page
App1
Tables
Operational risk
Operational risk management framework
Three lines of defence
Operational risk in 2015
Frequency and amount of operational risk losses
Compliance risk
Legal risk
Global security and fraud risk
Systems risk
Vendor risk management
1 Appendix to Risk – risk policies and practices.
176
176
177
177
177
178
217
217
218
218
219
219
Operational risk is the risk to achieving our strategy or
objectives as a result of inadequate or failed internal
processes, people and systems or from external
events.
Responsibility for minimising operational risk lies with
HSBC’s management and staff. All regional, global business,
country, and functional staff are required to manage the
operational risks of the business and operational activities
for which they are responsible.
A summary of our current policies and practices regarding
operational risk is provided in the Appendix to Risk on page 217.
Operational risk management framework
HSBC’s Operational Risk Management Framework (‘ORMF’)
is our overarching approach for managing operational risk.
The purpose of the ORMF is to make sure we fully identify
and manage our operational risks in an effective manner
Key components of HSBC’s ORMF
Key components of HSBC’s ORMF
Frequency of operational risk incidents by risk category
Distribution of operational risk losses in US dollars by
risk category
Page
176
178
178
and remain within our targeted levels of operational risk
within the Group’s risk appetite, as defined by the Board.
Articulating our risk appetite for material operational risks
helps the organisation understand the level of risk HSBC is
willing to accept. Monitoring operational risk exposure
against risk appetite on a regular basis and implementing
our risk acceptance process drives risk awareness in a
forward-looking manner and assists management in
determining whether further action is required.
Activities to strengthen our risk culture and better embed
the use of the ORMF continued in 2015. In particular, we
continued to streamline our operational risk management
processes, procedures and tool sets to provide more
forward-looking risk insights and more effective operation
of the ORMF. The ORMF comprises the 14 key components
set below.
2
3
4
5
e
c
n
a
n
r
e
v
o
G
D
O
L
3
M
I
F
y
m
o
n
o
x
a
T
1
Culture, Values and Operational Risk Strategy
2.1 Risk Committee Structure and
Terms of Reference
2.2 Global Operational Risk Committee
3.1 Operational Risk roles and responsibilities
3.2 Second line of defence skills and resources
4.1 Operational Risk policy framework
n8
l
a
t
i
p
a
C
o
i
t
a
u
c
l
l
a
C
6
Risk appetite
7
Reporting
8.1 Operational risk capital calculation (economic and ICAAP capital)
8.2 Stress testing for operational risk
Core Operational Risk Management
12
Management actions
11
Internal and external event
management and escalation
Operational
Risk
Management
Cycle
9
Identification and assessment
9.1 Risk and control assessments
9.2 Scenario analysis
9.3 Top and emerging
operational risks
10
Internal control monitoring and
key indicator management
5.1 Operational Risk taxonomy
13
Use, embedding and oversight
14
Systems and tools
HSBC HOLDINGS PLC
176
Three lines of defence
HSBC has implemented an activity-based ‘three lines of
defence’ model (an industry best practice approach) to
underpin our approach to managing operational risk using
the ORMF. It makes clear who does what within HSBC to
manage operational risks on a daily basis.
• The first line of defence owns the risks and is responsible
for identifying, recording, reporting and managing them
and ensuring that the right controls and assessments
are in pace to mitigate these risks.
• The second line of defence sets the policy and guidelines
for managing the risks and provides advice, guidance
and challenge to the first line of defence on effective
risk management.
• The third line of defence is Internal Audit which helps
the Board and Executive Management to protect the
assets, reputation and sustainability of the Group.
Operational risk in 2015
During 2015, our operational risk profile continued to be
dominated by compliance risk (mainly conduct-related)
and we continued to incur losses relating to events
from previous years. Conduct-related costs included
in significant items are outlined on page 97. A range
of mitigating actions are being taken to prevent future
conduct-related incidents.
For further information see 'Compliance risk' on page 178 and for
details of the investigations and legal proceedings see Note 40 on
the Financial Statements.
Other operational risks included:
• compliance with regulatory agreements and orders:
failure to implement our obligations under the US DPA
could have a material adverse effect on our results and
operations. The work of the Monitor is discussed on
page 116, with compliance risk described below;
• level of change creating operational complexity:
the Global Risk function is engaged with business
management in business transformation initiatives to
ensure robust internal controls are maintained as we
execute our change agenda;
• fraud risks: our loss prevention performance remains
strong in most markets, but the introduction of new
technologies and ways of banking mean that we
continue to be subject to fraud attacks as new attack
vectors are developed. We continue to increase
monitoring and enhance detective controls to mitigate
these risks in accordance with our risk appetite;
• information security: the security of our information and
technology infrastructure is crucial for maintaining our
banking services and protecting our customers and the
HSBC brand. As with other financial institutions and
multinational organisations, we continue to be exposed
to cyber threats, and the focus of attacks such as
‘distribution of denial of service’ which can affect the
availability of customer-facing websites. Programmes
of work are ongoing to strengthen internal security
controls to prevent unauthorised access to our systems
and network, as well as improvements to the controls
and security applied to protect our customers utilising
digital channels. Strong engagement and support within
the industry, government agencies and intelligence
providers helps to ensure we keep abreast of the
current developments; and
• third-party risk management: we are strengthening our
core third-party risk management capability particularly
related to the management of vendor risks. A supplier
performance management programme has been
implemented with our most material suppliers and
screening of suppliers is in place to help enable us to
identify if any are on a sanctions list and if we should
therefore exit the relationship.
Other operational risks are also monitored and managed
through the use of the ORMF.
Further information on the nature of these risks is provided in
‘Top and emerging risks’ on page 110.
Frequency and amount of operational risk losses
The profile of operational risk incidents and associated
losses is summarised below, showing the distribution
of operational incidents in terms of their frequency of
occurrence and total loss amount in US dollars.
Operational losses were lower in 2015 than in 2014,
reflecting a reduction in losses incurred relating to large
legacy conduct-related events. Our total loss was driven
primarily by provisions raised in respect of the mis-selling
of the PPI policies, foreign exchange rate investigations
and litigation.
As in previous years, the operational risk incident profile in
2015 comprised high frequency low impact events and high
impact events that occurred much less frequently.
Losses due to external fraud, such as card fraud, occurred
more often than other types of incident, but the amounts
involved were often small in value. The value of fraud
incidents in 2015 was lower than in 2014, due to the
strengthened control environment.
HSBC HOLDINGS PLC
177
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Operational risk
Frequency of operational risk incidents by risk category
(individual loss ≥$10k)
Accounting and Tax
Financial Crime Compliance
Regulatory Compliance
Fraud
Legal
Operations and Systems
1%
1%
0%
0%
6%
6%
4%
4%
People
Other
2%
2%
2015
2014
38%
39%
22%
23%
26%
24%
Distribution of operational risk losses in US dollars by risk
category
2015
2014
47%
54%
29%
30%
Accounting and Tax
Financial Crime Compliance
Regulatory Compliance
Fraud
Legal
Operations and Systems
8%
2%
2%
0%
4%
6%
9%
7%
People
Other
1%
1%
0%
0%
Compliance risk
Compliance risk arises from activities subject to rules,
regulations, Group policies and other formal standards,
including those relating to AML, counter-terrorist and
proliferation financing, sanctions compliance, anti-bribery
and corruption, conduct of business and other regulations.
Anti-money laundering and sanctions
Revised global AML and sanctions policies were approved
in 2014. During 2015, global businesses and countries
introduced new AML and sanctions procedures arising
from the new policies and focused on embedding the
procedures required to effect these policies in our day
to day business operations globally. This supported our
ongoing effort to address the US DPA requirements. These
actions were in line with our strategic target to implement
the highest or most effective standards globally. The work
of the Monitor, who was appointed to assess the
effectiveness of our AML and sanctions compliance
programme is discussed on page 116 and our progress on
implementing Global Standards is detailed on page 21.
Anti-bribery and corruption
It is unethical, illegal, and contrary to good corporate
governance to bribe or corrupt others. The Group is
committed to preventing bribery and corruption, and to
consistently applying the letter and spirit of applicable
anti-bribery legislation in all markets and jurisdictions
in which we operate. We have implemented a strategic
programme to address bribery and corruption risks and
are embedding a new global suite of policies that make it
clear to all staff that Group members, employees or other
associated persons or entities must not engage in, or
otherwise facilitate, any form of bribery, whether direct
or indirect.
The anti-bribery and corruption programme, from training
to risk assessment, emphasises the importance of
consistent and standardised procedures to drive the
principles of ‘detect, deter and protect’ and ensure that
they are incorporated into every aspect of business-as-
usual activities.
Conduct of business
We recognise that delivering fair outcomes for our
customers and upholding financial market integrity is
critical to a sustainable business model. We have taken
a number of steps to raise our standards and deal with
historical incidents, including the following:
• we published a new Global Conduct Policy in 2015
(following the approval and implementation of the
global conduct approach and framework in 2014) for
the management of conduct designed to ensure that we
meet our strategic commitment to deliver fair outcomes
for our customers, and not disrupt the orderly and
transparent operation of financial markets;
• we launched communications programmes and global
mandatory training in respect of conduct and the
Group’s required values and behaviours;
• we enhanced the product governance process to further
ensure products are designed to meet customers’ needs
and are sold to suitable customer groupings. Post
implementation and regular reviews are undertaken
to help ensure products remain appropriate;
• we reviewed sales processes and sales incentive
schemes, focusing on activity and rewards linked
to values-based behaviour and good conduct;
• we enhanced our surveillance capabilities and tested
new technologies to strengthen our capabilities to
detect suspicious trading activity and misconduct;
• we undertook proactive reviews of our involvement in
the benchmarking processes for rates and commodities;
and
• we reviewed our insights into customer experience,
our analysis of the root cause of complaints and our
complaint handling to ensure we continually improve
and deliver better outcomes for our customers.
HSBC HOLDINGS PLC
178
The global businesses use a broad range of measures
appropriate to their specific customer base and markets
to assess ongoing effectiveness of the management of
conduct, and enable action to be taken where potential
conduct issues arise. The measures include information
relating to sales quality, customer experience and market
behaviour.
The CVC provides Board oversight of the Group’s multiple
efforts to raise standards of conduct and embed the
behavioural values the Group stands for.
For further information on the CVC, see page 272.
Further information on our conduct is provided in the Strategic
Report on page 40 and for conduct-related costs relating to
significant items, see page 97.
Whistleblowing
We actively encourage our employees to raise concerns
and escalate issues so they can be dealt with effectively. In
most cases, individuals will raise their concerns with line
management or Global Human Resources. However, where
an individual believes that their normal reporting channels
are unavailable or inappropriate, it is important that they
have alternative channels available to them to raise concerns
confidentially without fear of personal repercussions. This
is referred to as ‘whistleblowing’.
To make whistleblowing simpler for our employees, we
launched HSBC Confidential across the Group in August
2015 to provide a global platform offering telephone,
email, web and mail options for whistleblowers to bring
together all our existing whistleblowing channels. We
also maintain an external email address for complaints
regarding accounting and internal financial controls or
auditing matters (accountingdisclosures@hsbc.com).
Matters raised are independently investigated by
appropriate subject matter teams and details of
investigations and outcomes including remedial action
taken are reported to the CVC. Matters raised in respect
of audit, accounting and internal control over financial
reporting are reported to the Group Audit Committee.
HSBC HOLDINGS PLC
179
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Risk management of insurance operations
Risk management of insurance operations
Page
App1
Tables
Page
HSBC’s bancassurance model
Overview of insurance products
Nature and extent of risks
Risk management of insurance manufacturing
operations in 2015
Asset and liability matching
219
220
180
181
181
Balance sheet of insurance manufacturing subsidiaries by:
– type of contract
– geographical region
Movement in total equity of insurance operations
Financial risks
Market risk
Credit risk
Liquidity risk
183
220
Financial assets held by insurance manufacturing
subsidiaries
184
220
Financial return guarantees
Sensitivity of HSBC’s insurance manufacturing
subsidiaries to market risk factors
185
222
Treasury bills, other eligible bills and debt securities in
187
222
HSBC’s insurance manufacturing subsidiaries
Reinsurers’ share of liabilities under insurance contracts
Expected maturity of insurance contract liabilities
Remaining contractual maturity of investment contract
liabilities
Insurance risk
188
223
Analysis of insurance risk – liabilities under insurance
contracts
Sensitivities to non-economic assumptions
188
Sensitivity analysis
1 Appendix to Risk – policies and practices.
181
182
183
184
185
185
186
187
187
187
188
188
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 the issuer (HSBC).
There were no material changes to our policies and
practices for the management of risks arising in the
insurance operations in 2015.
A summary of HSBC’s policies and practice regarding the risk
management of insurance operations and the main contracts
we manufacture is provided in the Appendix to Risk on page 219.
HSBC’s bancassurance model
We operate an integrated bancassurance model which
provides insurance products principally for customers with
whom we have a banking relationship. Insurance products
are sold through all global businesses, but predominantly
by RBWM and CMB through our branches and direct
channels worldwide.
The insurance contracts we sell relate to the underlying
needs of our banking customers, which we can identify
from our point-of-sale contacts and customer knowledge.
The majority of sales are of savings and investment
products and term and credit life contracts.
By focusing largely on personal and SME lines of business
we are able to optimise volumes and diversify individual
insurance risks.
We choose to manufacture these insurance products in
HSBC subsidiaries based on an assessment of operational
scale and risk appetite. Manufacturing insurance allows us
to retain the risks and rewards associated with writing
insurance contracts by keeping part of the underwriting
profit and investment income within the Group.
Where we do not have the risk appetite or operational
scale to be an effective insurance manufacturer, we engage
with a handful of leading external insurance companies
in order to provide insurance products to our customers
through our banking network and direct channels. These
arrangements are generally structured with our exclusive
strategic partners and earn the Group a combination of
commissions, fees and a share of profits.
We distribute insurance products in all of our geographical
regions. We have life insurance manufacturing subsidiaries
in nine countries (Argentina, mainland China, France, Hong
Kong, Malaysia, Malta, Mexico, Singapore and the UK). We
also have a life insurance manufacturing associate in Saudi
Arabia and a joint venture in India.
The life insurance manufacturing entities in Brazil were
classified as held for sale during the period, following the
announcement of our plan to sell our operations in the
country.
The disposal of HSBC Life (UK)’s pensions business, which
was agreed during 2014, was completed in August 2015.
HSBC HOLDINGS PLC
180
Risk management of insurance
manufacturing operations in 2015
We measure the risk profile of our insurance
manufacturing businesses using an economic capital
approach, where assets and liabilities are measured on
a market value basis and a capital requirement is held
to ensure that there is less than a 1 in 200 chance of
insolvency over the next year, given the risks that the
businesses are exposed to. The methodology for the
economic capital calculation is largely aligned to the new
pan-European Solvency II insurance capital regulations,
which are applicable from 2016.
The risk profile of our life insurance manufacturing
businesses did not change materially during 2015, however
there was a decrease in liabilities under insurance contracts
to $70bn (2014: $74bn) arising from the transfer to
‘Liabilities of disposal groups held for sale’ in respect of
the planned disposal of our operations in Brazil.
Asset and liability matching
(Audited)
A principal tool used to manage exposures to both financial
and insurance risk, in particular for life insurance contracts,
is asset and liability matching. In many markets in which we
operate it is neither possible nor appropriate to follow a
close asset and liability matching strategy. For long-dated
non-linked contracts, in particular, this results in a duration
mismatch between assets and liabilities. Portfolios are
structured to support these projected liabilities, with limits
set to control the duration mismatch.
The tables below show the composition of assets and
liabilities by contract and by geographical region and
demonstrate that there were sufficient assets to cover the
liabilities to policyholders in each case at the end of 2015.
The Brazilian insurance operations are reported as a
disposal group held for sale at 31 December 2015. The
assets and liabilities of this disposal group are included
within ‘Other assets and liabilities’ in the table below. The
UK pensions business was reported as a disposal group
held for sale at 31 December 2014 and the sale of this
business was completed during August 2015. As a result,
$6.8bn of total assets and $6.7bn of total liabilities were
derecognised.
Our most significant life insurance products are investment
contracts with DPF issued in France and insurance contracts
with DPF issued in Hong Kong.
Our exposure to financial risks arising in the balance sheet
below varies depending on the type of contract issued. For
unit-linked contracts, the policyholder bears the majority of
the exposure to financial risks whereas for contracts with
DPF, the shareholder (i.e. HSBC) is exposed to financial
risks to the extent that the exposure cannot be managed
by utilising any discretionary participation.
The majority of financial risks are borne by the shareholder
for all other contract types.
Balance sheet of insurance manufacturing subsidiaries by type of contract
(Audited)
Insurance contracts
Investment contracts
Financial assets
– trading assets
– financial assets designated at fair
value
– derivatives
– financial investments – HTM38
– financial investments – AFS38
– other financial assets39
Reinsurance assets
PVIF40
Other assets and investment
properties
Total assets
Liabilities under investment contracts
– designated at fair value
– carried at amortised cost
Liabilities under insurance contracts
Deferred tax41
Other liabilities
Total liabilities
Total equity
Total liabilities and equity at
31 December 201542
With
DPF
$m
Unit-
linked Annuities
$m
$m
31,801
–
4,698
49
22,840
1,743
2,471
202
–
838
32,841
–
–
–
32,414
11
–
32,425
–
6,569
–
6,435
–
–
–
134
264
–
1
6,834
–
–
–
6,791
–
–
6,791
–
1,138
2
296
–
468
312
60
–
–
11
1,149
–
–
–
1,082
11
–
1,093
–
Other35
$m
6,618
–
563
4
2,334
3,685
32
951
–
105
7,674
–
–
–
7,042
3
–
7,045
–
With
DPF36
$m
21,720
–
6,421
111
–
13,334
1,854
–
–
888
22,608
–
–
–
22,609
–
–
22,609
–
Unit-
linked
$m
2,271
–
2,000
1
–
–
270
–
–
6
2,277
2,256
2,256
–
–
–
–
2,256
–
Other
assets and
Other
$m
3,935
–
1,859
29
1,387
23
637
–
–
23
3,958
3,771
3,771
–
–
–
–
3,771
–
liabilities37
$m
5,531
–
1,015
62
3,050
1,233
171
–
5,685
4,576
15,792
–
–
–
–
1,056
5,553
6,609
10,534
Total
$m
79,583
2
23,287
256
30,079
20,330
5,629
1,417
5,685
6,448
93,133
6,027
6,027
–
69,938
1,081
5,553
82,599
10,534
32,425
6,791
1,093
7,045
22,609
2,256
3,771
17,143
93,133
HSBC HOLDINGS PLC
181
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Risk management of insurance operations
Balance sheet of insurance manufacturing subsidiaries by type of contract (continued)
Insurance contracts
Investment contracts
With
DPF
$m
Unit-
linked Annuities
$m
$m
Financial assets
– trading assets
– financial assets designated at fair
value
– derivatives
– financial investments – HTM38
– financial investments – AFS38
– other financial assets39
Reinsurance assets
PVIF40
Other assets and investment
properties
Total assets
Liabilities under investment contracts
– designated at fair value
– carried at amortised cost
Liabilities under insurance contracts
Deferred tax41
Other liabilities
Total liabilities
Total equity
Total liabilities and equity at
31 December 201442
For footnotes, see page 191.
29,040
–
4,304
12
18,784
2,368
3,572
190
–
698
29,928
–
–
–
29,479
12
–
29,491
–
11,278
–
11,111
1
–
–
166
262
–
328
11,868
–
–
–
11,820
–
–
11,820
–
Other35
$m
6,253
–
782
1
1,019
4,148
303
617
–
With
DPF36
$m
24,238
–
6,346
101
–
15,677
2,114
–
–
1,517
3
533
–
542
344
95
–
–
23
107
831
1,540
–
–
–
1,473
11
–
1,484
–
6,977
–
–
–
6,021
18
–
6,039
–
25,069
–
–
–
25,068
–
–
25,068
–
Other
assets
and
liabilities37
Other
$m
$m
4,322
–
5,732
–
1,684
10
1,444
363
821
1,713
73
2,494
1,318
134
–
–
2
5,307
Total
$m
84,941
3
28,696
199
24,283
24,218
7,542
1,071
5,307
26
7,383
9,403
4,348
18,424
100,722
4,155
3,770
385
–
–
–
–
–
–
–
1,180
8,577
4,155
9,757
–
10,366
6,697
6,312
385
73,861
1,221
8,577
90,356
10,366
Unit-
linked
$m
2,561
–
2,223
1
–
–
337
–
–
7
2,568
2,542
2,542
–
–
–
–
2,542
–
29,491
11,820
1,484
6,039
25,068
2,542
4,155
20,123
100,722
Balance sheet of insurance manufacturing subsidiaries by geographical region43
(Audited)
Financial assets
– trading assets
– financial assets designated at fair value
– derivatives
– financial investments – HTM38
– financial investments – AFS38
– other financial assets39
Reinsurance assets
PVIF40
Other assets and investment properties
Total assets
Liabilities under investment contracts:
– designated at fair value
– carried at amortised cost
Liabilities under insurance contracts
Deferred tax41
Other liabilities
Total liabilities
Total equity
Total liabilities and equity at 31 December 201542
Europe
$m
26,897
–
9,987
163
–
14,525
2,222
287
807
919
28,910
1,376
–
24,699
274
832
27,181
1,729
28,910
Asia
$m
51,087
–
12,668
93
29,496
5,503
3,327
1,122
4,761
1,358
58,328
4,651
–
43,975
767
974
50,367
7,961
58,328
Latin
America
$m
1,599
2
632
–
583
302
80
8
117
4,171
5,895
–
–
1,264
40
3,747
5,051
844
5,895
Total
$m
79,583
2
23,287
256
30,079
20,330
5,629
1,417
5,685
6,448
93,133
6,027
–
69,938
1,081
5,553
82,599
10,534
93,133
HSBC HOLDINGS PLC
182
Financial assets
– trading assets
– financial assets designated at fair value
– derivatives
– financial investments – HTM38
– financial investments – AFS38
– other financial assets39
Reinsurance assets
PVIF40
Other assets and investment properties
Total assets
Liabilities under investment contracts:
– designated at fair value
– carried at amortised cost
Liabilities under insurance contracts
Deferred tax41
Other liabilities
Total liabilities
Total equity
Total liabilities and equity at 31 December 201442
For footnotes, see page 191.
Movement in total equity of insurance operations
(Audited)
At 1 January
Movements in PVIF40
Return on net assets
Capital transactions
Disposals of subsidiaries/portfolios
Exchange differences and other
At 31 December
For footnotes, see page 191.
Financial risks
(Audited)
Details on the nature of financial risks and how they are managed
are provided in the Appendix to Risk on page 220.
Financial risks can be categorised into:
• market risk – risk arising from changes in the fair values
of financial assets or their future cash flows from
fluctuations in variables such as interest rates, credit
spreads, foreign exchange rates and equity prices;
• credit risk – the risk of financial loss following the failure
of third parties to meet their obligations; and
Europe
$m
30,178
–
10,610
172
–
16,947
2,449
308
711
7,650
38,847
1,585
–
27,312
273
7,932
37,102
1,745
38,847
Asia
$m
47,443
–
12,497
27
23,546
6,464
4,909
748
4,175
1,145
53,511
4,727
–
39,990
806
460
45,983
7,528
53,511
Latin
America
$m
7,320
3
5,589
–
737
807
184
15
421
608
8,364
–
385
6,559
142
185
7,271
1,093
8,364
Total
$m
84,941
3
28,696
199
24,283
24,218
7,542
1,071
5,307
9,403
100,722
6,312
385
73,861
1,221
8,577
90,356
10,366
100,722
Total equity
2015
$m
10,366
799
410
(468)
(13)
(560)
10,534
2014
$m
9,700
261
1,835
(673)
1
(758)
10,366
• liquidity risk – the risk of not being able to make
payments to policyholders as they fall due as there
are insufficient assets that can be realised as cash.
The following table analyses the assets held in our
insurance manufacturing subsidiaries at 31 December 2015
by type of contract, and provides a view of the exposure to
financial risk. For unit-linked contracts, which pay benefits
to policyholders determined by reference to the value of
the investments supporting the policies, we typically
designate assets at fair value; for non-linked contracts, the
classification of the assets is driven by the nature of the
underlying contract.
HSBC HOLDINGS PLC
183
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Risk management of insurance operations
Financial assets held by insurance manufacturing subsidiaries
(Audited)
Unit-linked
contracts44
Non-linked
contracts45
Trading assets
Debt securities
Financial assets designated at fair value
Treasury bills
Debt securities
Equity securities
Financial investments
Held-to-maturity: debt securities
Available-for-sale:
– debt securities
– equity securities
Derivatives
Other financial assets39
Total financial assets at 31 December 201542
Trading assets
Debt securities
Financial assets designated at fair value
Treasury bills
Debt securities
Equity securities
Financial investments
Held-to-maturity: debt securities
Available-for-sale:
– debt securities
– equity securities
Derivatives
Other financial assets39
Total financial assets at 31 December 201442
For footnotes, see page 191.
$m
–
8,435
–
448
7,987
–
–
–
–
1
404
8,840
–
13,334
–
4,589
8,745
–
–
–
–
2
503
13,839
$m
2
13,837
146
3,547
10,144
27,029
19,097
19,097
–
193
5,054
65,212
3
13,649
40
3,507
10,102
21,789
22,899
22,899
–
124
6,905
65,369
Other
assets39
$m
–
1,015
56
228
731
3,050
1,233
1,177
56
62
171
5,531
–
1,713
16
618
1,079
2,494
1,319
1,290
29
73
134
5,733
Total
$m
2
23,287
202
4,223
18,862
30,079
20,330
20,274
56
256
5,629
79,583
3
28,696
56
8,714
19,926
24,283
24,218
24,189
29
199
7,542
84,941
Approximately 69% of financial assets were invested in
debt securities at 31 December 2015 (2014: 67%) with 24%
(2014: 24%) invested in equity securities.
Under unit-linked contracts, premium income less charges
levied is invested in a portfolio of assets. We manage the
financial risks of this product on behalf of the policyholders
by holding appropriate assets in segregated funds or
portfolios to which the liabilities are linked. These assets
represented 11% (2014: 16%) of the total financial assets of
our insurance manufacturing subsidiaries at the end of
2015.
The remaining assets of $71bn (2014: $71bn) are where
financial risks are managed either solely on behalf of the
shareholder, or jointly on behalf of the shareholder and
policyholders where DPF exist. These assets relate primarily
to operations in Asia and France.
Market risk
(Audited)
Market risk arises when mismatches occur between
product liabilities and the investment assets which back
them. For example, mismatches between asset and liability
yields and maturities give rise to interest rate risk.
The proceeds from insurance and investment products are
primarily invested in bonds. A proportion is also allocated
to other asset classes, such as equities, property, private
equity and hedge funds to provide customers with the
potential for enhanced returns. Portfolios of such assets
are exposed to the risk of changes in market prices and
where not fully reflected in bonuses paid to policyholders,
will affect shareholder funds.
Long-term insurance or investment products may
incorporate benefits that are guaranteed. Fixed guaranteed
benefits, for example for annuities in payment, are
reserved for as part of the calculation of liabilities under
insurance contracts.
The risk of shareholder capital being required to meet
liabilities to policyholders increases in products that
offer guaranteed financial returns where current yields fall
below guaranteed levels for a prolonged period. Reserves
are held against the cost of 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
to PVIF on the relevant product. The table below shows the
total reserve held for the cost of guarantees, the range of
investment returns on assets supporting these products
and the implied investment return that would enable the
business to meet the guarantees.
The financial guarantees offered on some portfolios
exceeded the current yield on the assets that back them.
The cost of guarantees decreased to $748m (2014: $777m)
primarily because of rising yields and updates to interest
rate parameters in France during 2015. Following these
HSBC HOLDINGS PLC
184
changes, the cost of guarantees on closed portfolios
reported in the 2.0% to 4.0% and 4.1% to 5.0% categories
decreased, driven principally by the increased reinvestment
yield assumptions. In addition, there was a closed portfolio
in Hong Kong with a guaranteed rate of 5.0% compared
with the current yield of 4.1%.
Financial return guarantees42
(Audited)
Capital
Nominal annual return
Nominal annual return46
Nominal annual return
Real annual return47
At 31 December
For footnotes, see page 191.
Investment
returns
implied by
guarantee
%
0.0
0.1 – 1.9
2.0 – 4.0
4.1 – 5.0
0.0 – 6.0
2015
Current
yields
%
0.0 – 3.8
3.9 – 3.9
3.8 – 4.0
3.8 – 4.1
5.9 – 6.1
Investment
returns
implied by
guarantee
%
0.0
0.1 – 2.0
2.1 – 4.0
4.1 – 5.0
0.0 – 6.0
2014
Current
yields
%
Cost of
guarantees
$m
0.0 – 3.5
3.6 – 3.6
3.5 – 4.1
3.5 – 4.1
4.7 – 7.5
81
6
646
30
14
777
Cost of
guarantees
$m
85
4
603
28
28
748
The following table illustrates the effects of selected
interest rate, equity price and foreign exchange rate
scenarios on our profit for the year 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. The relationship between the profit
and total equity and the risk factors is non-linear and,
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 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 effects on profit after tax of +/–100 basis points
parallel shifts in yield curves have decreased from 2014 to
2015, driven mainly by rising yields and updates to interest
rate parameters in France. In a low yield environment the
projected cost of options and guarantees described above
is particularly sensitive to yield curve movements. The
market value of available-for-sale bonds is also sensitive to
yield curve movements hence the larger opposite stresses
on equity.
Sensitivity of HSBC’s insurance manufacturing subsidiaries to market risk factors
(Audited)
+100 basis points parallel shift in yield curves
–100 basis points parallel shift in yield curves48
10% increase in equity prices
10% decrease in equity prices
10% increase in US dollar exchange rate compared to all currencies
10% decrease in US dollar exchange rate compared to all currencies
Credit risk
(Audited)
Credit risk can give rise to losses through default and
can lead to volatility in our income statement and balance
sheet figures through movements in credit spreads,
principally on the $54bn (2014: $53bn) bond portfolio
supporting non-linked contracts and shareholders’ funds.
The sensitivity of the profit after tax of our insurance
subsidiaries to the effects on asset values of increases
in credit spreads (as modelled in line with the methodology
described below) was a reduction of $2m (2014: $7m). The
sensitivity of total equity was a reduction of $10m (2014:
$9m). The sensitivities are relatively small because the
vast majority of the debt securities held by our insurance
subsidiaries are classified as either held to maturity or
available for sale, and consequently any changes in the fair
value of these financial investments, absent impairment,
2015
Effect on
profit
after tax
$m
Effect on
total
equity
$m
2014
Effect on
profit
after tax
$m
Effect on
total
equity
$m
39
(213)
176
(158)
16
(16)
(474)
404
176
(158)
16
(16)
290
(549)
180
(153)
54
(54)
(345)
214
180
(153)
54
(54)
would have no effect on the profit after tax (or to total
equity in the case of the held-to-maturity securities). We
calculate the sensitivity based on a one-day movement in
credit spreads over a two-year period. A confidence level
of 99%, consistent with our Group VaR, is applied.
Credit quality
(Audited)
The following table presents an analysis of treasury
bills, other eligible bills and debt securities within our
insurance business by internal measures of credit quality.
Only assets supporting liabilities under non-linked
insurance and investment contracts and shareholders’
funds are included in the table as financial risk on assets
supporting unit-linked liabilities is predominantly borne by
the policyholder. 85.4% (2014: 84.8%) of the assets
HSBC HOLDINGS PLC
185
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Risk management of insurance operations
included in the table are invested in investments rated
as ‘strong’.
For a definition of the five credit quality classifications, see
page 197.
Treasury bills, other eligible bills and debt securities in HSBC’s insurance manufacturing subsidiaries
(Audited)
Supporting liabilities under non-linked insurance and
investment contracts
Trading assets – debt securities
Financial assets designated at fair value
– treasury and other eligible bills
– debt securities
Financial investments – debt securities
Supporting shareholders’ funds49
Financial assets designated at fair value
– treasury and other eligible bills
– debt securities
Financial investments – debt securities
Total42
Trading assets – debt securities
Financial assets designated at fair value
– treasury and other eligible bills
– debt securities
Financial investments – debt securities
At 31 December 2015
Supporting liabilities under non-linked insurance and
investment contracts
Trading assets – debt securities
Financial assets designated at fair value
– treasury and other eligible bills
– debt securities
Financial investments – debt securities
Supporting shareholders’ funds49
Financial assets designated at fair value
– treasury and other eligible bills
– debt securities
Financial investments – debt securities
Total42
Trading assets – debt securities
Financial assets designated at fair value
– treasury and other eligible bills
– debt securities
Financial investments – debt securities
At 31 December 2014
For footnotes, see page 191.
Strong
$m
–
2,719
130
2,589
39,741
42,460
138
8
130
3,827
3,965
–
2,857
138
2,719
43,568
46,425
3
2,550
5
2,545
38,515
41,068
214
–
214
3,378
3,592
3
2,764
5
2,759
41,893
44,660
Neither past due nor impaired
Satisfactory
$m
Good
$m
Sub-standard
$m
–
406
–
406
4,333
4,739
22
–
22
201
223
–
428
–
428
4,534
4,962
–
530
–
530
4,312
4,842
322
–
322
196
518
–
852
–
852
4,508
5,360
2
300
–
300
1,886
2,188
20
–
20
199
219
2
320
–
320
2,085
2,407
–
214
–
214
1,662
1,876
30
–
30
154
184
–
244
–
244
1,816
2,060
–
268
16
252
166
434
104
48
56
–
104
–
372
64
308
166
538
–
255
35
220
200
455
69
16
53
54
123
–
324
51
273
254
578
Total
$m
2
3,693
146
3,547
46,126
49,821
284
56
228
4,227
4,511
2
3,977
202
3,775
50,353
54,332
3
3,549
40
3,509
44,689
48,241
635
16
619
3,782
4,417
3
4,184
56
4,128
48,471
52,658
Credit risk also arises when assumed insurance risk is ceded
to reinsurers. The split of liabilities ceded to reinsurers and
outstanding reinsurance recoveries, analysed by credit
quality, is shown below. Our exposure to third parties
under the reinsurance agreements described in the
Appendix to Risk on page 223 is included in this table.
HSBC HOLDINGS PLC
186
Reinsurers’ share of liabilities under insurance contracts42
(Audited)
Unit-linked insurance
Non-linked insurance50
At 31 December 2015
Reinsurance debtors
Unit-linked insurance
Non-linked insurance50
At 31 December 2014
Reinsurance debtors
For footnotes, see page 191.
Liquidity risk
(Audited)
The following tables show the expected undiscounted cash
flows for insurance contract liabilities and the remaining
contractual maturity of investment contract liabilities at
31 December 2015. The liquidity risk exposure is borne in
conjunction with policyholders for the majority of our
Expected maturity of insurance contract liabilities42
(Audited)
Neither past due nor impaired
Past due but
Satisfactory Sub-standard not impaired
Strong
$m
84
1,102
1,186
19
75
751
826
11
Good
$m
179
4
183
3
185
11
196
6
$m
–
9
9
–
–
10
10
–
$m
–
–
–
–
–
–
–
–
$m
–
–
–
17
–
–
–
21
Total
$m
263
1,115
1,378
39
260
772
1,032
38
business, and wholly borne by the policyholder in the case
of unit-linked business.
The classification of Brazilian insurance operations as held
for sale has reduced the undiscounted expected cash flows
relating to insurance liabilities by $(5.1)bn. However, the
profile of the expected maturity of the insurance contracts
at 31 December 2015 remained comparable with 2014.
Unit-linked insurance
Non-linked insurance50
At 31 December 2015
Unit-linked insurance
Non-linked insurance50
At 31 December 2014
For footnotes, see page 191.
Within 1 year
$m
1-5 years
$m
5-15 years
$m
Over 15 years
$m
Expected cash flows (undiscounted)
549
3,715
4,264
709
3,504
4,213
2,164
15,131
17,295
3,280
12,718
15,998
5,945
30,596
36,541
9,243
29,905
39,148
11,080
32,336
43,416
14,544
33,108
47,652
Remaining contractual maturity of investment contract liabilities
(Audited)
Remaining contractual maturity:
– undated51
– due within 1 year
– due over 1 year to 5 years
– due over 5 years to 10 years
– due after 10 years
At 31 December 2015
Remaining contractual maturity:
– undated51
– due within 1 year
– due over 1 year to 5 years
– due over 5 years to 10 years
– due after 10 years
At 31 December 2014
Liabilities under investment contracts issued
by insurance manufacturing subsidiaries
Unit-linked
investment
contracts
$m
Investment
contracts
with DPF
$m
Other
investment
contracts
$m
1,160
136
117
170
673
2,256
1,298
151
133
194
766
2,542
22,609
–
–
–
–
22,609
25,068
–
–
–
–
25,068
3,747
24
–
–
–
3,771
3,765
389
–
–
–
4,154
Total
$m
19,738
81,778
101,516
27,776
79,235
107,011
Total
$m
27,516
160
117
170
673
28,636
30,131
540
133
194
766
31,764
In most cases, policyholders have the option to terminate their contracts at any time and receive the surrender values of their
policies. These may be significantly lower than the amounts shown.
HSBC HOLDINGS PLC
187
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Risk management of insurance operations / Other material risks
Insurance risk
Insurance risk is the risk, other than financial risk, of loss
transferred from the holder of the insurance contract to
the issuer (i.e. HSBC). It is principally measured in terms of
liabilities under the contracts in force.
The principal risk we face is that, over time, the cost of
the contract, including claims and benefits may exceed the
total amount of premiums and investment income received.
The cost of claims and benefits can be influenced by many
factors, including mortality and morbidity experience, lapse
and surrender rates. The following table analyses our life
insurance risk exposures by geographical region and by
type of business. The insurance risk profile and related
exposures remain largely consistent with those observed
at 31 December 2014.
Analysis of insurance risk – liabilities under insurance contracts43
(Audited)
Non-linked insurance50
– insurance contracts with DPF52
– credit life
– annuities
– other53
Unit-linked insurance
Investment contracts with DPF36,52
Liabilities under insurance contracts at 31 December 2015
Non-linked insurance50
– insurance contracts with DPF52
– credit life
– annuities
– other53
Unit-linked insurance
Investment contracts with DPF36,52
Liabilities under insurance contracts at 31 December 2014
For footnotes, see page 191.
Our most significant life insurance products are
insurance contracts with DPF issued in Hong Kong,
investment contracts with DPF issued in France and unit-
linked contracts issued in Latin America, Hong Kong and
the UK.
Sensitivities to non-economic assumptions
(Audited)
Policyholder liabilities and PVIF for life manufacturers are
determined by reference to non-economic assumptions
including mortality and/or morbidity, lapse rates and
expense rates. The table below shows the sensitivity of
profit and total equity to reasonably possible changes in
these non-economic assumptions at that date across all
our insurance manufacturing subsidiaries.
Mortality and morbidity risk is typically associated with
life insurance contracts. The effect on profit of an increase
in mortality or morbidity depends on the type of business
being written. Our largest exposures to mortality and
morbidity risk exist in France and Hong Kong.
Sensitivity to lapse rates depends on the type of contracts
being written. For insurance contracts, claims are funded
by premiums received and income earned on the
investment portfolio supporting the liabilities. For a
portfolio of term assurance, an increase in lapse rates
typically has a negative effect on profit due to the loss
Europe
$m
749
343
49
69
288
1,341
22,609
24,699
829
367
56
71
335
1,415
25,068
27,312
Asia
$m
38,525
32,071
80
108
6,266
5,450
–
43,975
34,261
29,112
87
127
4,935
5,729
–
39,990
Latin
America
$m
1,264
–
–
905
359
–
–
1,264
1,883
–
–
1,275
608
4,676
–
6,559
Total
$m
40,538
32,414
129
1,082
6,913
6,791
22,609
69,938
36,973
29,479
143
1,473
5,878
11,820
25,068
73,861
of future income on the lapsed policies. However, some
contract lapses have a positive effect on profit due to the
existence of policy surrender charges. France, Hong Kong
and Singapore are where we are most sensitive to a change
in lapse rates.
Expense rate risk is the exposure to a change in the cost
of administering insurance contracts. To the extent that
increased expenses cannot be passed on to policyholders,
an increase in expense rates will have a negative effect on
our profits.
Sensitivity analysis
(Audited)
Effect on profit after tax and
total equity at 31 December
10% increase in mortality and/or
morbidity rates
10% decrease in mortality and/or
morbidity rates
10% increase in lapse rates
10% decrease in lapse rates
10% increase in expense rates
10% decrease in expense rates
For footnote, see page 191.
2015
$m
2014
$m
(70)
75
(90)
102
(85)
83
(65)
72
(108)
122
(106)
106
HSBC HOLDINGS PLC
188
Other material risks
A summary of our current policies and practices regarding
reputational risk, fiduciary risk, pension risk and sustainability risk
is provided in the Appendix to Risk on pages 224 to 226.
Reputational risk
Reputational risk is the risk of failure to meet
stakeholder expectations as a result of any event,
behaviour, action or inaction, either by HSBC itself,
our employees or those with whom we are associated,
that might cause stakeholders to form a negative view
of the Group. This may have financial or non-financial
effects, resulting in a loss of confidence, or have other
consequences.
Reputational risk relates to stakeholders’ perceptions,
whether based on fact or otherwise. Stakeholders’
expectations are constantly changing and thus reputational
risk is dynamic and varies between geographical regions,
groups and individuals. As a global bank, HSBC has an
unwavering commitment to operating to the high
standards we have set for ourselves in every jurisdiction.
Any lapse in standards of integrity, compliance, customer
service or operating efficiency represents a potential
reputational risk.
A number of measures to address the requirements of the
US DPA and otherwise to enhance our AML, sanctions and
other regulatory compliance frameworks have been taken
and/or are ongoing. These measures should also serve over
time to enhance our reputational risk management. For
further details on the implementation of the Global
Standards, see Strategic Report on page 21 and
‘Compliance risk’ on page 178.
We have a zero tolerance for knowingly engaging in
any business, activity or association where foreseeable
reputational risk or damage has not been considered and
mitigated. There must be no barriers to open discussion
and the escalation of issues that could affect the Group
negatively. While there is a level of risk in every aspect of
business activity, appropriate consideration of potential
harm to HSBC’s good name must be a part of all business
decisions.
In 2015, we restructured our Reputational Risk sub-
function to increase our focus on the management of
reputational risk. With an expanded mandate, the unit is
better positioned to provide bespoke advisory services to
the business on reputational risks to the Group and to work
with the Financial Crime and Regulatory Compliance teams
to mitigate such risks where possible.
Fiduciary risk
Fiduciary risk is the risk to the Group of breaching our
fiduciary duties when we act in a fiduciary capacity as
trustee or investment manager or as mandated by
law or regulation.
A fiduciary duty is one where HSBC holds, manages,
oversees or has responsibility for assets on behalf of a third
party that involves a legal and/or regulatory duty to act
with a high standard of care and with good faith. A
fiduciary must make decisions and act in the interests of
the third party and must place the wants and needs of the
client first, above the needs of the Group.
We may be held liable for damages or other penalties
caused by failure to act in accordance with these duties.
Fiduciary duties may also arise in other circumstances,
such as when we act as an agent for a principal, unless the
fiduciary duties are specifically excluded (e.g. under the
agency appointment contract).
Our principal fiduciary businesses (the ‘designated
businesses’) have developed fiduciary limits, key risk
indicators and key performance indicators to monitor their
related risks.
Pension risk
We operate a number of defined benefit and defined
contribution pension plans throughout the world. Most
of our pension risk arises from defined benefit plans.
The largest of these is the HSBC Bank (UK) Pension
Scheme (‘the principal plan’).
At 31 December 2015, the Group’s aggregate defined
benefit pension obligation was $38bn and the net asset
on the balance sheet was $3.1bn (2014: $42bn and $2.7bn,
respectively). The principal plan is the largest contributor
to pension risk in the Group: it contributed $28bn to the
Group’s defined benefit obligation and $5.0bn to the
Group’s net asset.
The principal plan
The principal plan has a defined benefit section and a
defined contribution section and is overseen by a
corporate trustee. This trustee has a fiduciary responsibility
to run the plan. Unless stated otherwise, this section
relates to the defined benefit section.
The investment strategy of the principal plan is to hold the
majority of assets in bonds, with the remainder in a diverse
range of investments. It also includes some interest rate
and inflation swaps to reduce the level of interest rate risk
and inflation risk (see Note 41 in the Financial Statements).
The target asset allocation of the principal plan at the year-
end is shown in the table below.
The principal plan – target asset allocation
Equities54
Bonds
Alternative assets55
Property
Cash56
At 31 December
For footnotes, see page 191.
2015
%
19.4
64.5
10.6
5.5
–
2014
%
19.4
64.5
10.6
5.5
–
100.0
100.0
The latest actuarial valuation of the principal plan was made
as at 31 December 2011 by C G Singer, Fellow of the Institute
and Faculty of Actuaries, of Willis Towers Watson Limited. At
that date, the market value of the plan’s assets was £18bn
($28bn) (including assets relating to both the defined benefit
and defined contribution sections, and additional voluntary
contributions). This asset value was the same amount as the
actuary said was needed to meet all future expected benefit
payments, based on pensions earned to that date and
HSBC HOLDINGS PLC
189
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Other material risks / Footnotes
allowing for expected future salary increases. As there was
no resulting surplus or deficit, there was no need for the
Bank to pay any additional contributions.
In carrying out this assessment, the future expected
pension payments out of the plan were valued with the
following assumptions:
• future inflation was assumed to be in line with the
Retail Price Index (‘RPI’) swap break-even curve at
31 December 2011;
• salary increases were assumed to be 0.5% above the RPI
each year;
• pensions were assumed to increase in line with the RPI;
• the projected cash flows were discounted at the Libor
swap curve at 31 December 2011 plus a margin for the
expected return on the investment strategy of 1.6% a
year;
• the mortality assumptions were set based on the SAPS
S1 series of tables adjusted to reflect the plan’s actual
mortality experience over the prior six years (2006 to
2011); and
• mortality rates were also assumed to improve further in
the future in line with standard tables of improvements,
the Continuous Mortality Investigation core projections,
but with the additional assumption that the long run
improvement rate would not fall below 2% a year for
men and 1.5% a year for women.
The benefits expected to be paid from the defined benefit
section from 2016 are shown in the chart below.
Future benefit payments ($m)
1,600
1,400
1,200
1,000
800
600
400
200
-
6
1
0
2
1
2
0
2
6
2
0
2
1
3
0
2
6
3
0
2
1
4
0
2
6
4
0
2
1
5
0
2
6
5
0
2
1
6
0
2
6
6
0
2
1
7
0
2
6
7
0
2
1
8
0
2
6
8
0
2
1
9
0
2
6
9
0
2
As part of the 31 December 2011 valuation, the actuary
also assessed the amount needed to meet the obligations
of the principal plan if the plan was stopped and an
insurance company was asked to guarantee all future
payments. Because the plan is large, it is unlikely that an
insurance company would be able to do this for the whole
plan, so in practice the Trustee would continue to manage
the plan without further support from HSBC. The amount
of assets needed under this approach was estimated to be
£26bn ($41bn). This is larger than the previous amount
because it assumes that people will live for even longer and
that the Trustee would adopt a much less risky investment
strategy, investing mainly in UK government bonds, which
would have a lower expected investment return. It also
included an explicit allowance for the future administrative
expenses of the plan.
HSBC and the Trustee have developed a general framework
which will see the principal plan’s investment strategy
become less risky over time. This is referred to as the Target
Matching Portfolio (‘TMP’), as it would contain investments
that closely match the expected benefit payment profile.
Progress towards the TMP can be achieved by investment
returns or additional funding from HSBC. In 2013, HSBC
agreed to make general framework contributions of £64m
($95m) in each of the calendar years 2013, 2014 and 2015
and £128m ($190m) in 2016. Further contributions had been
agreed to be made in future years, which were linked to the
continued implementation of the general framework.
The 31 December 2014 valuation has been agreed in
principle with the Trustee, and is expected to be finalised
by its statutory deadline of 31 March 2016. The final
agreement should result in a surplus of circa £500m
($741m) as at the valuation date of 31 December 2014 and
on the Trustee’s prudent actuarial assumptions. The
general framework implementation has also continued
such that the conditions on the future contributions would
be removed. As a result the following payments would be
payable in the future: £64m ($95m) in each of 2017, 2018,
2019, and £160m ($237m) in each of 2020 and 2021, which
in addition to the amounts agreed before would give a
total of £640m ($949m) payable from 2016 to 2021.
The principal plan changed in 2015 and from 30 June
members stopped accruing future defined benefits. Defined
benefit pensions accrued up to 30 June 2015 will retain their
link to employee salaries, underpinned by the Consumer Price
Index (‘CPI’), while members are still employees of the bank.
To support the establishment of the ServCo group and to
ensure that employees transferred retained existing pension
benefits, a new section of the principal plan was created with
segregated assets and liabilities. The new section provides
ServCo group employees with their defined contribution
pension and, where relevant, defined benefit pension benefits
arising from future salary increases above CPI.
Defined contribution plans
Our global strategy is to move from defined benefit to
defined contribution plans, where local law allows and it is
considered competitive to do so. In defined contribution
pension plans, the sponsor contributions are known,
while the ultimate pension benefit will vary, typically
with investment returns achieved by investment choices
made by the employee. While the market risk of defined
contribution plans is significantly less than that of defined
benefit plans, the Bank is still exposed to operational and
reputational risk.
Sustainability risk
Assessing the environmental and social impacts
of providing finance to our customers is integral to
our overall risk management processes.
In 2015, we continued to implement all of our sustainability
risk policies. Our training for risk and relationship managers
during the year focused on the new policies on agricultural
commodities, forestry and World Heritage Sites and Ramsar
Wetlands, issued in 2014. Following a recommendation
by Internal Audit in 2015, we took steps to integrate the
management of sustainability risk more fully into the Risk
HSBC HOLDINGS PLC
190
Function. For example, we raised standards of risk analysis
and policy implementation; updated internal instruction
manuals; and improved the way sustainability risk is
recorded in our information management system.
Footnotes to Risk
Managing risk
1 The sum of balances presented does not agree to consolidated amounts because inter-company eliminations are not presented here.
Credit risk
2 The amount of the loan commitments reflects, where relevant, the expected level of take-up of pre-approved loan offers made by mailshots
to personal customers. In addition to those amounts, there is a further maximum possible exposure to credit risk of $59bn (2014: $71bn),
reflecting the full take-up of loan commitments. The take-up of such offers is generally at low levels. At 31 December 2015, the credit quality
of loan and other credit-related commitments was: $348bn strong, $180bn good, $129bn satisfactory, $9bn sub-standard and $1bn
impaired.
3 ‘Other personal lending’ includes second lien mortgages and other property-related lending.
4 ‘Other commercial loans and advances’ includes advances in respect of agriculture, transport, energy utilities and ABS reclassified to ‘Loans
and advances’.
5 Impairment allowances are not reported for financial instruments, for which the carrying amount is reduced directly for impairment and not
through the use of an allowance account.
6 Impairment is not measured for assets held in trading portfolios or designated at fair value as assets in such portfolios are managed
according to movements in fair value, and the fair value movement is taken directly to the income statement. Consequently, we report all
such balances under ‘Neither past due nor impaired’.
7 Loans and advances to customers’ includes asset-backed securities that have been externally rated as strong (2015: $504m; 2014: $1.2bn),
good (2015: $95m; 2014: $256m), satisfactory (2015: $107m; 2014: $332m), sub-standard (2015: $19m; 2014: $94m) and impaired
(2015: $73m; 2014: $128m).
8 ‘Collection re-age’ includes loans that are reset to ‘current’ and any arrears are reset but does not involve any changes to the original terms
and conditions of the loan, where the account is brought up-to-date without fully paying the outstanding arrears but after the demonstration of
ongoing payment ability.
9 ‘Modification re-age’ includes loans where there are changes to the original terms and conditions of the loan, either temporarily or
permanently, and also resets the contractual delinquency status of an account to current.
10 ‘Collectively assessed impairment allowances’ are allocated to geographical segments based on the location of the office booking
the allowances or provisions.
11 Included within ‘Exchange and other movements’ is $2.1bn of impairment allowances reclassified to held for sale (2014: $0.4bn).
12 Of the $2,134m (2014: $2,724m) of renegotiated loans, $477m (2014: $608m) were neither past due nor impaired, $1m (2014: $1m) was
past due but not impaired and $1,656m (2014: $2,115m) were impaired.
13 Includes balances in Middle East and North Africa that are impaired and past due and therefore considered due on demand.
14 French Banking Federation Master Agreement Relating to Transactions on Forward Financial Instruments plus CSA equivalent.
15 The German Master Agreement for Financial Derivative Transactions.
16 HSBC Finance lending is on a management basis and includes loans transferred to HSBC USA Inc. which are managed by HSBC Finance.
17 Included in this category are loans of $1.2bn (2014: $1.5bn) that have been re-aged once and were less than 60 days past due at the point
of re-age. These loans are not classified as impaired following re-age due to the overall expectation that these customers will perform on
the original contractual terms of their borrowing in the future.
18 ‘Currency translation’ is the effect of translating the results of subsidiaries and associates for the previous year at the average rates of
exchange applicable in the current year.
Liquidity and funding
19 The HSBC UK Liquidity Group shown comprises four legal entities; HSBC Bank plc (including all overseas branches, and SPEs consolidated by
HSBC Bank plc for Financial Statement purposes), 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 UK
PRA.
20 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.
21 The HSBC USA principal entity shown represents the HSBC USA Inc consolidated group; predominantly HSBC USA Inc and HSBC Bank USA,
NA. The HSBC USA Inc consolidated group is managed as a single operating entity.
22 HSBC France and HSBC Canada represent the consolidated banking operations of the Group in France and Canada respectively. HSBC France
and HSBC Canada are each managed as single distinct operating entities for liquidity purposes.
23 The most favourable metrics are smaller advances to core funding and larger stressed one-month and three-month coverage ratios.
24 The total shown for other principal HSBC operating entities represents the combined position of all the other operating entities overseen
directly by the Risk Management Meeting of the GMB. This coverage changed during 2015 and so comparative figures for 2014 have been
re-stated to enable a like-for-like comparison.
25 Estimated liquidity value represents the expected realisable value of assets prior to management assumed haircuts.
26 The undrawn balance for the five largest committed liquidity facilities provided to customers other than facilities to conduits.
27 The undrawn balance for the total of all committed liquidity facilities provided to the largest market sector, other than facilities to conduits.
28 The residual contractual maturity profile of the balance sheet is set out on in Note 31 on the Financial Statements.
HSBC HOLDINGS PLC
191
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Footnotes / Appendix to Risk – Policies and practices
Market risk
29 Trading portfolios comprise positions arising from the market-making and warehousing of customer-derived positions.
30 Portfolio diversification is the market risk dispersion effect of holding a portfolio containing different risk types. It represents the reduction in
unsystematic market risk that occurs when combining a number of different risk types, for example, interest rate, equity and foreign
exchange, together in one portfolio. It is measured as the difference between the sum of the VaR by individual risk type and the combined
total VaR. A negative number represents the benefit of portfolio diversification. As the maximum and minimum occurs on different days for
different risk types, it is not meaningful to calculate a portfolio diversification benefit for these measures.
31 The total VaR is non-additive across risk types due to diversification effects.
32 Investments in private equity are primarily made through managed funds that are subject to limits on the amount of investment. Potential new
commitments are subject to risk appraisal to ensure that industry and geographical concentrations remain within acceptable levels for the
portfolio as a whole. Regular reviews are performed to substantiate the valuation of the investments within the portfolio.
33 Investments held to facilitate ongoing business include holdings in government-sponsored enterprises and local stock exchanges.
34 Instead of assuming that all interest rates move together, we group our interest rate exposures into currency blocs whose rates are
considered likely to move together. See ‘Cautionary statement regarding forward-looking statements’.
Risk management of insurance operations
35 ‘Other’ includes term assurance, credit life insurance, universal life insurance and remaining non-life insurance.
36 Although investment contracts with discretionary participation features (‘DPF’) are financial investments, HSBC continues to account for
them as insurance contracts as required by IFRS 4 ‘Insurance Contracts’. The corresponding liabilities are therefore recorded as ‘liabilities
under insurance contracts’.
37 ‘Other assets and liabilities’ shows shareholder assets as well as assets and liabilities classified as held for sale. The majority of the assets for
insurance businesses classified as held for sale are reported as ‘Other assets and investment properties’ and totalled $4.1bn at 31 December
2015 (2014: $6.8bn). The majority of these assets were debt and equity securities and PVIF. All liabilities for insurance businesses classified
as held for sale are reported in ‘Other liabilities’ and totalled $3.7bn at 31 December 2015 (2014: $6.8bn). The majority of these liabilities
were liabilities under insurance contracts and liabilities under investment contracts.
38 Financial investments held to maturity (HTM) and available for sale (AFS).
39 Comprise mainly loans and advances to banks, cash and intercompany balances with other non-insurance legal entities.
40 Present value of in-force long-term insurance contracts and investment contracts with DPF.
41 ‘Deferred tax’ includes the deferred tax liabilities arising on recognition of PVIF.
42 Does not include associated insurance company SABB Takaful Company or joint venture insurance company Canara HSBC Oriental Bank of
Commerce Life Insurance Company Limited.
43 HSBC has no insurance manufacturing subsidiaries in Middle East and North Africa or North America.
44 Comprise unit-linked life insurance contracts and linked long-term investment contracts.
45 Comprise all insurance and long-term investment contracts other than those classified as unit-linked.
46 A block of contracts in France with guaranteed nominal annual returns in the range 1.25%-3.72% are reported entirely in the 2.0%-4.0%
category in line with the average guaranteed return of 2.7% offered to policyholders by these contracts.
47 Real annual return guarantees provide the policyholder a guaranteed return in excess of the rate of inflation, and are supported by
inflation-linked debt securities with yields that are also expressed in real terms.
48 Where a –100 basis point parallel shift in the yield curve would result in a negative interest rate, the effects on profit after tax and total
equity have been calculated using a minimum rate of 0%.
49 Shareholders’ funds comprise solvency and unencumbered assets.
50 ‘Non-linked insurance’ comprises all insurance contracts other than unit-linked, including remaining non-life business.
51 In most cases, policyholders have the option to terminate their contracts at any time and receive the surrender values of their policies. These
may be significantly lower than the amounts shown.
52 Insurance contracts and investment contracts with DPF can give policyholders the contractual right to receive, as a supplement to their
guaranteed benefits, additional benefits that may be a significant portion of the total contractual benefits, but whose amount and timing
are determined by HSBC. These additional benefits are contractually based on the performance of a specified pool of contracts or assets, or
the profit of the company issuing the contracts.
53 ‘Other’ includes term assurance, universal life assurance and remaining non-life insurance.
Pension risk
54 In 2014, option overlay strategies which are expected to improve the risk/return profile of the equity allocation were implemented.
55 Alternative assets include ABSs, MBSs and infrastructure assets.
56 Whilst there is no target cash allocation, the amount of cash is expected to vary between 0%-5% depending upon the liquidity requirements
of the scheme, which will affect the actual allocation of bonds correspondingly.
HSBC HOLDINGS PLC
192
Appendix to Risk
Risk policies and practices
This appendix describes the significant policies and practices employed by HSBC in managing our credit risk, liquidity and funding, market risk,
operational risk (including compliance risk, legal risk and fiduciary risk), insurance risk, reputational risk, pension risk and sustainability risk.
Risk governance
Our strong risk governance reflects the importance placed by the Board and the Group Risk Committee (‘GRC’) on shaping
the Group’s risk strategy and managing risks effectively. It is supported by a clear policy framework of risk ownership, a risk
appetite process through which the types and levels of risk that we are prepared to accept in executing our strategy are
articulated and monitored, performance scorecards cascaded from the Group Management Board (‘GMB’) that align business
and risk objectives, and the accountability of all staff for identifying, assessing and managing risks within the scope of their
assigned responsibilities. This personal accountability, reinforced by the governance structure, mandatory learning and our
approach to remuneration, helps to foster a disciplined and constructive culture of risk management and control throughout
HSBC.
The executive and non-executive risk governance structures and their interactions are set out in the following table. Each
major operating subsidiary has established a board committee with non-executive responsibility for oversight of risk-related
matters and an executive meeting with responsibility for risk-related matters.
Governance structure for the management of risk
Authority
Board
Group Risk
Committee
(‘GRC’)
Membership
Responsibilities include:
Executive and non-executive
• Approving risk appetite, strategy and performance targets for the
Directors
Group
• Approving appointment of chief risk officers of subsidiary
companies
• Encouraging a strong risk governance culture which shapes the
Group’s attitude to risk
Independent non-executive Directors
• Advising the Board on:
– risk appetite and alignment with strategy
– alignment of remuneration with risk appetite (through advice
to the Group Remuneration Committee)
– risks associated with proposed strategic acquisitions and
disposals
• Overseeing high-level risk related matters
• Reviewing the effectiveness of the Group’s systems of risk
management and internal controls (other than over financial
reporting)
• Overseeing the maintenance and development of a supportive
culture in relation to the management of risk
• Overseeing controls and procedures designed to identify areas of
exposure to financial crime or system abuse
• Overseeing matters relating to anti-money laundering, sanctions,
terrorist financing and proliferation financing
• Reviewing policies and procedures to ensure continuing
obligations to regulatory and law enforcement agencies are met
Financial System
Vulnerabilities
Committee
Non-executive Directors, including
the Chairman of the Group
Remuneration Committee, and
co-opted non-director members
Conduct & Values
Committee
Independent non-executive Directors
• Ensuring that in the conduct of its business, HSBC treats all
stakeholders fairly
• Advising the Board on HSBC policies, procedures and standards to
ensure that the Group conducts business responsibly and
consistently adheres to the HSBC Values
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
HSBC HOLDINGS PLC
193
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
Report of the Directors: Risk (continued)
Appendix to Risk – Policies and practices
Authority
Membership
Responsibilities include:
Risk Management
Group Chief Risk Officer
• Formulating high-level global risk policy
Meeting of the GMB
(‘RMM’)
Chief Legal Officer
Group Chief Executive
Group Finance Director
All other Group Managing Directors
• Supporting the Group Chief Risk Officer in exercising delegated
risk management authority
• Overseeing implementation of risk appetite and controls
• Monitoring all categories of risk and determining appropriate
mitigating action
• Promoting a supportive Group culture in relation to risk
management and conduct
•
Implementing Global Standards throughout the Group
Global Risk Management
Group Chief Risk Officer
Board
Chief Risk Officers of HSBC’s global
businesses and regions
Heads of Global Risk sub-functions
• Supporting the RMM and the Group Chief Risk Officer in
providing strategic direction for the Global Risk function,
setting priorities and overseeing their execution
• Overseeing consistent approach to accountability for, and
mitigation of, risk across the Global Risk function
Global Business Risk
Management
Committees
Global Business Chief Risk Officer
Global Business Chief Executive
Global Business Chief Financial
Officer
Heads of Global Risk sub-functions,
as appropriate
• Forward looking assessment of changes in global business
activities or the markets in which it operates, analysing the
possible risk impact and taking appropriate action
• Overseeing the implementation of global business risk appetite
and controls
• Monitoring all categories of risk and determining appropriate
Regional Risk Management
Regional Chief Risk Officer
Committees
Subsidiary board committees
responsible for risk-related
matters and global business
risk committees
Regional Chief Executive Officer
Regional Chief Financial Officer
Regional Global Business Chief
Heads of Global Risk sub-functions,
as appropriate
Independent non-executive directors
and/or HSBC employees with no
line or functional responsibility
for the activities of the relevant
subsidiary or global business, as
appropriate
mitigating actions
• Promoting a strong risk culture
• Formulating regional specific risk policy
• Overseeing the implementation of regional risk appetite and
controls
• Monitoring all categories of risk and determining appropriate
mitigating actions
• Promoting a strong risk culture
• Providing reports to the GRC or intermediate risk committee
on risk-related matters and internal controls (other than over
financial reporting) of relevant subsidiaries or businesses, as
requested
The governance framework also defines the required structure for Risk sub-functions, stress testing and other key areas at
Group, global business, regional and country level.
Risk appetite
The Group’s Qualitative Risk Appetite Statement (‘RAS’) formally articulates our overarching risk appetite principles, serves as
a guide in embedding our risk appetite framework and supports strategic and operational decision-making across the Group.
• Strong capital position: we are to have a strong capital position defined by robust regulatory and internal capital ratios. The
progression of dividends should be consistent with the growth of the Group’s profitability and is predicated on the ability to
meet all capital requirements in a timely manner. Both the Group and its individual legal entities must self-capitalise with
capital generation, net of dividends, exceeding the capital needed to support organic growth in the entity’s risk-weighted
assets;
• Liquidity and funding management: operating entities are required to manage liquidity risk on a stand-alone basis with no
implicit reliance on the Group or central banks and be able to withstand a Group-defined remote liquidity stress scenario.
Customer assets and other illiquid assets must be funded with reliable and stable sources of funding;
• Risk return relationship: we aim to generate returns in line with the risk taken and in alignment with strategic plans,
strategic business outlooks and risk management policies;
HSBC HOLDINGS PLC
194
• Sustainable and diversified earnings mix: global businesses and regions must support sustainable, well diversified and non-
volatile earning streams, delivering consistent returns for shareholders;
• Reputation risk: we tolerate a limited degree of reputational risk arising from business activities or associations where the
risk has been escalated to the appropriate level of management. We have zero tolerance for knowingly engaging in any
business, activity or association where foreseeable reputational risk/damage has not been considered and/or mitigated;
• Financial crime compliance: we will operate with integrity to the most effective financial crime risk management standards,
address financial system vulnerability through a robust financial crime risk management framework, and ensure
appropriate mitigating systems and controls are in place to prevent and detect financial crime. We have no appetite for
deliberately or knowingly facilitating business that gives rise to illicit activity; and
• Regulatory compliance: we have no appetite for deliberately or knowingly causing detriment to consumers arising from our
products and services, or incurring a breach of the letter or spirit of regulatory requirements. We have no appetite for
inappropriate market conduct by a member of staff or by any Group business.
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
Credit risk
Credit risk management
(Audited)
i
w
e
v
e
R
The role of independent credit control unit is fulfilled by the Global Risk function. Credit approval authorities are delegated by
the Board to the Chief Executive Officer of HSBC Holdings together with the authority to sub-delegate them. Similar credit
approval authorities are delegated by the boards of subsidiary companies to their respective executive officers. In each
major subsidiary, a Chief Risk Officer reports to the local Chief Executive Officer on credit-related issues, while maintaining a
direct functional reporting line to the Group Chief Risk Officer in Global Risk. Details of the roles and responsibilities of the credit
risk management function and the policies and procedures for managing credit risk are set out below. There were no
significant changes in 2015.
The high-level oversight and management of credit risk provided globally by the Credit Risk sub-function in Global Risk
• to formulate Group credit policy. Compliance, subject to approved dispensations, is mandatory for all operating companies which must
develop local credit policies consistent with Group policies;
• to guide operating companies on the Group’s appetite for credit risk exposure to specified market sectors, activities and banking products
and controlling exposures to certain higher-risk sectors;
• to undertake an independent review and objective assessment of risk. Global Risk assesses all commercial non-bank credit facilities and
exposures over designated limits, prior to the facilities being committed to customers or transactions being undertaken;
• to monitor the performance and management of portfolios across the Group;
• to control exposure to sovereign entities, banks and other financial institutions, and debt securities which are not held solely for the
purpose of trading;
• to set Group policy on large credit exposures, ensuring that concentrations of exposure by counterparty, sector or geography do not
become excessive in relation to our capital base, and remain within internal and regulatory limits;
• to control our cross-border exposures;
• to maintain and develop our risk rating framework and systems, the governance of which is under the general oversight of the Group
Model Oversight Committee (‘MOC’). The Group MOC meets bi-monthly and reports to the RMM. It is chaired by the Global Risk function
and its membership is drawn from Global Risk and relevant global functions or businesses;
• to report to the RMM, the GRC and the Board on high risk portfolios, risk concentrations, country limits and cross-border exposures, large
impaired accounts, impairment allowances, stress testing results and recommendations and retail portfolio performance; and
• to act on behalf of HSBC Holdings as the primary interface, for credit-related issues, with the Bank of England, the PRA, local regulators,
rating agencies, analysts and counterparts in major banks and non-bank financial institutions.
Principal objectives of our credit risk management
• to maintain across HSBC a strong culture of responsible lending and a robust risk policy and control framework;
• to both partner and challenge our businesses in defining, implementing and continually re-evaluating our risk appetite under
actual and scenario conditions; and
• to ensure there is independent, expert scrutiny of credit risks, their costs and their mitigation.
HSBC HOLDINGS PLC
195
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Appendix to Risk – Policies and practices
Concentration of exposure
(Audited)
Concentrations of credit risk arise when a number of counterparties or exposures have comparable economic characteristics or
such counterparties are engaged in similar activities or operate in the same geographical areas or industry sectors so that their
collective ability to meet contractual obligations is uniformly affected by changes in economic, political or other conditions. We
use a number of controls and measures to minimise undue concentration of exposure in our portfolios across industry, country
and global business. These include portfolio and counterparty limits, approval and review controls, and stress testing.
Wrong-way risk occurs when a counterparty’s exposures are adversely correlated with its credit quality. There are two types of
wrong-way risk:
• general wrong-way risk occurs when the probability of counterparty default is positively correlated with general risk factors
such as, for example, where the counterparty is resident and/or incorporated in a higher-risk country and seeks to sell a
non-domestic currency in exchange for its home currency; and
• specific wrong-way risk occurs when the exposure to a particular counterparty is positively correlated with the probability
of counterparty default, such as a reverse repo on the counterparty’s own bonds. It is our policy that specific wrong-way
transactions are approved on a case-by-case basis.
We use a range of tools to monitor and control wrong-way risk, including requiring the business to obtain prior approval before
undertaking wrong-way risk transactions outside pre-agreed guidelines.
Credit quality of financial instruments
(Audited)
Our credit risk rating systems and processes differentiate exposures in order to highlight those with greater risk factors and
higher potential severity of loss. In the case of individually significant accounts that are predominantly within our wholesale
businesses, risk ratings are reviewed regularly and any amendments are implemented promptly. In our retail businesses, risk is
assessed and managed using a wide range of risk and pricing models to generate portfolio data.
Our risk rating system facilitates the internal ratings-based approach under the Basel framework adopted by the Group to
support calculation of our minimum credit regulatory capital requirement. Our credit quality classifications are defined below.
Special attention is paid to problem exposures in order to accelerate remedial action. When appropriate, our operating
companies use specialist units to provide customers with support to help them avoid default if possible.
Group and regional Credit Review and Risk Identification teams regularly review exposures and processes in order to provide
an independent, rigorous assessment of credit risk across the Group, reinforce secondary risk management controls and share
best practice. Internal audit, as a third line control function, focuses on risks with a global perspective and on the design and
effectiveness of primary and secondary controls, carrying out oversight audits via the sampling of global and regional control
frameworks, themed audits of key or emerging risks and project audits to assess major change initiatives.
The five credit quality classifications defined below each encompass a range of granular internal credit rating grades assigned
to wholesale and retail lending businesses and the external ratings attributed by external agencies to debt securities.
Credit quality classification
Debt securities
and other bills
Wholesale lending
and derivatives
External
credit rating
Internal
credit rating
A– and above
BBB+ to BBB–
BB+ to B and
unrated
B– to C
Default
CRR21 to CRR2
CRR3
CRR4 to CRR5
CRR6 to CRR8
CRR9 to CRR10
12 month
probability of
default %
0 – 0.169
0.170 – 0.740
0.741 – 4.914
4.915 – 99.999
100
Retail lending
Internal
credit rating1
Expected
loss %
EL31 to EL2
EL3
0 – 0.999
1.000 – 4.999
EL4 to EL5
EL6 to EL8
EL9 to EL10
5.000 – 19.999
20.000 – 99.999
100+ or defaulted4
Quality classification
Strong
Good
Satisfactory
Sub-standard
Impaired
1 We observe the disclosure convention that, in addition to those classified as EL9 to EL10, retail accounts classified EL1 to EL8 that are delinquent by
90 days or more are considered impaired, unless individually they have been assessed as not impaired (see page 127, ‘Past due but not impaired gross
financial instruments’).
2 Customer risk rating.
3 Expected loss.
4 The EL percentage is derived through a combination of PD and LGD, and may exceed 100% in circumstances where the LGD is above 100% reflecting
the cost of recoveries.
HSBC HOLDINGS PLC
196
Quality classification definitions
• ‘Strong’ exposures demonstrate a strong capacity to meet financial commitments, with negligible or low probability of default and/or low
levels of expected loss. Retail accounts operate within product parameters and only exceptionally show any period of delinquency.
• ‘Good’ exposures require closer monitoring and demonstrate a good capacity to meet financial commitments, with low default risk. Retail
accounts typically show only short periods of delinquency, with any losses expected to be minimal following the adoption of recovery
processes.
• ‘Satisfactory’ exposures require closer monitoring and demonstrate an average to fair capacity to meet financial commitments, with
moderate default risk. Retail accounts typically show only short periods of delinquency, with any losses expected to be minor following
the adoption of recovery processes.
• ‘Sub-standard’ exposures require varying degrees of special attention and default risk is of greater concern. Retail portfolio segments
show longer delinquency periods of generally up to 90 days past due and/or expected losses are higher due to a reduced ability to
mitigate these through security realisation or other recovery processes.
• ‘Impaired’ exposures have been assessed as impaired. These include wholesale exposures where the bank considers that either the
customer is unlikely to pay its credit obligations in full, without recourse by the bank to the actions such as realising security if held, or the
customer is past due more than 90 days on any material credit obligation; retail accounts include loans and advances classified as EL9 to
EL10, and for those classified EL1 to EL8 they are greater than 90 days past due unless individually they have been assessed as not
impaired; and renegotiated loans that have met the requirements to be disclosed as impaired and have not yet met the criteria to be
returned to the unimpaired portfolio (see below).
The customer risk rating (‘CRR’) 10-grade scale summarises a more granular underlying 23-grade scale of obligor probability of
default (‘PD’). All HSBC customers are rated using the 10- or 23-grade scale, depending on the degree of sophistication of the
Basel II approach adopted for the exposure.
Each CRR band is associated with an external rating grade by reference to long-run default rates for that grade, represented by
the average of issuer-weighted historical default rates. This mapping between internal and external ratings is indicative and
may vary over time.
The expected loss (‘EL’) 10-grade scale for retail business summarises a more granular underlying EL scale for this customer
segment; this combines obligor and facility/product risk factors in a composite measure.
For debt securities and certain other financial instruments, external ratings have been aligned to the five quality classifications
based upon the mapping of related CRR to external credit grade.
Renegotiated loans and forbearance
(Audited)
A range of forbearance strategies is employed in order to improve the management of customer relationships, maximise
collection opportunities and, if possible, avoid default, foreclosure or repossession. They include extended payment terms, a
reduction in interest or principal repayments, approved external debt management plans, debt consolidations, the deferral of
foreclosures and other forms of loan modifications and re-ageing.
Our policies and practices are based on criteria which enable local management to judge whether repayment is likely to
continue. These typically provide a customer with terms and conditions that are more favourable than those provided initially.
Loan forbearance is only granted in situations where the customer has showed a willingness to repay their loan and is
expected to be able to meet the revised obligations.
Identifying renegotiated loans
The contractual terms of a loan may be modified for a number of reasons including changing market conditions, customer
retention and other factors not related to the current or potential credit deterioration of a customer. When the contractual
payment terms of a loan are modified because we have significant concerns about the borrower’s ability to meet contractual
payments when due, these loans are classified as ‘renegotiated loans’.
For retail lending our credit risk management policy sets out restrictions on the number and frequency of renegotiations, the
minimum period an account must have been opened before any renegotiation can be considered and the number of qualifying
payments that must be received. The application of this policy varies according to the nature of the market, the product and
the management of customer relationships through the occurrence of exceptional events. When considering whether there is
significant concern regarding a customer’s ability to meet contractual loan repayments when due, we assess the customer’s
delinquency status, account behaviour, repayment history, current financial situation and continued ability to repay. If the
customer is not meeting contractual repayments or it is evident that they will be unable to do so without the renegotiation,
there will be a significant concern regarding their ability to meet contractual payments, and the loan will be disclosed as
impaired, unless the concession granted is insignificant as discussed below.
HSBC HOLDINGS PLC
197
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Appendix to Risk – Policies and practices
For loan restructurings in wholesale lending, indicators of significant concerns regarding a borrower’s ability to pay include:
• the debtor is currently in default on any of its debt;
• the debtor has declared or is in the process of declaring bankruptcy or entering into a similar process;
• there is significant doubt as to whether the debtor will continue to be a going concern;
• currently, the debtor has securities that have been delisted, are in the process of being delisted, or are under threat of
being delisted from an exchange as a result of trading or financial difficulties;
• based on estimates and projections that only encompass current business capabilities, the Group forecasts that the
debtor’s entity-specific cash flows will be insufficient to service the debt (both interest and principal) in accordance with the
contractual terms of the existing agreement through maturity. In this instance, actual payment default may not yet have
occurred; and
• absent the modification, the debtor cannot obtain funds from sources other than its existing creditors at an effective
interest rate equal to the current market interest rate for similar debt for a non-distressed debtor.
Where the modification of a loan’s contractual payment terms represents a concession for economic or legal reasons relating
to the borrower’s financial difficulty, and is a concession that we would not otherwise consider, then the renegotiated loan
is disclosed as impaired in accordance with our impaired loan disclosure convention described in more detail on page 354,
unless the concession is insignificant and there are no other indicators of impairment. Insignificant concessions are primarily
restricted to our CML portfolio in HSBC Finance, where loans which are in the early stages of delinquency (less than 60 days
delinquent) and typically have the equivalent of two payments deferred for the first time, are excluded from our impaired loan
classification, as the contractual payment deferrals are deemed to be insignificant compared with payments due on the loan as
a whole. For details of HSBC Finance’s loan renegotiation programmes and portfolios, see pages 129 and 145.
Credit quality classification of renegotiated loans
(Audited)
Under IFRSs, an entity is required to assess whether there is objective evidence that financial assets are impaired at the end of
each reporting period. A loan is impaired and an impairment allowance is recognised when there is objective evidence of a loss
event that has an effect on the cash flows of the loan which can be reliably estimated. Granting a concession to a customer
that we would not otherwise consider, as a result of their financial difficulty, is objective evidence of impairment and
impairment losses are measured accordingly.
A renegotiated loan is presented as impaired when:
• there has been a change in contractual cash flows as a result of a concession which the lender would otherwise not
consider, and
• it is probable that without the concession, the borrower would be unable to meet contractual payment obligations in full.
This presentation applies unless the concession is insignificant and there are no other indicators of impairment.
The renegotiated loan will continue to be disclosed as impaired until there is sufficient evidence to demonstrate a significant
reduction in the risk of non-payment of future cash flows, and there are no other indicators of impairment. For loans that are
assessed for impairment on a collective basis, the evidence typically comprises a history of payment performance against the
original or revised terms, as appropriate to the circumstances. For loans that are assessed for impairment on an individual
basis, all available evidence is assessed on a case-by-case basis.
For corporate and commercial loans, which are individually assessed for impairment and where non-monthly payments are
more commonly agreed, the history of payment performance will depend on the underlying structure of payments agreed as
part of the restructuring.
For retail lending the minimum period of payment performance required depends on the nature of loans in the portfolio,
but is typically between six and twelve months. Where portfolios have more significant levels of forbearance activity, such
as that undertaken by HSBC Finance, the minimum repayment performance period required may be substantially more
(for further details on HSBC Finance see page 145). Payment performance periods are monitored to ensure they remain
appropriate to the levels of recidivism observed within the portfolio. These performance periods are in addition to a minimum
of two payments which must be received within a 60-day period (in the case of HSBC Finance, in certain circumstances,
for example where debt has been restructured in bankruptcy proceedings, fewer or no qualifying payments may be required).
The qualifying payments are required in order to demonstrate that the renegotiated terms are sustainable for the borrower.
Renegotiated loans are classified as unimpaired where the renegotiation has resulted from significant concern about a
borrower’s ability to meet their contractual payment terms but the concession is not significant and the contractual cash flows
are expected to be collected in full following the renegotiation.
HSBC HOLDINGS PLC
198
Derecognition of renegotiated loans
(Audited)
Loans that have been identified as renegotiated retain this designation until maturity or derecognition. When a loan is
restructured as part of a forbearance strategy and the restructuring results in derecognition of the existing loan, the new loan
is disclosed as renegotiated.
When determining whether a loan that is restructured should be derecognised and a new loan recognised, we consider the
extent to which the changes to the original contractual terms result in the renegotiated loan, considered as a whole, being a
substantially different financial instrument. The following are examples of circumstances that individually are likely to result in
this test being met and derecognition accounting being applied:
• an uncollateralised loan becomes fully collateralised or vice versa;
• removal or addition of debt-to-equity conversion features attached to the loan agreement that have substance;
• a change in the currency in which the principal or interest is denominated, other than a conversion at a current market rate;
or
• a change in the obligor.
The following are examples of factors that we consider may indicate that the revised loan is a substantially different financial
instrument, but are unlikely to be conclusive in themselves:
• conditions added to the contract that substantially alter the credit risk of the loan (e.g. conditions on how the customer’s
business will be conducted in order to meet the revised terms of the loan);
• guarantees are put in place that are expected to substantially change the source of repayment and it is fully expected that
the guarantees have value;
• rate structure changes (that are not existing contractual features) or debt consolidation where these changes are not purely
a concession to allow the obligor to pay a monthly amount that is affordable given its credit distressed circumstances;
• a change in the liquidation preference or ranking of the instrument that is not a debt-to-equity conversion; or
• the collateral level (as a % of the loan) has doubled and the resulting coverage is more than 50%.
Renegotiated loans and recognition of impairment allowances
(Audited)
For retail lending, renegotiated loans are segregated from other parts of the loan portfolio for collective impairment
assessment to reflect the higher rates of losses often encountered in these segments. When empirical evidence indicates an
increased propensity to default and higher losses on such accounts, such as for re-aged loans in the US, the use of roll-rate (or
discounted cash flow) methodology ensures these factors are taken into account when calculating impairment allowances by
applying roll rates specifically calculated on the pool of loans subject to forbearance. When the portfolio size is small or when
information is insufficient or not reliable enough to adopt a roll-rate (or discounted cash flow) methodology, a basic formulaic
approach based on historical loss rate experience is used. As a result of our collective impairment methodology, we recognise
collective impairment allowances on homogeneous groups of loans, including renegotiated loans, where there is historical
evidence that there is a likelihood that loans in these groups will progress through the various stages of delinquency, and
ultimately prove irrecoverable as a result of events occurring before the balance sheet date. This treatment applies
irrespective of whether or not those loans are presented as impaired in accordance with our impaired loans disclosure
convention.
In the corporate and commercial sectors, renegotiated loans are typically assessed individually. Credit risk ratings are intrinsic
to the impairment assessment. A distressed restructuring is classified as an impaired loan. The individual impairment
assessment takes into account the higher risk of the non-payment of future cash flows inherent in renegotiated loans.
Corporate and commercial forbearance
In the corporate and commercial sectors, forbearance activity is undertaken selectively where it has been identified that
repayment difficulties against the original terms have already materialised, or are very likely to materialise. These cases are
treated as impaired loans where:
• the customer is experiencing, or is very likely to experience, difficulty in meeting a payment obligation to the Group (i.e.
due to current credit distress); and
• the Group is offering to the customer revised payment arrangements which constitute a concession (i.e. it is offering terms
it would not normally be prepared to offer).
These cases are described as distressed restructurings. The agreement of a restructuring which meets the criteria above
requires all loans, advances and counterparty exposures to the customer to be treated as impaired. Against the background
of this requirement, as a customer approaches the point at which it becomes clear that there is an increasing risk that a
restructuring of this kind might be necessary, the exposures will typically be regarded as sub-standard to reflect the
HSBC HOLDINGS PLC
199
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Appendix to Risk – Policies and practices
deteriorating credit risk profile and will be graded as impaired when the restructure is proposed for approval, or sooner if
there is sufficient concern regarding the customer’s likeliness to pay.
For the purposes of determining whether changes to a customer’s agreement should be treated as a distressed restructuring
the following types of modification are regarded as concessionary:
• transfers from the customer of receivables from third parties, real estate, or other assets to satisfy fully or partially a debt;
• issuance or other granting of an equity interest to satisfy fully or partially a debt unless the equity interest is granted
pursuant to existing terms for converting the debt into an equity interest; and
• modification of the terms of a debt, such as one or more of the following:
– reduction (absolute or contingent) of the stated interest rate for the remaining original life of the debt;
– extension of the maturity date or dates at a stated interest rate lower than the current market rate for new debt with
similar risk;
– reduction (absolute or contingent) of the face amount or maturity amount of the debt; and
– reduction (absolute or contingent) of accrued interest.
Modifications that are unrelated to payment arrangements, such as the restructuring of collateral or security arrangements or
the waiver of rights under covenants within documentation, are not regarded by themselves to be evidence of credit distress
affecting payment capacity. Typically, covenants are in place to give the Group rights of repricing or acceleration, but they are
frequently set at levels where payment capacity has yet to be affected, providing rights of action at earlier stages of credit
deterioration. Such concessions do not directly affect the customer’s ability to service the original contractual debt and are not
reported as renegotiated loans. However, where a customer requests a non-payment related covenant waiver, the significance
of the underlying breach of covenant will be considered together with any other indicators of impairment, and where there
is a degree of severity of credit distress indicating uncertainty of payment, all available evidence will be considered in
determining whether a loss event has occurred. The waiver will not, however, trigger classification as a renegotiated loan
as payment terms have not been modified.
When both payment-related and non-payment related modifications are made together as a result of significant concerns
regarding the payment of contractual cash flows, the loan is treated as a distressed restructuring and disclosed as a
renegotiated loan.
Where clauses are built into the contract in advance which allow for payment-related modifications, and are exercised under
conditions of credit distress at a point where the modification provides a concession to the customer, these cases are treated
as meeting the definition of a distressed restructuring.
In assessing whether payment-related forbearance is a satisfactory and sustainable strategy, the customer’s entire exposure
and facilities will be reviewed and their ability to meet the terms of both the revised obligation and other credit facilities not
amended in the renegotiation is assessed. Should this assessment identify that a renegotiation will not deal with a customer’s
payment capacity issues satisfactorily, other special management options may be applied. This process may identify the need
to provide assistance to a customer specifically to restructure their business operations and activities so as to restore
satisfactory payment capacity.
When considering acceptable restructuring terms we consider the ability of the customer to be able to service the revised
interest payments as a necessity. When principal payment modifications are considered, again we require the customer to be
able to comply with the revised terms as a necessary pre-condition for the restructuring to proceed. When principal payments
are modified resulting in permanent forgiveness, or when it is otherwise considered that there is no longer a realistic prospect
of recovery of outstanding principal, the affected balances are written off. When principal repayments are postponed, it is
expected that the customer will be capable of paying in line with the renegotiated terms, including instances when the
postponed principal repayment is expected from refinancing. In all cases, a loan renegotiation is only granted when the
customer is expected to be able to meet the revised terms.
Modifications may be made on a temporary basis when time is needed for the customer to make arrangements for payment,
when deterioration in payment capacity is expected to be acute but short lived, or when more time is needed to accommodate
discussions regarding a more permanent accommodation with other bankers, for example in syndicated facilities where
multilateral negotiation commonly features.
If a restructuring proceeds and the customer demonstrates satisfactory performance over a period of time, the case may
be returned to a non-impaired grade (CRR1-8) provided no other indicators of impairment remain. Such a case cannot be
returned to a non-impaired grade when a specific impairment allowance remains against any of the customer’s credit facilities.
The period of performance will vary depending on the underlying structure of payments to be made by the customer under
the amended agreement and the extent to which the customer’s financial position is considered to have improved.
HSBC HOLDINGS PLC
200
Impairment assessment
(Audited)
It is our policy that each operating company in HSBC creates impairment allowances for impaired loans promptly and
appropriately, when there is objective evidence that impairment of a loan or portfolio of loans has occurred.
For details of our impairment policies on loans and advances and financial investments, see Note 1j on the Financial
Statements.
Impairment and credit risk mitigation
The existence of collateral has an effect when calculating impairment on individually assessed impaired loans. When we no
longer expect to recover the principal and interest due on a loan in full or in accordance with the original terms and conditions,
it is assessed for impairment. If exposures are secured, the current net realisable value of the collateral is taken into account
when assessing the need for an impairment allowance. No impairment allowance is recognised in cases where all amounts due
are expected to be settled in full on realisation of the security.
Personal lending portfolios are generally assessed for impairment on a collective basis as the portfolios typically consist
of large groups of homogeneous loans. Two methods are used to calculate allowances on a collective basis: a roll-rate
methodology or a more basic formulaic approach based on historical losses. On a yearly basis, we review the impairment
allowance methodology used for retail banking and small business portfolios across the Group to ensure that the assumptions
used in our collective assessment models continued to appropriately reflect the period of time between a loss event occurring
and the account proceeding to delinquency and eventual write-off.
• The historical loss methodology is typically used to calculate collective impairment allowances for secured or low default
portfolios such as mortgages until the point at which they are individually identified and assessed as impaired. For loans
that are collectively assessed using historical loss methodology, the historical loss rate is derived from the average
contractual write-off net of recoveries over a defined period. The net contractual write-off rate is the actual amount of
loss experienced after the realisation of collateral and receipt of recoveries.
• A roll-rate methodology is more commonly adopted for unsecured portfolios when there are sufficient volumes of empirical
data to develop robust statistical models. In certain circumstances mortgage portfolios have a statistically significant
number of defaults and losses available, enabling reliable roll rates to be generated. In these cases a roll-rate methodology
is applied until the point at which the loans are individually identified and assessed as impaired, and the average gross loss
rates by delinquency bucket are adjusted to reflect the future expected cash flows after collateral and other recovery
realisation.
The nature of the collective allowance assessment prevents individual collateral values or loan-to-value (‘LTV’) ratios from
being included within the calculation. However, the loss rates used in the collective assessment are adjusted for the collateral
realisation experiences which will vary depending on the LTV composition of the portfolio. For example, mortgage portfolios
under a historical loss rate methodology with lower LTV ratios will typically experience lower loss history and consequently a
lesser net contractual write-off rate.
For wholesale collectively assessed loans, historical loss methodologies are applied to measure loss event impairments which
have been incurred but not reported. Loss rates are derived from the historical impairment charges or losses recognised on
impaired loans net of recoveries over a defined period, typically no less than 60 months. These historical loss rates are
adjusted by an economic factor which amends the historical averages to better represent current economic conditions
affecting the portfolio. In order to reflect the likelihood of a loss event not being identified and assessed an emergence period
assumption is applied which reflects the period between a loss occurring and its identification. The emergence period is
estimated by management for each identified portfolio. The factors that may influence this estimation include economic and
market conditions, customer behaviour, portfolio management information, credit management techniques and collection and
recovery experiences in the market. The emergence period is assessed empirically on a periodic basis and may vary over time
as these factors change.
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
Write-off of loans and advances
(Audited)
For details of our policy on the write-off of loans and advances, see Note 1j on the Financial Statements.
In HSBC Finance, the carrying amounts of residential mortgage and second lien loans in excess of net realisable value
are written off at or before the time foreclosure is completed or settlement is reached with the borrower. If there is no
reasonable expectation of recovery, and foreclosure is pursued, the loan is normally written off no later than the end of the
month in which the loan becomes 180 days contractually past due. We regularly obtain new appraisals for these collateral
dependent loans (every 180 days) and adjust carrying values to the most recent appraisal if they have improved or deteriorated
as the best estimate of the cash flows that will be received on the disposal of the collateral.
Unsecured personal facilities, including credit cards, are generally written off at between 150 and 210 days past due, the
standard period being the end of the month in which the account becomes 180 days contractually delinquent. Write-off
periods may be extended, generally to no more than 360 days past due but, in very exceptional circumstances, to longer than
that figure in a few countries where local regulation or legislation constrain earlier write-off or where the realisation of
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
HSBC HOLDINGS PLC
201
Report of the Directors: Risk (continued)
Appendix to Risk – Policies and practices
collateral for secured real estate lending takes this time.
For secured personal facilities, final write-off should generally occur within 60 months of the default at the latest.
In the event of bankruptcy or analogous proceedings, write-off may occur earlier than at the periods stated above. Collections
procedures may continue after write-off.
Impairment methodologies
(Audited)
To identify objective evidence of impairment for available-for-sale ABSs, an industry standard valuation model is normally
applied which uses data with reference to the underlying asset pools and models their projected future cash flows. The
estimated future cash flows of the securities are assessed at the specific financial asset level to determine whether any of
them are unlikely to be recovered as a result of loss events occurring on or before the reporting date.
The principal assumptions and inputs to the models are typically the delinquency status of the underlying loans, the probability
of delinquent loans progressing to default, the prepayment profiles of the underlying assets and the loss severity in the event
of default. However, the models utilise other variables relevant to specific classes of collateral to forecast future defaults
and recovery rates. Management uses externally available data and applies judgement when determining the appropriate
assumptions in respect of these factors. We use a modelling approach which incorporates historically observed progression rates
to default to determine if the decline in aggregate projected cash flows from the underlying collateral will lead to a shortfall in
contractual cash flows. In such cases, the security is considered to be impaired.
In respect of collateralised debt obligations (‘CDO’s), expected future cash flows for the underlying collateral are assessed to
determine whether there is likely to be a shortfall in the contractual cash flows of the CDO.
When a security benefits from a contract provided by a monoline insurer that insures payments of principal and interest, the
expected recovery on the contract is assessed in determining the total expected credit support available to the ABS.
Loan management unit
The HSBC Loan Management Unit (‘LMU’) is a front line customer contact department within Wholesale Credit and Market
Risk that assumes responsibility for managing business customer relationships requiring intensive and close control where the
bank’s lending is at risk. LMU operates on a regional basis across the Group and is independent of the originating business
management units. It reports locally to the Regional Head of Wholesale Credit and Market Risk. Customers are identified and
transferred to LMU by business management or the Wholesale Credit and Market Risk approval teams.
Customers managed by LMU are normally operating outside the Group’s risk appetite. They typically show symptoms of
significant financial difficulty, the management team displays limited experience of managing a business in distress and the
management and financial information provided to the Group is insufficient and unreliable.
The levels of customer exposure under management and the size of the LMU team varies between countries depending on the
breadth of business undertaken locally but LMU will always manage highly distressed situations where individual customer
exposure exceeds $1.5m.
The primary focus of LMU is to protect the bank's capital and minimise losses by working consensually with customers to
promote and support viable recovery strategies wherever achievable, with the ultimate intention of returning the customer
to front line relationship management. In some cases, rehabilitation is not possible and LMU will consider a range of options
to protect the bank's exposure and solvency of the customer. On occasion, it is not possible to find a satisfactory solution and
the customer may file for insolvency or local equivalent. In all outcomes, LMU seeks to treat customers fairly, sympathetically
and positively, in a professional way with transparent processes and procedures.
Remediation and restructuring strategies available in the business and LMU include granting a customer various types of
concessions while seeking to enhance the ability of the customer to ultimately repay the Group which could include enhancing
the overall security available to the Group. Any decision to approve a concession will be a function of the regions specific
country and sector appetite, the key metrics of the customer, the market environment, the loan structure and security.
Internal reviews on customers managed directly by LMU are performed on a scheduled basis in accordance with relevant
accounting guidelines, credit policies and national banking regulations. Under certain circumstances, concessions granted may
result in the loan being classified as a renegotiated loan.
Collateral and other credit enhancements held
(Audited)
Loans and advances held at amortised cost
The Group’s practice is to lend on the basis of customers’ ability to meet their obligations out of cash flow resources rather
than rely on the value of security offered. Depending on a customer’s standing and the type of product, facilities may
be provided without security. For other lending, a charge over collateral is obtained and considered in determining the credit
decision and pricing. In the event of default, the bank may utilise the collateral as a source of repayment. Depending on its
form, collateral can have a significant financial effect in mitigating our exposure to credit risk.
HSBC HOLDINGS PLC
202
Additionally, risk may be managed by employing other types of collateral and credit risk enhancements such as second
charges, other liens and unsupported guarantees, but the valuation of such mitigants is less certain and their financial effect
has not been quantified.
Refinance risk
Many types of lending require the repayment of a significant proportion of the principal at maturity. Typically, the mechanism
of repayment for the customer is through the acquisition of a new loan to settle the existing debt. Refinance risk arises where
a customer is unable to repay such term debt on maturity, or to refinance debt at commercial rates. When there is evidence
that this risk may apply to a specific contract, HSBC may need to refinance the loan on concessionary terms that we would not
otherwise have considered, in order to recoup the maximum possible cash flows from the contract and potentially avoid the
customer defaulting on the repayment of principal. When there is sufficient evidence that borrowers, based on their current
financial capabilities, may fail at maturity to repay or refinance their loans, these loans are disclosed as impaired with
recognition of a corresponding impairment allowance where appropriate.
Nature of HSBC’s securitisation and other structured exposures
Mortgage-backed securities (‘MBS’s) are securities that represent interests in groups of mortgages and provide investors with
the right to receive cash from future mortgage payments (interest and/or principal). An MBS which references mortgages with
different risk profiles is classified according to the highest risk class.
Collateralised debt obligations (‘CDO’s) are securities backed by a pool of bonds, loans or other assets such as asset-backed
securities (‘ABS’s). CDOs may include exposure to sub-prime or Alt-A mortgage assets where these are part of the underlying
assets or reference assets. As there is often uncertainty surrounding the precise nature of the underlying collateral supporting
CDOs, all CDOs supported by residential mortgage-related assets are classified as sub-prime. Our holdings of ABSs and CDOs
and direct lending positions, and the categories of mortgage collateral and lending activity, are described below.
Our exposure to non-residential mortgage-related ABSs includes securities with collateral relating to commercial property
mortgages, leveraged finance loans, student loans, and other assets such as securities with other receivable-related collateral.
Definitions and classifications of ABSs and CDOs
Categories of
ABSs and CDOs
Sub-prime
Definition
Classification
Loans to customers who have limited credit
histories, modest incomes or high debt-to-income
ratios or have experienced credit problems caused
by occasional delinquencies, prior charge-offs,
bankruptcy or other credit-related actions.
For US mortgages, a FICO score of 620 or less has
primarily been used to determine whether a loan is
sub-prime. For non-US mortgages, management
judgement is used.
US Home Equity Lines
of Credit (‘HELoC’s)
(categorised within
‘Sub-prime’)
A form of revolving credit facility provided to
customers, which is supported in the majority of
circumstances by a second lien or lower ranking
charge over residential property.
US Alt-A
Lower risk loans than sub-prime, but they share
higher risk characteristics than lending under fully
conforming standard criteria.
US Government agency
and sponsored enterprises
mortgage-related assets
Securities that are guaranteed by US Government
agencies such as the Government National Mortgage
Association (‘Ginnie Mae’), or by US Government
sponsored entities including Fannie Mae and
Freddie Mac.
Holdings of HELoCs are classified as sub-prime.
US credit scores and the completeness of
documentation held (such as proof of income), are
considered when determining whether an Alt-A
classification is appropriate. Non sub-prime
mortgages in the US are classified as Alt-A if they are
not eligible for sale to the major US Government
mortgage agencies or sponsored entities.
Holdings of US Government agency and US
Government sponsored enterprises’ mortgage-
related assets are classified as prime exposures.
HSBC HOLDINGS PLC
203
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Appendix to Risk – Policies and practices
Categories of ABSs and CDOs
Definition
Classification
UK non-conforming mortgages
(categorised within ‘Sub-prime’)
UK mortgages that do not meet normal lending criteria.
Examples include mortgages where the expected level of
documentation is not provided (such as income with self-
certification), or where poor credit history increases risk and
results in pricing at a higher than normal lending rate.
UK non-conforming mortgages are
treated as sub-prime exposures.
Other residential mortgages
Residential mortgages, including prime mortgages, that do not
meet any of the classifications described above.
Prime residential mortgage-related
assets are included in this category.
Liquidity and funding
The management of liquidity and funding is primarily undertaken locally (by country) in our operating entities in compliance
with the Group’s Liquidity and Funding Risk Management Framework (the ‘LFRF’), and with practices and limits set by the GMB
through the RMM and approved by the Board. These limits vary according to the depth and the liquidity of the markets in
which the entities operate. Our general policy is that each defined operating entity should be self-sufficient in funding its own
activities. Where transactions exist between operating entities, they are reflected symmetrically in both entities.
As part of our Asset, Liability and Capital Management (‘ALCM’) structure, we have established ALCOs at Group level, in the
regions and in operating entities. The terms of reference of all ALCOs include the monitoring and control of liquidity and
funding.
The primary responsibility for managing liquidity and funding within the Group’s framework and risk appetite resides with the
local operating entities’ ALCOs. Our most significant operating entities are overseen by regional ALCOs, Group ALCO and the
RMM. The remaining smaller operating entities are overseen by regional ALCOs, with appropriate escalation of significant
issues to Group ALCO and the RMM.
Operating entities are predominately defined on a country basis to reflect our local management of liquidity and funding.
Typically, an operating entity will be defined as a single legal entity. However, to take account of the situation where
operations in a country are booked across multiple subsidiaries or branches:
• an operating entity may be defined as a wider sub-consolidated group of legal entities if they are incorporated in the same
country, liquidity and funding are freely fungible between the entities and permitted by local regulation, and the definition
reflects how liquidity and funding are managed locally; or
• an operating entity may be defined more narrowly as a principal office (branch) of a wider legal entity operating in multiple
countries, reflecting the local country management of liquidity and funding.
The RMM reviews and agrees annually the list of entities it directly oversees and the composition of these entities.
Primary sources of funding
Customer deposits in the form of current accounts and savings deposits payable on demand or at short notice form a
significant part of our funding, and we place considerable importance on maintaining their stability. For deposits, stability
depends upon maintaining depositor confidence in our capital strength and liquidity, and on competitive and transparent
pricing.
We also access wholesale funding markets by issuing senior secured and unsecured debt securities (publically and privately)
and borrowing from the secured repo markets against high quality collateral, in order to obtain funding for non-banking
subsidiaries that do not accept deposits, to align asset and liability maturities and currencies and to maintain a presence in
local wholesale markets.
The management of liquidity and funding risk
Inherent liquidity risk categorisation
We place our operating entities into one of two categories (low and medium) to reflect our assessment of their inherent
liquidity risk considering political, economic and regulatory factors within the host country and factors specific to the operating
entities themselves, such as their local market, market share and balance sheet strength. The categorisation involves
management judgement and is based on the perceived liquidity risk of an operating entity relative to other entities in the
Group. The categorisation is intended to reflect the possible impact of a liquidity event, not the probability of an event, and
forms part of our risk appetite. It is used to determine the prescribed stress scenario that we require our operating entities to
be able to withstand and manage to.
Core deposits
A key element of our internal framework is the classification of customer deposits into core and non-core based on our
expectation of their behaviour during periods of liquidity stress. This characterisation takes into account the inherent liquidity
HSBC HOLDINGS PLC
204
risk categorisation of the operating entity originating the deposit, the nature of the customer and the size and pricing of the
deposit. No deposit is considered to be core in its entirety unless it is contractually collateralising a loan. The core deposit base
in each operating entity is considered to be a long-term source of funding and therefore is assumed not to be withdrawn in the
liquidity stress scenario that we use to calculate our principal liquidity risk metrics.
The three filters considered in assessing whether a deposit in any operating entity is core are:
• price: any deposit priced significantly above market or benchmark rates is generally treated as entirely non-core;
• size: depositors with total funds above certain monetary thresholds are excluded. Thresholds are established by considering
the business line and inherent liquidity risk categorisation; and
• line of business: the element of any deposit remaining after the application of the price and size filters is assessed on the
basis of the line of business with which the deposit is associated. The proportion of any customer deposit that can be
considered core under this filter is between 35% and 90%.
Repo transactions and bank deposits cannot be classified as core deposits.
Advances to core funding ratio
Core customer deposits are an important source of funding to finance lending to customers, and mitigate against reliance on
short-term wholesale funding. Limits are placed on operating entities to restrict their ability to increase loans and advances to
customers without corresponding growth in core customer deposits or long-term debt funding with a residual maturity beyond
one year; this measure is referred to as the ‘advances to core funding’ ratio.
Advances to core funding ratio limits are set by the RMM for the most significant operating entities, and by regional ALCOs
for smaller operating entities, and are monitored by ALCM teams. The ratio describes loans and advances to customers as a
percentage of the total of core customer deposits and term funding with a remaining term to maturity in excess of one year.
In general, customer loans are assumed to be renewed and are included in the numerator of the ratio, irrespective of the
contractual maturity date. Reverse repo arrangements are excluded from the advances to core funding ratio.
Stressed coverage ratios
Stressed coverage ratios are derived from stressed cash flow scenario analyses and express stressed cash inflows as a
percentage of stressed cash outflows over one-month and three-month time horizons.
The stressed cash inflows include:
• inflows (net of assumed haircuts) expected to be generated from the realisation of liquid assets; and
• contractual cash inflows from maturing assets that are not already reflected as a utilisation of liquid assets.
In line with the approach adopted for the advances to core funding ratio, customer loans are generally assumed not to
generate any cash inflows under stress scenarios and are therefore excluded from the numerator of the stressed coverage
ratio, irrespective of the contractual maturity date.
A stressed coverage ratio of 100% or higher reflects a positive cumulative cash flow under the stress scenario being monitored.
Group operating entities are required to maintain a ratio of 100% or more out to three months under the combined market-
wide and HSBC-specific stress scenario defined by the inherent liquidity risk categorisation of the operating entity concerned.
Compliance with operating entity limits is monitored by ALCM teams and reported monthly to the RMM for the main
operating entities and to regional ALCOs for the smaller operating entities.
Stressed scenario analysis
We use a number of standard Group stress scenarios designed to model:
• combined market-wide and HSBC-specific liquidity crisis scenarios; and
• market-wide liquidity crisis scenario.
These scenarios are modelled by all operating entities. The appropriateness of the assumptions for each scenario is reviewed
by ALCM regularly and formally approved by the RMM and the Board annually as part of the liquidity and funding risk appetite
approval process.
Stressed cash outflows are determined by applying a standard set of prescribed stress assumptions to the Group’s cash flow
model. Our framework prescribes the use of two market-wide scenarios and two further combined market-wide and HSBC-
specific stress scenarios of increasing severity. In addition to our standard stress scenarios, individual operating entities are
required to design their own scenarios to reflect specific local market conditions, products and funding bases.
The two combined market-wide and HSBC-specific scenarios model a more severe scenario than the market-wide scenario.
The relevant combined market-wide and HSBC-specific stress scenario that an operating entity manages to is based upon its
inherent liquidity risk categorisation. The key assumptions factored into the two combined market-wide and HSBC-specific
stress scenarios are summarised as follows:
• all non-core deposits are deemed to be withdrawn within three months (80% within one month), with the level of non-core
deposits dependent on the operating entity’s inherent liquidity risk categorisation;
HSBC HOLDINGS PLC
205
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Appendix to Risk – Policies and practices
• the ability to access interbank funding and unsecured term debt markets ceases for the duration of the scenario;
• the ability to generate funds from illiquid asset portfolios (securitisation and secured borrowing) is restricted to 25-75% of
the lower of issues in the last six months or expected issues in the next six months. The restriction is based on current
market conditions and is dependent on the operating entity’s inherent liquidity risk categorisation;
• the ability to access repo funding ceases for any asset not classified as liquid under our liquid asset policy for the duration of
the scenario;
• drawdowns on committed lending facilities must be consistent with the severity of the market stress being modelled and
dependent on the inherent liquidity risk categorisation of the operating entity;
• outflows are triggered by a defined downgrade in long-term ratings. We maintain an ongoing assessment of the appropriate
number of notches to reflect;
• customer loans are assumed to be renewed at contractual maturity;
• interbank loans and reverse repos are assumed to run off contractually; and
• assets defined as liquid assets are assumed to be realised in cash ahead of their contractual maturity, after applying a
defined stressed haircut of up to 20%.
Liquid assets of HSBC’s principal operating entities
Stressed scenario analysis and the numerator of the coverage ratio include the assumed cash inflows that would be generated
from the realisation of liquid assets, after applying the appropriate stressed haircut. These assumptions are made on the basis
of management’s expectation of when an asset is deemed to be realisable.
Liquid assets are unencumbered assets that meet the Group’s definition of liquid assets and are either held outright or as a
consequence of a reverse repo transaction with a residual contractual maturity beyond the time horizon of the stressed
coverage ratio being monitored. Any unencumbered asset held as a result of reverse repo transactions with a contractual
maturity within the time horizon of the stressed coverage ratio being monitored is excluded from the stock of liquid assets and
is instead reflected as a contractual cash inflow.
Our framework defines the asset classes that can be assessed locally as high quality and realisable within one month and
between one month and three months. Each local ALCO has to be satisfied that any asset which may be treated as liquid in
accordance with the Group’s liquid asset policy will remain liquid under the stress scenario being managed to.
Inflows from the utilisation of liquid assets within one month can generally only be based on confirmed withdrawable central
bank deposits or the sale or repo of government and quasi-government exposures generally restricted to those denominated
in the sovereign’s domestic currency. High quality ABSs (predominantly US MBSs) and covered bonds are also included but
inflows assumed for these assets are capped.
Inflows after one month are also reflected for high quality non-financial and non-structured corporate bonds and equities
within the most liquid indices.
Internal categorisation
Cash inflow recognised
Asset classes
Level 1
Within one month
Level 2
Within one month but capped
• Central government
• Central bank (including confirmed withdrawable reserves)
• Supranationals
• Multilateral development banks
• Coins and banknotes
• Local and regional government
• Public sector entities
• Secured covered bonds and pass-through ABSs
• Gold
Level 3
From one to three months
• Unsecured non-financial entity securities
• Equities listed on recognised exchanges and within liquid indices
Any entity owned and controlled by central or local/regional government but not explicitly guaranteed is treated as a public
sector entity.
Any exposure explicitly guaranteed is reflected as an exposure to the ultimate guarantor.
In terms of the criteria used to ensure liquid assets are of a high quality, the Group’s liquid asset policy sets out the following
additional criteria:
1. Central bank and central government exposures:
• denominated in the domestic currency of the related sovereign and held:
– onshore in the domestic banking system, qualify as Level 1 liquid assets.
HSBC HOLDINGS PLC
206
– offshore, must be risk weighted 20% or lower under the Basel standardised risk weighting methodology to qualify as
Level 1 liquid assets.
• denominated in a currency other than the currency of the related sovereign (i.e. foreign currency) must be risk weighted
20% or lower under the Basel standardised risk weighting methodology and issued in a limited number of major
currencies to qualify as Level 1 liquid assets.
The treatment of eurozone countries using the euro as their domestic currency depends on whether the exposures are held
onshore in the domestic banking system or offshore. Central bank and central government exposures held onshore in the
domestic banking system qualify as Level 1 liquid assets under criteria 1, but central bank and central government
exposures held offshore are considered to be denominated in a foreign currency under criteria 3.
2. Local/regional government exposures held onshore and considered by the local regulator to be the same risk as central
government exposures can be considered central government exposures.
3. Supranationals and multilateral development banks must be 0% risk weighted under the Basel standardised risk-weighting
methodology to qualify as Level 1 liquid assets.
4. To qualify as a level 2 liquid asset, the exposure must be risk weighted 20% or lower under the Basel standardised risk-
weighting methodology.
5. To qualify as a Level 3 liquid asset, an unsecured non-financial corporate debt exposure must satisfy a minimum internal
rating requirement.
On a case-by-case basis, operating entities are permitted to treat other assets as liquid if these assets are realistically assessed
to be liquid under stress. These liquid assets are reported as ‘Other’, separately from Level 1, Level 2 and Level 3 liquid assets.
Net cash flow arising from interbank and intragroup loans and deposits
Under the LFRF, a net cash inflow within three months arising from interbank and intra-Group loans and deposits will give rise
to a lower liquid asset requirement. Conversely, a net cash outflow within three months arising from interbank and intra-
Group loans and deposits will give rise to a higher liquid assets requirement.
Net cash flow arising from reverse repo, repo, stock borrowing, stock lending and outright short positions (including
intra-Group)
A net cash inflow represents liquid resources in addition to liquid assets because any unencumbered asset held as a
consequence of a reverse repo transaction with a residual contractual maturity within the stressed coverage ratio time period
is not reflected as a liquid asset.
The impact of net cash outflow depends on whether the underlying collateral encumbered as a result will qualify as a liquid
asset when released at the maturity of the repo. The majority of the Group’s repo transactions are collateralised by liquid
assets and, as such, any net cash outflow shown is offset by the return of liquid assets, which are excluded from the liquid
asset table above.
Wholesale debt monitoring
Where wholesale debt term markets are accessed to raise funding, ALCO is required to establish cumulative rolling three-
month and 12-month debt maturity limits to ensure no concentration of maturities within these timeframes.
Liquidity behaviouralisation
Liquidity behaviouralisation is applied to reflect our assessment of the expected period for which we are confident that we will
have access to our liabilities, even under a severe liquidity stress scenario, and the expected period for which we must assume
that we will need to fund our assets. Behaviouralisation is applied when the contractual terms do not reflect the expected
behaviour. Liquidity behaviouralisation is reviewed and approved by local ALCO in compliance with policies set by the RMM.
Our approach to liquidity risk management will often mean different approaches are applied to assets and liabilities. For
example, management may assume a shorter life for liabilities and a longer-term funding requirement for assets. All core
deposits are assumed under the Group’s core/non-core and advances to core funding frameworks to have a liquidity
behaviouralised life beyond one year and to represent a homogeneous source of core funding. The behaviouralisation of
assets is far more granular and seeks to differentiate the period for which we must assume that we will need to fund the asset.
Funds transfer pricing
Our funds transfer pricing policies give rise to a two-stage funds transfer pricing approach, reflecting the fact that we
separately manage interest rate risk and liquidity and funding risk under different assumptions. They have been developed to
be consistent with our risk management frameworks. Each operating entity is required to apply the Group’s transfer pricing
policy framework to determine for each material currency the most appropriate interest rate risk transfer pricing curve, a
liquidity premium curve (which is the spread over the interest rate risk transfer pricing curve) and a liquidity recharge
assessment (which is the spread under or over the interest rate risk transfer pricing curve).
HSBC HOLDINGS PLC
207
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Appendix to Risk – Policies and practices
The interest rate risk transfer pricing policy seeks to ensure that all market interest rate risk arising structurally from non-
trading (banking book) assets and liabilities which is capable of being neutralised externally in the market or neutralised
internally by off-setting transfers, is transferred to BSM to be managed centrally as non-trading market risk. For each material
currency each operating entity employs a single interest rate risk transfer pricing curve. The transfer price curve used for this
purpose reflects how BSM in each operating entity is best able to neutralise the interest rate risk in the market at the point of
transfer. Where basis risk can be identified between the re-pricing basis of an external asset or external liability and the re-
pricing basis of the interest rate risk transfer pricing curve, this basis risk may be transferred to BSM provided it can neutralise
the basis risk in the market.
Liquidity and funding risk is transfer priced independently from interest rate risk because the liquidity and funding risk of an
operating entity is transferred to ALCO to be managed centrally. ALCO monitors and manages the advances to core funding
ratio and delegates the management of the liquid asset portfolio and execution of the wholesale term debt funding plan to
BSM. This assists ALCO in ensuring the Group’s stressed coverage ratios remain above 100% out to three months.
The liquidity and funding risk transfer price consists of two components:
• Liquidity recharge: the cost of holding the benchmark liquid asset (the yield under the transfer price) to meet stressed cash
outflows. The benchmark liquid asset is decided by ALCO and based on the weighted average duration that can be achieved
by investing in level 1 liquid assets, with a residual duration of up to one year.
• Liquidity premium: the assessed cost/value of term funding (the yield over the transfer price) to pay for term debt and core
deposits.
The assessed cost of holding liquid assets is allocated to the outflows modelled by the Group’s internal stressed coverage ratio
framework.
Liquidity premium is charged to any asset that affects our three-month stressed coverage ratios based on the assessed
behaviouralised liquidity life of the asset, with any asset affecting the Group’s advances to core funding metric required to
have a minimum behaviouralised life of at least one year, and the prevailing liquidity premium curve rate set by ALCO and
calibrated in line with Group’s calibration principles. Core deposits therefore share equally in the liquidity premiums charged
to the assets they support, after deducting the cost of any term funding.
Repos and stock lending
GB&M provides collateralised security financing services to its clients, providing them with cash financing or specific securities.
When cash is provided to clients against collateral in the form of securities, the cash provided is recognised on the balance
sheet as a reverse repo. When securities are provided to clients against cash collateral the cash received is recognised on the
balance sheet as a repo or, if the securities are equity securities, as stock lending.
Each operating entity manages its collateral through a central collateral pool, in line with the LFRF. When specific securities
need to be delivered and the entity does not have them currently available within the central collateral pool, the securities are
borrowed on a collateralised basis. When securities are borrowed against cash collateral the cash provided is recognised on
the balance sheet as a reverse repo or, if the securities are equity securities, as stock borrowing.
Operating entities may also borrow cash against collateral in the form of securities, using the securities available in the central
collateral pool. Repos and stock lending can be used in this way to fund the cash requirement arising from securities owned
outright by Markets to facilitate client business, and the net cash requirement arising from financing client securities activity.
Reverse repos, stock borrowing, repos and stock lending are reported net when the IFRSs offsetting criteria are met. In some
cases transactions to borrow or lend securities are collateralised using securities. These transactions are off-balance sheet.
Any security accepted as collateral for a reverse repo or stock borrowing transaction must be of very high quality and its value
subject to an appropriate haircut. Securities borrowed under reverse repo or stock borrowing transactions can only be
recognised as part of the liquidity asset buffer for the duration of the transactions and only if the security received is eligible
under the liquid asset policy within the LFRF.
Credit controls are in place to ensure that the fair value of any collateral received remains appropriate to collateralise the cash
or fair value of securities given.
HSBC HOLDINGS PLC
208
The effect of active collateral management
Collateral is managed on an operating entity basis, consistent with the approach adopted in managing liquidity and funding.
Available collateral held by each operating entity is managed as a single collateral pool. In deciding which collateral to pledge,
each operating entity seeks to optimise the use of the available collateral pool within the confines of the LFRF, irrespective of
whether the collateral pledged is recognised on-balance sheet or was received in respect of reverse repo, stock borrowing or
derivative transactions.
Managing collateral in this manner affects the presentation of asset encumbrance in that we may encumber on-balance sheet
holdings while maintaining available unencumbered off-balance sheet holdings, even though we are not seeking to directly
finance the on-balance sheet holdings pledged.
In quantifying the level of encumbrance of negotiable securities, the encumbrance is analysed by individual security. When
a particular security is encumbered and we hold the security both on-balance sheet and off-balance sheet with the right to
repledge, we assume for the purpose of this disclosure that the off-balance sheet holding received from the third party is
encumbered ahead of the on-balance sheet holding.
An on-balance sheet encumbered and off-balance sheet unencumbered asset will occur, for example, if we receive a specific
security as a result of a reverse repo/stock borrowing transaction, but finance the cash lent by pledging a generic collateral
basket, even if the security received is eligible for the collateral basket pledged. It will also occur if we receive a generic
collateral basket as a result of a reverse repo transaction but finance the cash lent by pledging specific securities, even if the
securities pledged are eligible for the collateral basket.
Encumbered and unencumbered assets
Definitions of the categories included in the table ‘Analysis of on-balance sheet encumbered and unencumbered assets’:
• Assets encumbered as a result of transactions with counterparties other than central banks as a result of covered bonds are any assets on
our balance sheet pledged against our covered bonds issuance with a counterparty which is not central bank and as a result the assets are
unavailable to the bank to secure funding, satisfy collateral needs or be sold to reduce potential future funding requirements.
• Assets encumbered as a result of transactions with counterparties other than central banks as a result of securitisation are any assets on our
balance sheet pledged against securitisations with a counterparty which is not central bank including asset-backed commercial paper, CDOs,
residential mortgage-backed securities, or structured investment vehicles paper and as a result the assets are unavailable to the bank to
secure funding, satisfy collateral needs or be sold to reduce potential future funding requirements.
• Assets encumbered as a result of transactions with counterparties other than central banks – Other are assets on our balance sheet (other
than covered bonds and securitisation above) which have been pledged with a counterparty which is not central bank as a collateral against
an existing liability, and as a result are assets which are unavailable to the bank to secure funding, satisfy collateral needs or be sold to
reduce potential future funding requirements. Examples include assets pledged for sale and repurchase and stock lending transactions and
certain property assets.
• Assets positioned at central banks (i.e. pre-positioned plus encumbered) are any assets that are eligible for emergency central bank
liquidity/funding or under central bank pre-existing arrangements for funding without further due diligence work required. Any transferable
customer loan that is central bank eligible such as pre-positioned central bank UK mortgages and US mortgages accepted by FHLB and
assets on our balance sheet which have been pledged with central bank as collateral against an existing liability, and as a result are assets
which are unavailable to the bank to secure funding, satisfy collateral needs or be sold to reduce potential future funding requirements.
• Unencumbered – readily available assets are assets regarded by the bank to be readily available in the normal course of business to secure
funding, meet collateral needs, or be sold to reduce potential future funding requirements, and are not subject to any restrictions on their
use for these purposes.
• Unencumbered – other assets capable of being encumbered are assets where there are no restrictions on their use to secure funding, meet
collateral needs, or be sold to reduce potential future funding requirements, but they are not readily realisable in the normal course of
business in their current form.
• Unencumbered – reverse repo/stock borrowing receivables and derivative assets are assets related specifically to reverse repo, stock
borrowing and derivative transactions. They are shown separately as these on-balance sheet assets cannot be pledged but often give rise to
the receipt of non-cash assets which are not recognised on the balance sheet, and can additionally be used to raise secured funding, meet
additional collateral requirements or be sold.
• Unencumbered – cannot be encumbered are assets that have not been pledged and which we have assessed could not be pledged and
therefore could not be used to secure funding, meet collateral needs, or be sold to reduce potential future funding requirements. An
example is assets held by the Group’s insurance subsidiaries that back liabilities to policyholders and support the solvency of these entities.
Historically, the Group has not recognised any contingent liquidity value for assets other than those assets defined under the LFRF as being
liquid assets, and any other negotiable instruments that under stress are assumed to be realisable after three months, even though they may
currently be realisable. This approach has generally been driven by our risk appetite not to place any reliance on central banks. In a few cases,
we have recognised the contingent value of discrete pools of assets, but the amounts involved are insignificant. As a result, we have reported
the majority of our loans and advances to customers and banks in the category ‘Other realisable assets’ as management would need to
perform additional actions in order to make the assets transferable and readily realisable.
HSBC HOLDINGS PLC
209
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Appendix to Risk – Policies and practices
Additional information
The amount of assets pledged to secure liabilities reported in Note 18 on the Financial Statements may be greater than the
book value of assets reported as being encumbered in the table on page 163. Examples of where such differences occur are:
• ABSs and covered bonds, where the amount of liabilities issued plus the required mandatory over-collateralisation is lower
than the book value of assets pledged to the pool. Any difference is categorised in the table above as ‘Unencumbered –
readily realisable assets’;
• negotiable securities held by custodians or settlement agents, where a floating charge has been given over the entire
holding to secure intra-day settlement liabilities, are only reported as encumbered to the extent that we have a liability to
the custodian or settlement agent at the reporting date, with the balance reported as ‘Unencumbered – readily realisable
assets’; and
• assets pre-positioned with central banks or government agencies are only reported as encumbered to the extent that we
have secured funding with the collateral. The unutilised pre-positioned collateral is reported as ‘Unencumbered – readily
realisable assets’.
Securities reflected on the balance sheet that are pledged as collateral against an existing liability or lent are reflected as
encumbered for the duration of the transaction. When securities are received as collateral or borrowed, and when we have
the right to sell or re-pledge these securities, they are reflected as available and unencumbered for the duration of the
transaction, unless re-pledged or sold. Further analysis regarding the encumbrance of securities resulting from repos and stock
lending and available unencumbered assets arising from reverse repos and stock borrowing is provided under the heading
‘Encumbered and unencumbered assets’ on page 162.
In the normal course of business we do not seek to utilise repo financing as a source of funding to finance customer assets,
beyond the collateralised security financing activities within Markets described above.
The original contractual maturity of reverse repo, stock borrowing, repo and stock lending is short term with the vast majority
of transactions being for less than 90 days.
Management of cross-currency liquidity and funding risk
Our liquidity and funding risk framework also considers the ability of each entity to continue to access foreign exchange
markets under stress when a surplus in one currency is used to meet a deficit in another currency, for example, by the use of
the foreign currency swap markets. Where appropriate, operating entities are required to monitor stressed coverage ratios
and advances to core funding ratios for non-local currencies.
HSBC Holdings
HSBC Holdings’ primary sources of cash are dividends received from subsidiaries, interest on and repayment of intra-group
loans and securities with interest earned on its own liquid funds. HSBC Holdings also raises ancillary funds in the debt capital
markets through subordinated and senior debt issuance. Cash is primarily used for the provision of capital and TLAC funding to
subsidiaries, interest payments to debt holders and dividend payments to shareholders.
HSBC Holdings is also subject to contingent liquidity risk by virtue of credit-related commitments and guarantees and similar
contracts issued. Such commitments and guarantees are only issued after due consideration of HSBC Holdings’ ability to
finance the commitments and guarantees and the likelihood of the need arising.
HSBC Holdings actively manages the cash flows from its subsidiaries to optimise the amount of cash held at the holding
company level. The ability of subsidiaries to pay dividends or advance monies to HSBC Holdings depends on, among other
things, their respective local regulatory capital and banking requirements, exchange controls, statutory reserves, and financial
and operating performance. During 2015, none of the Group’s subsidiaries experienced significant restrictions on paying
dividends or repaying loans and advances. Also, there are no foreseen restrictions envisaged by our subsidiaries on paying
dividends or repaying loans and advances, with the exception of HSBC North America Holdings Inc. None of the subsidiaries
which are excluded from our regulatory consolidation has capital resources below its minimum regulatory requirement.
Market risk
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.
HSBC HOLDINGS PLC
210
Market risk in global businesses
The diagram below summarises the main business areas where trading and non-trading market risks reside and the market risk
measures used to monitor and limit exposures.
Trading risk
Non-trading risk
Risk types
– Foreign exchange and commodities
– Interest rates
– Credit spreads
– Equities
– Structural foreign exchange
– Interest rates1
– Credit spreads
Global businesses
GB&M, including BSM
GB&M, incl BSM
GPB
CMB
RBWM
Risk measure
VaR | Sensitivity | Stress testing
VaR | Sensitivity | Stress testing
1 The interest rate risk on the fixed-rate securities issued by HSBC Holdings is not included in the Group VaR. The management of this risk is described on
page 171.
Where appropriate, we apply similar risk management policies and measurement techniques to both trading and non-trading
portfolios. Our objective is to manage and control market risk exposures in order to optimise return on risk while maintaining
a market profile consistent with our status as one of the world’s largest banking and financial services organisations.
The nature of the hedging and risk mitigation strategies performed across the Group corresponds to the market risk
management instruments available within each operating jurisdiction. These strategies range from the use of traditional
market instruments, such as interest rate swaps, to more sophisticated hedging strategies to address a combination of risk
factors arising at portfolio level.
Market risk governance
(Audited)
Market risk is managed and controlled through limits approved by the RMM for HSBC Holdings and our various global
businesses. These limits are allocated across business lines and to the Group’s legal entities.
HSBC Holdings Board
Chairman/CEO
Risk Management Meeting
of the GMB
Group Traded Risk
Entity Risk
Management Committee
Principal Office Manager
Business/Desk/Trader
s
e
r
u
s
a
e
m
l
a
r
e
n
e
G
s
e
r
u
s
a
e
m
c
i
f
i
c
e
p
S
The management of market risk is principally undertaken in GB&M, where 94% of the
total value at risk of HSBC (excluding insurance) and almost all trading VaR resides,
using risk limits approved by the GMB. VaR limits are set for portfolios, products and
risk types, with market liquidity being a primary factor in determining the level of
limits set.
Global Risk is responsible for setting market risk management policies and
measurement techniques. Each major operating entity has an independent market
risk management and control sub-function which is responsible for measuring market
risk exposures in accordance with the policies defined by Global Risk, and monitoring
and reporting these exposures against the prescribed limits on a daily basis. The
market risk limits are governed according to the framework illustrated to the left.
Each operating entity is required to assess the market risks arising on each product in
its business and to transfer them to either its local GB&M unit for management, or to
separate books managed under the supervision of the local ALCO.
Our aim is to ensure that all market risks are consolidated within operations that
have the necessary skills, tools, management and governance to manage them. In
certain cases where the market risks cannot be fully transferred, we identify the
effect of varying scenarios on valuations or on net interest income resulting from any
residual risk positions. Further details on the control and management process
for residual risks are provided on page 212.
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
Model risk is governed through Model Oversight Committees (‘MOC’s) at the regional and global Wholesale Credit and Market
Risk levels. They have direct oversight and approval responsibility for all traded risk models utilised for risk measurement and
management and stress testing. The MOCs prioritise the development of models, methodologies and practices used for traded
risk management within the Group and ensure that they remain within our risk appetite and business plans. The Markets
MOC reports into the Group MOC, which oversees all model risk types at Group level. Group MOC informs the RMM about
material issues at least on a bi-annual basis. The RMM is the Group’s ‘Designated Committee’ according to regulatory rules and
has delegated day-to-day governance of all traded risk models to the Markets MOC.
Our control of market risk in the trading and non-trading portfolios is based on a policy of restricting individual operations to
trading within a list of permissible instruments authorised for each site by Global Risk, of enforcing new product approval
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
HSBC HOLDINGS PLC
211
Report of the Directors: Risk (continued)
Appendix to Risk – Policies and practices
procedures, and of restricting trading in the more complex derivative products only to offices with appropriate levels of
product expertise and robust control systems.
Market risk measures
Monitoring and limiting market risk exposures
Our objective is to manage and control market risk exposures while maintaining a market profile consistent with our risk
appetite.
We use a range of tools to monitor and limit market risk exposures including sensitivity analysis, value at risk and stress
testing.
Sensitivity analysis
Sensitivity analysis measures the impact of individual market factor movements on specific instruments or portfolios, including
interest rates, foreign exchange rates and equity prices, such as the effect of a one basis point change in yield. We use
sensitivity measures to monitor the market risk positions within each risk type. Sensitivity limits are set for portfolios, products
and risk types, with the depth of the market being one of the principal factors in determining the level of limits set.
Value at risk
(Audited)
Value at risk (‘VaR’) is a technique that estimates the potential losses on risk positions as a result of movements in market
rates and prices over a specified time horizon and to a given level of confidence. The use of VaR is integrated into market risk
management and is calculated for all trading positions regardless of how we capitalise those exposures. Where there is not an
approved internal model, we use the appropriate local rules to capitalise exposures.
In addition, we calculate VaR for non-trading portfolios to have a complete picture of risk. Our models are predominantly
based on historical simulation. VaR is calculated at a 99% confidence level for a one-day holding period. Where we do not
calculate VaR explicitly, we use alternative tools as summarised in the Market Risk Stress Testing table on page 213.
Our VaR models derive plausible future scenarios from past series of recorded market rates and prices, taking into account
inter-relationships between different markets and rates such as interest rates and foreign exchange rates. The models also
incorporate the effect of option features on the underlying exposures.
The historical simulation models used incorporate the following features:
• historical market rates and prices are calculated with reference to foreign exchange rates and commodity prices, interest
rates, equity prices and the associated volatilities;
• potential market movements utilised for VaR are calculated with reference to data from the past two years; and
• VaR measures are calculated to a 99% confidence level and use a one-day holding period.
The nature of the VaR models means that an increase in observed market volatility will lead to an increase in VaR without any
changes in the underlying positions.
We are committed to the ongoing development of our in-house risk models.
VaR model limitations
Although a valuable guide to risk, VaR should always be viewed in the context of its limitations. For example:
• the use of historical data as a proxy for estimating future events may not encompass all potential events, particularly those
which are extreme in nature;
• the use of a holding period assumes that all positions can be liquidated or the risks offset during that period. This may not
fully reflect the market risk arising at times of severe illiquidity, when the holding period may be insufficient to liquidate or
hedge all positions fully;
• the use of a 99% confidence level, by definition, does not take into account losses that might occur beyond this level of
confidence;
• VaR is calculated on the basis of exposures outstanding at the close of business and therefore does not necessarily reflect
intra-day exposures; and
• VaR is unlikely to reflect loss potential on exposures that only arise under conditions of significant market movement.
Risk not in VaR framework
Our VaR model is designed to capture significant basis risks such as CDS versus bond, asset swap spreads and cross-currency
basis. Other basis risks which are not completely covered in VaR, such as the Libor tenor basis, are complemented by our risk
not in VaR (‘RNIV’) calculations, and are integrated into our capital framework.
HSBC HOLDINGS PLC
212
The RNIV framework therefore aims to capture and capitalise material market risks that are not adequately covered in the VaR
model. An example of this is Libor-overnight index swap basis risk for minor currencies. In such instances the RNIV framework
uses stress tests to quantify the capital requirement. On average in 2015, the capital requirement derived from these stress
tests represented 2.3% of the total internal model-based market risk requirement.
Risks covered by RNIV represented 19% of market risk RWAs for models with regulatory approval and included those resulting
from underlying risk factors which are not observable on a daily basis across asset classes and products, such as dividend risk
and implied correlation risks.
Risk factors are reviewed on a regular basis and either incorporated directly in the VaR models, where possible, or quantified
through the VaR-based RNIV approach or a stress test approach within the RNIV framework. The severity of the scenarios is
calibrated to be in line with the capital adequacy requirements. The outcome of the VaR-based RNIV is included in the VaR
calculation and back-testing; a stressed VaR RNIV is also computed for the risk factors considered in the VaR-based RNIV
approach.
Level 3 assets
The fair values of Level 3 assets and liabilities in trading portfolios are disclosed on page 382, and represent only a small
proportion of the overall trading portfolio. Market risk arising from Level 3 instruments is managed by various market risk
techniques such as stress testing and notional limits. The table on page 384 shows the movement in Level 3 financial
instruments.
Stress testing
Stress testing is an important procedure that is integrated into our market risk management tool to evaluate the potential
impact on portfolio values of more extreme, although plausible, events or movements in a set of financial variables. In such
scenarios, losses can be much greater than those predicted by VaR modelling.
Stress testing is implemented at legal entity, regional and overall Group levels. A standard set of scenarios is utilised
consistently across all regions within the Group. Scenarios are tailored to capture the relevant events or market movements
at each level. The risk appetite around potential stress losses for the Group is set and monitored against referral limits.
Market Risk Stress Testing
Sensitivities
Technical
Hypothetical
Historical
Impact of a single risk factor
e.g. break of a currency peg
Impact of the largest move
in each risk factor without
consideration of any underlying
market correlation
Impact of potential
macroeconomic events, e.g.
slowdown in mainland China
Scenarios that incorporate
historical observations of
market movements e.g. Black
Monday (in 1987) for equities
Reverse
Stress
Testing
Market risk reverse stress tests are undertaken on the premise that there is a fixed loss. The stress testing process identifies
which scenarios lead to this loss. The rationale behind the reverse stress test is to understand scenarios which are beyond
normal business settings that could have contagion and systemic implications.
Stressed VaR and stress testing, together with reverse stress testing and the management of gap risk, provide management
with insights regarding the ‘tail risk’ beyond VaR for which HSBC’s appetite is limited.
Trading portfolios
Volcker Rule
In 2013, US regulators finalised the Volcker Rule. Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection
Act and its final implementing rules (collectively referred to as the ‘Volcker Rule’) imposes broad restrictions on HSBC’s ability
to engage in ‘proprietary trading’ or to own, sponsor, or have certain relationships with hedge funds, private equity funds, and
certain other collective investment vehicles (broadly defined as ‘covered funds’). These restrictions are subject to a number of
exemptions or exclusions, including market making, underwriting and risk-mitigating hedging, organising covered funds for
customers and issuers of asset-backed securities, and underwriting or market making in covered fund interests.
The Volcker Rule broadly went into effect on 22 July 2015, with the exception of certain legacy fund activities that are able to
rely on an extension of the conformance date.
HSBC has implemented a programme to comply with the Volcker Rule, including policies and procedures, internal controls,
corporate governance, independent testing, training, and record keeping and, eventually, calculation and reporting of
quantitative metrics for certain trading activities.
HSBC has completed training for all affected front office and control personnel, has conformance plans for those covered funds
to which the extension applies, and believes that it is compliant in all material respects with the Volcker Rule.
HSBC HOLDINGS PLC
213
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Appendix to Risk – Policies and practices
Back-testing
We routinely validate the accuracy of our VaR models by back-testing them against both actual, which replaced clean profit
and loss from 1 August 2015, and hypothetical profit and loss against the corresponding VaR numbers. Hypothetical profit and
loss excludes non-modelled items such as fees, commissions and revenues of intra-day transactions.
We would expect on average to see two or three profits and two or three losses in excess of VaR at the 99% confidence level
over a one-year period. The actual number of profits or losses in excess of VaR over this period can therefore be used to gauge
how well the models are performing.
We back-test our Group VaR at various levels which reflect a full legal entity scope of HSBC, including entities that do not have
local permission to use VaR for regulatory purposes.
Gap risk
Certain products, such as non-recourse margin loans, are not exposed to small day-to-day moves in market rates or prices, but
are exposed large discontinuous moves. Such movements may occur, for example, when, in reaction to an adverse event or
unexpected news announcement, some parts of the market move far beyond their normal volatility range and become
temporarily illiquid. Products which exhibit exposure only to large discontinuous moves (gap risk) are not well captured by VaR
measures or traditional market risk sensitivity measures. HSBC has implemented additional stress measurement and controls
over such products.
In 2015, gap risk exposure was primarily due to non-recourse loan transactions, mostly for corporate clients, where the
collateral against the loan is limited to the posted assets. Upon occurrence of a gap event, the value of the collateral could fall
below the outstanding loan amount.
We did not incur any notable gap loss in 2015.
De-peg risk
For certain currencies (pegged or managed) the spot exchange rate is pegged at a fixed-rate (typically to US dollars or euros),
or managed within a predefined band around a pegged rate. De-peg risk is the risk of the peg or managed band changing or
being abolished, and moving to a floating regime.
HSBC has extensive experience in managing fixed and managed currency regimes. Using stressed scenarios on spot rates, we
are able to analyse how de-peg events would affect the positions held by HSBC. We monitor such scenarios to pegged or
managed currencies, such as the Hong Kong dollar, renminbi and Middle Eastern currencies, and limit any potential losses that
would occur. This historical VaR measures, which may not fully capture the risk involved in holding positions in pegged or
managed currencies, as such currencies may not have experienced a de-peg event during the historical timeframe being
considered.
ABS/MBS exposures
The ABS/MBS (asset and mortgage-backed securities) exposures within the trading portfolios are managed within sensitivity
and VaR limits as described on page 167, and are included within the stress testing scenarios described above.
Non-trading portfolios
(Audited)
Most of the Group’s non-trading VaR relates to Balance Sheet Management (‘BSM’) or local treasury management functions.
Contributions to Group non-trading VaR are driven by interest rates and credit spread risks arising from all global businesses.
There is no commodity market risk in the non-trading portfolios.
Non-trading VaR also includes the interest rate risk of non-trading financial instruments held by the global businesses and
transferred into portfolios managed by BSM or local treasuries. In measuring, monitoring and managing risk in our non-trading
portfolios, VaR is just one of the tools used. The management of interest rate risk in the banking book is described further in
‘Non-trading interest rate risk’ below, including the role of BSM.
Non-trading VaR excludes equity risk on available-for-sale securities, structural foreign exchange risk, and interest rate risk on
fixed-rate securities issued by HSBC Holdings, the scope and management of which are described in the relevant sections
below.
Our control of market risk in the non-trading portfolios is based on transferring the assessed market risk of non-trading assets
and liabilities created outside BSM or Markets, to the books managed by BSM, provided the market risk can be neutralised.
The net exposure is typically managed by BSM through the use of fixed-rate government bonds (liquid assets held in available-
for-sale books) and interest rate swaps. The interest rate risk arising from fixed-rate government bonds held within available-
for-sale portfolios is reflected within the Group’s non-traded VaR. Interest rate swaps used by BSM are typically classified as
either a fair value hedge or a cash flow hedge and are included within the Group’s non-traded VaR. Any market risk that
cannot be neutralised in the market is managed by local ALCOs in segregated ALCO books.
HSBC HOLDINGS PLC
214
Equity securities classified as available for sale
Potential new commitments are subject to risk appraisal to ensure that industry and geographical concentrations remain
within acceptable levels for the portfolio. Regular reviews are performed to substantiate the valuation of the investments
within the portfolio and investments held to facilitate ongoing business, such as holdings in government-sponsored enterprises
and local stock exchanges.
Structural foreign exchange exposures
Structural foreign exchange exposures represent net investments in subsidiaries, branches and associates, the functional
currencies of which are currencies other than the US dollar. An entity’s functional currency is that of the primary economic
environment in which the entity operates.
Exchange differences on structural exposures are recognised in ‘Other comprehensive income’. We use the US dollar as our
presentation currency in our consolidated financial statements because the US dollar and currencies linked to it form the
major currency bloc in which we transact and fund our business. Our consolidated balance sheet is, therefore, affected by
exchange differences between the US dollar and all the non-US dollar functional currencies of underlying subsidiaries.
We hedge structural foreign exchange exposures only in limited circumstances. Our structural foreign exchange exposures are
managed with the primary objective of ensuring, where practical, that our consolidated capital ratios and the capital ratios
of individual banking subsidiaries are largely protected from the effect of changes in exchange rates. This is usually achieved
by ensuring that, for each subsidiary bank, the ratio of structural exposures in a given currency to RWAs denominated in that
currency is broadly equal to the capital ratio of the subsidiary in question.
We may also transact hedges where a currency in which we have structural exposures is considered likely to revalue adversely,
and it is possible in practice to transact a hedge. Any hedging is undertaken using forward foreign exchange contracts which
are accounted for under IFRSs as hedges of a net investment in a foreign operation, or by financing with borrowings in the
same currencies as the functional currencies involved. We evaluate residual structural foreign exchange exposures using an
expected shortfall method.
Non-trading interest rate risk
Non-trading book interest rate risk arises principally from mismatches between the future yield on assets and their funding
cost, as a result of interest rate changes. Analysis of this risk is complicated by making assumptions on embedded optionality
within certain product areas such as the incidence of mortgage prepayments, and from behavioural assumptions regarding the
economic duration of liabilities which are contractually repayable on demand such as current accounts, and the re-pricing
behaviour of managed rate products. These assumptions around behavioural features are captured in our interest rate risk
behaviouralisation framework, which is described below.
We aim, through our management of market risk in non-trading portfolios, to mitigate the effect of prospective interest rate
movements which could reduce future net interest income, while balancing the cost of such hedging activities on the current
net revenue stream.
Our funds transfer pricing policies give rise to a two stage funds transfer pricing approach. For details see page 207.
Interest rate risk behaviouralisation
Unlike liquidity risk, which is assessed on the basis of a very severe stress scenario, non-trading interest rate risk is
assessed and managed according to ‘business-as-usual’ conditions. In many cases the contractual profile of non-trading
assets/liabilities arising from assets/liabilities created outside Markets or BSM does not reflect the behaviour observed.
Behaviouralisation is therefore used to assess the market interest rate risk of non-trading assets/liabilities and this assessed
market risk is transferred to BSM, in accordance with the rules governing the transfer of interest rate risk from the global
businesses to BSM.
Behaviouralisation is applied in three key areas:
• the assessed re-pricing frequency of managed rate balances;
• the assessed duration of non-interest bearing balances, typically capital and current accounts; and
• the base case expected prepayment behaviour or pipeline take-up rate for fixed-rate balances with embedded optionality.
Interest rate behaviouralisation policies have to be formulated in line with the Group’s behaviouralisation policies and
approved at least annually by local ALCOs and regional ALCMs, in conjunction with local, regional and Group market risk
monitoring teams.
The extent to which balances can be behaviouralised is driven by:
• the amount of the current balance that can be assessed as ‘stable’ under business-as-usual conditions; and
• for managed rate balances, the historical market interest rate re-pricing behaviour observed; or
HSBC HOLDINGS PLC
215
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Appendix to Risk – Policies and practices
• for non-interest bearing balances, the duration for which the balance is expected to remain under business-as-usual
conditions. This assessment is often driven by the re-investment tenors available to BSM to neutralise the risk through the
use of fixed-rate government bonds or interest rate derivatives, and for derivatives the availability of cash flow hedging
capacity.
Balance Sheet Management
Effective governance across BSM is supported by the dual reporting lines it has to the CEO of GB&M and to the Group
Treasurer. In each operating entity, BSM is responsible for managing liquidity and funding under the supervision of the local
ALCO (which usually meets on a monthly basis). It also manages the non-trading interest rate positions transferred to it within
a Markets limit structure.
In executing the management of the liquidity risk on behalf of ALCO, and managing the non-trading interest rate positions
transferred to it, BSM invests in highly-rated liquid assets in line with the Group’s liquid asset policy. The majority of the
liquidity is invested in central bank deposits and government, supranational and agency securities with most of the remainder
held in short-term interbank and central bank loans.
Withdrawable central bank deposits are accounted for as cash balances. Interbank loans, statutory central bank reserves and
loans to central banks are accounted for as loans and advances to banks. BSM’s holdings of securities are accounted for as
available-for-sale or, to a lesser extent, held-to-maturity assets.
Statutory central bank reserves are not recognised as liquid assets. The statutory reserves that would be released in line with the
Group’s stressed customer deposit outflow assumptions are reflected as stressed inflows.
BSM is permitted to use derivatives as part of its mandate to manage interest rate risk. Derivative activity is predominantly
through the use of vanilla interest rate swaps which are part of cash flow hedging and fair value hedging relationships.
Credit risk in BSM is predominantly limited to short-term bank exposure created by interbank lending, exposure to central
banks and high quality sovereigns, supranationals or agencies which constitute the majority of BSM’s liquidity portfolio. BSM
does not manage the structural credit risk of any Group entity balance sheets.
BSM is permitted to enter into single name and index credit derivatives activity, but it does so to manage credit risk on the
exposure specific to its securities portfolio in limited circumstances only. The risk limits are extremely limited and closely
monitored. At 31 December 2015, BSM had no open credit derivative index risk.
VaR is calculated on both trading and non-trading positions held in BSM. It is calculated by applying the same methodology
used for the Markets business and utilised as a tool for market risk control purposes.
BSM holds trading portfolio instruments in only very limited circumstances. Positions and the associated VaR were not
significant during 2015.
Sensitivity of net interest income
A principal part of our management of market risk in non-trading portfolios is to monitor the sensitivity of expected net
interest income under varying interest rate scenarios (simulation modelling). This monitoring is undertaken at an entity level
by local ALCOs.
Entities apply a combination of scenarios and assumptions relevant to their local businesses, and standard scenarios which are
required throughout HSBC. The latter are consolidated to illustrate the combined pro forma effect on our consolidated net
interest income.
Projected net interest income sensitivity figures represent the effect of the pro forma movements in net interest income based
on the projected yield curve scenarios and the Group’s current interest rate risk profile. This effect, however, does not incorporate
actions which would probably be taken by BSM or in the business units to mitigate the effect of interest rate risk. In reality,
BSM seeks proactively to change the interest rate risk profile to minimise losses and optimise net revenues. The net interest
income sensitivity calculations assume that interest rates of all maturities move by the same amount in the ‘up-shock’ scenario.
Rates are not assumed to become negative in the ‘down-shock’ scenario which may, in certain currencies, effectively result
in non-parallel shock. In addition, the net interest income sensitivity calculations take account of the effect on net interest
income of anticipated differences in changes between interbank interest rates and interest rates over which the entity has
discretion in terms of the timing and extent of rate changes.
Defined benefit pension schemes
Market risk arises within our defined benefit pension schemes to the extent that the obligations of the schemes are not fully
matched by assets with determinable cash flows. See ‘Pension risk’ on page 225 for additional information.
HSBC Holdings
As a financial services holding company, HSBC Holdings has limited market risk activity. Its activities predominantly involve
maintaining sufficient capital resources to support the Group’s diverse activities; allocating these capital resources across our
businesses; earning dividend and interest income on its investments in our businesses; providing dividend payments to its
HSBC HOLDINGS PLC
216
equity shareholders and interest payments to providers of debt capital; and maintaining a supply of short-term capital
resources for deployment under extraordinary circumstances. It does not take proprietary trading positions.
The main market risks to which HSBC Holdings is exposed are non-trading interest rate risk and foreign currency risk. Exposure
to these risks arises from short-term cash balances, funding positions held, loans to subsidiaries, investments in long-term
financial assets and financial liabilities including debt capital issued. The objective of HSBC Holdings’ market risk management
strategy is to reduce exposure to these risks and minimise volatility in capital resources, cash flows and distributable reserves.
Market risk for HSBC Holdings is monitored by HSBC Holdings ALCO in accordance with its risk appetite statement.
HSBC Holdings uses interest rate swaps and cross currency interest rate swaps to manage the interest rate risk and foreign
currency risk arising from its long-term debt issues.
Operational risk
The objective of our operational risk management is to manage and control operational risk in a cost effective manner within
targeted levels of operational risk consistent with our risk appetite, as defined by the GMB.
Operational risk is organised as a specific risk discipline within Global Risk, and a formal governance structure provides
oversight over its management. The Global Operational Risk sub-function supports the Group Chief Risk Officer and the Global
Operational Risk Committee. It is responsible for establishing and maintaining the Operational Risk Management Framework
(‘ORMF’) and monitoring the level of operational losses and the effectiveness of the control environment. It is also responsible
for operational risk reporting at Group level, including the preparation of reports for consideration by the RMM and the Group
Risk Committee. The Global Operational Risk Committee meets at least quarterly to discuss key risk issues and review the
effective implementation of the ORMF.
The ORMF defines minimum standards and processes and the governance structure for the management of operational risk
and internal control in our geographical regions, global businesses and global functions. The ORMF has been codified in a high
level standards manual supplemented with detailed policies which describes our approach to identifying, assessing, monitoring
and controlling operational risk and gives guidance on mitigating action to be taken when weaknesses are identified.
Business managers throughout the Group are responsible for maintaining an acceptable level of internal control commensurate
with the scale and nature of operations, and for identifying and assessing risks, designing controls and monitoring the
effectiveness of these controls. The ORMF helps managers to fulfil these responsibilities by defining a standard risk assessment
methodology and providing a tool for the systematic reporting of operational loss data.
A centralised database is used to record the results of the operational risk management process. Operational risk and control
self-assessments are input and maintained by business units. Business and functional management and business risk and
control managers monitor the progress of documented action plans to address shortcomings. To ensure that operational risk
losses are consistently reported and monitored at Group level, all Group companies are required to report individual losses
when the net loss is expected to exceed $10,000, and to aggregate all other operational risk losses under $10,000. Losses are
entered into the Group Operational Risk database and are reported to the RMM on a monthly basis.
For further details, see the Pillar 3 Disclosures 2015 report.
Compliance risk
Compliance risk falls within the definition of operational risk. All Group companies are required to observe the letter and spirit
of all relevant laws, codes, rules, regulations and standards of good market practice. These rules, regulations, Group policies
and formal standards include those relating to AML, counter-terrorist and proliferation financing, sanctions compliance, anti-
bribery and corruption, conduct of business and other regulations.
The two Compliance sub-functions: Financial Crime Compliance (‘FCC’) and Regulatory Compliance (‘RC’), are appropriately
supported by a shared Compliance Operating Office and Reputational Risk Management teams. The Global Head of Financial
Crime Compliance and the Global Head of Regulatory Compliance both report to the Group Chief Risk Officer.
There are compliance teams in each of the countries where we operate and in all global businesses. These compliance teams
are principally overseen by Heads of Financial Crime Compliance and Regulatory Compliance located in Europe, the US,
Canada, Latin America, Asia and the Middle East and North Africa. The effectiveness of the regional and global business
compliance teams are reviewed by the respective FCC and RC Assurance teams.
Global policies and procedures require the prompt identification and escalation to Financial Crime Compliance or Regulatory
Compliance of all actual or suspected breaches of any law, rule, regulation, policy or other relevant requirement. Reportable
events are reported to the relevant Risk Management Committees and those of Group significance are escalated to the RMM,
the Group Risk Committee and the Board, as appropriate. They are disclosed in the Annual Report and Accounts and Interim
Report, as appropriate.
We published a new Global Conduct Policy in 2015 (following the approval and implementation of the global conduct approach
and framework in 2014) for the management of conduct designed to ensure that we meet our strategic commitment to deliver
fair outcomes for our customers, and not to disrupt the orderly and transparent operation of financial markets. It defines
HSBC HOLDINGS PLC
217
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Appendix to Risk – Policies and practices
responsibilities and ensures that business activity and decisions are underpinned by a robust consideration and management
of associated risks supporting delivery of the required fair outcomes for customers and maintenance of market integrity. Our
focus on compliance and conduct issues is further reinforced by the Financial System Vulnerabilities Committee, which reports
to the Board on matters relating to financial crime and financial system abuse and provides a forward-looking perspective on
financial crime risk. In addition, the Conduct & Values Committee reports to the Board on matters relating to delivery of the
required global conduct outcomes for customers and the orderly and transparent operation of financial markets, together with
adherence to HSBC’s Values.
Legal risk
Each legal department is required to have processes and procedures in place to manage legal risk that conform to Group
standards.
Legal risk falls within the definition of operational risk and includes:
• contractual risk, which is the risk of a member of HSBC suffering financial loss, legal or regulatory action or reputational
damage because its rights and/or obligations under a contract to which it is a party are technically defective;
• dispute adjudication risk, which is the risk of a member of HSBC suffering financial loss or reputational damage due to
an adverse dispute environment or a failure to take appropriate steps to defend, prosecute and/or resolve actual or
threatened legal claims brought against or by a Group member, including for the avoidance of doubt, regulatory matters;
• legislative risk, which is the risk that a Group member fails to or is unable to identify, analyse, track, assess or correctly
interpret applicable legislation, case law or regulation, or new regulatory, legislative or doctrinal interpretations of existing
laws or regulations, or decisions in the Courts or regulatory bodies; and
• non-contractual rights risk, which is the risk that a Group member’s assets are not properly owned or protected or are
infringed by others, or a Group member infringes another party’s rights.
There are legal departments in 47 of the countries in which we operate. In addition to the Group Legal function, there are
regional legal sub-functions in each of Europe, North America, Latin America, the Middle East and North Africa and Asia
headed by Regional General Counsels, and a Global General Counsel responsible for each of the global businesses.
Global security and fraud risk
Security and fraud risk issues are managed at Group level by Global Security and Fraud Risk. This unit, which has responsibility
for information, fraud, contingency, financial intelligence, physical and geopolitical risks is fully integrated within the central
Global Risk function. This enables management to identify and mitigate the permutations of these and other non-financial risks
to its business lines across the jurisdictions in which we operate.
• The Information Security Risk sub-function is responsible for defining the strategy and policy by which the organisation
protects its information assets and services from compromise, corruption or loss, whether caused deliberately or
inadvertently by internal or external parties. It provides independent advice, guidance and oversight to the business about
the effectiveness of information security controls and practices in place or being proposed.
• The Fraud Risk sub-function is responsible for ensuring that effective prevention, detection and investigation measures are
in place against all forms of fraudulent activity, whether initiated internally or externally, and is available to support any
part of the business. To achieve that and to attain the level of integration needed to face the threat, the management of all
types of fraud (e.g. card fraud, non-card fraud and internal fraud, including investigations) is established within one
management structure and is part of the Global Risk function. We use technology extensively to prevent and detect fraud.
For example, customers’ credit and debit card spending is monitored continuously and suspicious transactions are
highlighted for verification, internet banking sessions are reviewed and transactions monitored in a similar way and all new
account applications are screened for fraud. We have a fraud systems strategy which is designed to provide minimum
standards and allow easier sharing of best practices to detect fraud and minimise false alerts. We have developed a holistic
and effective anti-fraud strategy which, in addition to the use of advanced technology, includes fraud prevention policies
and practices, the implementation of strong internal controls, investigations response teams and liaison with law
enforcement where appropriate.
• The Contingency Risk sub-function is responsible for ensuring that the group’s critical systems, processes and functions
have the resilience to maintain continuity in the face of major disruptive events. Within this wider risk, business continuity
management covers the pre-planning for recovery, seeking to minimise the adverse effects of major business disruption,
either globally, regionally or within country, against a range of actual or emerging risks. The pre-planning concentrates on
the protection of customer services, our staff, revenue generation, the integrity of data and documents and meeting
regulatory requirements. Each business has its own recovery plan, which is developed following the completion of a
business impact analysis. This determines how much time the business could sustain an outage before the level of losses
becomes unacceptable, i.e. its criticality. These plans are reviewed and tested every year. The planning is undertaken
against Group policy and standards and each business confirms in an annual compliance certificate that all have been met.
Should there be exceptions, these are raised and their short-term resolution is overseen by Group and regional business
HSBC HOLDINGS PLC
218
continuity teams. It is important that plans are dynamic and meet all risks, particularly those of an emerging nature such as
possible pandemics and cyber attacks. The ORMF is used to measure our resilience to these risks, and is confirmed to Group
and regional risk committees. Resilience is managed through various risk mitigation measures. These include agreeing with
IT acceptable recovery times of systems, ensuring our critical buildings have the correct infrastructure to enable ongoing
operations, requiring critical vendors to have their own recovery plans and arranging with Group Insurance appropriate
cover for business interruption costs.
• The Financial Intelligence Unit is jointly administered by Security and Fraud Risk and Financial Crime Compliance. It uses
advanced analytics and subject matter expertise to detect indicators of financial crime in the Group’s clients and counter-
parties.
• The Physical Security sub-function develops practical physical, electronic and operational counter-measures to ensure that
the people, property and assets managed by the Group are protected from crime, theft, attack and groups hostile to HSBC’s
interests.
• The Geopolitical Risk Unit provides both regular and ad hoc reporting to business executives and senior security and fraud
risk management on geopolitical risk profiles and evolving threats in countries in which the Group operates. This both
enhances strategic business planning and provides an early view into developing security risks. Security travel controls and
guidance are also maintained.
Systems risk
Systems risk is the risk of failure or malfunction in the automated platforms that support the Group’s daily execution
(application systems) and the systems infrastructure on which they reside (data centres, networks and distributed computers).
The management of systems risk is overseen globally by the HSBC Operations, Services and Technology (‘HOST’) organisation.
Oversight is provided through monthly risk management committee meetings that provide a comprehensive overview of
existing and emerging top risks.
HOST manages the control environment over systems risks using risk and control assessments and scenario analysis. Material
risks are monitored through the periodic testing of associated key controls.
Business-critical services have been identified. Quantitative scorecards called risk appetite statements are used for monitoring
performance, and have been established for each of these services.
Global availability monitoring (24x7) is in place to assist in determining systems health. Our incident management processes
are linked to business and geographical major incident groups for recovery decision-making and communication to customers
and regulators.
Vendor risk management
Our vendor risk management (‘VRM’) programme is a global framework for managing risk with third party vendors, especially
where we are reliant on outsourced agreements to provide critical services to our customers. VRM contains a rigorous process
to identify material contracts and their key risks and ensure controls are in place to manage and mitigate these risks. Global
and regional governance structures have been implemented to oversee vendor third party service providers.
Risk management of insurance operations
Overview of insurance products
(Audited)
HSBC manufactures the following main classes of contract:
• life insurance contracts with discretionary participation features (‘DPF’);
• credit life insurance business;
• annuities;
• term assurance and critical illness policies;
• linked life insurance;
• investment contracts with DPF;
• unit-linked investment contracts; and
• other investment contracts (including pension contracts written in Hong Kong).
We additionally write a small amount of non-life insurance business primarily covering personal and commercial property.
Nature and extent of risks
(Audited)
The majority of the risks in our Insurance business derive from manufacturing activities and can be categorised between
financial risks and insurance risk; financial risks include market risk, credit risk and liquidity risk. Operational and sustainability
risks are also present and are covered by the Group’s respective overall risk management processes.
The following sections describe how financial risks and insurance risk are managed.
HSBC HOLDINGS PLC
219
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Appendix to Risk – Policies and practices
HSBC subsidiaries that manufacture insurance products establish control procedures complying with the guidelines and
requirements issued by Group Insurance and local regulatory requirements. Country level oversight is exercised by local
insurance risk management committees. Country Chief Risk Officers (‘CRO’s) have reporting lines locally and functional
reporting lines into the Group Insurance CRO, who has overall accountability for risk management in insurance operations
globally. The Group Insurance Risk Management Committee oversees the control framework globally and is accountable to the
RBWM Risk Management Committee on risk matters.
In addition, local ALCOs monitor and review the duration and cash flow matching of insurance assets and liabilities.
All insurance products, whether manufactured internally or by a third party, are subjected to a product approval process prior
to introduction.
Financial risks
(Audited)
Our insurance businesses are exposed to a range of financial risks, including market risk, credit risk and liquidity risk. Market
risk includes interest rate, equity and foreign exchange risks. The nature and management of these risks is described below.
Manufacturing subsidiaries are exposed to financial risks when, for example, the proceeds from financial assets are not
sufficient to fund the obligations arising from insurance and investment contracts. In many jurisdictions, local regulatory
requirements prescribe the type, quality and concentration of assets that these subsidiaries must maintain to meet insurance
liabilities. These requirements complement Group-wide policies.
Market risk
(Audited)
s
e
r
u
s
a
e
m
l
a
r
e
n
e
G
s
e
r
u
s
a
e
m
c
i
f
i
c
e
p
S
HSBC Holdings Board
Chairman/CEO
Risk Management Meeting
of the GMB
Group Traded Risk
Global Insurance Risk
Board and Executive
Committee of Entity
Asset and Liability Committee
of Entity
Entity Investment Officer
Market risk is managed through limits approved by the RMM for HSBC Holdings. An
allocation of the Group-wide market risk appetite is provided to the Insurance
business by Group Traded Risk. These limits are then apportioned between different
Insurance entities to support the strategic aims of the business.
The market risk team supporting insurance within Wholesale Market Risk and the
Group Insurance CRO are responsible for setting market risk management policies
and measurement techniques applied to the Insurance activities of HSBC.
At entity level the appetite for market risk is expressed through detailed market risk
mandates. Investment Officers hold day-to-day responsibility for managing assets
so as to remain within the mandates and are answerable to the local ALCOs. ALCOs
hold wider responsibility over longer-term actions related to liabilities that are
necessary to remain within the agreed mandates.
ALCOs act to implement the strategy of the Executive Committee which, in turn, is
answerable to the Board. The Board holds ultimate accountability over the risk
profile held and targeted within each company.
Description of market risk
The main features and exposures of products manufactured by our insurance
manufacturing subsidiaries which generate market risk, and the market risk to which
these features expose the Group, are discussed below.
Interest rate risk arises from a mismatch between asset yields and the investment returns implied by the guarantees payable to
policyholders by insurance manufacturing subsidiaries. When asset yields are below guaranteed yields, products may be closed to
new business, repriced or restructured. A list of the different types of guarantees within our insurance contracts is outlined
below.
HSBC HOLDINGS PLC
220
Categories of guaranteed benefits
•
implicit interest rate guarantees: when future policyholder benefits are defined as fixed monetary amounts, e.g. annuities in payment
and endowment savings contracts;
• annual return: the annual return is guaranteed to be no lower than a specified rate. This may be the return credited to the policyholder
every year, or the average annual return credited to the policyholder over the life of the policy, which may occur on the maturity date or
the surrender date of the contract; and
• capital: policyholders are guaranteed to receive no less than the premiums paid plus declared bonuses less expenses.
The proceeds from insurance and investment products with DPF are primarily invested in bonds with a proportion allocated to
other asset classes in order to provide customers with the potential for enhanced returns. Subsidiaries with portfolios of such
products are exposed to the risk of falls in market prices which cannot be fully reflected in the discretionary bonuses. An
increase in market volatility could also result in an increase in the value of the guarantee to the policyholder.
Long-term insurance and investment products typically permit the policyholder to surrender the policy or let it lapse at any
time. When the surrender value is not linked to the value realised from the sale of the associated supporting assets, the
subsidiary is exposed to market risk. In particular, when customers seek to surrender their policies when asset values are
falling, assets may have to be sold at a loss to fund redemptions.
A subsidiary holding a portfolio of long-term insurance and investment products, especially with DPF, may attempt to reduce
exposure to its local market by investing in assets in countries other than that in which it is based. These assets may be
denominated in currencies other than the subsidiary’s local currency. Where the foreign exchange exposure associated with
these assets is not hedged, for example because it is not cost effective to do so, this exposes the subsidiary to the risk of its
local currency strengthening against the currency of the related assets.
For unit-linked contracts, market risk is substantially borne by the policyholder, but market risk exposure typically remains as
fees earned for management are related to the market value of the linked assets.
Asset and liability matching
It is not always possible to match asset and liability durations, partly because there is uncertainty over policyholder behaviour
which introduces uncertainty over the receipt of all future premiums and the timing of claims, and partly because the forecast
payment dates of liabilities may exceed the duration of the longest dated investments available.
We use models to assess the effect of a range of future scenarios on the values of financial assets and associated liabilities, and
ALCOs employ the outcomes in determining how to best structure asset holdings to support liabilities. The scenarios include
stresses applied to factors which affect insurance risk such as mortality and lapse rates. Of particular importance is assessing
the expected pattern of cash inflows against the benefits payable on the underlying contracts, which can extend for many
years.
How market risk is managed
All our insurance manufacturing subsidiaries have market risk mandates which specify the investment instruments in which
they are permitted to invest and the maximum quantum of market risk which they may retain. They manage market risk by
using some or all of the techniques listed below, depending on the nature of the contracts they write.
Techniques for managing market risk
•
for products with DPF, adjusting bonus rates to manage the liabilities to policyholders. The effect is that a significant portion of the
market risk is borne by the policyholder;
• structuring asset portfolios to support projected liability cash flows;
• using derivatives to protect against adverse market movements or better match liability cash flows;
•
for new products with investment guarantees, considering the cost when determining the level of premiums or the price structure;
• periodically reviewing products identified as higher risk, which contain investment guarantees and embedded optionality features linked
to savings and investment products;
• designing new products to mitigate market risk, such as changing the investment return sharing portion between policyholders and the
shareholder;
• exiting, to the extent possible, investment portfolios whose risk is considered unacceptable; and
• repricing premiums charged to policyholders.
In the product approval process, the risks embedded in new products are identified and assessed. When, for example, options
and guarantees are embedded in new products, the due diligence process ensures that complete and appropriate risk
management procedures are in place. Management reviews certain exposures more frequently when markets are more
volatile to ensure that any matters arising are dealt with in a timely fashion.
HSBC HOLDINGS PLC
221
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Appendix to Risk – Policies and practices
How the exposure to market risk is measured
Our insurance manufacturing subsidiaries monitor exposures against mandated limits regularly and report them to Group
Insurance.
In addition, large insurance manufacturing subsidiaries perform a high-level monthly assessment of market risk exposure
against risk appetite. This is submitted to Group Insurance and a global assessment presented to the RBWM Risk Management
Committee. Risk measures include statistics relating to IFRSs, regulatory solvency and economic capital.
Standard measures for quantifying market risks
•
for interest rate risk, the sensitivities of the net present values of asset and expected liability cash flows, in total and by currency, to a one
basis point parallel shift in the discount curves used to calculate the net present values;
•
•
for equity price risk, the total market value of equity holdings and the market value of equity holdings by region and country; and
for foreign exchange risk, the total net short foreign exchange position and the net foreign exchange positions by currency.
The standard measures are relatively straightforward to calculate and aggregate, but they have limitations. The most
significant one is that a parallel shift in yield curves of one basis point does not capture the non-linear relationships between
the values of certain assets and liabilities and interest rates. Non-linearity arises, for example, from investment guarantees and
product features which enable policyholders to surrender their policies. We bear the shortfall if the yields on investments held
to support contracts with guaranteed benefits are less than the investment returns implied by the guaranteed benefits.
We recognise these limitations and augment our standard measures with stress tests which examine the effect of a range
of market rate scenarios on the aggregate annual profits and total equity of our insurance manufacturing subsidiaries, after
taking into consideration tax and accounting treatments where material and relevant. The results of these tests are reported
to Group Insurance and risk committees every quarter.
Similarly economic capital statistics are produced monthly, with a more detailed exercise undertaken on a quarterly basis.
Economic capital measures estimate, on a market consistent economic value basis, the quantum of capital required given the
exposures in the Insurance operation. Total exposures, a breakdown by risk class, and movement analysis are presented to the
Insurance Risk Management Committee on a quarterly basis.
Credit risk
(Audited)
Description of credit risk
Credit risk arises in two main areas for our insurance manufacturers:
(i) risk of default by debt security counterparties after investing premiums to generate a return for policyholders and
shareholders; and
(ii) risk of default by reinsurance counterparties and non-reimbursement for claims made after ceding insurance risk.
How credit risk is managed
Our insurance manufacturing subsidiaries are responsible for the credit risk, quality and performance of their investment
portfolios. Our assessment of the creditworthiness of issuers and counterparties is based primarily upon internationally
recognised credit ratings and other publicly available information.
Investment credit exposures are monitored against limits by our local insurance manufacturing subsidiaries, and are
aggregated and reported to Group Insurance Credit Risk and Group Credit Risk. Stress testing is performed by Group Insurance
on the investment credit exposures using credit spread sensitivities and default probabilities.
We use a number of tools to manage and monitor credit risk. These include a credit report which contains a watch-list of
investments with current credit concerns and is circulated monthly to senior management in Group Insurance and the
individual country CROs to identify investments which may be at risk of future impairment.
Liquidity risk
(Audited)
Description of liquidity risk
It is an inherent characteristic of almost all insurance contracts that there is uncertainty over the amount of claims liabilities
that may arise and the timing of their settlement, and this creates liquidity risk.
There are three aspects to liquidity risk. The first arises in normal market conditions and is referred to as funding liquidity risk;
specifically, the capacity to raise sufficient cash when needed to meet payment obligations. Secondly, market liquidity risk
arises when the size of a particular holding may be so large that a sale cannot be completed around the market price. Finally,
standby liquidity risk refers to the capacity to meet payment terms in abnormal conditions.
HSBC HOLDINGS PLC
222
How liquidity risk is managed
Our insurance manufacturing subsidiaries primarily fund cash outflows arising from claim liabilities from the following sources
of cash inflows:
• premiums from new business, policy renewals and recurring premium products;
• interest and dividends on investments and principal repayments of maturing debt investments;
• cash resources; and
• the sale of investments.
They manage liquidity risk by utilising some or all of the following techniques:
• matching cash inflows with expected cash outflows using specific cash flow projections or more general asset and liability
matching techniques such as duration matching;
• maintaining sufficient cash resources;
• investing in good credit-quality investments with deep and liquid markets to the degree to which they exist;
• monitoring investment concentrations and restricting them where appropriate, for example, by debt issues or issuers; and
• establishing committed contingency borrowing facilities.
Each of these techniques contributes to mitigating the three types of liquidity risk described above.
Every quarter, our insurance manufacturing subsidiaries are required to complete and submit liquidity risk reports to Group
Insurance for collation and review. Liquidity risk is assessed in these reports by measuring changes in expected cumulative net
cash flows under a series of stress scenarios designed to determine the effect of reducing expected available liquidity and
accelerating cash outflows. This is achieved, for example, by assuming new business or renewals are lower, and surrenders or
lapses are greater, than expected.
Insurance risk
(Audited)
Insurance risk is the risk, other than financial risk, of loss transferred from the holder of the insurance contract to the issuer
(i.e. HSBC). The principal risk we face is that, over time, the cost of the contract, including claims and benefits may exceed the
total amount of premiums and investment income received.
The cost of claims and benefits can be influenced by many factors, including mortality and morbidity experience, lapse and
surrender rates.
Insurance risks are controlled by high-level policies and procedures set both centrally and locally, taking into account where
appropriate local market conditions and regulatory requirements. Formal underwriting, reinsurance and claims-handling
procedures designed to ensure compliance with regulations are applied, supplemented with stress testing.
As well as exercising underwriting controls, we use reinsurance as a means of mitigating exposure to insurance risk. Where we
manage our exposure to insurance risk through the use of third-party reinsurers, the associated revenue and manufacturing
profit is ceded to the reinsurers. Although reinsurance provides a means of managing insurance risk, such contracts expose us
to credit risk, the risk of default by the reinsurer.
The principal drivers of our insurance risk are described below. The liabilities for long-term contracts are set by reference to a
range of assumptions around these drivers. These typically reflect the issuers’ own experiences. The type and quantum of
insurance risk arising from life insurance depends on the type of business, and varies considerably.
• mortality and morbidity: the main contracts which generate exposure to these risks are term assurance, whole life
products, critical illness and income protection contracts and annuities. The risks are monitored on a regular basis, and are
primarily mitigated by underwriting controls and reinsurance and by retaining the ability in certain cases to amend
premiums in the light of experience;
• lapses and surrenders: the risks associated with this are generally mitigated by product design, the application of surrender
charges and management actions, for example, managing the level of bonus payments to policyholders. A detailed
persistency analysis at a product level is carried out at least on an annual basis; and
• expense risk is mitigated by pricing, for example, retaining the ability in certain cases to amend premiums and/or
policyholder charges based on experience, and cost management discipline.
Liabilities are affected by changes in assumptions (see ‘Sensitivity analysis’ on page 188).
HSBC HOLDINGS PLC
223
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk (continued)
Appendix to Risk – Policies and practices
Reputational risk
The Global Head of Financial Crime Compliance and the Global Head of Regulatory Compliance are the risk stewards for
reputational risk. The development of policies and an effective control environment for the identification, assessment,
management and mitigation of reputational risk are co-ordinated through the Group Reputational Risk Policy Committee
(‘GRRPC’), which is chaired by the Group Chairman. In parallel, the Global Risk Resolution Committee (‘GRRC’), chaired by
the Chief Risk Officer, is the highest decision-making forum in the Group for dealing with matters arising from clients or
transactions that either present a serious potential reputational risk to the Group or merit a Group-led decision to ensure a
consistent risk management approach across the regions and global businesses. Both committees are responsible for keeping
the RMM apprised of areas and activities presenting significant reputational risk and, where appropriate, for making
recommendations to the RMM to mitigate such risk. Significant issues posing reputational risk are also reported to the Board
and the Conduct & Values Committee, where appropriate.
Overseeing all reputational risk matters, the Reputational Risk sub-function is responsible for setting policies to guide the
Group’s management of reputational risk, devising strategies to protect against reputational risk and advising the global
businesses and global functions in helping them identify, assess and mitigate such risks, where possible. This sub-function is
led by a central headquarters-based team and supported by teams within each business line and region who help to ensure
that issues are directed to the appropriate forums, that decisions are made and implemented effectively, and that
management information is generated to aid senior management in the businesses and regions in understanding where
reputational risk exists within the Group. Each global business has established a governance process that empowers the
Reputational Risk and Client Selection committees to address reputational risk issues at the appropriate level, escalating
decisions where appropriate. The global functions manage and escalate reputational risks within established operational risk
frameworks.
Standards for all major aspects of business are set for the Group and for individual subsidiaries, businesses and functions.
Reputational risks, including environmental, social and governance matters, are considered and assessed by the Board, the
GMB, the RMM, subsidiary company boards, Board committees and senior management during the formulation of policy and
the establishment of our standards. These policies, which form an integral part of the internal control system (see page 275),
are communicated through manuals and statements of policy and are promulgated through internal communications
and training. The policies set out our risk appetite and operational procedures for all areas of reputational risk, including
financial crime prevention (money laundering, terrorist and proliferation financing, sanctions-breaking and bribery and
corruption deterrence), regulatory compliance, conduct-related concerns, environmental impacts, human rights matters and
employee relations. The policy manuals address risk issues in detail and co-operation between Group departments and
businesses is required to ensure a strong adherence to our risk management system and our sustainability practices.
Fiduciary risk
Business activities in which fiduciary risk is inherent are only permitted within designated lines of business. Fiduciary risk is
managed within the designated businesses via a comprehensive policy framework and monitoring of key indicators. The
Group’s principal fiduciary businesses and activities (‘designated businesses and activities’) are:
• HSBC Securities Services, which is exposed to fiduciary risk through its funds services and corporate trust and loan agency
activities;
• HSBC Global Asset Management, which is exposed to fiduciary risks through its investment management activities on behalf
of clients;
• HSBC Global Private Banking, which is exposed to fiduciary risks through its private trust division and discretionary
investment management;
• HSBC Insurance, which is exposed to fiduciary risks through the investment management activities it undertakes when
providing insurance products and services;
• RBWM Trust Investment Wrappers, required by regulation for the provision of normal RBWM Wealth Management
products and services; and
• HSBC Employee Pension Scheme activities, where fiduciary duties may arise as part of carrying out a function of discretion
or control over an HSBC employee pension scheme's operations.
The Group’s requirements for the management of fiduciary risk are laid down in the fiduciary section of the Global Risk
Functional Instruction Manual, which is owned by Global Operational Risk. No business other than the designated businesses
may undertake fiduciary activities without notifying Global Operational Risk and receiving specific dispensations from the
relevant fiduciary policy requirements.
Other policies around the provision of advice, including investment advice and corporate advisory, and the management of
potential conflicts of interest, also mitigate our fiduciary risks.
HSBC HOLDINGS PLC
224
Pension risk
(Audited)
We operate a number of pension plans throughout the world, as described in the Pension risk section on page 189 and below.
A global pension risk framework and accompanying global policies on the management of risks related to defined benefit and
defined contribution plans is in place. The Global Pensions Oversight Committee is responsible for the governance and
oversight of all pension plans sponsored by HSBC around the world.
In order to fund the benefits associated with defined benefit plans, sponsoring Group companies (and, in some instances,
employees) make regular contributions in accordance with advice from actuaries and in consultation with the schemes’
trustees (where relevant). The defined benefit plans invest these contributions in a range of investments designed to meet
their long-term liabilities.
The level of these contributions has a direct impact on HSBC’s cash flow and would normally be set to ensure that there
are sufficient funds to meet the cost of the accruing benefits for the future service of active members. However, higher
contributions are required when plan assets are considered insufficient to cover the existing pension liabilities. Contribution
rates are typically revised annually or triennially, depending on the plan. The agreed contributions to the principal plan are
revised triennially.
A deficit in a defined benefit plan may arise from a number of factors, including:
•
investments delivering a return below that required to provide the projected plan benefits. This could arise, for example, when there is a
fall in the market value of equities, or when increases in long-term interest rates cause a fall in the value of fixed income securities held;
the prevailing economic environment leading to corporate failures, thus triggering write-downs in asset values (both equity and debt);
•
• a change in either interest rates or inflation which causes an increase in the value of the scheme liabilities; and
• scheme members living longer than expected (known as longevity risk).
A plan’s investment strategy is determined after taking into consideration the market risk inherent in the investments and its
consequential impact on potential future contributions. The long-term investment objectives of both HSBC and, where
relevant and appropriate, the trustees are:
• to limit the risk of the assets failing to meet the liabilities of the plans over the long term; and
• to maximise returns consistent with an acceptable level of risk so as to control the long-term costs of the defined benefit
plans.
In pursuit of these long-term objectives, a benchmark is established for the allocation of the defined benefit plan assets
between asset classes. In addition, each permitted asset class has its own benchmarks, such as stock market or property
valuation indices and, where relevant, desired levels of out-performance. The benchmarks are reviewed at least triennially
within 18 months of the date at which an actuarial valuation is made, or more frequently if required by local legislation or
circumstances. The process generally involves an extensive asset and liability review.
Ultimate responsibility for investment strategy rests with either the trustees or, in certain circumstances, a management
committee. The degree of independence of the trustees from HSBC varies in different jurisdictions, however all fiduciaries are
required to put the plan members’ needs above all others.
Defined contribution plans result in far less exposure to market risk for the Group, but remain exposed to operational and
reputational risks as they place the responsibility and flexibility more directly with employees. To manage these risks, the
performance of defined contribution investment funds is monitored and local engagement with employees is actively
promoted to ensure they are provided with sufficient information about the options available to them.
Pension plans in the UK
The HSBC Bank (UK) Pension Scheme (the principal plan) has both defined benefit and defined contribution sections. The
defined benefit section accounts for approximately 72% of our total defined benefit obligations around the world. All new
employees have joined the defined contribution section since 1996 and from 1 July 2015 the defined benefit section was fully
closed to future accrual so that all future pension provision for all employees is provided by the defined contribution section.
The principal plan is overseen by an independent corporate trustee who has a fiduciary responsibility for the operation of the
pension plan. The trustee is responsible for monitoring and managing the investment strategy and administration of scheme
benefits. The principal plan holds a diversified portfolio of investments to meet future cash flow liabilities arising from accrued
benefits as they fall due to be paid. The trustee of the principal plan is required to produce a written Statement of Investment
Principles which governs decision-making about how investments are made and the need for adequate diversification is taken
into account in the choice of asset allocation and manager structure in the defined benefit section. Longevity risk in the
principal plan is assessed as part of the measurement of the pension liability and managed through the funding process of
the plan.
HSBC HOLDINGS PLC
225
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Risk / Capital
Appendix to Risk – Policies and practices / Capital
Sustainability risk
Sustainability risks arise from the provision of financial services to companies or projects which indirectly result in
unacceptable impacts on people or on the environment. The Risk Function, with input from Global Corporate Sustainability,
is mandated to manage these risks globally working through local offices as appropriate. Sustainability Risk Managers have
regional or national responsibilities for advising on and managing environmental and social risks. The Risk Function’s
responsibilities in relation to sustainability risk include:
• formulating sustainability risk policies. This includes overseeing our sustainability risk standards, our application of the
Equator Principles and our sustainability policies (covering agricultural commodities, chemicals, defence, energy, forestry,
freshwater infrastructure, mining and metals, and World Heritage Sites and Ramsar Wetlands); undertaking an independent
review of transactions where sustainability risks are assessed to be high; and supporting our operating companies to assess
similar risks of a lower magnitude;
• building and implementing systems-based processes to ensure consistent application of policies, reduce the costs of
sustainability risk reviews and capture management information to measure and report on the effect of our lending and
investment activities on sustainable development; and
• providing training and capacity building within our operating companies to ensure sustainability risks are identified and
mitigated consistently to either our own standards, international standards or local regulations, whichever is higher.
HSBC HOLDINGS PLC
226
Capital
Capital overview
Capital management
Approach and policy
Stress testing
Risks to capital
Risk-weighted asset plans
Capital generation
Capital measurement and allocation
Regulatory capital
Pillar 1 capital requirements
Pillar 2 capital requirements
Pillar 3 disclosure requirements
Movements by major drivers
Risk-weighted assets
Credit risk RWAs
Counterparty credit risk and market risk RWAs
232
Operational risk RWAs
232
RWA movement by key driver – basis of preparation
and supporting notes
Credit risk drivers – definitions and quantifications
Counterparty risk drivers – definitions and
quantifications
Market risk drivers – definitions and quantifications
Capital
Regulatory balance sheet
Regulatory and accounting consolidations
Leverage ratio
Regulatory developments
Regulatory capital requirements
Regulatory stress testing
RWA developments
UK leverage ratio framework
Total loss absorbing capacity proposals
Structural reform and recovery and resolution
planning
1 Appendix to Capital.
233
236
236
239
239
239
241
241
241
242
242
Page
App1
Tables
228
Capital ratios
228
229
229
243
243
243
243
244
244
244
244
244
245
246
247
247
248
248
Total regulatory capital and risk-weighted assets
Capital and RWA movements by major driver – CRD IV
end point basis
RWAs by risk type
RWAs by global businesses
RWAs by geographical regions
Credit risk exposure – RWAs by geographical region
Credit risk exposure – RWAs by global businesses
RWA movement by geographical regions by key driver –
credit risk – IRB only
RWA movement by global businesses by key driver –
credit risk – IRB only
Counterparty credit risk RWAs
RWA movement by key driver – counterparty
credit risk – advanced approach
Market risk RWAs
RWA movement by key driver – market risk –
internal model based
Source and application of total regulatory capital
Composition of regulatory capital
Reconciliation of regulatory capital from transitional basis to
an estimated CRD IV end point basis
Reconciliation of balance sheets – financial accounting to
regulatory scope of consolidation
Leverage ratio
Capital requirements framework
HSBC HOLDINGS PLC
227
Page
228
228
228
229
229
229
229
230
230
231
232
232
232
232
233
234
235
236
239
240
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Capital (continued)
Capital overview / Movements by major drivers / RWAs
Our objective in the management of Group capital is
to maintain appropriate levels of capital to support our
business strategy and meet our regulatory and stress
testing related requirements.
Capital highlights
• Our end point common equity tier 1 (‘CET1’) ratio of 11.9%
was up from 11.1% at the end of 2014.
• We continue to generate capital from profit and our progress
to achieve targeted RWA initiatives strengthened our CET1
ratio, creating capacity for growth.
• Our leverage ratio remained strong at 5.0%.
Capital overview
Capital ratios
CRD IV end point
Common equity tier 1 ratio1
CRD IV transitional
Common equity tier 1 ratio1
Tier 1 ratio
Total capital ratio
At 31 December
2015
%
11.9
11.9
13.9
17.2
2014
%
11.1
10.9
12.5
15.6
Total regulatory capital and risk-weighted assets
CRD IV end point
Common equity tier 1 capital1
CRD IV transitional
Common equity tier 1 capital1
Additional tier 1 capital
Tier 2 capital
Total regulatory capital
Risk-weighted assets
For footnote, see page 243.
We manage Group capital to ensure that we exceed current
regulatory requirements and that we respect the payment
priority of our capital providers. Throughout 2015, we
complied with the Prudential Regulation Authority’s (‘PRAs’)
regulatory capital adequacy requirements, including those
relating to stress testing. We are also well placed to meet
our expected future capital requirements.
We continue to manage Group capital to meet a medium-
term target for return on equity of more than 10% by 2017.
This is modelled on a CET1 ratio on an end point basis in
the range of 12% to 13%, which takes into account known
and quantifiable end-point CET1 requirements and includes
a regulatory and management buffer in the range of 1% to
2%, based on our estimate of the additional CET1 we will
need to hold to cover the new time-varying buffers and
other factors. The CET1 regulatory and management buffer
will be kept under review until the details of the regulatory
framework are finalised.
Capital and RWAs are calculated and presented according
to the Group’s interpretation of CRD IV legislation and the
PRA’s rules as set out in the PRA Rulebook.
Despite the rules published to date, there remains
continued uncertainty around the amount of capital that
UK banks will be required to hold. In December 2015, the
Financial Policy Committee (‘FPC’) published its view of the
capital framework as applicable to UK banks, which set out
expectations in relation to CET1 and tier 1 capital across the
industry. However, requirements applicable to individual
banks are subject to the PRA’s determination. While there is
emerging clarity around the interaction of the capital
buffers and the PRA’s Pillar 2 framework, uncertainty
remains around the broader capital framework, including
revisions to the RWA requirements, capital floors, and
global systemically important bank (‘G-SIB’) developments.
Furthermore, there remain a number of draft and
unpublished European Banking Authority (‘EBA’) technical
and implementation standards due in 2016.
A summary of our policies and practices regarding capital
management, measurement and allocation is provided in
the Appendix to Capital on page 243.
Movements by major drivers
Capital and RWA movements by major driver – CRD IV end
point basis
At 31 December
2015
$m
2014
$m
130,863
135,953
130,863
22,440
36,530
133,200
19,539
37,991
189,833
190,730
1,102,995
1,219,765
CRD IV end point basis at 1 January 2015
Capital generation from profit
– consolidated profits attributable to
shareholders of the parent company
(including regulatory adjustments)
– dividends net of scrip2
RWA initiatives
Business growth including associates
Foreign currency translation differences3
Other movements
CRD IV end point basis at 31 December
CET1
capital
$bn
136.0
3.4
11.3
(7.9)
(7.9)
(0.6)
RWAs
$bn
1,219.8
(123.8)
48.7
(52.2)
10.5
2015
130.9
1,103.0
For footnotes, see page 243.
Our CET1 capital was reduced by foreign currency
translation differences of $7.9bn. This was partly offset by
capital of $3.4bn generated from profits net of dividends
(including the fourth interim dividend after planned scrip).
Included in profits was a $1.4bn gain on the partial sale of
our shareholding in Industrial Bank. This included fair value
gains reclassified to the income statement that has already
been included in CET1 capital, resulting in no further
impact. An additional impact on CET1 capital from the
partial sale of our shareholding in Industrial Bank was
lower allowable non-controlling interest.
Substantial progress has been made in achieving the
Group’s 2017 RWA target. After foreign currency
translation differences, RWAs reduced by $65bn in 2015,
primarily driven by specific initiatives that saved $124bn of
RWAs. The saving was partially offset by business growth of
$49bn.
HSBC HOLDINGS PLC
228
The following comments describe the key RWA movements
excluding foreign currency translation differences.
RWA initiatives
The main drivers were:
• $38bn from reduced exposures, the partial disposal of
our investment in Industrial Bank, a decrease in trading
positions subject to the Incremental Risk Charge, client
facility reductions and trade compressions;
• $30bn from refining our calculations, including the
further application of the small and medium-sized
enterprise (‘SME’) supporting factor, a more refined
application of credit conversion factors (‘CCFs’),
increased usage of internal ratings-based (‘IRB’) models
and the move of certain exposures from residual to cash
flow weighted maturity;
• $25bn from process improvements such as better
linking of collateral and guarantees to facilities,
enhanced risk parameters and the use of more granular
data resulting in lower CCFs for off-balance sheet items;
and
• $30bn through the continued reduction in the GB&M
legacy credit and US run-off portfolios.
Business growth
Business growth increased RWAs by $49bn, principally in:
• CMB, from higher term lending to corporate customers,
principally in Europe, North America and Asia, $23bn;
• our associates, Bank of Communications and The Saudi
British Bank, $14bn; and
• GB&M, from higher general lending to corporates which
increased RWAs by $10bn, mainly in Europe.
Risk-weighted assets
RWAs by risk type
Credit risk
– standardised approach
– IRB foundation approach
– IRB advanced approach
Counterparty credit risk
– standardised approach
– advanced approach
Market risk
– internal model based
– standardised approach
Operational risk
At 31 December 2015
Of which:
Run-off portfolios
– legacy credit in GB&M
– US CML and Other
RWAs by global businesses
Retail Banking and Wealth Management4
Commercial Banking4
Global Banking and Markets
Global Private Banking
Other
2015
$bn
875.9
332.7
27.4
515.8
69.2
19.1
50.1
42.5
34.9
7.6
2014
$bn
955.3
356.9
16.8
581.6
90.7
25.2
65.5
56.0
44.6
11.4
115.4
117.8
1,103.0
1,219.8
69.3
29.8
39.5
2015
$bn
189.5
421.0
440.6
19.3
32.6
99.2
44.1
55.1
2014
$bn
207.2
430.3
516.1
20.8
45.4
At 31 December 2015
1,103.0
1,219.8
RWAs by geographical regions5
Europe
Asia
Middle East and North Africa
North America
Latin America
At 31 December 2015
For footnotes, see page 243
2015
$bn
337.4
459.7
60.4
191.6
73.4
2014
$bn
375.4
499.8
63.0
221.4
88.8
1,103.0
1,219.8
Credit risk RWAs
Credit risk exposure – RWAs by geographical region
IRB approach
– IRB advanced approach
– IRB foundation approach
Standardised approach
RWAs at 31 December 2015
IRB approach
– IRB advanced approach
– IRB foundation approach
Standardised approach
RWAs at 31 December 2014
Europe
$bn
192.6
175.1
17.5
46.8
239.4
216.1
203.3
12.8
47.1
263.2
Asia
$bn
195.9
195.9
–
177.7
373.6
213.1
213.1
–
186.0
399.1
MENA
$bn
North
America
$bn
Latin
America
$bn
19.4
9.5
9.9
32.0
51.4
15.6
11.6
4.0
39.0
54.6
122.5
122.5
–
33.9
156.4
142.0
142.0
–
29.6
171.6
12.8
12.8
–
42.3
55.1
11.6
11.6
–
55.2
66.8
Total
$bn
543.2
515.8
27.4
332.7
875.9
598.4
581.6
16.8
356.9
955.3
HSBC HOLDINGS PLC
229
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Capital (continued)
RWAs
Credit risk exposure – RWAs by global businesses
Principal4
RBWM
$bn
RBWM
(US run-off
portfolio)
$bn
59.0
59.0
–
57.6
116.6
56.1
56.1
–
61.2
117.3
33.2
33.2
–
3.8
37.0
47.3
47.3
–
4.8
52.1
Total
RBWM
$bn
92.2
92.2
–
61.4
153.6
103.4
103.4
–
66.0
169.4
CMB4
$bn
GB&M
$bn
218.0
199.0
19.0
172.0
390.0
217.2
209.2
8.0
181.0
398.2
214.8
207.5
7.3
69.7
284.5
255.6
248.1
7.5
70.1
325.7
GPB
$bn
8.5
8.4
0.1
7.2
15.7
10.2
10.0
0.2
6.6
16.8
Other
$bn
9.7
8.7
1.0
22.4
32.1
12.0
10.9
1.1
33.2
45.2
Total
$bn
543.2
515.8
27.4
332.7
875.9
598.4
581.6
16.8
356.9
955.3
IRB approach
– IRB advanced approach
– IRB foundation approach
Standardised approach
RWAs at 31 December 2015
IRB approach
– IRB advanced approach
– IRB foundation approach
Standardised approach
RWAs at 31 December 2014
For footnotes, see page 243.
Credit risk RWAs are calculated using three approaches, as
permitted by the PRA. For consolidated Group reporting,
we have adopted the advanced IRB approach for the
majority of our business, with a small proportion being on
the foundation IRB approach and the remaining portfolios
on the standardised approach.
RWA movement by geographical regions by key driver – credit risk – IRB only6
RWAs at 1 January 2015
Foreign exchange movement
Acquisitions and disposals
Book size
Book quality
Model updates
– portfolios moving onto IRB approach
– new/updated models
Methodology and policy
– internal updates
– external updates – regulatory
Total RWA movement
RWAs at 31 December 2015
RWAs at 1 January 2014 on Basel 2.5 basis
Foreign exchange movement
Acquisitions and disposals
Book size
Book quality
Model updates
Methodology and policy
– internal updates
– external updates – regulatory
– CRD IV impact
– NCOA moving from STD to IRB
Total RWA movement
RWAs at 31 December 2014 on CRD IV basis
For footnote, see page 243.
Europe
$bn
216.1
(10.4)
(14.1)
11.4
(8.0)
1.2
(0.1)
1.3
(3.6)
(6.2)
2.6
(23.5)
192.6
166.9
(11.6)
(3.5)
11.4
(1.5)
19.4
35.0
(11.7)
2.2
37.0
7.5
49.2
216.1
Asia
$bn
213.1
(7.2)
–
2.9
(6.9)
(2.6)
–
(2.6)
(3.4)
(5.4)
2.0
(17.2)
195.9
182.9
(4.0)
–
19.5
–
0.3
14.4
(5.2)
8.5
5.7
5.4
30.2
213.1
MENA
$bn
15.6
(0.6)
(0.1)
(0.5)
(1.4)
4.7
4.7
–
1.7
1.6
0.1
3.8
19.4
15.0
(0.2)
(0.7)
1.8
(0.8)
–
0.5
(0.2)
(0.2)
0.4
0.5
0.6
15.6
North
America
$bn
142.0
(4.7)
(4.9)
(2.8)
0.7
0.2
0.2
–
(8.0)
(8.0)
–
(19.5)
122.5
161.5
(2.4)
(4.2)
2.9
(10.3)
(6.1)
0.6
(6.4)
0.7
4.9
1.4
(19.5)
142.0
Latin
America
$bn
11.6
(3.4)
–
0.4
3.9
0.1
0.1
–
0.2
0.2
–
1.2
12.8
8.5
(1.9)
(0.1)
2.0
1.4
–
1.7
(0.1)
0.1
0.2
1.5
3.1
11.6
Total
$bn
598.4
(26.3)
(19.1)
11.4
(11.7)
3.6
4.9
(1.3)
(13.1)
(17.8)
4.7
(55.2)
543.2
534.8
(20.1)
(8.5)
37.6
(11.2)
13.6
52.2
(23.6)
11.3
48.2
16.3
63.6
598.4
HSBC HOLDINGS PLC
230
RWA movement by global businesses by key driver – credit risk – IRB only6
Principal4
RBWM
$bn
RBWM
(US run-off)
$bn
56.1
(2.9)
–
3.7
(2.8)
0.4
–
0.4
4.5
2.5
2.0
2.9
59.0
58.5
(2.6)
–
1.9
(5.7)
0.6
3.4
(3.0)
1.8
–
4.6
(2.4)
47.3
–
(4.9)
(5.6)
(3.7)
–
–
–
0.1
0.1
–
(14.1)
33.2
72.6
–
–
(6.9)
(8.6)
(6.2)
(3.6)
(3.9)
–
–
0.3
(25.3)
Total
RBWM
$bn
103.4
(2.9)
(4.9)
(1.9)
(6.5)
0.4
–
0.4
4.6
2.6
2.0
(11.2)
92.2
131.1
(2.6)
–
(5.0)
(14.3)
(5.6)
(0.2)
(6.9)
1.8
–
4.9
(27.7)
CMB4
$bn
217.2
(11.7)
–
15.8
6.0
5.6
4.1
1.5
(14.9)
(14.9)
–
0.8
218.0
189.4
(8.7)
–
23.1
2.8
12.2
(1.6)
(5.0)
2.5
(0.7)
1.6
27.8
GB&M
$bn
255.6
(11.0)
(14.2)
(0.8)
(10.5)
(2.3)
0.9
(3.2)
(2.0)
(4.7)
2.7
(40.8)
214.8
198.5
(8.1)
(8.2)
21.1
(0.2)
7.0
45.5
(11.2)
6.3
48.6
1.8
57.1
GPB
$bn
10.2
(0.3)
–
(0.5)
(0.1)
(0.1)
(0.1)
–
(0.7)
(0.7)
–
(1.7)
8.5
10.6
(0.2)
–
(0.5)
(0.3)
–
0.6
(0.5)
0.5
0.2
0.4
(0.4)
Other
$bn
12.0
(0.4)
–
(1.2)
(0.6)
–
–
–
(0.1)
(0.1)
–
(2.3)
9.7
5.2
(0.5)
(0.3)
(1.1)
0.8
–
7.9
–
0.2
0.1
7.6
6.8
Total
$bn
598.4
(26.3)
(19.1)
11.4
(11.7)
3.6
4.9
(1.3)
(13.1)
(17.8)
4.7
(55.2)
543.2
534.8
(20.1)
(8.5)
37.6
(11.2)
13.6
52.2
(23.6)
11.3
48.2
16.3
63.6
56.1
47.3
103.4
217.2
255.6
10.2
12.0
598.4
RWAs at 1 January 2015
Foreign exchange movement
Acquisitions and disposals
Book size
Book quality
Model updates
– portfolios moving onto
IRB approach
– new/updated models
Methodology and policy
– internal updates
– external updates –
regulatory
Total RWA movement
RWAs at 31 December 2015
RWAs at 1 January 2014 on
Basel 2.5 basis
Foreign exchange movement
Acquisitions and disposals
Book size
Book quality
Model updates
Methodology and policy
– internal updates
– external updates –
regulatory
– CRD IV impact
– NCOA moving from STD
to IRB
Total RWA movement
RWAs at 31 December 2014
on CRD IV basis
For footnotes, see page 243.
Internal ratings-based approach
For portfolios treated under the IRB approach, credit risk
RWAs decreased by $55bn, which included a reduction of
$26bn due to foreign exchange movements.
Acquisitions and disposals
• The disposal of US mortgage portfolios reduced RWAs
by $4.9bn; and
• the sale of securitisation positions in the GB&M legacy
credit portfolio resulted in a RWA decrease of $14bn.
Book size
• The book size grew from higher corporate lending,
including term and trade-related lending which
increased RWAs by $16bn, mainly in Europe and Asia for
CMB.
• In North America, in RBWM, the continued run-off of
the US CML retail mortgage portfolios resulted in an
RWA reduction of $5.6bn.
Book quality
• RWAs reduced by $3.7bn in the US run-off portfolio,
primarily due to continued run-off which led to an
improvement in the book quality of the residual
portfolio;
• book quality improvements in the Principal RBWM
business of $2.8bn mainly related to credit quality
improvements in Europe;
• in CMB, RWAs increased by $6.0bn, primarily as a result
of corporate downgrades in Europe;
• in GB&M, a decrease in RWAs of $10bn was mainly due
to the implementation of netting agreements to new
corporate counterparties in Europe, the securitisation of
corporate loans and rating upgrades of institutions in
Asia; and
• the downgrade of Brazil’s rating increased RWAs by
$3.7bn across businesses.
Methodology and policy changes
• RWA initiatives were the main driver for the reduction of
RWAs driven by changes in ‘internal updates’. Further
details are provided on page 229.
• They were offset by the change in RWA calculation on
defaulted exposures in RBWM increasing RWAs by
$2.0bn, the implementation of a risk-weight floor on
mortgages in Hong Kong with an RWA impact of $2.0bn,
HSBC HOLDINGS PLC
231
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Capital (continued)
RWAs / Capital
and the implementation of a 1.06 scaling factor on
securitisation positions risk-weighted at 1,250% which
increased RWAs by $2.1bn.
Standardised approach
For portfolios treated under the standardised approach,
credit risk RWAs decreased by $24bn, which included
a reduction of $27bn due to foreign exchange movements.
• RWAs increased by $23bn across all regions as a result
of higher lending. Growth in our associate, BoCom,
accounted for $15bn.
• This was offset by RWA initiatives reducing RWAs by
$29bn, mainly comprising portfolios moving to an
IRB approach (reducing the standardised approach by
$10.2bn and increasing the IRB approach by $7.2bn)
and partial disposal of our investment in Industrial Bank
reducing RWAs by $12.4bn.
Counterparty credit risk and market risk
RWAs
Counterparty credit risk RWAs
Advanced approach
– CCR IRB approach
– credit valuation adjustment
Standardised approach
– CCR standardised approach
– credit valuation adjustment
– central counterparty
At 31 December
2015
$bn
50.1
46.8
3.3
19.1
4.7
12.2
2.2
69.2
2014
$bn
65.5
62.0
3.5
25.2
4.4
18.0
2.8
90.7
RWA movement by key driver – counterparty credit risk –
advanced approach
RWAs at 1 January
Book size
Book quality
Model updates
Methodology and policy
– internal updates
– external updates – regulatory
– CRD IV impact
Total RWA movement
RWAs at 31 December
Market risk RWAs
Internal model based
– VaR
– stressed VaR
– incremental risk charge
– other VaR and stressed VaR
Standardised approach
At 31 December
2015
$bn
65.5
(10.2)
(0.8)
–
(4.4)
(4.4)
–
–
(15.4)
50.1
2015
$bn
34.9
7.7
9.8
11.4
6.0
7.6
42.5
2014
$bn
42.2
1.6
(0.6)
0.1
22.2
(3.8)
9.0
17.0
23.3
65.5
2014
$bn
44.6
7.3
10.4
20.1
6.8
11.4
56.0
RWA movement by key driver – market risk – internal
model based
RWAs at 1 January
Acquisitions and disposals
Movement in risk levels
Methodology and policy
– internal updates
– external updates – regulatory
Total RWA movement
RWAs at 31 December
2015
$bn
44.6
–
(5.5)
(4.2)
(4.2)
–
(9.7)
34.9
2014
$bn
52.2
(2.2)
(4.2)
(1.2)
(3.8)
2.6
(7.6)
44.6
Counterparty credit risk RWAs
Counterparty credit risk RWAs reduced by $21bn during
2015.
Standardised approach
A reduction of $6.1bn in RWAs in the standardised
portfolio was mostly due to the impact of market
movements and position reductions for derivatives held
with counterparties eligible for the standardised credit
value adjustment (‘CVA’) charge.
Advanced approach
The book size reduced by $10bn, mainly driven by market
movements, particularly in foreign exchange derivatives,
trade compression and portfolio management activities.
Further reductions in ‘Methodology and policy’ were mainly
driven by savings from RWA initiatives.
Market risk RWAs
Total market risk RWAs decreased by $13bn in 2015.
Standardised approach
The market risk RWAs in the standardised portfolio fell by
$3.8bn, mainly driven by the reduction in the legacy credit
portfolio.
Internal model based
The reduction in RWAs due to movements in risk levels of
$5.5bn was driven by a combination of active management
of the book and market movements, in particular within the
incremental risk charge. In addition to these movements,
there were savings of $4.2bn in ‘Methodology and policy’
due to the refinement of models used for the calculation of
the incremental risk charge and risks not in VaR.
Operational risk RWAs
The reduction in operational risk RWAs of $2.4bn was
mainly the result of currency exchange differences and a
decline in income in Latin America.
HSBC HOLDINGS PLC
232
Capital
Source and application of total regulatory capital
Movement in total regulatory capital
Opening common equity tier 1 capital on a transitional basis7
Transitional adjustments
– unrealised gains arising from revaluation of property
– unrealised gains in available-for-sale debt and equities
Opening common equity tier 1 capital on an end point basis1
Contribution to common equity tier 1 capital from profit for the period
– consolidated profits attributable to shareholders of the parent company
– removal of own credit spread net of tax
– debit valuation adjustment
– deconsolidation of insurance entities and SPEs
Net dividends including foreseeable net dividends2
– dividends net of scrip
– fourth interim dividend net of planned scrip
Increase in goodwill and intangible assets deducted3
Ordinary shares issued
Foreign currency translation differences3
Other, including regulatory adjustments
Closing common equity tier 1 capital
Opening additional tier 1 capital on a transitional basis7
Movement in additional tier 1 securities
– new issuance
– grandfathering adjustments
Other, including regulatory adjustments
Closing tier 1 capital on a transitional basis
Opening other tier 2 capital on a transitional basis7
Movement in tier 2 securities
– new issuance
– grandfathering adjustments
– foreign currency transitional differences
– other movements
Other, including regulatory adjustments
Year to 31 December
2015
$m
133,200
2,753
1,375
1,378
135,953
11,302
13,522
(912)
(139)
(1,169)
(7,853)
(4,136)
(3,717)
(227)
147
(7,887)
(572)
2014
$m
131,233
12,678
13,688
(328)
254
(936)
(7,541)
(4,179)
(3,362)
2,424
267
(8,356)
2,495
130,863
133,200
19,539
2,272
3,580
(1,308)
629
14,408
4,961
5,681
(720)
170
153,303
152,739
37,991
(1,276)
3,180
(2,996)
(887)
(573)
(185)
35,538
2,414
3,500
–
(1,066)
(20)
39
Closing total regulatory capital on a transitional basis
189,833
190,730
For footnotes, see page 243.
HSBC HOLDINGS PLC
233
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Capital (continued)
Capital
Composition of regulatory capital
(Audited)
Common equity tier 1 capital
Shareholders’ equity
– shareholders’ equity per balance sheet8
– foreseeable interim dividend2
– preference share premium
– other equity instruments
– deconsolidation of special purpose entities9
– deconsolidation of insurance entities
Non-controlling interests
– non-controlling interests per balance sheet
– preference share non-controlling interests
– non-controlling interests transferred to tier 2 capital
– non-controlling interests in deconsolidated subsidiaries
– surplus non-controlling interests disallowed in CET1
Regulatory adjustments to the accounting basis
– own credit spread10
– debit valuation adjustment
– defined benefit pension fund adjustment
– cash flow hedging reserve
Deductions
– goodwill and intangible assets
– deferred tax assets that rely on future profitability (excludes those arising from temporary
differences)
– additional valuation adjustment (referred to as PVA)
– investments in own shares through the holding of composite products of which HSBC is a component
(exchange traded funds, derivatives and index stock)
– negative amounts resulting from the calculation of expected loss amounts
Common equity tier 1 capital on an end point basis
Tier 1 and tier 2 capital on a transitional basis
Common equity tier 1 capital on an end point basis
Transitional adjustments
– unrealised gains arising from revaluation of property
– unrealised gains in available-for-sale debt and equities
Common equity tier 1 capital on a transitional basis
Additional tier 1 capital on a transitional basis
Other tier 1 capital before deductions
– preference share premium
– preference share non-controlling interests
– allowable non-controlling interest in AT1
– Hybrid capital securities
Deductions
– unconsolidated investments11
– holding of own additional tier 1 instruments
Tier 1 capital on a transitional basis
Tier 2 capital on a transitional basis
Total qualifying tier 2 capital before deductions
– allowable non-controlling interest in tier 2
– perpetual subordinated debt
– term subordinated debt
– non-controlling interests in tier 2 capital
Total deductions other than from tier 1 capital
– unconsolidated investments11
– holding of own tier 2 instruments
Total regulatory capital on a transitional basis
For footnotes, see page 243.
Ref
a
b
c
a
a, h
d
e
f
d
g
h
n
i
b
e
d
j
d
l
m
f
At 31 December
2015
$m
160,664
188,460
(3,717)
(1,405)
(15,112)
(91)
(7,471)
3,519
9,058
(2,077)
–
(933)
(2,529)
(4,556)
(159)
(336)
(4,009)
(52)
(28,764)
(20,650)
(1,204)
(1,151)
(839)
(4,920)
2014
$m
166,617
190,447
(3,362)
(1,405)
(11,532)
(323)
(7,208)
4,640
9,531
(2,127)
(473)
(851)
(1,440)
(3,556)
767
(197)
(4,069)
(57)
(31,748)
(22,475)
(1,036)
(1,341)
(1,083)
(5,813)
130,863
135,953
130,863
130,863
22,621
1,015
1,711
1,546
18,349
(181)
(121)
(60)
135,953
(2,753)
(1,375)
(1,378)
133,200
19,687
1,160
1,955
884
15,688
(148)
(148)
–
153,303
152,739
36,852
14
1,941
34,897
–
(322)
(282)
(40)
38,213
99
2,218
35,656
240
240
(222)
(222)
–
189,833
190,730
The references (a) – (n) identify balance sheet components on page 236 which are used in the calculation of regulatory capital.
HSBC HOLDINGS PLC
234
Reconciliation of regulatory capital from transitional basis to an estimated CRD IV end point basis
Common equity tier 1 capital on a transitional basis
Unrealised gains arising from revaluation of property
Unrealised gains in available-for-sale debt and equities
Common equity tier 1 capital on an end point basis
Additional tier 1 capital on a transitional basis
Grandfathered instruments:
Preference share premium
Preference share non-controlling interests
Hybrid capital securities
Transitional provisions:
Allowable non-controlling interest in AT1
Unconsolidated investments11
Additional tier 1 capital end point basis
Tier 1 capital on an end point basis
Tier 2 capital on a transitional basis
Grandfathered instruments:
Perpetual subordinated debt
Term subordinated debt
Transitional provisions:
Non-controlling interest in tier 2 capital
Allowable non-controlling interest in tier 2
Unconsolidated investments11
Tier 2 capital on an end point basis
Total regulatory capital on an end point basis
For footnote, see page 243.
The capital position presented on a CRD IV transitional
basis follows the Group’s interpretation of CRD IV
legislation and the PRA’s rules as set out in the PRA
Rulebook.
The effects of draft EBA technical standards are not
generally captured in our numbers.
While CRD IV allows for the majority of regulatory
adjustments and deductions from CET1 to be implemented
on a gradual basis from 1 January 2014 to 1 January 2018,
the PRA has largely decided not to make use of these
transitional provisions. From 1 January 2015, unrealised
gains on investment property and available-for-sale
securities were recognised in CET1 capital. As a result our
end point and transitional CET1 capital and ratios are now
aligned.
For additional tier 1 and tier 2 capital, the PRA has followed
the transitional provisions timing as set out in CRD IV to
apply the necessary regulatory adjustments and deductions.
The effect of these adjustments is being phased in at 20%
per annum from 1 January 2014 to 1 January 2018.
Non-CRD IV compliant additional tier 1 and tier 2
instruments also benefit from a grandfathering period. This
progressively reduces the eligible amount by 10% annually,
following an initial reduction of 20% on 1 January 2014,
until they are fully phased out by 1 January 2022.
At 31 December
2015
$m
130,863
130,863
22,440
(1,015)
(1,711)
(9,088)
(1,377)
121
9,370
2014
$m
133,200
1,375
1,378
135,953
19,539
(1,160)
(1,955)
(10,007)
(487)
148
6,078
140,233
142,031
36,530
37,991
(1,941)
(19,034)
–
21
(121)
15,455
155,688
(2,218)
(21,513)
(240)
396
(148)
14,268
156,299
Under CRD IV, as implemented in the UK, banks are
required to meet a minimum CET1 ratio of 4.5% of RWAs,
a minimum tier 1 ratio of 6% of RWAs and a total capital
ratio of 8% of RWAs. In addition to the Pillar 1 minimum
ratios, the PRA sets Pillar 2A capital requirements, which
together are considered the minimum level of regulatory
capital to be maintained at all times. Pillar 2A is to be met
with at least 56% CET1 capital and the remaining with non-
common equity capital.
In addition to minimum requirements, CRD IV establishes a
number of capital buffers to be met with CET1 capital,
which largely phase-in from 1 January 2016. To the extent
our CET1 capital is insufficient to meet these buffer
requirements, the Group would suffer automatic
restrictions on capital distributions.
Going forward, as the grandfathering provisions fall away,
we intend to meet our overall regulatory minima in an
economically efficient manner by issuing non-common
equity capital as necessary. At 31 December 2015, the
Group had $25.1bn of CRD IV compliant non-common
equity capital instruments, of which $3.2bn of tier 2 and
$3.6bn of additional tier 1 were issued during the year (for
details on the additional tier 1 instruments issued during
the year see Note 35 on the Financial Statements). At
31 December 2015, the Group also had $32.8bn of non-
common equity capital instruments qualifying as eligible
capital under CRD IV by virtue of the application of the
grandfathering provisions, after applying a 30% reduction
as outlined above.
HSBC HOLDINGS PLC
235
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Capital (continued)
Regulatory balance sheet
Regulatory balance sheet
Regulatory and accounting consolidations
The basis of consolidation for the purpose of financial
accounting under IFRS, described in Note 1 on the Financial
Statements, differs from that used for regulatory purposes
as described in ‘Structure of the regulatory group’ on
page 12 of the Pillar 3 Disclosures 2015 report. The table
below provides a reconciliation of the financial accounting
balance sheet to the regulatory scope of consolidation.
Interests in banking associates are equity accounted in
the financial accounting consolidation, whereas their
exposures are proportionally consolidated for regulatory
purposes by including our share of assets, liabilities, profit
and loss and RWAs in accordance with the PRA’s
application of CRD IV.
Subsidiaries engaged in insurance activities are excluded
from the regulatory consolidation by excluding assets,
liabilities and post-acquisition reserves, leaving the
investment of these insurance subsidiaries to be recorded at
cost and deducted from CET1 (subject to thresholds).
The regulatory consolidation also excludes special purpose
entities (‘SPEs’) where significant risk has been transferred
to third parties. Exposures to these SPEs are risk-weighted
as securitisation positions for regulatory purposes.
Entities in respect of which the basis of consolidation
for financial accounting purposes differs from that used for
regulatory purposes can be found in table 5 of the Pillar 3
Disclosures 2015 report.
Reconciliation of balance sheets – financial accounting to regulatory scope of consolidation
Accounting
balance
sheet
$m
Deconsolidation
of insurance/
other entities
$m
Consolidation
of banking
associates
$m
Regulatory
balance
sheet
$m
Ref
Assets
Cash and balances at central banks
Items in the course of collection from other banks
Hong Kong Government certificates of indebtedness
Trading assets
Financial assets designated at fair value
Derivatives
Loans and advances to banks
Loans and advances to customers
of which:
– impairment allowances on IRB portfolios
– impairment allowances on standardised portfolios
Reverse repurchase agreements – non-trading
Financial investments
Assets held for sale
of which:
– goodwill and intangible assets
– impairment allowances of disposal groups held for sale
of which:
– IRB portfolios
– standardised portfolios
Capital invested in insurance and other entities
Current tax assets
Prepayments, accrued income and other assets
of which:
– retirement benefit assets
Interests in associates and joint ventures
of which:
– positive goodwill on acquisition
Goodwill and intangible assets
Deferred tax assets
Total assets at 31 December 2015
Liabilities and equity
Hong Kong currency notes in circulation
Deposits by banks
Customer accounts
Repurchase agreements – non-trading
Items in course of transmission to other banks
Trading liabilities
Financial liabilities designated at fair value
of which:
– term subordinated debt included in tier 2 capital
– hybrid capital securities included in tier 1 capital
98,934
5,768
28,410
224,837
23,852
288,476
90,401
924,454
(6,291)
(3,263)
146,255
428,955
43,900
1,680
(1,454)
(7)
(1,447)
–
1,221
54,398
5,272
19,139
593
24,605
6,051
2,409,656
28,410
54,371
1,289,586
80,400
5,638
141,614
66,408
21,168
1,342
i
h
i
g
h
h
n
m
j
HSBC HOLDINGS PLC
236
(2)
–
–
340
(23,521)
(146)
(3,008)
(7,427)
–
–
711
(51,684)
(4,107)
(219)
–
–
–
2,371
(15)
(2,539)
–
–
–
(6,068)
195
(94,900)
–
(97)
(119)
–
–
(66)
(6,046)
–
–
28,784
22
–
4,390
2,034
495
16,413
120,016
–
(2,780)
5,935
42,732
–
–
–
–
–
–
–
9,692
–
(18,571)
(579)
623
518
127,716
5,790
28,410
229,567
2,365
288,825
103,806
1,037,043
(6,291)
(6,043)
152,901
420,003
39,793
1,461
(1,454)
(7)
(1,447)
2,371
1,206
61,551
5,272
568
14
19,160
6,764
213,083
2,527,839
–
50,005
147,522
–
–
59
–
–
–
28,410
104,279
1,436,989
80,400
5,638
141,607
60,362
21,168
1,342
Derivatives
Debt securities in issue
Liabilities of disposal groups held for sale
Current tax liabilities
Liabilities under insurance contracts
Accruals, deferred income and other liabilities
of which:
– retirement benefit liabilities
Provisions
of which:
– contingent liabilities and contractual commitments
of which:
– credit-related provisions on IRB portfolios
– credit-related provisions on standardised portfolios
Deferred tax liabilities
Subordinated liabilities
of which:
– hybrid capital securities included in tier 1 capital
– perpetual subordinated debt included in tier 2 capital
– term subordinated debt included in tier 2 capital
Total shareholders’ equity
of which:
– other equity instruments included in tier 1 capital
– preference share premium included in tier 1 capital
Non-controlling interests
of which:
– non-cumulative preference shares issued by subsidiaries
included in tier 1 capital
– non-controlling interests included in tier 2 capital, cumulative
preferred stock
Ref
i
j
l
m
a
c, j
b
d
e
f
– non-controlling interests attributable to holders of ordinary
shares in subsidiaries included in tier 2 capital
f, m
Accounting
balance
sheet
$m
281,071
88,949
36,840
783
69,938
38,116
Deconsolidation
of insurance/
other entities
$m
87
(7,885)
(3,690)
(84)
(69,938)
2,326
Consolidation
of banking
associates
$m
508
5,065
–
409
–
6,669
Regulatory
balance
sheet
$m
281,666
86,129
33,150
1,108
–
47,111
2,809
5,552
240
201
39
1,760
22,702
1,929
2,368
18,405
188,460
15,112
1,405
9,058
2,077
–
–
(2)
(25)
–
–
–
(868)
–
–
–
–
(7,562)
–
–
(933)
–
–
–
61
–
–
–
–
5
2,841
–
–
–
–
–
–
–
–
–
–
2,868
5,527
240
201
39
897
25,543
1,929
2,368
18,405
180,898
15,112
1,405
8,125
2,077
–
–
Total liabilities and equity at 31 December 2015
2,409,656
(94,900)
213,083
2,527,839
Assets
Cash and balances at central banks
Items in the course of collection from other banks
Hong Kong Government certificates of indebtedness
Trading assets
Financial assets designated at fair value
Derivatives
Loans and advances to banks
Loans and advances to customers
of which:
– impairment allowances on IRB portfolios
– impairment allowances on standardised portfolios
Reverse repurchase agreements – non-trading
Financial investments
Capital invested in insurance and other entities
Current tax assets
Prepayments, accrued income and other assets
of which:
– goodwill and intangible assets of disposal groups held for sale
– retirement benefit assets
– impairment allowances on assets held for sale
of which:
– IRB portfolios
– standardised portfolios
Interests in associates and joint ventures
of which:
– positive goodwill on acquisition
Goodwill and intangible assets
Deferred tax assets
Total assets at 31 December 2014
i
h
g
i
h
h
n
129,957
4,927
27,674
304,193
29,037
345,008
112,149
974,660
(6,942)
(5,395)
161,713
415,467
–
1,309
75,176
8
5,028
(16)
(16)
–
18,181
621
27,577
7,111
–
–
–
(720)
(28,791)
(94)
(2,727)
(10,809)
–
–
(30)
(50,420)
2,542
(16)
(5,295)
–
–
–
–
–
–
–
(5,593)
163
30,731
80
–
2,357
3,312
353
7,992
116,484
–
(2,744)
7,510
33,123
–
–
8,501
–
–
–
–
–
(17,479)
(606)
571
474
160,688
5,007
27,674
305,830
3,558
345,267
117,414
1,080,335
(6,942)
(8,139)
169,193
398,170
2,542
1,293
78,382
8
5,028
(16)
(16)
–
702
15
22,555
7,748
2,634,139
(101,790)
194,009
2,726,358
HSBC HOLDINGS PLC
237
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Capital (continued)
Regulatory balance sheet / Leverage ratio / Regulatory developments
Reconciliation of balance sheets – financial accounting to regulatory scope of consolidation (continued)
Liabilities and equity
Hong Kong currency notes in circulation
Deposits by banks
Customer accounts
Repurchase agreements – non-trading
Items in course of transmission to other banks
Trading liabilities
Financial liabilities designated at fair value
of which:
– term subordinated debt included in tier 2 capital
– hybrid capital securities included in tier 1 capital
Derivatives
Debt securities in issue
Current tax liabilities
Liabilities under insurance contracts
Accruals, deferred income and other liabilities
of which:
– retirement benefit liabilities
Provisions
of which:
– contingent liabilities and contractual commitments
of which:
– credit-related provisions on IRB portfolios
– credit-related provisions on standardised portfolios
Deferred tax liabilities
Subordinated liabilities
of which:
– hybrid capital securities included in tier 1 capital
– perpetual subordinated debt included in tier 2 capital
– term subordinated debt included in tier 2 capital
Total shareholders’ equity
of which:
– other equity instruments included in tier 1 capital
– preference share premium included in tier 1 capital
Non-controlling interests
of which:
– non-cumulative preference shares issued by subsidiaries
included in tier 1 capital
– non-controlling interests included in tier 2 capital, cumulative
preferred stock
Ref
m
j
i
j
l
m
a
c, j
b
d
e
f
– non-controlling interests attributable to holders of ordinary
shares in subsidiaries included in tier 2 capital
f, m
Accounting
balance
sheet
$m
Deconsolidation
of insurance/
other entities
$m
Consolidation
of banking
associates
$m
27,674
77,426
1,350,642
107,432
5,990
190,572
76,153
21,822
1,495
340,669
95,947
1,213
73,861
53,396
3,208
4,998
234
132
102
1,524
26,664
2,761
2,773
21,130
190,447
11,532
1,405
9,531
2,127
300
173
–
(21)
(535)
–
(3)
(42)
(6,317)
–
–
37
(7,797)
(138)
(73,861)
(3,659)
(2)
(63)
–
–
–
(1,009)
–
–
–
–
(7,531)
–
–
(851)
–
–
–
–
40,530
141,858
–
–
50
–
–
–
331
3,720
317
–
5,145
56
–
–
–
–
2
2,056
–
–
–
–
–
–
–
–
–
–
Regulatory
balance
sheet
$m
27,674
117,935
1,491,965
107,432
5,987
190,580
69,836
21,822
1,495
341,037
91,870
1,392
–
54,882
3,262
4,935
234
132
102
517
28,720
2,761
2,773
21,130
182,916
11,532
1,405
8,680
2,127
300
173
Total liabilities and equity at 31 December 2014
2,634,139
(101,790)
194,009
2,726,358
The references (a) – (n) identify balance sheet components which are used in the calculation of regulatory capital on page 234.
HSBC HOLDINGS PLC
238
EU Delegated Act basis
at 31 December
2015
$bn
2,410
(95)
213
2,528
32
(456)
(290)
(166)
149
69
(65)
125
20
173
243
(78)
8
401
67
326
8
(33)
2,794
140
5.0%
2014
$bn
2,634
(102)
194
2,726
38
(525)
(345)
(180)
166
81
(82)
148
19
188
269
(89)
8
396
67
321
8
(36)
2,953
142
4.8%
Leverage ratio
Leverage ratio
Total assets per accounting balance sheet
Deconsolidation of insurance/other entities
Consolidation of banking associates
Total assets per regulatory/accounting balance sheet
Adjustments to reverse netting of loans and deposits allowable under IFRS
Reversal of accounting values including assets classified as held for sale:
– derivatives
– repurchase agreement and securities finance
Replaced with the regulatory rules:
Derivatives including assets classified as held for sale:
– mark-to-market
– deductions of receivables assets for cash variation margin
– add-on amounts for potential future exposure
– exposure amount resulting from the additional treatment for written credit derivatives
Repurchase agreement and securities finance including assets classified as held for sale:
– gross securities financing transactions assets
– netted amounts of cash payables and cash receivables of gross securities financing transactions assets
– measurement of counterparty risk
Addition of off-balance sheet commitments and guarantees
– guarantees and contingent liabilities
– commitments
– others
Exclusion of items already deducted from the capital measure
Exposure measure after regulatory adjustments
Tier 1 capital under CRD IV (end point)
Leverage ratio
The numerator of the leverage ratio is calculated using
the final CRD IV end point tier 1 capital definition while
the exposure measure is now calculated based on the
Commission Delegated Regulation (EU) 2015/62, published
in January 2015.
Regulatory developments
Regulatory capital requirements
The regulatory capital requirements comprise a Pillar 1
minimum, individual capital guidance (‘ICG’) set by the
PRA in the form of Pillar 2A, a number of capital buffers
established by CRD IV and any PRA buffer that the PRA
may set in addition to ICG.
The Pillar 1 minimum ratio and the capital conservation
buffer (‘CCB’) rates are certain. The macro-prudential tools,
Pillar 2A, the PRA buffer and the systemic buffers are time-
varying elements. This uncertainty is reflected in the
regulatory and management buffer we have included in the
12% to 13% CET1 range that is used to model our medium-
term target for return on equity of more than 10% by 2017.
This buffer is currently in the range of 1% to 2%.
In December 2015, the FPC published its end point view of
the calibration of the capital framework as applicable to UK
banks. This set out the FPC’s final expectations in relation
to the levels of capital across the industry, while specific
requirements for individual banks will vary at the PRA’s
determination. These expectations do not include time-
varying additional requirements such as the countercyclical
capital buffer (‘CCyB’) and are based on the assumption
that existing deficiencies in the definition and measurement
of RWAs under Pillar 1 requirements will be addressed over
time. These deficiencies in Pillar 1 are currently compensated
through additional Pillar 2 requirements. The FPC stated its
expectation that by 2019, once such deficiencies were
corrected, Pillar 2A requirements would reduce.
In addition to the above, consideration of the finalised
Financial Stability Board (‘FSB’) proposals in relation to
total loss absorbing capacity (‘TLAC’) requirements, and the
UK implementation of the EU minimum requirement for
own funds and eligible liabilities (‘MREL’) will also be
required.
Based on the known and quantifiable requirements to
date, including the announced CCyB rates and current ICG,
the overall capital requirements applicable to the Group on
an end-point basis (at 1 January 2019) are presented in the
table below.
HSBC HOLDINGS PLC
239
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Capital (continued)
Regulatory developments
Capital requirements framework (end point)
PRA buffer (illustrative)
Capital
conservation
buffer
Systemic
buffers
(SRB/G-SII)
Macro-prudential tools
(CCyB/sectoral capital
requirements)
2.5%
2.5%
0.2%
Pillar 2A/ICG
2.3%
(of which 1.3% CET1)
T
2
)
a
n
d
A
T
1
(
C
E
T
1
)
(
C
E
T
1
)
(
C
E
T
1
)
(
C
E
T
1
)
(
C
E
T
1
,
Pillar 1
8%
(of which 4.5% CET1)
a
n
d
T
2
)
(
C
E
T
1
,
A
T
1
CRD IV capital buffers
CRD IV established a number of capital buffers, to be
met with CET1 capital, broadly aligned with the Basel III
framework. In the UK, with the exception of the CCyB
which applied with immediate effect, CRD IV capital buffers
are being phased in from 1 January 2016.
Automatic restrictions on capital distributions apply if
a bank’s CET1 capital falls below the level of its CRD IV
combined buffer. The CRD IV combined buffer is defined
as the total of the CCB, the CCyB, the global systemically
important institutions (‘G-SII’s) buffer and the systemic risk
buffer (‘SRB’), as these become applicable.
At 31 December 2015, the applicable CCyB rates in force
were 1% set by Norway and Sweden. Relevant credit
exposures located in Norway and Sweden were $2.4bn and
$1.5bn respectively. At 31 December 2015, this resulted in
an immaterial Group institution-specific CCyB requirement.
The Hong Kong Monetary Authority (‘HKMA’) CCyB rate of
0.625% was implemented on 27 January 2016 in respect of
Hong Kong exposures, following communication from the
FPC. The impact of the HKMA CCyB rate on our Group
institution-specific CCyB rate is expected to be 7bps (based
on RWAs at 31 December 2015).
The CCyB rates introduced by Norway and Sweden will
increase to 1.5% from June 2016. In January 2016, the
HKMA also announced that the CCyB rate applied to
exposures in Hong Kong will be increased to 1.25% from
1 January 2017.
In December 2015, the FPC maintained a 0% CCyB rate for
UK exposures. At the same time, the FPC published the
final calibration of the capital framework for UK banks.
Within this, the FPC indicated that going forward it would
apply a more active use of the CCyB and stated that it
intends to publish a revised policy statement on the use of
the CCyB in March 2016. The FPC also noted that it expects
to set a countercyclical buffer rate for UK exposures, in the
region of 1% when risks are judged to be neither subdued
nor elevated. The CCyB rate will be informed by the annual
UK concurrent stress test of major UK banks. If a rate
change is introduced it is expected to come into effect
12 months later.
In December 2015, the PRA confirmed our applicable G-SII
buffer as 2.5%. The G-SII buffer together with the CCB of
2.5%, came into effect on 1 January 2016. These are being
phased in until 2019 in increments of 25% of the end point
buffer requirement. Therefore, as of 1 January 2016, the
requirement for each buffer is 0.625% of RWAs.
Alongside CRD IV requirements, since 2014, the PRA has
expected major UK banks and building societies to meet a
7% CET1 ratio using the CRD IV end point definition. At
1 January 2016, with the introduction of the G-SII buffer
and the CCB, our minimum CET1 capital requirements and
combined buffer requirement taken together amount to
7.1% (based on RWAs at 31 December 2015), effectively
superseding the previous PRA guidance on the CET1 ratio.
In January 2016, the FPC published a consultation on its
proposed framework for the SRB. It is proposed that it will
apply to ring-fenced banks and large building societies and
will be implemented from 1 January 2019. The buffer to be
applied to HSBC's ring-fenced bank has yet to be
determined.
Further details of the aforementioned CRD IV buffers are
set out in the Appendix to Capital on page 246.
Pillar 2 and the ‘PRA buffer’
The Pillar 2 framework requires banks to hold capital in
respect of risks not captured in the Pillar 1 framework and
to assess risks which banks may become exposed to over a
forward-looking planning horizon. The PRA’s assessment
results in the determination of ICG/Pillar 2A and Pillar 2B,
respectively.
Pillar 2A was previously required to be met by total capital
but, since 1 January 2015, must be met with at least 56%
CET1. Furthermore, the PRA expects firms not to meet the
CRD IV buffers with any CET1 required to meet its ICG.
The Pillar 2A requirement is a point in time assessment
of the amount of capital the PRA considers that a bank
should hold to meet the overall financial adequacy rule.
It is therefore subject to change as part of the PRA’s
supervisory review process. In November 2015, our
Pillar 2A requirement was set at 2.3% of RWAs, of which
1.3% is met by CET1.
In July 2015, the PRA published a final policy statement
PS17/15, setting out amendments to the PRA Rulebook
and Supervisory Statements in relation to the Pillar 2
framework. The revised framework became effective on
1 January 2016. The PRA’s Statement of Policy sets out the
methodologies that it will use to inform its setting of firms’
Pillar 2 capital requirements, including new approaches
for determining Pillar 2 requirements for credit risk,
operational risk, credit concentration risk and pension
obligation risk.
In parallel, in July 2015, the PRA also issued its supervisory
statement SS31/15 in which it introduced a PRA buffer to
replace the capital planning buffer determined under
HSBC HOLDINGS PLC
240
Pillar 2B, from 1 January 2016. This is to be met in the form
of CET1 capital.
calculating capital requirements. Details of the most
significant consultations are set out below.
The statement sets out that the PRA buffer is intended to
avoid duplication with CRD IV buffers and will be set for a
particular firm depending on its vulnerability in a stress
scenario. In order to address significant weaknesses in risk
management and governance, a scalar may be applied to
firms’ CET1 Pillar 1 and Pillar 2A capital requirements. This
will also form part of the PRA Buffer.
Where the PRA considers there is overlap between the CRD
IV buffers and the PRA buffer assessment, the PRA buffer
will be set as the excess capital required over and above
the CRD IV combined buffer. From 1 January 2016, the CCB
and the systemic buffers are permitted to offset against the
PRA buffer with the exception of any risk management and
governance scalar where applicable. The use of the PRA
buffer will not result in automatic restrictions
to distributions.
Regulatory stress testing
The Group is subject to supervisory stress testing in
many jurisdictions. These requirements are increasing
in frequency and granularity. As such, stress testing
represents a key focus for the Group.
The Bank of England published the results of the 2015 UK
stress test in December 2015 confirming that these tests
did not reveal any capital inadequacies for HSBC. At the
European level, the EBA did not undertake a stress testing
exercise in 2015 but instead carried out a transparency
exercise, the results of which were published in November
2015.
In July 2015, the EBA also disclosed a timeline for the 2016
EU wide stress test exercise. The EBA expects to publish the
2016 stress test scenario and methodology in the first
quarter of 2016, with results published in the third quarter
of 2016.
In October 2015, the Bank of England published its
approach to stress testing in the UK. This set out that the
outcome of the UK stress testing exercise will be considered
by the FPC when determining the UK CCyB rate, and will
also inform the PRA buffer. Furthermore, from 2016, the
applicable hurdle rate which is the amount of capital that
banks are expected to maintain under a stress, is to include
Pillar 1, Pillar 2A and G-SII buffer requirements.
In 2015, Group entities also participated in regional stress
testing exercises. For further details on stress testing
exercises, see page 116.
RWA developments
Throughout 2015, UK, EU and international regulators
issued a series of consultations designed to revise the
various components of the RWA regime and increase
related reporting and disclosures. In particular, the Basel
Committee on Banking Supervision (‘the Basel Committee’)
published proposals relating to certain Pillar 1 risk types to
update standardised, non-modelled approaches for
In December 2015 the Basel Committee published its
second consultation paper on a revised standardised
approach for credit risk. This included proposals to
reintroduce external credit ratings, moderated by internal
due diligence, as the basis for calculating risk weights for
banks and corporates. The risk weights for other assets are
to be determined by a variety of treatments tailored for
each exposure class, which are designed to increase risk
sensitivity and comparability.
In January 2016, the Basel Committee published the final
rules arising from the Fundamental Review of the Trading
Book, with implementation planned for 2019. The new
regime includes amendments to the trading book boundary
and new market risk capital calculations for both the
modelled and standardised approaches. The Basel
Committee acknowledges that there is considerable
ongoing work which could require further revisions to the
framework.
The final changes to the CVA capital charge are expected
to be published in 2016. Following the finalisation of
the CVA capital regime, the EU is expected to review
the exemptions to the CVA charge currently applied to
corporates, sovereigns and intragroup exposures. In the
interim, the EU has consulted upon a methodology for
calculating a Pillar 2 charge for excessive CVA risk resulting
from exempted transactions.
The revised consultations for standardised operational risk
and the design and calibration of a capital floor based on
the standardised approaches, are expected by the end
of 2016.
All of the Basel Committee’s consultations will need to be
transposed into EU law before coming into effect. This
includes the finalised changes that relate to the
counterparty risk and securitisation regimes.
UK leverage ratio framework
Following consultations in 2014, secondary legislation
came into force in April 2015 to provide the FPC with
direction powers in relation to the UK leverage ratio
framework. In July 2015, the FPC published its final policy
statement setting out its intention to use its new powers of
direction. As a result the PRA issued a consultation paper
to introduce requirements for the UK leverage ratio
framework. This established a minimum tier 1 leverage
ratio of 3%, an additional leverage ratio buffer (‘ALRB’) for
G-SIIs and a countercyclical leverage ratio buffer (‘CCLB’),
and was implemented on 1 January 2016. The ALRB and
CCLB are to be met entirely with CET1 capital and will be
set at 35% of the relevant buffers in the risk-weighted
capital framework. At 1 January 2016, our minimum
leverage ratio requirement of 3% was supplemented with
an ALRB of 0.2% and a CCLB which rounds to 0%. We
comfortably exceed these leverage requirements.
HSBC HOLDINGS PLC
241
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Capital (continued)
Regulatory developments / Appendix to Capital
It is anticipated that a minimum leverage ratio
requirement, including potential buffers for G-SIBs, will
be consulted upon by the Basel Committee in 2016 and a
formal Pillar 1 measure finalised by 1 January 2018.
Total loss absorbing capacity proposals
As part of Recovery and Resolution frameworks both in
the EU and internationally, there have been various
developments in relation to TLAC. In the EU, the Bank
Recovery and Resolution Directive introduces an MREL.
In July 2015, the EBA published a final draft Regulatory
Technical Standard (‘RTS’) for MREL which seeks to provide
additional clarity on the criteria that resolution authorities
should take into account when setting a firm specific MREL
requirement. The EBA notes that it aims to implement the
MREL in a way which is consistent with the finalised
international standard on TLAC.
In November 2015, the FSB published finalised proposals
on TLAC for G-SIBs to be applied in accordance with
individual bank resolution strategies. This set out a
requirement of 16% of RWAs and a TLAC leverage ratio
of 6% to be met from 1 January 2019, increasing to 18%
and 6.75% respectively, from 1 January 2022. Existing
regulatory capital buffers will need to be met in addition to
the minimum TLAC requirement. A breach of TLAC will be
treated as severely as a breach of minimum capital
requirements.
In November 2015, the Basel Committee also published a
consultation on the treatment of banks’ holdings of TLAC
instruments issued by a G-SIB, which proposed new
deductions from regulatory capital. Once finalised, any
additional requirements in relation to TLAC are expected to
be reflected in MREL and to be implemented in the UK.
In December 2015, the Bank of England published a
consultation paper on the UK’s implementation of MREL.
The Bank of England stated that it intends to set MREL
consistent with both TLAC and the final EBA RTS expected
to be published later this year. The MREL is expected to
comprise a loss absorption amount which reflects existing
regulatory capital requirements and a recapitalisation
amount which reflects the capital that a firm is likely to
need post resolution. The latter can be met with both
regulatory capital and eligible liabilities.
While MREL is to be set on an individual basis, the Bank
of England generally expects MREL for banks whose
appropriate resolution strategy is bail-in, to be equivalent
to twice the current minimum capital requirements. A
finalised Statement of Policy is expected by mid-2016. The
Bank of England is also expected to provide firms with an
indication of their prospective 2020 MREL during 2016, and
will set MREL on a transitional basis until then. For G-SIBs,
MREL is proposed to apply from 2019, consistent with FSB
timelines.
In parallel to the above, the PRA separately published a
consultation paper on the interaction between MREL and
capital buffers and how it would treat a breach of MREL
requirements. This proposed that banks should not be able
to meet MREL requirements with CET1 used to meet
existing capital and leverage ratio buffers.
Structural reform and recovery and
resolution planning
Globally there have been a number of developments relating
to banking structural reform and the introduction of
recovery and resolution regimes. As part of recovery and
resolution planning, some regulators and national authorities
have also required changes to the corporate structures of
banks. These include requiring the local incorporation of
banks or ring-fencing of certain businesses.
In 2013 and 2014, UK legislation was enacted requiring large
banking groups to ring-fence UK retail and SME banking
activity in a separately incorporated banking subsidiary
(a ‘ring-fenced bank’) that is prohibited from engaging in
significant trading activity. Ring-fencing is to be completed by
1 January 2019. The legislation also detailed the applicable
individual customers to be transferred to the ring-fenced
bank. In addition, the legislation places restrictions on the
activities and geographical scope of ring-fenced banks.
Throughout 2015 the PRA published a number of
consultations on the implementation of ring-fencing
requirements and the finalisation of rules is expected to
continue in 2016.
The key proposals included near final rules published in
May 2015 on legal structure, corporate governance, and
continuity of services and facilities.
Additionally, in October 2015, the PRA issued a consultation
on the application of capital and liquidity rules for ring-
fenced banks, management of intra-group exposures, and
use of financial market infrastructures. The PRA intends to
undertake a further consultation in 2016 in respect of
reporting and disclosure, and publish finalised rules and
supervisory statements thereafter, with implementation by
1 January 2019.
We are working with our primary regulators to develop and
agree a resolution strategy for HSBC. It is our view that a
strategy by which the Group breaks up at a subsidiary bank
level at the point of resolution (referred to as a Multiple
Point of Entry) is the optimal approach, as it is aligned to
our existing legal and business structure. Similarly to all
G-SIBs, we are working with our regulators to mitigate
or remove critical inter-dependencies between our
subsidiaries to further facilitate the resolution of the
Group. In particular, in order to remove operational
dependencies (where one subsidiary bank provides critical
services to another), we are in the process of transferring
critical services from our subsidiary banks to a separate
internal group of service companies (‘ServCo group’).
During 2015, more than 18,000 employees performing
shared services in the UK were transferred to the ServCo
group. Further transfers of employees, critical shared
services and assets in the UK, Hong Kong and other
jurisdictions will occur in due course.
HSBC HOLDINGS PLC
242
Footnotes to Capital
1 From 1 January 2015 the CRD IV transitional CET1 and end point CET1 capital ratios became aligned for HSBC Holdings plc due to the recognition of
unrealised gains on investment property and available-for-sale securities.
2 This includes dividends on ordinary shares, quarterly dividends on preference shares and coupons on capital securities, classified as equity.
3 The basis of presentation for foreign currency translation differences has changed to reflect the total amount in CET1 capital. Previously this only
included foreign currency translation differences recognised in other comprehensive income. The comparative period, where applicable, has not been
updated to reflect the change.
4 In the first half of 2015, a portfolio of customers was transferred from CMB to RBWM in Latin America in order to better align the combined banking
needs of the customers with our established global businesses. Comparative data have been re-presented accordingly.
5 RWAs are non-additive across geographical regions due to market risk diversification effects within the Group.
6 For the basis of preparation, see page 247.
7 CRD IV balances as at 31 December 2013 were estimated based on the Group’s interpretation of final CRD IV legislation and final rules issued by the
PRA, details of which can be found in the basis of preparation on page 324 of the Annual Report and Accounts 2013.
8 Includes externally verified profits for the year to 31 December 2015.
9 Mainly comprises unrealised gains/losses in available-for-sale debt securities related to SPEs.
10 Includes own credit spread on trading liabilities.
11 Mainly comprise investments in insurance entities.
Appendix to Capital
Capital management
(Audited)
Approach and policy
Our approach to capital management is driven by our strategic and organisational requirements, taking into account the
regulatory, economic and commercial environment in which we operate. Pre-tax return on risk-weighted assets (‘RoRWA’)
is an operational metric by which the global businesses are managed on a day-to-day basis. The metric is calibrated against
return on equity and our capital requirements to ensure we are best placed to achieve capital strength and business
profitability, combined with regulatory capital efficiency objectives. It is our objective to maintain a strong capital base to
support the risks inherent in our business and invest in accordance with our strategy, exceeding both consolidated and local
regulatory capital requirements at all times.
Our policy on capital management is underpinned by a capital management framework and our internal capital adequacy
assessment process, which enables us to manage our capital in a consistent manner. The framework, which is approved by
the Group Management Board (‘GMB’) annually, incorporates a number of different capital measures including market
capitalisation, shareholders’ equity, economic capital and regulatory capital. During 2015, we continued to manage Group
capital to meet a medium-term target for return on equity of more than 10%. This is modelled on a CET1 ratio on an end point
basis in the range of 12% to 13%.
Capital measures
• shareholders’ equity is the equity capital invested in HSBC by our shareholders, adjusted for certain reserves and goodwill previously
amortised or written-off;
• economic capital is the internally calculated capital requirement which we deem necessary to support the risks to which we are exposed;
and
• regulatory capital is the capital which we are required to hold in accordance with the rules established by the PRA for the consolidated
Group and by our local regulators for individual Group companies. This comprises common equity tier 1, additional tier 1 and tier 2
capital.
Our assessment of capital adequacy is aligned to our assessment of risks, including: credit, market, operational, interest rate
risk in the banking book, pensions, insurance, structural foreign exchange risk and residual risks.
Stress testing
In addition to our annual group internal stress test, the Group is subject to supervisory stress testing in many jurisdictions.
Supervisory requirements are increasing in frequency and in the granularity with which the results are required. These
exercises include the programmes of the PRA, the FRB, the EBA, the ECB and the HKMA, as well as stress tests undertaken
in other jurisdictions. We take into account the results of all such regulatory stress testing and our internal stress test when
assessing our internal capital requirements. The outcome of stress testing exercises carried out by the PRA, will also feed into
a PRA buffer under the Pillar 2 requirements, where required.
Risks to capital
Outside of the stress-testing framework, a list of top and emerging risks is regularly evaluated for their effect on our CET1
capital ratio. As a result, other risks may be identified which have the potential to affect our RWAs and/or capital position.
These risks are also included in the evaluation of risks to capital. The downside or upside scenarios are assessed against our
capital management objectives and mitigating actions are assigned as necessary. The responsibility for global capital allocation
principles and decisions rests with the GMB. Through our internal governance processes, we seek to maintain discipline over
HSBC HOLDINGS PLC
243
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Capital (continued)
Appendix to Capital
our investment and capital allocation decisions and seek to ensure that returns on investment meet the Group’s management
objectives. Our strategy is to allocate capital to businesses and entities on the basis of their ability to achieve established
RoRWA objectives and their regulatory and economic capital requirements.
Risk-weighted asset plans
RWA plans form part of the Annual Operating Plan that is approved by the Board. Revised forecasts are submitted to the GMB
on a monthly basis and reported RWAs are monitored against plan.
Our global businesses are set targets in line with the priorities outlined in last June’s strategy update including RWA efficiency
and return on RWAs. Business performance against RWA targets is monitored through regular reporting to the Holding
Company ALCO as well as the GMB. Performance measures are aligned to the Group’s strategic actions. The management of
regulatory capital deductions is also addressed in the RWA monitoring framework through additional notional charges for
these items.
Analysis is undertaken within the RWA monitoring framework to identify the key drivers of movements. Particular attention is
paid to identifying and segmenting items within the day-to-day control of the business and those items that are driven by
changes in risk models or regulatory methodology. Analysis is also undertaken to recognise and report specific actions that are
targeted RWA reduction initiatives.
Capital generation
HSBC Holdings is the primary provider of equity capital to its subsidiaries and also provides them with non-equity capital where
necessary. These investments are substantially funded by HSBC Holdings’ own capital issuance and profit retention. As part of
its capital management process, HSBC Holdings seeks to maintain a prudent balance between the composition of its capital
and its investment in subsidiaries.
Capital measurement and allocation
The PRA supervises HSBC on a consolidated basis and therefore receives information on the capital adequacy of, and sets
capital requirements for, the Group as a whole. Individual banking subsidiaries are directly regulated by their local banking
supervisors, who set and monitor their capital adequacy requirements. Our capital at Group level is calculated under CRD IV
and supplemented by the PRA’s rules to effect the transposition of directive requirements.
Our policy and practice in capital measurement and allocation at Group level is underpinned by the CRD IV rules. In most
jurisdictions, non-banking financial subsidiaries are also subject to the supervision and capital requirements of local regulatory
authorities.
The Basel III framework, similarly to Basel II, is structured around three ‘pillars’: minimum capital requirements, supervisory
review process and market discipline. The CRD IV legislation implemented Basel III in the EU and, in the UK, the ‘PRA Rulebook’
for CRR Firms transposed the various national discretions under the CRD IV legislation into UK requirements. CRDIV also
introduces a number of capital buffers, including the CCB, CCyB, and other systemic buffers such as the G-SII buffer.
Regulatory capital
For regulatory purposes, our capital base is divided into three main categories, namely CET1, additional tier 1 and tier 2,
depending on their characteristics.
• CET1 capital is the highest quality form of capital, comprising shareholders’ equity and related non-controlling interests
(subject to limits). Under CRD IV various capital deductions and regulatory adjustments are made to these items which are
treated differently for the purposes of capital adequacy – these include deductions for goodwill and intangible assets,
deferred tax assets that rely on future profitability, negative amounts resulting from the calculation of expected loss
amounts under IRB, holdings of capital securities of financial sector entities and surplus defined benefit pension fund
assets.
• Additional tier 1 capital comprises eligible non-common equity capital securities and any related share premium; it also
includes qualifying securities issued by subsidiaries subject to certain limits. Holdings of additional tier 1 securities of
financial sector entities are deducted.
• Tier 2 capital comprises eligible capital securities and any related share premium and qualifying tier 2 capital securities
issued by subsidiaries subject to limits. Holdings of tier 2 capital securities of financial sector entities are deducted.
Pillar 1 capital requirements
Pillar 1 is comprised of the capital resources requirements for credit risk, market risk and operational risk. Credit risk includes
counterparty credit risk and securitisation requirements. These requirements are expressed in terms of RWAs.
Credit risk capital requirements
CRD IV applies three approaches of increasing sophistication to the calculation of Pillar 1 credit risk capital requirements. The
most basic, the standardised approach, requires banks to use external credit ratings to determine the risk weightings applied
HSBC HOLDINGS PLC
244
to rated counterparties. Other counterparties are grouped into broad categories and standardised risk weightings are applied
to these categories. The next level, the internal ratings-based (‘IRB’) foundation approach, allows banks to calculate their credit
risk capital requirements on the basis of their internal assessment of a counterparty’s probability of default (‘PD’), but the
estimates of exposure at default (‘EAD’) and loss given default (‘LGD’) are subject to standard supervisory parameters. Finally,
the IRB advanced approach allows banks to use their own internal assessment in both determining PD and quantifying EAD and
LGD.
The capital resources requirement, which is intended to cover unexpected losses, is derived from a formula specified in the
regulatory rules which incorporates PD, LGD, EAD and other variables such as maturity and correlation. Expected losses are
calculated by multiplying PD by EAD and LGD. Expected losses are deducted from capital to the extent that they exceed total
accounting impairment allowances. For credit risk we have adopted the IRB advanced approach for the majority of our
portfolios, with the remainder on either IRB foundation or standardised approaches.
At the end of 2015, a number of portfolios in Europe, Asia and North America were on the advanced IRB approach as well as
our sovereigns, banks and large corporate exposures globally. Others remain on the standardised or foundation approach
pending definition of local regulations or model approval, or under exemptions from IRB treatment. In some instances,
regulators have allowed us to transition from advanced to standardised approaches for a limited number of portfolios.
• Counterparty credit risk
Counterparty credit risk (‘CCR’) arises for derivatives and securities financing transactions. It is calculated for both the
trading and non-trading books and is the risk that the counterparty to a transaction may default before completing the
satisfactory settlement of the transaction. Three approaches to calculating CCR and determining exposure values are
defined by CRD IV: mark-to-market, standardised and internal model method. These exposure values are used to determine
capital requirements under one of the credit risk approaches: standardised, IRB foundation and IRB advanced.
We use the mark-to-market and internal model method approaches for CCR.
In addition, CRD IV introduced a regulatory capital charge to cover CVA risk, the risk of adverse movements in the credit
valuation adjustments taken for expected credit losses on derivative transactions. Where we have both specific risk VaR
approval and internal model method approval for a product, the CVA VaR approach has been used to calculate the CVA
capital charge. Where we do not hold both approvals, the standardised approach has been applied. Certain counterparty
exposures are exempt from CVA, such as non-financial counterparties and sovereigns.
• Securitisation
Securitisation positions are held in both the trading and non-trading books. For non-trading book securitisation positions,
CRD IV specifies two methods for calculating credit risk requirements, the standardised and the IRB approaches. Both rely
on the mapping of rating agency credit ratings to risk weights, which range from 7% to 1,250%.
Within the IRB approach, we use the ratings-based method for the majority of our non-trading book securitisation
positions, and the internal assessment approach for exposures arising from asset-backed commercial paper programmes,
mainly related to liquidity facilities and programme wide credit enhancement.
The majority of securitisation positions in the trading book are risk weighted for capital purposes as though they are held in
the non-trading book under the standardised or IRB approaches.
Market risk capital requirement
The market risk capital requirement is measured using internal market risk models where approved by the PRA, or the
standard rules of CRD IV. Our internal market risk models are VaR, stressed VaR and Incremental Risk. Since the sale of our
correlation portfolio in September 2014, there has been no market risk capital requirement associated with the
comprehensive risk measure.
Operational risk capital requirement
CRD IV includes a capital requirement for operational risk, again utilising three levels of sophistication. The capital required
under the basic indicator approach is a simple percentage of gross revenues, whereas under the standardised approach the
calculation is applied to the same measure with varying percentages by business line. Both these approaches use an average of
the last three financial years’ revenues. Finally, the advanced measurement approach uses banks’ own statistical analysis and
modelling of operational risk data to determine capital requirements. We have adopted the standardised approach
in determining our operational risk capital requirements.
Pillar 2 capital requirements
We conduct an annual internal capital adequacy assessment process (‘ICAAP’) to determine a forward looking assessment of
our capital requirements given our business strategy, risk profile, risk appetite and capital plan. This process incorporates the
Group’s risk management processes and governance framework. As a part of our ICAAP, we carry out internal stress testing of
our base capital plan where both the PRA released stress scenario and concurrent scenario in the context of our business and
HSBC HOLDINGS PLC
245
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Capital (continued)
Appendix to Capital
specific risk drivers are taken into account. These, coupled with our economic capital framework and other risk management
practices, are used to assess our internal capital adequacy requirements.
The ICAAP is examined by the PRA as part of its supervisory review and evaluation process (‘SREP’), which occurs periodically
to enable the regulator to define the individual capital guidance or minimum capital requirements for HSBC and our capital
planning buffer where required. Under the revised Pillar 2 PRA regime, which came into effect from 1 January 2016, the capital
planning buffer was replaced with a PRA buffer. The PRA states this is not intended to duplicate the CRD IV buffers, and will be
set according to vulnerability in a stress scenario, as assessed through the annual PRA stress testing exercise.
CRD IV capital buffers
CRD IV introduced a number of capital buffers which apply in addition to Pillar 1 and Pillar 2 requirements and are broadly
aligned with the Basel III framework. This includes the CCB, CCyB, and G-SII which are all currently applicable to the Group.
These are to be met with CET1 and, with the exception of the CCyB which applies with immediate effect, are being phased in
from 1 January 2016. The CRD IV includes other capital buffers such as the systemic risk buffer which has not yet been fully
implemented by the PRA.
• CCB
The CCB is designed to ensure banks build up capital outside periods of stress that can be drawn down when losses are
incurred. It is set at 2.5% of RWAs across all banks, and is being phased in from 1 January 2016. At 1 January 2016, our CCB
was 0.625%.
• G-SII
The Group is designated as a G-SII by the PRA, and is currently subject to a G-SII buffer of 2.5% of RWAs. This is being
phased in from 1 January 2016. The G-SII buffer is intended to address systemic risk, which is assessed on an annual
basis according to a number of indicators such as: the size of a bank, its interconnectedness, the lack of readily available
substitutes or financial institution infrastructure for the services it provides, its global cross-jurisdictional activity, and
the complexity of its business model. At 1 January 2016, our G-SII buffer was 0.625%.
• CCyB
The CCyB is a countercyclical buffer which is set on an institution specific basis and calculated according to the geographic
location of relevant exposures. It is designed to protect against future losses where unsustainable levels of leverage, debt or
credit growth pose a systemic threat. Our institution-specific CCyB for the Group is calculated as the weighted average of
the CCyB rates that apply in the jurisdictions where our relevant credit exposures are located. At 31 December 2015 our
institution specific CCyB applicable on a group basis, was close to 0%.
• Combined buffer
As a result of the above requirements, at 1 January 2016, the combined buffer applicable to HSBC Group was estimated
as 1.25%.
Leverage ratio requirements
In addition to risk-based capital requirements, the Group is subject to a non-risk sensitive, minimum leverage ratio
requirement of 3%, as set by the PRA. This is calculated in accordance with the Commission Delegated Regulation (EU)
2015/62, published in January 2015, which implemented the revised Basel III 2014 exposure measure. Since 1 January 2016,
the minimum leverage ratio of 3% has been supplemented with an ALRB for G-SIIs and a CCLB, both of which are set at 35% of
the relevant buffers in the risk-weighted capital framework. As a result, at 1 January 2016, our minimum leverage ratio
requirement of 3% was supplemented with an ALRB of 0.2% and a CCLB which rounds to 0%.
Pillar 3 disclosure requirements
Pillar 3 of the Basel regulatory framework is related to market discipline and aims to make firms more transparent by requiring
publication, at least annually, of wide-ranging information on their risks, capital and management. Our Pillar 3 Disclosures 2015
are published on our website, www.hsbc.com, under Investor Relations.
HSBC HOLDINGS PLC
246
RWA movement by key driver – basis of preparation and supporting notes
Credit risk drivers – definitions and quantification
The causal analysis of RWA movements splits the total movement in IRB RWAs into six drivers, described below. The first four
relate to specific, identifiable and measurable changes. The remaining two, book size and book quality, are derived after
accounting for movements in the first four specific drivers.
1. Foreign exchange movements
This is the movement in RWAs as a result of changes in the exchange rate between the functional currency of the HSBC
company owning each portfolio and US dollars, being our presentation currency for consolidated reporting. Our structural
foreign exchange exposures are managed with the primary objective of ensuring, where practical, that our consolidated capital
ratios and the capital ratios of individual banking subsidiaries are largely protected from the effect of changes in exchange
rates. This is usually achieved by ensuring that, for each subsidiary bank, the ratio of structural exposures in a given currency to
risk-weighted assets denominated in that currency is broadly equal to the capital ratio of the subsidiary in question. We hedge
structural foreign exchange exposures only in limited circumstances.
2. Acquisitions and disposals
This is the movement in RWAs as a result of the disposal or acquisition of business operations. This can be whole businesses
or parts of a business. The movement in RWAs is quantified based on the credit risk exposures as at the end of the month
preceding a disposal or following an acquisition.
3. Model updates
RWA movements arising from the implementation of new models and from changes to existing parameter models are
allocated to this driver. This figure will also include changes which arise following review of modelling assumptions. Where a
model recalibration reflects an update to more recent performance data, the resulting RWA changes are not assigned here,
but instead reported under book quality.
RWA changes are estimated based on the impact assessments made in the testing phase prior to implementation. These
values are used to simulate the effect of new or updated models on the portfolio at the point of implementation, assuming
there were no major changes in the portfolio from the testing phase to implementation phase.
RWA movement arising from portfolios moving from the standardised approach to the IRB approach are also allocated to this
driver. The RWA movement by key driver statement shows the increase in IRB RWAs, but does not show the corresponding
reduction in standardised approach RWAs as its scope is limited to IRB only.
The movement in RWAs is quantified at the date at which the IRB approach is applied, and not during the testing phase as with
a new/updated model.
4. Methodology and policy
Internal updates
This captures the effect on RWAs of changing the internal treatment of exposures. This may include, but is not limited to, a
portfolio or a part of one moving from an existing IRB model onto a standardised model, identification of netting and credit
risk mitigation.
External updates – regulatory
This specifies the effect of additional or changing regulatory requirements. This includes, but is not limited to, regulatory-
prescribed changes to the RWA calculation. The movement in RWAs is quantified by comparing the RWAs calculated for that
portfolio under the old and the new requirements.
5. Book size
RWA movements attributed to this driver are those we would expect to experience for the given movement in exposure,
as measured by EAD, assuming a stable risk profile. These RWA movements arise in the normal course of business, such as
growth in credit exposures or reduction in book size from run-offs and write-offs.
The RWA movement is quantified as follows:
• RWA and EAD changes captured in the four drivers above are excluded from the total movements to create an adjusted
movement in EAD and RWA for the period.
• The average RWA to EAD percentage is calculated for the opening position and is applied to the adjusted movement in
EAD. This results in an estimated book size RWA movement based on the assumption that the EAD to RWA percentage is
constant throughout the period.
As the calculation relies on averaging, the output is dependent upon the degree of portfolio aggregation and the number of
discrete time periods for which the calculation is undertaken. For each quarter of 2015 this calculation was performed for each
HSBC HOLDINGS PLC
247
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Capital / Corporate Governance
Appendix to Capital / Corporate Governance Report / Biographies
HSBC company with an IRB portfolio by global businesses, split by the main Basel categories of credit exposures, as described
in the table below:
Central governments and central banks
Corporates – Other
Retail – Qualifying revolving
CRD IV categories of IRB credit exposures within HSBC
Institutions
Corporates – SME
Corporates – Specialised Lending
Retail – Secured by real estate SME
Retail – Other SME
Retail – Secured by retail estate non-SME
Retail – Other non-SME
The total of the results is shown in book size within the RWA movement by key driver table.
6. Book quality
This represents RWA movements resulting from changes in the underlying credit quality of customers. These are caused
by changes to IRB risk parameters which arise from actions such as, but not limited to, model recalibration, change in
counterparty external rating, or the influence of new lending on the average quality of the book. The change in RWAs
attributable to book quality is calculated as the balance of RWA movements after taking account of all drivers described above.
The RWA movement by key driver statement includes only movements which are calculated under the IRB approach. Certain
classes of credit risk exposure are treated as capital deductions and therefore reductions are not shown in this statement. If
the treatment of a credit risk exposure changes from RWA to capital deduction in the period, then only the reduction in RWAs
would appear in the RWA movement by key driver tables. In this instance, a reduction in RWAs does not necessarily indicate
an improvement in the capital position.
Counterparty risk drivers – definitions and quantification
The RWA movement by key driver for counterparty credit risk calculates the credit risk drivers 5 and 6 at a more granular level,
by using transaction level details provided by regional sites. ‘Foreign exchange movement’ is not a reported layer for
counterparty risk drivers, as there is cross currency netting across the portfolio.
Market risk drivers – definitions and quantification
The RWA movement by key driver for market risk combines the credit risk drivers 5 and 6 into a single driver called
‘Movements in risk levels’.
HSBC HOLDINGS PLC
248
Corporate Governance
Page
App1
Corporate Governance Report
Directors
Secretary
Group Managing Directors
Corporate governance codes
Board of Directors
Board committees
Group Audit Committee
Group Risk Committee
Financial System Vulnerabilities Committee
Group Remuneration Committee
Nomination Committee
Conduct & Values Committee
Philanthropic and Community Investment
Oversight Committee
Chairman’s Committee
Internal control
Going concern and viability
Employees
Employee relations
Diversity and inclusion
Employee development
Employment of disabled persons
Health and safety
Remuneration policy
Employee share plans
Other disclosures
Share capital
Directors’ interests
Dividends and shareholders
249
249
254
254
256
256
262
262
266
268
270
270
272
274
274
275
277
278
278
278
278
278
278
279
279
280
281
282
283
2015 Annual General Meeting
280
1 Appendix to Report of the Directors.
Corporate Governance
Report
The statement of corporate governance practices set
out on pages 249 to 335 and information incorporated by
reference constitutes the Corporate Governance Report
of HSBC Holdings. The reports of Board Committees are
contained within the Corporate Governance Report.
Directors
Douglas Flint, CBE, 60
Group Chairman
Appointed to the Board: December
1995. Group Chairman since December
2010.
Skills and experience: Douglas has extensive board-level
experience and knowledge of governance primarily gained
through membership of the boards of HSBC and BP plc
and his time as a partner of KPMG. He has considerable
knowledge of finance and risk management in banking,
multinational financial reporting, treasury and securities
trading operations and has chaired and been a member of
highly influential bodies which set standards for taxation,
governance, accounting and risk management. He joined
HSBC as Group Finance Director in 1995, which broadened
to that of Chief Financial Officer, Executive Director Risk and
Regulation.
He is a member of the Institute of Chartered Accountants
of Scotland and the Association of Corporate Treasurers
and also a Fellow of the Chartered Institute of Management
Accountants. In 2006, he was honoured with a CBE in
recognition of his services to the finance industry. Former
appointments include non-executive director and chairman
of the Audit Committee of BP plc and an independent
external member of the UK Government’s Financial
Services Trade and Investment Board.
Current appointments include: Douglas is Chairman of
the Institute of International Finance and serves on the
International Business Leaders Advisory Councils of the
mayors of both Beijing and Shanghai. At the invitation of
the Prime Minister he serves as a UK Business Ambassador.
Stuart Gulliver, 56
Group Chief Executive
Appointed to the Board: May 2008.
Group Chief Executive since January
2011.
Skills and experience: Stuart joined HSBC in 1980. He is a
career banker with over 35 years’ international experience.
He has held a number of key roles in the Group’s operations
worldwide, including in London, Hong Kong, Tokyo, Kuala
Lumpur and the United Arab Emirates. Stuart played a
leading role in developing and expanding Global Banking
and Markets. Other former appointments include serving
as Chairman of Europe, Middle East and Global Businesses
and of HSBC Bank plc, HSBC Bank Middle East Limited,
HSBC Private Banking Holdings (Suisse) SA and HSBC France
and Deputy Chairman of HSBC Trinkaus & Burkhardt AG
and a member of its supervisory board. He was Head of
Global Banking and Markets; Co-Head of Global Banking
and Markets; Head of Global Markets; and Head of
Treasury and Capital Markets in Asia-Pacific.
HSBC HOLDINGS PLC
249
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Corporate Governance (continued)
Biographies
Current appointments include: Stuart is Chairman of The
Hongkong and Shanghai Banking Corporation Limited and
of the Group Management Board.
Laura Cha, GBS, 66
Independent non-executive Director
Appointed to the Board: March 2011
Phillip Ameen, 67
Independent non-executive Director
Appointed to the Board: January 2015
Chairman of the Philanthropic & Community Investment Oversight
Committee, member of the Conduct & Values Committee and the
Nomination Committee.
Skills and experience: Laura has extensive regulatory and
policy making experience in the finance and securities
sector in Hong Kong and mainland China. She is the
former Vice Chairman of the China Securities Regulatory
Commission. Other former appointments include serving as
a non-executive director of Bank of Communications Co.,
Ltd., Hong Kong Exchanges and Clearing Limited and Tata
Consultancy Services Limited. She also served as chair of
the University Grants Committee in Hong Kong and was
deputy chair of the Securities and Futures Commission in
Hong Kong.
Current appointments include: Laura is non-executive
Deputy Chairman of The Hongkong and Shanghai Banking
Corporation Limited. She is Chairman of the Financial
Services Development Council, Hong Kong and a non-
executive director of China Telecom Corporation Limited,
Unilever PLC and Unilever N.V.
Henri de Castries, 61
Independent non-executive Director
Appointed to the Board with effect
from 1 March 2016
Skills and experience: Henri has more than 25 years of
international experience in the finance industry. He joined
AXA in 1989 where his roles included responsibility for the
group’s asset management, financial and real-estate
businesses, the oversight of North American and UK
operations, as well as the preparation and the execution of
all the major mergers and acquisitions undertaken by the
insurance group during the 1990s.
Current appointments include: Henri is Chairman and
Chief Executive Officer of AXA. He is also Chairman of the
French leading think-tank Institut Montaigne and of AXA
Hearts in Action, AXA’s volunteer community outreach
programme. He also serves as a non-executive director of
Nestlé S.A. and of the French National Foundation for
Political Science (FNSP). He is a member of the Advisory
Board of Tsinghua University School of Economics and
Management.
Member of the Group Audit Committee.
Skills and experience: As a Certified Public Accountant with
extensive financial and accounting experience, Phil served
as Vice President, Comptroller, and Principal Accounting
Officer of General Electric Company (‘GE’). Prior to joining
GE, he was a partner in KPMG. He also has a depth of
technical knowledge from his participation in accounting
standards setting. Other former appointments include
serving on the International Financial Reporting
Interpretations Committee of the International Accounting
Standards Board, the Accounting Standards Executive
Committee of the American Institute of Certified Public
Accountants and the Financial Accounting Standards Board
Emerging Issues Task Force, and he was Chair of the
Committee on Corporate Reporting of Financial Executives
International and a Trustee of the Financial Accounting
Foundation.
Current appointments include: Phillip is a non-executive
director of HSBC North America Holdings Inc., HSBC Bank
USA N.A., HSBC Finance Corporation and HSBC USA Inc. He
is also Chairman of Skyonic Corporation.
Kathleen Casey, 49
Independent non-executive Director
Appointed to the Board: March 2014
Member of the Group Audit Committee and the Financial System
Vulnerabilities Committee.
Skills and experience: Kathleen has extensive financial
regulatory policy experience. She is a former Commissioner
of the US Securities and Exchange Commission, acting as
the regulator’s principal representative in multilateral and
bilateral regulatory dialogues, the G-20 Financial Stability
Board and the International Organisation of Securities
Commissions. Other former appointments include serving
as a Staff Director and Counsel of the United States Senate
Committee on Banking, Housing, and Urban Affairs and
Legislative Director and Chief of Staff for a US Senator.
Current appointments include: Kathleen is chair of the
Alternative Investment Management Association and a
senior adviser to Patomak Global Partners and to a number
of public bodies in the US.
HSBC HOLDINGS PLC
250
Lord Evans of Weardale, 58
Independent non-executive Director
Appointed to the Board: August 2013
Chairman of the Financial System Vulnerabilities Committee and a
member of the Conduct & Values Committee and the Philanthropic
& Community Investment Oversight Committee.
Skills and experience: Jonathan has extensive experience
in national security policy and operations. He was formerly
Director General of MI5 with responsibility for the
leadership, policy and strategy of the Security Service,
including international and domestic counter-terrorism,
counter-espionage and counter-proliferation activities and
cyber security. Jonathan has held various positions in the
UK Security Service over a 30-year career with responsibility
for the oversight of the Joint Terrorist Analysis Centre and
the Centre for the Protection of National Infrastructure and
attended the National Security Council.
Current appointments include: Jonathan is a director of
Ark Data Centres and serves in an advisory capacity to
various cybersecurity and technology companies.
Joachim Faber, 65
Independent non-executive Director
Appointed to the Board: March 2012
Chairman of the Group Risk Committee.
Skills and experience: Joachim has experience in banking
and asset management with significant international
experience, having worked in Germany, Tokyo, New York
and London. He is a former Chief Executive Officer of Allianz
Global Investors AG and is a member of the management
board of Allianz SE. He spent 14 years with Citigroup Inc.,
holding positions in Trading and Project Finance and as
Head of Capital Markets for Europe, North America and
Japan. Other former appointments include serving as
chairman of various Allianz subsidiaries. He was previously
a member of the supervisory board and chairman of the
audit and risk committee of OSRAM Licht AG. He was
also a member of the German Council for Sustainable
Development and a member of the advisory board of the
Siemens Group Pension Board.
Current appointments include: Joachim is Chairman of
the supervisory board of Deutsche Börse AG and of the
Shareholder Committee of Joh A. Benckiser SARL. He is an
independent director of Coty Inc. and a director of Allianz
France S.A.
Rona Fairhead, CBE, 54
Independent non-executive Director
Appointed to the Board: March 2004.
She will retire from the Board at the
conclusion of the HSBC Holdings AGM
on 22 April 2016.
Member of the Financial System Vulnerabilities Committee and the
Nomination Committee.
Skills and experience: Rona has a background in
international industry, publishing, finance and general
management. She was a former chair and Chief Executive
Officer of the Financial Times Group Limited responsible
for its strategy, management and operations and was
Finance Director of Pearson plc with responsibility for the
finance function, global financial reporting and control,
tax and treasury. Other former appointments include
serving as an Executive Vice President, Strategy and Group
Control of Imperial Chemical Industries plc and Chairman
and director of Interactive Data Corporation. She was a
member of the board of the UK Government’s Cabinet
Office and a non-executive director of The Economist
Newspaper Limited.
Current appointments include: Rona is a non-executive
director of PepsiCo Inc. and chair of the BBC Trust. She
handed over her responsibility as chair of HSBC North
American Holdings Inc. to Heidi Miller on 1 January 2016
and will remain on its board as a non-executive director
until she retires from the HSBC Holdings Board on 22 April
2016.
Sam Laidlaw, 60
Independent non-executive Director
Appointed to the Board: January 2008
Chairman of the Group Remuneration Committee and the
Nomination Committee.
Skills and experience: Sam has international experience,
particularly in the energy sector, having had responsibility
for businesses in four continents. He is a qualified solicitor
with a Master’s in Business Administration. Former
appointments include serving as Chief Executive Officer
of Centrica plc and the lead non-executive board member
of the UK Department for Transport. Sam was also an
Executive Vice President of Chevron Corporation and a
member of the UK Prime Minister’s Business Advisory
Group.
Current appointments include: Sam is the chair of National
Centre for Universities and Business and Executive
Chairman of Neptune Oil & Gas Limited.
HSBC HOLDINGS PLC
251
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Corporate Governance (continued)
Biographies
Irene Lee, 62
Independent non-executive Director
Appointed to the Board: July 2015
Skills and experience: Irene has over 30 years of finance
industry experience. She has held senior positions in
investment banking and fund management in the UK, USA
and Australia including Citibank and the Commonwealth
Bank of Australia. Other former appointments include
serving as a member of the Advisory Council of JP Morgan
Australia and the Australian Takeovers Panel.
Current appointments include: Irene is Executive Chairman
of Hysan Development Company Limited. She is also a
non-executive director of The Hongkong and Shanghai
Banking Corporation Limited and Hang Seng Bank Limited.
She is a non-executive director of Cathay Pacific Airways
Limited, China Light & Power Holdings Limited and Noble
Group Limited.
John Lipsky, 69
Independent non-executive Director
Appointed to the Board: March 2012
Member of the Group Risk Committee, the Nomination Committee
and the Group Remuneration Committee.
Skills and experience: John has international experience
having worked for JPMorgan in Chile, New York, Washington
and London and interacted with financial institutions,
central banks and governments in many countries. He
served at the International Monetary Fund as First Deputy
Managing Director, Acting Managing Director and as Special
Adviser. Other former appointments include serving as a
trustee of the Economic Club of New York, and a Global
Policy Adviser for Anderson Global Macro, LLC and as
Chairman of the World Economic Forum’s Global Agenda
Council on the International Monetary System.
Current appointments include: John holds a number of
senior appointments and advisory positions in international
economic research organisations.
Rachel Lomax, 70
Independent non-executive Director
Appointed to the Board: December
2008. Senior Independent non-
executive Director since April 2015
Chairman of the Conduct & Values Committee and a member of
the Group Audit Committee, Group Risk Committee and the
Nomination Committee.
Skills and experience: Rachel has experience in both the
public and private sectors and knowledge of the operation
of the UK government and financial system. Her former
appointments include serving as Deputy Governor of the
Bank of England and Permanent Secretary at the UK
Government Departments for Transport and Work and
Pensions and the Welsh Office. She was a non-executive
director of Reinsurance Group of America Inc. and The
Scottish American Investment Company PLC.
Current appointments include: Rachel is a non-executive
director of Arcus European Infrastructure Fund GP LLP,
and Heathrow Airport Holdings Limited. She is also a
non-executive director and chairman of the corporate
responsibility committee of Serco Group plc.
Iain Mackay, 54
Group Finance Director
Appointed to the Board: December
2010
Skills and experience: Iain joined HSBC in 2007 as Chief
Financial Officer of HSBC North America Holdings Inc.
He has extensive financial and international experience,
having worked in London, Paris, the US, Africa and Asia. Iain
is a member of the Institute of Chartered Accountants of
Scotland. Other former appointments include serving as a
director of Hang Seng Bank Limited, Chief Financial Officer,
Asia-Pacific, Vice President and Chief Financial Officer of GE
Global Consumer Finance and Vice President and Chief
Financial Officer of GE Healthcare – Global Diagnostic
Imaging.
Current appointments include: Iain is Chairman of the
audit and risk committee of the British Heart Foundation.
Heidi Miller, 62
Independent non-executive Director
Appointed to the Board: September
2014
Member of the Group Risk Committee.
Skills and experience: Heidi has extensive international
banking and finance experience. She is a former President
of International at JPMorgan Chase, and was responsible
for leading the global expansion and the international
business strategy across the investment bank, asset
management, and treasury and securities services divisions.
Former appointments include serving as non-executive
director of Merck & Co. Inc. and Progressive Corp.; Executive
Vice President and Chief Financial Officer of Bank One
Corporation; Senior Executive Vice President of Priceline.com
Inc.; and Executive Vice President and Chief Financial Officer
of Citigroup Inc.
Current appointments include: Heidi was appointed chair
of HSBC North American Holdings Inc. on 1 January 2016.
She is a non-executive director of First Data Corporation,
General Mills Inc. and advisory director of SRS
Acquiom LLC.
HSBC HOLDINGS PLC
252
Marc Moses, 58
Group Chief Risk Officer
Appointed to the Board: January 2014
Current appointments include: Jonathan is Chairman of
HSBC Bank plc, Innocoll AG and Proteus Digital Health Inc.
and is a non-executive director of Genomics England Limited.
Pauline van der Meer
Mohr, 56
Independent non-executive Director
Appointed to the Board: September
2015
With effect from 1 January 2016: Member of the Group
Remuneration Committee and the Conduct & Values Committee.
Skills and experience: Pauline has extensive legal and
human resources experience across a number of different
sectors, and contributed to the Dutch Banking Code
Monitoring Commission. Other former appointments
include serving as President of Erasmus University
Rotterdam, Senior Executive Vice President and Head of
Group Human Resources at ABN AMRO Bank NV, Group
Human Resources Director at TNT NV, HR Director,
Information Technology, Royal Dutch Shell Group and
Senior Legal Counsel, Shell International.
Current appointments include: Pauline is Chairman of the
supervisory board of EY Netherlands. She is also a member
of the supervisory boards of ASML Holding NV and Royal
DSM NV.
Paul Walsh, 60
Independent non-executive Director
Appointed to the Board: 1 January
2016
Member of the Group Remuneration Committee.
Skills and experience: Paul has extensive international
business experience gained as Group Chief Executive of
Diageo plc for 12 years, having originally joined the Board
of its predecessor, Grand Metropolitan plc, in 1995. He was
also a non-executive director of Unilever PLC, United Spirits
Limited and Centrica plc. Paul is a Fellow of the Chartered
Institute of Management Accountants.
Current appointments include: Paul is Chairman of
Compass Group PLC, Avanti Communications Group Plc
and Chime Communications Limited and a non-executive
director of FedEx Corporation, RM2 International S.A.
and Simpsons Malt Limited.
Skills and experience: Marc joined HSBC in 2005 as Chief
Financial and Risk Officer, Global Banking and Markets and
in December 2010 became Group Chief Risk Officer. He has
extensive risk management and financial experience. Marc
is a Fellow of the Institute of Chartered Accountants in
England and Wales. He was a European chief financial
officer at JP Morgan and an audit partner at
PricewaterhouseCoopers.
Sir Simon Robertson, 74
Deputy Chairman
Appointed to the Board: January 2006.
Deputy Chairman since December
2010. He will retire from the Board at
the conclusion of the HSBC Holdings
AGM on 22 April 2016.
Member of the Group Remuneration Committee.
Skills and experience: Simon has a background in
international corporate advisory work with a wealth of
experience in mergers and acquisitions, merchant banking,
investment banking and financial markets. Other former
appointments include serving as non-executive chair
of Rolls-Royce Holdings plc, non-executive director of the
Royal Opera House Covent Garden Limited and NewShore
Partners Limited and trustee of the Eden Project Trust.
Current appointments include: Simon is the founding
member of Simon Robertson Associates LLP. He is a
non-executive director of Berry Bros. & Rudd Limited,
The Economist Newspaper Limited, Troy Asset
Management and is a director of Immodulon Therapeutics
Limited.
Jonathan Symonds, CBE, 56
Independent non-executive Director
Appointed to the Board: April 2014
Chairman of the Group Audit Committee and a member of the
Conduct & Values Committee.
Skills and experience: Jonathan has extensive international
financial experience, having worked in the UK, US and
Switzerland. He served as Chief Financial Officer of Novartis
AG and AstraZeneca plc. Jonathan is a Fellow of the Institute
of Chartered Accountants in England and Wales. Other
former appointments include serving as partner and
Managing Director of Goldman Sachs, and a partner of
KPMG. He was a non-executive director and chair of the
Audit Committee of Diageo plc.
HSBC HOLDINGS PLC
253
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Corporate Governance (continued)
Biographies
Former Director
Safra Catz, 54
Independent non-executive Director
Appointed to the Board: May 2008
Resigned from the Board: 31 December
2015
Skills and experience: Safra has a background in
international business leadership, having helped transform
Oracle into the largest producer of business management
software and the world’s leading supplier of software for
information management.
Group Managing Directors
Mohammad Al Tuwaijri, 49
Deputy Chairman and Chief Executive, HSBC Bank Middle East
Limited
Mohammad joined HSBC in 2010 and became a Group
Managing Director on 1 February 2016. Former
appointments include: Group Head of Treasury and Head
of Risk Management at HSBC associate The Saudi British
Bank and Country Head of Saudi Arabia at JP Morgan
Chase.
Current appointments include: Safra is joint Chief
Executive Officer of Oracle Corporation.
Samir Assaf, 55
Chief Executive, Global Banking and Markets
Secretary
Ben Mathews, 49
Group Company Secretary
Ben joined HSBC in June 2013 and became Group Company
Secretary in July 2013. He is a Fellow of the Institute of
Chartered Secretaries and Administrators. Former
appointments include: Group Company Secretary of
Rio Tinto plc and of BG Group plc.
Samir joined HSBC in 1994 and became a Group Managing
Director in 2011. He is Chairman and non-executive
director of HSBC France, a director of HSBC Trinkaus &
Burkhardt AG and of HSBC Bank plc. He is Chairman of the
Global Financial Markets Association (GFMA). Former
appointments include: director of HSBC Global Asset
Management Limited and of HSBC Bank Egypt S.A.E.; Head
of Global Markets and Head of Global Markets for Europe,
Middle East and Africa.
Peter Boyles, 60
Chief Executive of Global Private Banking
Peter joined HSBC in 1975 and became a Group Managing
Director in 2013. He is Chairman of HSBC Private Bank
(Monaco) SA and was appointed a director of HSBC Global
Asset Management Limited on 26 March 2015. Former
appointments include: Chief Executive of HSBC France and
Continental Europe and a director of HSBC Bank plc; HSBC
Bank Malta p.l.c.; and of HSBC Trinkaus & Burkhardt AG.
Patrick Burke, 54
President and Chief Executive of HSBC US
Patrick joined HSBC in 1989 and became a Group Managing
Director on 1 August 2015. He is Chairman of HSBC Bank
USA, N.A., HSBC Finance Corporation, HSBC USA Inc. and
HSBC Global Asset Management (USA) Inc.
HSBC HOLDINGS PLC
254
John Flint, 47
Chief Executive, Retail Banking and Wealth Management
Andy Maguire, 49
Group Chief Operating Officer
John joined HSBC in 1989 and became a Group Managing
Director in 2013. He is a director of HSBC Private Banking
Holdings (Suisse) SA. Former appointments include: a
Director of HSBC Bank Canada; Chief of Staff to the Group
Chief Executive and Group Head of Strategy and Planning;
Chief Executive Officer HSBC Global Asset Management;
Group Treasurer; and Deputy Head of Global Markets.
Pierre Goad, 54
Group Head of Human Resources
Pierre first joined HSBC in 2001 and became a Group
Managing Director on 1 August 2015. He is a director of
HSBC Bank Canada. Former appointments include: Global
Head of Communications; Head of Communications at
Zurich Insurance Group; and Head of Corporate
Development, Europe, Middle East and Global Businesses.
Pam Kaur, 52
Group Head of Internal Audit
Pam joined HSBC and became a Group Managing Director
in 2013. She is a co-opted member of The Institute
of Chartered Accountants in England & Wales. Former
appointments include: Global Head of Group Audit for
Deutsche Bank AG; Chief Financial Officer and Chief
Operating Officer, Restructuring and Risk Division, Royal
Bank of Scotland Group plc; Group Head of Compliance and
Anti-Money Laundering, Lloyds TSB; and Global Director of
Compliance, Global Consumer Group, Citigroup.
Stuart Levey, 52
Chief Legal Officer
Stuart joined HSBC and became a Group Managing Director
in 2012. Former appointments include: Under Secretary for
Terrorism and Financial Intelligence in the US Department
of the Treasury; Senior Fellow for National Security and
Financial Integrity at the Council on Foreign Relations;
Principal Associate Deputy Attorney General at the US
Department of Justice; and Partner at Miller, Cassidy,
Larroca & Lewin LLP and Baker Botts LLP.
Andy joined HSBC in November 2014 as Group Chief
Operating Officer and became a Group Managing Director
on 1 August 2015. Former appointments include Managing
Partner (UK and Ireland) of the Boston Consulting Group.
Paulo Maia, 57
Chief Executive, Latin America
Paulo joined HSBC in 1993 and became a Group Managing
Director on 1 February 2016. Former appointments include:
Chief Executive of HSBC Bank Canada and HSBC Bank
Australia.
Antonio Simoes, 40
Chief Executive, HSBC Bank plc
Antonio joined HSBC in 2007 and became a Group
Managing Director on 1 February 2016. He is a director of
HSBC France. Former appointments include: Head of
RBWM, Europe; Chairman of HSBC Global Asset
Management (UK) Limited; and Group Head of Strategy &
Planning.
Peter Wong, 64
Deputy Chairman and Chief Executive, The Hongkong and
Shanghai Banking Corporation Limited
Peter joined HSBC in 2005 and became a Group Managing
Director in 2010. He is Chairman of HSBC Bank (China)
Company Limited and HSBC Bank Malaysia Berhad, and
a non-executive director of Hang Seng Bank Limited and
Bank of Communications Co., Ltd. He is also an
independent non-executive director of Cathay Pacific
Airways Limited. Former appointments include: Vice
Chairman of HSBC Bank (Vietnam) Ltd; director of HSBC
Bank Australia Limited; and director of Ping An Insurance
(Group) Company of China, Ltd.
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
HSBC HOLDINGS PLC
255
Report of the Directors: Corporate Governance (continued)
Corporate governance codes / Board of Directors
Corporate governance
codes
HSBC is committed to high standards of corporate
governance.
During 2015, HSBC complied with the applicable code
provisions of: (i) the UK Corporate Governance Code issued
by the Financial Reporting Council in September 2014; and
(ii) the Hong Kong Corporate Governance Code set out in
Appendix 14 to the Rules Governing the Listing of Securities
on The Stock Exchange of Hong Kong Limited. 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.1
The Board has adopted a dealing code for transactions
in HSBC Group securities by Directors (Code for Dealing in
HSBC Group Securities). This code of conduct meets the
requirements of the FCA Listing Rules and the Rules
Governing the Listing of Securities on The Stock Exchange of
Hong Kong Limited, save that The Stock Exchange of Hong
Kong Limited has granted waivers from strict compliance
with the Rules which take into account accepted practices in
the UK, particularly in respect of employee share plans.
Following specific enquiry, each Director has confirmed
that he or she has complied with the code of conduct
throughout the year. All Directors are routinely reminded of
their obligations under the Code for Dealing in HSBC Group
securities.
_______________
1 The Group Risk Committee is responsible for the oversight of internal
control (other than internal control over financial reporting)
and risk management systems (Hong Kong Corporate Governance
Code provision C.3.3 paragraphs (f), (g) and (h)). If there were no
Group Risk Committee, these matters would be the responsibility of
the Group Audit Committee.
Board of Directors
The Board of Directors of HSBC Holdings (the ‘Board’) aims
to promote the long-term success of the Company and
deliver sustainable value to its shareholders.
Led by the Group Chairman, the Board sets the strategy
and risk appetite for the Group and approves capital and
operating plans presented by management for the
achievement of the strategic objectives. Implementation
of the strategy is delegated to the Group Chief Executive.
Directors
The names and brief biographical details of the Directors
are included on pages 249 to 254.
Executive Directors
The Group Chairman, Group Chief Executive, Group
Finance Director and Group Chief Risk Officer are HSBC
employees.
Non-executive Directors
Non-executive Directors are not HSBC employees and
do not participate in the daily management of HSBC; they
bring an independent perspective, constructively challenge
and help develop proposals on strategy, scrutinise the
performance of management in meeting agreed goals and
objectives and monitor the Group’s risk profile and the
reporting of performance. The non-executive Directors
bring a wide variety of experience from the public and
private sectors, including the leadership of large complex
multinational enterprises.
Non-executive Directors’ terms of appointment
The Board has determined the minimum time commitment
expected of non-executive Directors to be about 30 days per
annum. Time devoted to the Company could be considerably
more, particularly if serving on Board committees.
Non-executive Directors are appointed for an initial three-
year term and, subject to re-election by shareholders at
annual general meetings, are typically expected to serve
two three-year terms. The Board may invite a director to
serve additional periods. All Directors are subject to annual
election by shareholders.
Letters setting out the terms of appointment of each of the
non-executive Directors are available for inspection at the
Company’s registered office in London.
Group Chairman and Group Chief Executive
The roles of Group Chairman and Group Chief Executive are
separate, with a clear division of responsibilities between
the running of the Board and the executive responsibility
for running HSBC’s business. Descriptions of the roles
and responsibilities of the Group Chairman and the Group
Chief Executive are available at www.hsbc.com/about-
hsbc/corporate-governance/board-committees. Their key
responsibilities are set out below.
HSBC HOLDINGS PLC
256
Key responsibilities
Group Chairman – Douglas Flint
• Leads the Board and ensures its effectiveness
• Develops relationships with governments, regulators and
investors
• Leads the Group’s interactions on matters of public policy and
regulatory reform with regard to the banking and financial
services industry
• Maintains corporate reputation and character
• Undertakes performance management of the Group Chief
Executive
Group Chief Executive – Stuart Gulliver
• Develops, and delivers performance against, business plans
• Develops Group strategy, in agreement with the Group
Chairman, for recommendation to the Board
• Drives performance within strategic goals and commercial
objectives agreed by the Board with support from the Group
Management Board
Senior independent non-executive Director and
Deputy Chairman
Descriptions of the roles and responsibilities of the senior
independent non-executive Director and Deputy Chairman
are available at www.hsbc.com/about-hsbc/corporate-
governance/board-committees. Their key responsibilities
are set out below.
Key responsibilities
Senior Independent non-executive Director – Rachel Lomax
• Acts as an intermediary for other non-executive Directors when
necessary.
• Leads the non-executive Directors in the oversight of the Group
Chairman.
Deputy Chairman – Sir Simon Robertson
• Deputises for the Group Chairman at meetings of the Board
or shareholders and supports the Group Chairman in his role.
Appointment, retirement and re-election of Directors
The Board may at any time appoint any person who is
willing to act as a Director, either to fill a vacancy or as an
addition to the existing Board. The total number of
Directors shall not be less than five nor should it exceed 25.
Newly-appointed Directors retire at the Annual General
Meeting (‘AGM’) following appointment and shall be eligible
for election. The Board may appoint any Director to hold
any employment or executive office and may revoke or
terminate any such appointment. Shareholders may, by
ordinary resolution, appoint a person as a Director or
remove any Director before the expiration of his or her
period of office. Under the UK Corporate Governance Code
all of the Directors are subject to annual re-election
by shareholders.
During the year Irene Lee and Pauline van der Meer Mohr
were appointed to the Board. Additionally, Paul Walsh and
Henri de Castries have been appointed to the Board with
effect from 1 January 2016 and 1 March 2016 respectively.
Further details on Paul Walsh and Henri de Castries skills
and experience can be found in the biographies on pages
250 and 253.
Powers of the Board
The Board is responsible for overseeing the management
of HSBC globally and, in so doing, may exercise its powers,
subject to any relevant laws and regulations and to the
Articles. The Board has adopted terms of reference which
are available at www.hsbc.com/about-hsbc/leadership. The
Board reviews its terms of reference annually.
In particular, the Board may exercise all the powers of the
Company to borrow money and to mortgage or charge all
or any part of the undertaking, property or assets (present
or future) of HSBC Holdings and exercise any of the powers
conferred on it by the Companies Act 2006 and/or by
shareholders. The Board is able to delegate and confer on
any executive Director any of its powers, authorities and
discretions for such time and on such terms as it thinks fit.
In addition, the Board may establish any local or divisional
boards or agencies for managing the business of HSBC
Holdings in any specified locality and delegate and confer
on any local or divisional board, manager or agent so
appointed any of its powers, authorities and discretions
for such time and on such terms as it thinks fit. The Board
may also appoint any person or persons to be an agent of
HSBC Holdings and may delegate to any such person or
persons any of its powers, authorities and discretions on
such terms as it thinks fit.
The Board delegates the day-to-day management of HSBC
Holdings to the Chief Executive Officer but reserves to itself
approval of certain matters including operating plans, risk
appetite and performance targets, procedures for
monitoring and controlling operations, credit, market risk
limits, acquisitions, disposals, investments, capital
expenditure or realisation or creation of a new venture,
specified senior appointments and any substantial change
in balance sheet management policy.
Board meetings
Seven Board meetings and four strategy meetings were
held in 2015. At least one Board meeting each year is held
in a key strategic location outside the UK. During 2015,
Board meetings were held in Hong Kong and mainland
China.
The table below shows each Director’s attendance at
meetings of all Board and Committee meetings during
2015.
During 2015, the non-executive Directors and the senior
independent Director met regularly without the executive
Directors, including to appraise the Group Chairman’s
performance.
HSBC HOLDINGS PLC
257
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Corporate Governance (continued)
Board of Directors
2015 Board and committee attendance
AGM Board
Group Audit
Committee
Group Risk
Committee
Group
Remuneration
Committee
Nomination
Committee
Financial
System
Vulnerabilities
Committee
Conduct &
Values
Committee
Philanthropic
& Community
Investment
Oversight
Committee
Number of meetings held
Group Chairman
Douglas Flint
Executive Directors
Stuart Gulliver
Iain Mackay
Marc Moses
Non-executive Directors
Phillip Ameen
Kathleen Casey
Safra Catz1
Laura Cha
Lord Evans of Weardale
Joachim Faber
Rona Fairhead
Sam Laidlaw
Irene Lee2
John Lipsky
Rachel Lomax3
Heidi Miller
Sir Simon Robertson5
Jonathan Symonds
Pauline van der Meer Mohr4
1
1
1
1
1
1
1
1
1
1
1
1
1
–
1
1
1
1
1
–
7
7
7
7
7
7
7
7
7
7
7
7
7
3/3
7
7
7
7
7
2/2
7
–
–
–
–
7
7
–
–
–
–
–
–
–
–
7
–
–
7
–
10
10
–
–
–
–
–
–
–
–
–
10
–
–
–
10
10
10
–
–
–
–
–
–
–
–
–
–
–
–
–
–
10
–
10
–
–
10
–
–
5
–
–
–
–
–
–
–
4/5
–
–
4/5
5
–
5
2/2
–
3/3
–
–
1 Resigned from the Board 31 December 2015.
2 Appointed to the Board 1 July 2015.
3 Appointed to the Nomination Committee 24 April 2015.
4 Appointed to the Board 1 September 2015.
5 Resigned from the Financial System Vulnerabilities Committee and the Nomination Committee 24 April 2015 .
7
–
–
–
–
–
7
–
–
7
–
7
–
–
–
–
–
2/2
–
–
5
–
–
–
–
–
–
–
4/5
5
–
–
–
–
–
5
3/5
–
5
–
3
–
–
–
–
–
–
–
3
3
–
–
–
–
–
–
–
–
–
–
Board balance and independence of Directors
The Board comprises a majority of independent non-
executive Directors. At the conclusion of the 2016 AGM, the
Board is expected to comprise 18 Directors (the Group
Chairman, the executive Directors and 14 independent
non-executive Directors). The size of the Board is
considered to be appropriate given the complexity and
geographical spread of the business and the significant
time demands placed on the Directors arising from the
various Board committees that exist to underpin the
Group’s corporate governance framework.
The Nomination Committee regularly reviews the structure,
size and composition of the Board (including skills,
knowledge, experience, independence and diversity) and
makes recommendations to the Board with regard to
any changes.
The Board has adopted a policy on Board diversity which
is consistent with the Group’s strategic focus on ethnicity,
age and gender diversity for the employee base. Further
information on the Board diversity policy can be found on
page 271.
The Board considers all of the non-executive Directors to be
independent. When determining independence the Board
considers that calculation of the length of service of a non-
executive Director begins on the date of his or her election
by shareholders following appointment as a Director of
HSBC Holdings. Sam Laidlaw, has served on the Board for
more than seven years and Rona Fairhead and Sir Simon
Robertson have served on the Board for more than nine
years and, in that respect only, do not meet the usual
criteria for independence set out in the UK Corporate
Governance Code and the Hong Kong Corporate
Governance Code. The Board has determined Sam Laidlaw,
Rona Fairhead and Simon Robertson to be independent in
character and judgement, notwithstanding their length of
service, taking into account their continuing level of
constructive challenge of management and strong
contribution to Board discussions. Rona Fairhead and Sir
Simon Robertson will retire from the Board at the 2016
Annual General Meeting.
The Board has concluded that there are no relationships or
circumstances which are likely to affect a non-executive
Director’s judgement and any relationships
or circumstances which could appear to do so are not
considered to be material.
HSBC HOLDINGS PLC
258
In accordance with the Rules Governing the Listing of
Securities on the Stock Exchange of Hong Kong Limited,
each non-executive Director determined by the Board to
be independent has provided an annual confirmation of his
or her independence.
Information and support
The Board regularly reviews reports on performance
against financial and other strategic objectives, business
developments and investor and external relations. The
chairmen of Board committees report to each meeting of
the Board on the activities of the committees since the
previous Board meeting. The Board receives regular reports
and presentations on strategy and developments in the
global businesses and principal geographical areas. Regular
reports are also provided on the Group’s risk appetite, top
and emerging risks, risk management, credit exposures and
the Group’s loan portfolio, asset and liability management,
liquidity, litigation, financial and regulatory compliance and
reputational issues.
The Directors have free and open contact with management
at all levels. When attending Board offsite meetings and
when travelling for other reasons, non-executive Directors
are encouraged to take opportunities to visit local business
operations at first hand and to meet local management.
Role of the Group Company Secretary
All Directors have access to the advice and services of
the Group Company Secretary, who is responsible to
the Board for ensuring that Board procedures and all
applicable rules and regulations are complied with.
Under the direction of the Group Chairman, the Group
Company Secretary’s responsibilities include ensuring good
information flows within the Board and its committees and
between senior management and non-executive Directors,
as well as facilitating induction and assisting with
professional development as required.
The Group Company Secretary is responsible for advising
the Board on corporate governance matters.
The agenda and supporting papers are distributed in
advance of all Board and Board committee meetings to
allow time for appropriate review and to facilitate full
discussion at the meetings. All Directors have full and
timely access to all relevant information and may take
independent professional advice if necessary at HSBC
Holdings’ expense.
Induction
Formal, tailored induction programmes are arranged for
newly appointed Directors. The programmes are based on
an individual Director’s needs and vary according to the
skills and experience of each Director. Typical induction
programmes consist of a series of meetings with other
Directors and senior executives to enable new Directors to
familiarise themselves with the business. Directors also
receive comprehensive guidance from the Group Company
Secretary on Directors’ duties and liabilities.
Training and development
Training and development is provided for Directors.
Executive Directors develop and refresh their skills and
knowledge through day-to-day interactions and briefings
with senior management of the Group’s businesses and
functions. Non-executive Directors have access to internal
training and development resources and personalised
training is provided, where necessary. The Chairman, with
support from the Group Company Secretary, regularly
reviews the training and development of each Director.
During the year, Directors received training on the following
topics:
• The Volcker Rule covering the investment activities of
certain US banks;
• UK Financial Services (Banking Reform) Act 2014
including the Senior Managers’ Regime; and
• the changing financial and regulatory reporting
landscape.
The table below shows a summary of training and
development undertaken by each Director during 2015.
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
HSBC HOLDINGS PLC
259
Report of the Directors: Corporate Governance (continued)
Board of Directors
Training and development
Executive Directors
Douglas Flint
Stuart Gulliver
Iain Mackay
Marc Moses
Non-executive Directors
Phillip Ameen
Kathleen Casey
Safra Catz
Laura Cha
Lord Evans of Weardale
Joachim Faber
Rona Fairhead
Sam Laidlaw
Irene Lee
John Lipsky
Rachel Lomax
Heidi Miller
Sir Simon Robertson
Jonathan Symonds
Pauline van der Meer Mohr
Training areas
Regulatory
updates
Corporate
Governance
Financial
industry
developments
Briefings on
Board committee
related topics
Board performance evaluation
The Board is committed to regular evaluation of its own
effectiveness and that of its committees. In 2014, the
review of the effectiveness of the Board and its committees
was undertaken by Bvalco Ltd1, an independent third-party
firm.
2014 Review of Board effectiveness
The findings of the 2014 review were presented to the
Board, an action plan developed and progress against these
actions reported to the Board during 2015. The themes
emerging from the 2014 review and the actions taken
included:
Theme
Action taken
Harmonising interactions between Group and subsidiaries
The governance arrangements for the regional risk committees and
the audit committees for principal subsidiaries and certain global
businesses have been enhanced to provide better transparency in
the reporting of significant issues to the GAC and GRC and to provide
better communication between the committees.
Increasing diversity on the Board of Directors, consider recruitment of a
Irene Lee was appointed to the Board in July 2015.
director with an Asian/Chinese business background
Continuing efforts to balance the agenda at Board meetings, focusing on
priority strategic issues and in particular technology
Additional time has continued to be provided for the debate of these
issues at meetings. The Group Chief Operating Officer delivered
updates on the Group’s global change programme priorities, and
the Chief Technology Officer also presented a new technology
strategy in 2015.
Allocating time in Board meetings to address the transition processes
relating to the Senior Managers’ Regime
Preparations for the Senior Managers’ Regime have become a
regular Board agenda item.
Senior Independent Director to build on relationships with regulators
and with all members of the Board
Meetings held with regulators, Board members and shareholders
during the period.
1 A legal firm which is engaged from time to time by the Company
to provide legal services holds a 20% shareholding in Bvalco Ltd.
Bvalco Ltd has confirmed that it does not have any other connection
with the Company.
HSBC HOLDINGS PLC
260
Director performance evaluation
Evaluation of the individual performance of each non-
executive Director is undertaken annually by the Group
Chairman. During this evaluation, the Group Chairman
discusses the individual contribution of the Director,
explores training and development needs, seeks input
on areas where the Director feels he or she could make
a greater contribution and discusses whether the time
commitment required of the Director can continue to
be delivered. Based upon their individual evaluation,
the Group Chairman has confirmed that all of the non-
executive Directors continue to perform effectively,
contribute positively to the governance of HSBC and
demonstrate full commitment to their roles.
Evaluation of the individual performance of each executive
Director is undertaken as part of the performance
management process for all employees, the results of which
are considered by the Group Remuneration Committee when
determining variable pay awards each year.
The non-executive Directors, led by the senior independent
non-executive Director, were responsible for the evaluation
of the performance of the Group Chairman.
The Board monitors the implementation of actions arising
from each performance evaluation.
It is the intention of the Board to continue to undertake an
evaluation of its performance and that of its committees and
individual Directors annually, with independent external
input to the process, as appropriate, at least every third year.
The 2015 performance evaluation review process is being
undertaken currently by the JCA Group, an independent
third-party firm.
Relations with shareholders
All Directors are encouraged to develop an understanding
of the views of major shareholders. Non-executive
Directors are invited to attend analyst presentations and
other meetings with institutional investors and their
representative bodies. During the year, a corporate
governance seminar, hosted by the Group Chairman and
the principal committee chairs, was held in London to
which a number of institutional shareholders and their
representative bodies were invited.
All executive Directors and certain other senior executives
hold regular meetings with institutional investors. The
Board receives a regular investor relations activity report
which provides feedback from meetings with institutional
shareholders and brokers, analysts’ forecasts, information
from research reports and share price performance data.
The Board also receives regular reports from its corporate
brokers.
The Group’s shareholder communication policy is available
on www.hsbc.com/about-hsbc/corporate-governance/
corporate-governance-codes.
On several occasions during 2015, non-executive Directors,
including the senior independent non-executive Director,
chair of the Nomination Committee and chair of the
Remuneration Committee, met or corresponded with
institutional investors and their representatives to discuss
corporate governance topics and executive remuneration.
As senior independent non-executive Director, Rachel
Lomax is available to shareholders should they have
concerns which cannot be resolved or for which such
contact would be inappropriate through the normal
channels of Group Chairman, Group Chief Executive, Group
Finance Director, Group Chief Risk Officer, or other
executives. Ms Lomax may be contacted through the Group
Company Secretary at 8 Canada Square, London E14 5HQ.
Conflicts of interest, indemnification of
Directors and contracts of significance
The Board has adopted a policy and procedures relating
to Directors’ conflicts of interest and can determine the
terms of authorisation for such situations. Should they
arise, the Board’s powers to authorise conflicts are
operating effectively and the procedures are being
followed. A review of situational conflicts which have been
authorised from time-to-time and the terms of those
authorisations are undertaken by the Board annually.
The Articles of Association provide that Directors are
entitled to be indemnified out of the assets of HSBC
Holdings against claims from third parties in respect of
certain liabilities. All Directors have the benefit of directors’
and officers’ liability insurance.
None of the Directors had, during the year or at the end
of the year, a material interest, directly or indirectly, in
any contract of significance with any HSBC company.
HSBC HOLDINGS PLC
261
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Corporate Governance (continued)
Board committees
Board committees
HSBC Holdings plc
Board of Directors
Group Risk
Committee
Group Audit
Committee
Group Remuneration
Committee
Nomination
Committee
Non-executive responsibility for
high level risk-related matters
and risk governance.
Non-executive responsibility for
matters relating to financial
reporting and internal controls
over financial reporting.
Financial System
Vulnerabilities Committee
Conduct & Values
Committee
Non-executive responsibility for
(i) controls and procedures to
identify areas where HSBC and the
financial system more broadly may
become exposed to financial crime
or system abuse, and (ii) HSBC’s
policies and procedures to ensure
the continuing obligations to
regulatory and law enforcement
agencies are met.
Non-executive responsibility for
HSBC’s policies, procedures and
standards to ensure that the
Group conducts business
responsibly and consistently
adheres to HSBC Values.
The Board has established a number of committees
consisting of Directors, Group Managing Directors and, in
the case of the Financial System Vulnerabilities Committee
and the Philanthropic & Community Investment Oversight
Committee, co-opted non-director members. The key
roles of the Board committees are described above. The
Chairman of each non-executive Board committee gives an
oral report at each meeting of the Board on the activities
of the committee since the previous Board meeting.
The Group Management Board (‘GMB’), chaired by the Group
CEO, is a management forum providing recommendations
and advice requested by the Group CEO, to assist him in his
management of the day-to-day operations of HSBC Holdings
plc and its subsidiaries pursuant to the authority delegated
to him by the Board of Directors.
The Group Chief Risk Officer, operating under the delegated
authority of the Group CEO, chairs regular Risk Management
Meetings of the GMB (‘RMM’). The RMMs provide strategic
direction and oversight of enterprise-wide management of
all risks and establish, maintain and periodically review the
policy and guidelines for the management of risk within the
Group.
Non-executive responsibility for
setting the overarching principles,
parameters and governance
framework of the Group’s
remuneration policy and the
remuneration of senior executives.
Philanthropic &
Community Investment
Oversight Committee
Non-executive responsibility for
HSBC’s philanthropic and
community investment activities in
support of the Group’s corporate
sustainability objectives.
Responsibility for identifying
and nominating candidates for
appointment by the Board.
Chairman’s
Committee
Acts on behalf of the Board
between scheduled Board
meetings to facilitate ad hoc
business requiring Board approval.
Group Audit Committee
I am pleased to present the 2015 report of the Group Audit Committee
(‘GAC’).
The GAC has been very active during 2015, successfully completing the
transition of the external auditor to PwC, who formally took office
during the year. The GAC has instituted a process across the Group
Committees to ensure clarity of accountability and an enhanced
reporting protocol with the audit committees of the Group’s major
operating subsidiaries. This ensures clear lines of accountability at a
Group, regional, country and business line level. In addition to financial
reporting the GAC has taken accountability for recovery and resolution
planning.
During the year the GAC has closely monitored the transition to the
Committee of Sponsoring Organisations of the Treadway Commission
2013 (‘COSO’) internal control framework as detailed in this report. The
completion of this transition, which has occupied a considerable
amount of time, and the remediation of entity level controls has
supported the Board’s ability to assess the effectiveness of the system
of internal controls over financial reporting as detailed more fully on
page 277. The GAC also considered the enhanced governance
requirements associated with a new regulatory requirement for a
viability statement, as now set out on page 277 of this Report.
In 2016, the GAC’s work will include overseeing improvements to the
internal control framework and environment over financial reporting, the
controls around the Group’s resolution and recovery plans, as well as the
ring fencing of the retail banking operations in the UK. We will continue
working closely with the Group Risk Committee including where necessary,
joint meetings, to ensure continued alignment of our respective
accountabilities.
I should like to thank members of the Committee, Internal Audit and PwC,
as well as management, for their assistance and expertise during the year.
Jonathan Symonds Chairman
Group Audit Committee
22 February 2016
HSBC HOLDINGS PLC
262
Members
Jonathan Symonds (Chairman)
Phillip Ameen
Kathleen Casey
Rachel Lomax
Based upon a review that has been undertaken, the Board
has confirmed that it is satisfied that each member of the
GAC is independent according to SEC criteria, may be
regarded as audit committee financial experts for the
purposes of section 407 of the Sarbanes-Oxley Act and has
recent and relevant financial experience for the purposes
of the UK and Hong Kong Corporate Governance Codes.
The Committee has complied with the relevant parts of the
Competition and Markets Authority Final Order on the
statutory audit market for the year ended 31 December
2015.
Role and responsibilities
The role and responsibilities of the GAC are set out in its
terms of reference which can be found on our website at
www.hsbc.com/about-hsbc/corporate-governance/board-
committees.
The key areas of responsibility for the GAC include:
• monitoring the integrity of financial statements;
• overseeing the internal controls systems relating to
financial reporting;
• monitoring and reviewing the effectiveness of the
Global Internal Audit function;
• reviewing the Company’s financial and accounting
policies and practices;
• oversight and remuneration of the external auditor
and making recommendations to the Board on the
appointment of the external auditor; and
• reviewing with management steps for recovery and
resolution planning.
Governance
During 2015, the GAC held seven meetings, including a
joint meeting with GRC. Attendance of the current GAC
members is set out in the table on page 258. The Group
Finance Director, Group Chief Accounting Officer, Group
Head of Internal Audit and other members of senior
management attended meetings of the GAC, by invitation,
to contribute to the discussions relating to their respective
areas of expertise. The external auditor, PwC, also attended
all meetings and in camera sessions with internal and
external audit were held at every meeting. The Chairman
of the GAC had regular meetings with a number of the
attendees separately to discuss agenda planning and
specific issues as they arose during the year. The GAC
Chairman reported matters of significance to the Board
after each meeting and the minutes of the GAC meetings
were made available to all Board members.
During 2015, an accounting and control maturity map was
developed as a means of focusing accountabilities across
the various Board Committees and to allow the escalation
of issues relating to financial reporting or internal controls.
The GAC worked closely with the Group Risk Committee
(‘GRC’) and met jointly during 2015 to define and draw out
areas of commonality between the GAC and the GRC and
thereby avoid duplication between the two committees.
From this work, it was concluded that the GAC would have
accountability for recovery and resolution planning. The
GRC has accountability for data integrity and quality, stress
testing and the operational risk framework, which is a
critical part of the internal control framework.
The annual forum for the chairs of the major subsidiary
audit and risk committees was held in June 2015 which
resulted in an enhanced reporting protocol, providing
clearer understanding of the roles and lines of accountability
at Group, regional, country and business line levels. The
operation of this enhanced engagement protocol will be
closely monitored during 2016 and reviewed at the next
annual forum.
How the Committee discharged its responsibilities
Financial reporting
The table on page 265 shows the key areas considered
during the year and the action taken.
The GAC reviewed HSBC’s financial and accounting
judgements and their application to the quarterly and
annual reporting of the Group’s activities and financial
performance. In addition, the GAC reviewed the external
analysts’ presentations and the key financial metrics
included in the 10 strategic actions, particularly the
planning of risk-weighted assets.
The legal and regulatory environment was monitored
and consideration given to changes in law, regulation,
accounting policies and practices including developments
in programmes to implement IFRS 9 Financial Instruments
and Basel III/CRD IV.
Internal control and risk management
Pursuant to the requirement of section 404 of the Sarbanes-
Oxley Act, the Group undertook an annual assessment of the
effectiveness of internal control over financial reporting.
The GAC reviewed the Group’s system of internal control
over financial reporting and the developments affecting it
over the course of 2015. The GAC considered the process
used to evaluate the effectiveness of the system,
overseeing the transition by management to the COSO
framework. The transition included a comprehensive
programme of upgrades across all entity level controls. This
work focused on those entity level controls that did not
meet the required standards and the GAC received
progress updates from management at each meeting. In
addition, particular emphasis was given to the remediation
of controls over access management in IT and the financial
controls necessary to mitigate the impact on financial
reporting. Applying this new framework, the GAC assessed
the effectiveness of the internal control system over
financial reporting as part of the Board’s overall
assessment of internal controls. The Board’s assessment
can be found on page 275 under the heading ‘Internal
Control’.
HSBC HOLDINGS PLC
263
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Corporate Governance (continued)
Board committees
Internal Audit
The GAC approved Internal Audit’s annual plan, resource
and budget, and considered the performance of the Group
Head of Internal Audit. As this role reports to the Chairman
of GAC, frequent meetings were held during the year. The
GAC regularly met with the Group Head of Internal Audit
without the presence of management.
The GAC annually assesses the performance and
effectiveness of the Global Internal Audit function. The
GAC’s effectiveness review encompassed the scope of the
function’s work and the adequacy of the skills of its team.
The GAC considered that the Global Internal Audit function
remained effective. The Global Internal Audit Charter is
available on the HSBC website at www.hsbc.com/investor-
relations/governance/internal-control.
During the year, work was undertaken to streamline Global
Internal Audit reporting across committees and to ensure
key thematic issues were appropriately highlighted.
These items included, for example, entity level controls
remediation, financial crime compliance project execution
and systems and data security. Enhancement was also
made to the management information in relation to audit
conclusions and the tracking-to-resolution of outstanding
audit recommendations. This enhancement better aligned
audit recommendations to the individual accountabilities of
senior managers.
Additional resources were granted to internal audit during
the year to increase assurance to all the Board committees
on the execution of critical projects.
External audit
Following a competitive tender process undertaken in
2013, PricewaterhouseCoopers LLP (‘PwC’) was formally
appointed as the Group’s external auditors at the 2015
AGM. The GAC met privately with the external auditor
whilst the GAC Chairman maintained regular contact with
the audit partner throughout the year.
The GAC reviewed PwC’s audit approach and strategy for
2015.
Governance structure for the oversight of financial reporting
Authority
Board
Membership
Executive and non-executive Directors
Disclosure Committee
The Group’s Finance Director, Chief Risk
Officer, Chief Legal Officer, Chief Accounting
Officer, Company Secretary, Chief Operating
Officer, Head of Investor Relations, Head of
Communications and Head of Strategy and
Planning
Major operating
subsidiaries audit
committees (or
equivalent)
Independent non-executive directors and/or
HSBC Group employees with no line of
functional responsibility for the activities of
relevant subsidiary or global business, as
appropriate
The fees paid to PwC for the year ended 31 December 2015
amounted to $98.4m of which $35m was payable in respect
of non-audit services. Non-audit services accounted for
35.6% of the total fees payable. All non-audit services
provided by PwC during 2015 were pre-approved by the
GAC in accordance with the audit independence policy. The
policy provides a framework for confirming that services do
not create a mutual or conflicting interest and to not place
PwC in the position of auditing their own work.
A further breakdown of the fees paid to the auditors for
each of the last three financial years can be found in Note 7
on the Financial Statements.
The GAC considered PwC to be independent and PwC,
in accordance with professional ethical standards, has
provided the GAC with written confirmation of its
independence for the duration of the financial year
ended 31 December 2015.
The GAC has therefore recommended to the Board that
PwC be re-appointed as the auditors. Resolutions concerning
the re-appointment of PwC and their audit fee for 2016 will
be proposed to shareholders at the 2016 AGM.
Whistleblowing
The GAC and the Conduct & Values Committee are
responsible for reviewing the Group’s whistleblowing
procedures. The GAC received regular updates on concerns
raised under these procedures which related to accounting,
internal accounting controls or auditing matters, as well as
management actions taken in response.
Ongoing development
Throughout the year, the GAC received presentations
on a range of topics including IFRSs financial accounting
developments, new reporting requirements and briefings
on developments in the regulatory environment.
Committee effectiveness
The effectiveness of the GAC was evaluated as part of
the overall performance evaluation of the Board.
Responsibilities include:
• Financial reporting
• Appointing senior financial officers
• Reviewing the Group’s material communications with
investors
• Assisting the Group Chief Executive and Group Finance
Director to discharge their obligations relating to financial
reporting under the Securities Exchange Act of 1934
• Monitoring and reviewing the effectiveness of controls and
procedures established to ensure that information is disclosed
appropriately and on a timely basis
• Reporting findings and making recommendations to the Group
Chief Executive, Group Finance Director and the GAC
• Providing twice yearly assurance to the GAC on financial
statements and internal controls over financial reporting of
relevant subsidiaries or businesses, as requested
• Regular reporting to the GAC in connection with any material
issues regarding controls over financial reporting
HSBC HOLDINGS PLC
264
Principal activities undertaken during 2015 include:
Key area
External auditor
Action taken
Overseeing and assessing the effectiveness of PricewaterhouseCoopers LLP during its first year as the Group’s
external auditor. In assessing the effectiveness of the external auditor an audit assessment questionnaire is
used to obtain feedback on the audit process. In addition, an assessment against best practice is undertaken.
The assessment focuses on the overall audit process, its effectiveness and the quality of output.
Implementation of COSO
Framework
GAC closely monitored the transition to the COSO Internal control framework. The transition involved a
comprehensive programme of upgrading entity level controls.
Controls over IT access
management
A significant issue for the GAC in 2015 was the tracking of progress over access rights to operating systems,
applications and data used in the financial reporting process. This was an area identified by Internal Audit as
requiring improvement and a substantial programme of work has been under way involving HSBC Operations,
Services and Technology and Finance functions.
Hedge accounting review
GAC has overseen remediation work to address issues identified in relation to certain hedge accounting
activities in a number of countries.
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
Significant accounting judgements considered during 2015 included:
Key area
Action taken
i
w
e
v
e
R
Appropriateness of
provisioning for legal
proceedings and
regulatory matters
The GAC received reports from management on the recognition and amounts of provisions, the existence of
contingent liabilities, and the disclosures relating to provisions and contingent liabilities for legal proceedings
and regulatory matters. Specific areas addressed included provisioning arising from investigations by US
regulators and law enforcement agencies relating to trading activities in the foreign exchange market and
competition law investigations relating to foreign exchange trading activities in a number of jurisdictions. The
GAC also considered management’s judgements regarding provisions and contingent liabilities in connection
with investigations of HSBC’s Swiss Private Bank by a number of tax administration, regulatory and law
enforcement authorities, and the measurement of the provision in relation to US Securities litigation (‘Jaffe’).
Quarterly and annual
reporting
The GAC reviewed key judgements in relation to the quarterly and annual reporting. In addition, the GAC
considered external analysts’ presentations and other key financial metrics included in the 10 strategic actions.
Loan impairment,
allowances and charges
Valuation of financial
instruments
Viability statement
UK customer remediation
Bank of Communications
Co., Limited (‘BoCom’)
impairment testing
Goodwill impairment
testing
The GAC reviewed loan impairment allowances for personal and wholesale lending. Significant judgements and
estimates for personal lending included a review of loss emergence periods across the retail loan portfolios. For
wholesale lending, the effects on potential wholesale loan impairments of lower oil and gas prices, the VW
vehicle emissions scandal, and trends in economic factors affecting credit quality in mainland China were
considered, along with judgemental allowance adjustments for economic factors and notable individual cases
of impairment. In particular, the GAC considered management’s judgements and assumptions informing the
recognition of a judgemental collective impairment allowance for oil and gas exposures, additional to
impairment allowances recognised for individual identified cases, as at 31 December 2015.
The GAC reviewed the key valuation metrics and judgements involved in the determination of fair value of
financial instruments. The GAC considered the valuation control framework, valuation metrics, significant
year-end judgements and emerging valuation topics.
The Directors now have an obligation under the UK Corporate Governance Code to state whether they
believe the Group and parent company will be able to continue in operation and meet liabilities as they fall
due over the next three years. During the year, the GAC considered the enhanced governance requirements
surrounding the publication of the Viability Statement.
The GAC considered the provisions for redress for mis-selling of payment protection insurance (‘PPI’) policies,
in the UK, including management’s judgements regarding the effect of the proposed time-bar for claims, on
which the UK Financial Conduct Authority (‘FCA’) is to consult. The GAC also considered the implications of the
2014 UK court case (‘Plevin’) for the non-disclosure of levels of commission in relation to the historical sales of
PPI products, and liabilities in respect of breaches of the UK Consumer Credit Act.
During the year the GAC considered the regular impairment reviews of HSBC’s investment in BoCom and
management’s conclusions that the investment is not impaired. When testing investments in associates for
impairment, IFRS require the carrying amount to be compared with the higher of fair value and value in use.
The GAC reviewed a number of aspects of management’s work in this area including the sensitivity of the result
of the impairment review to estimates and assumptions of projected future cash flows and the discount rate.
The GAC noted that no impairment was identified as a result of the annual goodwill impairment test as at 1 July
2015. However, the review for indicators of impairment as at 31 December 2015 identified indicators of
impairment which resulted in a formal re-test of GPB Europe and GB&M North America. The results for these
CGU’s are sensitive to key assumptions and are subject to enhanced disclosure.
Recognition of deferred
tax assets
In considering the recoverability of the Group’s deferred tax assets, the GAC reviewed the recognition of
deferred tax assets in the US and Brazil and the associated projections of future taxable income.
HSBC HOLDINGS PLC
265
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Corporate Governance (continued)
Board committees
Group Risk Committee
I am pleased to present the 2015 report of the Group Risk
Committee (‘GRC’). 2015 was a particularly busy year for the
GRC. In addition to its regular reviews of the Group’s risk map,
risk appetite and top and emerging risks, the GRC focused on the
management of current and forward-looking risks, programmes
to implement comprehensive reforms to the ways financial crime
compliance is managed and the execution of Global Standards.
The GRC has closely monitored the strengthening of the risk
framework for managing and mitigating operational risk, as this
now represents a greater proportion of the Group’s capital
demands.
The GRC held three additional meetings during the year
dedicated to reviewing the results of BoE’s stress tests, reviewing
the lessons learned from the BoE and internal stress testing
exercises and proposals for enhancing the Group’s stress testing
capability.
During the year, the GRC also reviewed management’s
assessment of information security, cyber-crime and data
management risks and management’s mitigating actions.
Like the Group Audit Committee, the GRC has taken steps to
enhance its governance arrangements with the regional and
business risk committees to ensure closer interaction and
dialogue across the Group.
I should like to thank my colleagues on the Committee and senior
management for their contribution to the Committee’s activities.
Joachim Faber Chairman
Group Risk Committee
22 February 2016
Members
Joachim Faber (Chairman)
John Lipsky
Rachel Lomax
Heidi Miller
Role and responsibilities
The role and responsibilities of the GRC are set out in its
terms of reference. Its terms of reference can be found on
our website at http://www.hsbc.com/about-
hsbc/corporate-governance/board-committees.
The key areas of responsibility for the GRC include:
• advising the Board on high-level risk-related matters
and risk governance, including current and forward
looking risk exposures, future risk strategy and
management of risk within the Group;
• advising the Board on risk appetite and risk tolerance;
• reviewing the effectiveness of the Group’s risk
management systems framework and internal control
systems (other than internal financial control systems
which is the responsibility of the GAC);
• monitoring executive control and management of risk
including top and emerging risks; and
• advising the Group Remuneration Committee on the
alignment of remuneration with risk appetite.
Governance
The GRC has overall non-executive responsibility for the
oversight of risk across the Group.
All of HSBC’s activities involve the measurement,
evaluation, acceptance and management of risk or
combinations of risks. The Board, advised by the GRC,
requires and promotes a strong risk governance culture
which shapes the Group’s attitude to risk. The Board
and the GRC oversee the maintenance and development
of a strong risk management framework by continually
monitoring the risk environment, top and emerging risks
facing the Group and mitigating actions planned and taken.
Oversight of specific areas of risk is undertaken by the
Conduct & Values Committee (page 272) to ensure that
HSBC conducts business responsibly and consistently
adheres to HSBC Values and by the Financial System
Vulnerabilities Committee (page 268) for matters relating
to anti-money laundering, sanctions, terrorist financing and
proliferation financing. Both committees regularly update
the GRC on their responsibilities.
The GRC, together with the GAC, has set core terms of
reference for subsidiary company non-executive risk and
audit committees.
During 2015, the GRC held 10 meetings and attendance of
the current GRC members is set out in the table on page
258. The Group Chief Risk Officer, Group Finance Director,
Chief Legal Officer, Group Head of Internal Audit, Global
Head of Regulatory Compliance, Global Head of Financial
Crime Compliance and other members of senior
management attended meetings of the GRC by invitation
to contribute to discussions relating to their respective
areas of expertise. The Chairman of the GRC had meetings
with a number of these attendees separately to discuss
specific issues.
The GRC has worked closely with the GAC to ensure that
any areas of significant overlap are appropriately addressed.
The GRC and the GAC met jointly during 2015 to address
areas of commonality between the committees and to
avoid unnecessary duplication. The committees also
discussed the importance of building strong alignment
with the major regional and global business risk and audit
committees and implemented proposals to improve inter-
committee communication.
A forum for the chairs of the major regional and global
businesses’ audit and risk committees was held in June
2015 which resulted in an enhanced reporting protocol,
providing clearer lines of accountability at Group, regional,
country and business line levels. The operation of this
enhanced protocol will be closely monitored during the
year and reviewed at the next annual forum.
The GRC met with the Group Chief Risk Officer and Group
Head of Internal Audit without the presence of management.
The GRC Chairman reported matters of significance to the
Board after each meeting and the minutes of the meetings
were made available to all Board members.
How the Committee discharged its responsibilities
The GRC reviewed the Group Risk Appetite Statement, the
risk map (which describes the Group’s risk profile by risk
type across the global businesses) and monitored the top
and emerging risks (together with mitigating actions for
identified risks) with management at each of its meetings.
HSBC HOLDINGS PLC
266
Page 102 provides further information on the top and
emerging risks, the risk map and the risk appetite for the
Group.
The GRC requested reports and updates from management
on risk-related issues identified for in-depth consideration
and received regular reports on matters discussed at the
RMM. In addition, during 2015 the GRC invited senior
management from the global businesses to present their
respective risk control frameworks. The GRC welcomed, as
a result, the enhanced discussions on the risk environment
and will continue this cycle of presentations throughout
2016.
A particular focus for the GRC during 2015 was the Group’s
exposure to execution risk. Regular reports were received
from the Group Chief Operating Officer, who attended
the GRC meetings, updating the GRC on the status of the
Group’s highest priority programmes and mitigating
measures being put in place to manage the identified risks
appropriately.
In addition to addressing the matters noted above, the GRC
focused on a number of key areas including those set out in
the table below.
Internal control and risk management
The GRC reviewed the Group’s risk management
framework and system of internal control (other than
Principal activities and significant issues considered include:
Key area
Action taken
internal financial control systems, which covered by the
GAC) and the developments affecting them over the course
of 2015. In carrying out its review, the GRC received regular
business and operational risk assessments, regular reports
from the Group Chief Risk Officer and the Group Head of
Internal Audit, reports on the annual reviews of the risk
control framework of the global businesses which cover all
internal controls, half yearly confirmations to the GRC from
risk committees of principal subsidiary companies and
reports confirming if there have been any material losses,
contingencies or uncertainties caused by weaknesses in
internal controls. In light of these findings, the GRC
assessed the statement of internal controls systems prior
to its endorsement by the Board. The Board’s assessment
as to the effectiveness of the system can be found on
page 275 under the heading ‘Internal Control’.
Ongoing development
Throughout the year, the GRC received presentations on
a range of topics, including Volcker Rule governance and
briefings on developments in the regulatory environment.
Committee effectiveness
The effectiveness of the GRC was evaluated as part of the
overall performance evaluation of the Board.
The Group Risk Appetite
Statement (‘RAS’) and
monitoring of the Group
risk profile against the
RAS
The GRC reviewed management proposals for revisions to the Group RAS metrics for 2015. Following review,
the Committee recommended the Group RAS, which contained a number of refinements including the cost
efficiency, common equity tier 1 capital and sovereign exposure ratio, to the Board.
The GRC regularly reviews the Group’s risk profile against the key performance metrics set out in the RAS. It
reviewed management’s assessment of risk and provided scrutiny of management’s proposed mitigating actions.
BoE stress test
Execution risk
The GRC monitored the BoE stress testing exercise and reviewed the results of stress testing prior to submission
to the regulator. It received reports over the course of the BoE stress testing exercise and met three times
during the year solely to consider stress testing related matters.
Top and emerging risks were reviewed at every GRC meeting and areas identified where management needed
to assess vulnerabilities via stress testing.
The GRC oversaw a review of the lessons learned from this stress testing exercise and proposals for enhancing
the Group’s stress testing capability. Internal Audit assessed progress on the regulatory stress tests programmes
and reported its conclusions and recommendations to the GRC.
Execution risk is the risk relating to the delivery of the Group strategy and the progress and status of high
priority programmes is a standing agenda item for the GRC. Monitoring of this risk and challenging management’s
assessment of execution risk and corresponding mitigating actions remain a priority for the GRC.
In addition to the regular reports received and ‘deep-dive reviews’ conducted on specific issues identified, the
GRC requested reports from Internal Audit on the themes identified during the course of its work.
Legal and regulatory
risks
The GRC received regular reports on legal and regulatory risks, reviewed management actions to mitigate these
risks and considered the potential impact of future developments in this area on the Group. In 2015, these
included reports concerning risks related to investigations of HSBC’s Swiss Private Bank by a number of tax
administration, regulatory and law enforcement authorities.
IT and data-related risks
During the year, the GRC considered a number of IT and data-related risks including internet crime and fraud,
data management and aggregation, and information security. The GRC reviewed management’s assessment of
these risks and management actions to mitigate them.
IT and data-related risks are expected to remain an area of focus for the GRC during the course of 2016.
HSBC HOLDINGS PLC
267
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Corporate Governance (continued)
Board committees
Geopolitical risk
The GRC received regular reports on geopolitical risks including the crises in the Middle East, slowdown in
mainland China and redenomination risk of Greece exiting the eurozone. Management provided regular updates
on the implementation of mitigating actions in response to these matters which included the augmentation of
anti-money laundering, sanctions and financial crime compliance controls. The GRC also held a joint meeting
with the GAC which focused on areas of mutual interests including entity level controls, operational risk and
subsidiary governance.
Further information on the identification, management and mitigation of our material risks types, and on our top and emerging risk is provided
on pages 105 and 110, respectively.
Financial System Vulnerabilities Committee
I am pleased to present the 2015 report of the Financial System
Vulnerabilities Committee (‘FSVC’). The FSVC oversees the
implementation by management of policies aimed at mitigating
financial crime and system abuse risks which HSBC faces in the
execution of its strategy. In doing so, it provides thought
leadership, governance, oversight and policy guidance over the
framework of controls and procedures which has been designed
to address these risks to which HSBC and the financial system
more broadly, may be exposed.
In 2015, the FSVC continued to focus on the controls and
procedures which underpin Global Standards and mitigate our
financial crime risks. The interactions with the Monitor1 have
been a key part of the FSVC’s agenda as the Committee
continues to oversee the compliance-related initiatives being
implemented by the Group to address its obligations under its
Deferred Prosecution Agreement (‘US DPA’), and the Monitor
and his team have attended a number of FSVC meetings during
the course of the year. These meetings have also included
private meetings with the non-executive members of the FSVC.
Other areas of focus have included oversight of HSBC’s cyber
security framework and monitoring significant developments in
the information security environment and the sanctions control
framework in the light of heightened geopolitical risk. During
2015, the FSVC has taken a more holistic approach to identifying
potential financial crime compliance (‘FCC’) issues. The heads of
business units and country heads have routinely been invited to
meetings to provide insights on the implementation of Global
Standards and key FCC issues for their areas.
In 2016, the FSVC will continue to focus on Global Standards
and Financial Crime Compliance (FCC) through the monitoring
and tracking of the FCC plan and engaging with the Monitor
to ensure his recommendations are acted on. The Committee
will continue its programme of reporting by country heads on
FCC. The FSVC will also retain its focus on FCC controls in the
Private Bank.
Cyber security will remain a key area of focus for the Committee.
During the course of the year we welcomed Nehchal Sandhu as
an additional adviser member to the Committee. Nehchal brings
extensive experience in leading the national cyber security
strategy and architecture in India and advising senior
government officials on national security matters. I should like to
thank Sir Simon Robertson, who resigned from the Committee at
the conclusion of the 2015 Annual General Meeting, and Rona
Fairhead, who steps down as a member of the Committee at the
conclusion of the 2016 Annual General Meeting, for their
contributions to the work of the Committee.
Lord Evans of Weardale Chairman
Financial System Vulnerabilities Committee
22 February 2016
1 See page 116 for further details on the Monitor.
Members
Lord Evans of Weardale (Chairman)
Kathleen Casey
Rona Fairhead
Nick Fishwick, CMG1
Dave Hartnett, CB1
William Hughes, CBE QPM1
Nehchal Sandhu1
Leonard Schrank1
The Honourable Juan Zarate1
1 Adviser members
Six adviser members have been appointed to the
Committee to support its work and between them have
extensive experience in geopolitical risk, financial crime
risk, international security, cyber security and law
enforcement matters.
Role and responsibilities
The role and responsibilities of the FSVC are set out in its
terms of reference. The terms of reference can be found
on our website at www.hsbc.com/about-hsbc/corporate-
governance/board-committees.
The key areas of responsibility for the FSVC include:
• governance, oversight and policy guidance over the
framework of controls and procedures designed to
identify areas where HSBC and the financial system
more broadly may become exposed to financial crime
or system abuse;
• oversight of matters relating to anti-money laundering,
sanctions, terrorist financing and proliferation financing,
including the establishment, implementation,
maintenance and review of adequate policies and
procedures sufficient to ensure the continuing
obligations to regulatory and law enforcement agencies
are met and oversight of implementation of the actions
necessary to build assurance in these areas;
• provision of advice as applicable on the implementation
of the Global Standards programme;
• oversight of matters relating to HSBC’s information
security environment and cyber security framework;
and
• providing a forward-looking perspective to the Board on
financial crime risk.
In 2016, the FSVC will assume responsibility for oversight of
controls relating to anti-bribery and corruption.
During 2015, the FSVC held seven meetings. Attendance is
set out in the table on page 258.
HSBC HOLDINGS PLC
268
How the FSVC discharged its responsibilities
Committee effectiveness
The effectiveness of the FSVC was evaluated as part of
the overall performance evaluation of the Board.
The FSVC has focused its activity on areas where HSBC and
the financial system more broadly may become exposed to
financial crime or system abuse, working closely with the
GRC which has broader responsibility for risk governance.
The principal activities and significant issues considered
by the FSVC are provided in the table below.
Principal activities and significant issues considered include:
Key area
Action taken
Oversight of obligations
under the US and UK
agreements and updates
on HSBC’s interactions
with the Monitor
The FSVC has monitored developments between HSBC and the US regulators. Interactions with the Monitor
have been a key part of the Committee’s agenda, including oversight of HSBC’s response to the Monitor’s
work programme and management’s action to embed Global Standards. The FSVC received regular reports
from the Monitor and his team on reviews undertaken and the results of the Monitor’s First Annual Follow-up
Review Report, agreeing recommendations and actions in response to this report.
Financial crime compliance
and related issues
The FSVC oversaw the anti-money laundering and compliance-related initiatives being implemented by the
Group to address obligations under the US DPA and related agreements, including forward-looking risks to
HSBC and the financial system more widely, de-risking activities in relation to correspondent banking, and
anti-money laundering risks associated with affiliates.
Compliance resourcing
The FSVC reviewed and discussed reports from Compliance in relation to resourcing. A particular area of focus
was on recruitment activities, resourcing levels and people development. The ability of the Compliance
function to attract and retain talent has and will continue to be a key area of focus for the Committee.
Sanctions
The Group has in place a Global Sanctions Policy. The FSVC receives updates on both sanctions-related
matters and compliance with the Group’s sanctions programme.
Technology and data
systems
The FSVC received reports on implementation of the FCC IT strategy. A progress tracker providing an update
on the information security risk framework was routinely monitored by the FSVC throughout the year, with
particular focus on cyber security and the Group’s information security risk framework.
Reporting
The FSVC provides a quarterly report to the Board on its activities and updates the Group Risk Committee and
the Remuneration Committee on specified matters for its consideration as appropriate and reports to the
Core and Global College of Regulators on key activities undertaken.
Global Standards
The FSVC received reports from management including heads of business units and from Internal Audit
concerning implementation of the Global Standards programme.
Cyber/Information
security
The FSVC continued its focus on cyber and information security matters. It received reports from
representatives in the first and second lines of defence on developments in HSBC’s information security
environment and monitored the proactive steps to address emerging risks. The Committee also oversaw
the progress of the projects to improve HSBC’s cyber security framework and cyber incident response
preparedness.
Reports from adviser
members
The Committee received updates from the Committee’s adviser members on the activities they have each
undertaken in their role as advisers to HSBC Holdings plc with specific focus on geopolitical risk, emerging
financial crime and information security issues.
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
HSBC HOLDINGS PLC
269
Report of the Directors: Corporate Governance (continued)
Board committees
Group Remuneration Committee
Nomination Committee
Members1
Sam Laidlaw (Chairman)
John Lipsky
Pauline van der Meer Mohr (from 1 January 2016)
Sir Simon Robertson1
Paul Walsh (from 1 January 2016)
1 Sir Simon Robertson will be retiring from the Board at the April 2016
Annual General Meeting.
Role and responsibilities
The role and responsibilities of the Group Remuneration
Committee are set out in its terms of reference. The
terms of reference can be found on our website at
www.hsbc.com/about-hsbc/corporate-governance/board-
committees.
The Committee is responsible for setting the over-arching
principles, parameters and governance framework of the
Group’s remuneration policy and the remuneration of
executive Directors and other senior Group employees.
The Committee regularly reviews the effectiveness of the
remuneration policy of the Company and its subsidiaries in
the context of consistent and effective risk management.
No Directors are involved in deciding their own
remuneration.
Further details on the remuneration arrangements for
Directors may be found in the Directors’ Remuneration
Report on pages 285 to 321.
During 2015, the Group Remuneration Committee held
10 meetings. Attendance is set out in the table on
page 258.
Committee effectiveness
The effectiveness of the Group Remuneration Committee
was evaluated as part of the overall performance evaluation
of the Board. More information can be found under the
Performance Evaluation section on page 260.
I am pleased to present the 2015 report of the Nomination
Committee. During 2015, HSBC appointed two new independent
non-executive Directors, Irene Lee and Pauline van der Meer
Mohr. The appointments of Paul Walsh and Henri de Castries as
two further independent non-executive Directors were
announced in 2015. Paul Walsh joined the Board on 1 January
2016 and we look forward to welcoming Henri de Castries on
1 March 2016. As I outline overleaf, these appointments bring
substantial additional strength to the Board and have further
broadened its existing expertise and experience.
The Committee continually seeks to ensure that the Board’s
composition is aligned to the Group’s strategic priorities. A
matrix of Directors’ skills and experience, also reflecting the
diversity of the Board’s composition, including gender, is
regularly reviewed by the Committee and is central to the
succession planning process for non-executive Director
appointments. HSBC has been active in promoting gender
diversity, such that women currently make up 33% of the Board
although the Committee will continue to focus on initiatives
towards achieving a greater gender balance, both at Board level
and below.
The Committee has also conducted an annual review of the
Group’s executive succession plan. This aspect of the
Committee’s succession planning responsibilities has become an
increasingly important area for both management and the
Committee, reflecting the people risk to which a group of HSBC’s
size and scale is exposed.
During the year, membership of the Board’s committees has
been refreshed to ensure that there are clear linkages between
them. The work of each committee is reported to the Board by
the respective committee chair and cross-committee
membership of non-executive directors helps to ensure a more
cohesive governance structure.
During the course of the year we welcomed Rachel Lomax onto
the Committee. I should like to thank Sir Simon Robertson, who
stepped down as its Chairman at the conclusion of the 2015
AGM for his contribution to the Committee and who, together
with Rona Fairhead, leaves the Board at the conclusion of the
2016 AGM. Their wisdom and counsel will be much missed.
Sam Laidlaw Chairman
Nomination Committee
22 February 2016
Members
Sam Laidlaw (Chairman)
Laura Cha
Rona Fairhead
John Lipsky
Rachel Lomax
Role and responsibilities
The role and responsibilities of the Nomination Committee
are set out in its terms of reference, which can be found
on our website at www.hsbc.com/about-hsbc/corporate-
governance/board-committees.
The Nomination Committee has non-executive responsibility
for leading the process for Board appointments and for
identifying and nominating, for approval by the Board,
candidates for appointment to the Board. The Committee
is responsible for succession planning for both executive
and non-executive directors and membership of Board
HSBC HOLDINGS PLC
270
committees. The Committee regularly reviews the
structure, size and composition of the Board including the
balance of skills, knowledge, experience and diversity.
Governance
During 2015, the Nomination Committee held five
meetings. Attendance is set out in the table on page 258.
The Chairman reports matters of significance to the Board
after each meeting.
Committee effectiveness
The effectiveness of the Nomination Committee was
evaluated as part of the overall performance evaluation of
the Board.
Principal activities and
significant issues considered
Action taken
Appointments of new
Directors
Forward planning
Board and Committee
composition
Regulatory and policy
developments
Diversity
Following an external and rigorous selection process, the Committee recommended to the Board the
appointment of four non-executive Directors during 2015: Irene Lee and Pauline van der Meer Mohr,
who joined the Board on 1 July and 1 September, respectively, Paul Walsh, who joined the Board on
1 January 2016, and Henri de Castries, who joins the Board on 1 March 2016.
An external search consultancy, MWM Consulting, is used in relation to the appointment of non-
executive Directors. MWM Consulting has no additional connection with HSBC other than as search
consultant for certain senior executive hires.
The Committee recommended Irene Lee for appointment to the Board because of her extensive
experience in financial services, and her leadership roles in a number of Asian businesses. Pauline van der
Meer Mohr was recommended by the Committee due to her leadership experience in human resources
and legal affairs, together with her regulatory experience. Paul Walsh brings to the Board strategic and
commercial insight and experience from running multiple global consumer businesses.
Henri de Castries brings broad international experience, running one of the world’s largest insurance
companies and a deep understanding of the financial services industry and regulation.
The Nomination Committee takes into account the needs and development of the Group’s businesses
and the expected retirement dates of current Directors when considering candidates to join the Board,
ensuring that skills, experience and diversity requirements are satisfied as far as possible.
The Nomination Committee routinely monitors the size, structure and composition of the Board
including the skills, knowledge, experience, diversity and independence of its non-executive Directors.
The Committee recommended to the Board that all Directors should stand for election or re-election at
the 2016 AGM, with the exception of Rona Fairhead and Simon Robertson whose retirement was
announced during the year. Safra Catz, after eight years of dedicated service as a non-executive Director,
elected to retire at the end of 2015. A number of changes were made to the composition of Committees
during the year to reflect tenure of service and the appointment of new non-executive Directors to the
Board.
The Nomination Committee monitors HSBC’s policies and regulatory developments in relation to Board
composition. Additionally, during 2015 the Committee considered the corporate governance
arrangements for the UK Ring-Fenced Bank, reviewed the Board’s diversity policy and the outcomes of
the Board effectiveness review of its principal subsidiaries.
The Nomination Committee believes that one of its important duties is to ensure that there is a proper
balance on the Board to reflect diversity and the geographical nature of its business. Appointments to
the Board are made on merit and candidates are considered against objective criteria, having due regard
to the benefits of diversity on the Board. The Board diversity policy is available at
www.hsbc.com/investor-relations/governance/corporate-governance-codes.
The Nomination Committee regularly monitors the implementation of the Board’s diversity policy using
the following measurable objectives: only external search consultants who are signatories to the
Executive Search Firms Voluntary Code of Conduct should be engaged by the Nomination Committee;
and at least 30% of candidates, proposed by search firms for consideration as non-executive Directors,
should be women. We comply with these requirements and, as at the conclusion of the 2016 AGM, 33%
of the Board will be female.
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
Director training and
development
The Nomination Committee reviews and monitors the training and continuous professional development
of Directors and senior management.
Time commitment and
independence of non-
executive Directors
The Nomination Committee assessed the independence of, and time required from, non-executive
Directors, and is satisfied that all non-executive Directors have the time to fulfil their fiduciary
responsibilities to provide oversight of the business of the Group and serve on the relevant committees
of the Board. All Directors are asked to identify any other significant commitments they may have and
confirm they have sufficient time to discharge what is expected of them as members of the Board.
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
HSBC HOLDINGS PLC
271
Report of the Directors: Corporate Governance (continued)
Board committees
Conduct & Values Committee
Members
I am pleased to present the 2015 report of the Conduct & Values
Committee (‘CVC’). The CVC has non-executive responsibility for
overseeing the Group’s continuing efforts to raise standards in
the way it conducts business, consistent with HSBC’s values.
In this, the second year of its operation, the Committee has
focused particularly on the implementation of the Group’s global
programme for ensuring that it delivers fair outcomes for
customers and upholds market integrity, as the basis for the
long-term success of its business.
This has involved a thorough review of Group policies, processes
and procedures to assess how far they meet the required
standards and, where necessary, to implement remedial action.
A key challenge has been to develop measures that will enable
management to identify and resolve emerging conduct issues in
a timely way. The CVC is monitoring progress in developing
useful management information in each of the global businesses
and across the different geographies.
The Committee recognises that the success of any programme of
cultural change depends critically on how people are recruited,
trained, incentivised and led. It is taking a close interest in the
many initiatives that are being developed to ensure that the
Group sends consistent messages to employees about what is
expected of them, equips them to do their jobs in the right way,
and rewards and penalises them appropriately.
It is particularly important to foster a culture in which people are
empowered to speak up if they become aware of problems.
During 2015 the CVC has overseen a significant improvement in
the Group’s whistleblowing arrangements. HSBC Confidential,
launched in August, provides simplified access to whistleblowing
channels which will enable more timely and consistent reporting
of cases.
Looking ahead, the CVC will remain focused on how the Group’s
conduct approach is being implemented. It will pay particular
attention to how effectively global programmes are being
cascaded through the organisation, especially in the Group’s key
locations, using staff surveys, site visits and internal audits as
appropriate.
As part of its remit to ensure that the Group acts responsibly
towards the communities within which it operates, the
Committee intends to review how effectively the Group seeks to
satisfy itself that it is meeting its sustainability commitments.
I should like to take this opportunity to thank all Committee
members and management for their contributions during the
year. Heidi Miller stepped down from the Committee on
31 December and Pauline van der Meer Mohr joined with
effect from 1 January: my warm thanks to Heidi for her lively
participation in the Committee’s work, and a hearty welcome
to Pauline.
Rachel Lomax
Chairman, Conduct & Values Committee
22 February 2016
Rachel Lomax (Chairman)
Laura Cha
Lord Evans of Weardale
Heidi Miller (until 31 December 2015)
Jonathan Symonds
Pauline van der Meer Mohr (from 1 January 2016)
Role and responsibilities
The role and responsibilities of the CVC are set out in its
terms of reference which can be found on our website at
www.hsbc.com/about-hsbc/corporate-governance/board-
committees.
The CVC is responsible for:
• policies, procedures and standards to ensure that the
Group conducts business responsibly and consistently
adheres to HSBC Values. It aims to align its work to
HSBC’s purpose of connecting customers
to opportunities, enabling businesses to thrive and
economies to prosper, and ultimately helping people
to fulfil their hopes and realise their ambitions; and
• ensuring that in the conduct of its business, the Group
treats customers fairly and openly, does business with
the right clients and in the right way, is a responsible
employer, acts responsibly towards the communities
in which it operates and treats other stakeholders fairly.
The CVC oversees the promotion and embedding by
management of HSBC Values and its required global
conduct outcomes. The CVC also provides inputs, as
appropriate, to the Group Remuneration Committee on the
alignment of remuneration with conduct.
In 2016, the CVC will relinquish, and the Financial System
Vulnerabilities Committee will assume, responsibility for
oversight of controls relating to anti-bribery and
corruption.
Governance
During 2015, the CVC held five meetings. Attendance is set
out in the table on page 258.
The Chairman reports matters of significance to the Board
after each meeting and the minutes of the meetings are
made available to all Board members.
How the CVC discharged its responsibilities
During the course of 2015 the CVC received regular reports
and presentations from global business and functional
heads.
The chief executives of the global businesses provide
regular reports to the CVC, including an analysis of
customer complaint trends, at each meeting. The CVC also
receives reports on whistleblowing cases, the outcomes of
internal audits and initiatives to embed values-based
leadership as part of the Group’s ongoing cultural
transformation.
Committee effectiveness
The effectiveness of the CVC was evaluated as part of the
overall performance evaluation of the Board.
HSBC HOLDINGS PLC
272
Principal activities and
significant issues considered
Action taken
Global approach to conduct
Values
Sustainability
Whistleblowing
The CVC received reports from the Global Head of Regulatory Compliance on how the Group approach to
conduct is being managed to deliver the required conduct outcomes. Each global business is requested to
present plans to close out any gaps identified against the required outcomes and progress on
implementation of key conduct-related programmes. These plans provide improved training and
development of staff. Each Global Business produced conduct-related management information during
2015. It is now used at management level by each business to track any conduct-related issues.
The CVC oversees the promotion and embedding of HSBC Values. The CVC reviewed with management
various values and culture initiatives and contributed to action plans. It focused on the embedding of
conduct-related training and the development of a new Group-wide code of conduct, and reviewed
options to create an HSBC University. It is also working closely with management to define a
comprehensive but pragmatic framework that lays out in practical, concrete language the do’s and don’ts
of desirable behaviour at HSBC.
The CVC led a project to put in place a simple, considered statement on the Group’s policy with respect to
human rights. This was approved in July 2015. It can be found at www.hsbc.com/citizenship/our-values.
The CVC has also held discussions with management regarding the developments, potential changes
and future agenda of sustainability as an area of focus for HSBC. This will continue into 2016.
The CVC has responsibility for the governance of the Group’s whistleblowing policies and procedures,
including the protection of whistleblowers. The CVC oversaw the successful launch of a new global
channel to enable employees to raise concerns when they are not comfortable with their normal routes
of escalation. This workstream also produced centralised reporting of whistleblowing cases and
standardisation of reporting and tracking of investigation and consequences.
Employee engagement
The CVC monitored employee engagement across the Group and received the results of the Group
People Survey conducted during 2015. Areas requiring attention were highlighted and the Committee
requested that management provide regular updates on plans to address these.
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
HSBC HOLDINGS PLC
273
Report of the Directors: Corporate Governance (continued)
Board committees
Principal activities
and significant issues
considered
Action taken
Governance of
community
investment
Community
investment budget
and themes
Given that the PCIOC was newly
established in 2015, it has been keen
to fully understand the Group’s
community investment policy and how
decisions are made, how charities are
vetted, the avoidance of conflicts of
interest, the recording and reporting
of donations made by the Group and
the assurance process following up on
these decisions.
The PCIOC received reports from
the Global Sustainability function
regarding the annual community
investment budget and how it is
decided, and endorsed the 2016
budget put forward by management.
As a result of the 150th Anniversary
Fund, the Group’s community
Investment budget has been increased
by $50m a year from 2015-2017.
Governance
The PCIOC was established at the end of 2014 and held
three meetings during the year. Attendance is set out in
the table on page 258.
The Chairman reports on matters of significance to the
Board after each meeting and the minutes of the meetings
are made available to all Board members.
Chairman’s Committee
The Chairman’s Committee has the power to act on behalf
of the Board between scheduled Board meetings to
facilitate ad hoc business requiring Board approval. The
Committee meets with such frequency and at such times as
it may determine, the quorum for meetings is dependent
upon the nature of the business to be transacted, as set
out in its terms of reference.
Philanthropic & Community Investment
Oversight Committee
I am pleased to present the first report of the Philanthropic &
Community Investment Oversight Committee (‘PCIOC’) which
was established in December 2014. The PCIOC is expected to
oversee the Group’s philanthropic and community investment
activities on behalf of the Board and to provide greater visibility
and oversight of the Group’s corporate sustainability objectives.
As highlighted in the table of principal activities below, the
PCIOC has mainly focused on ensuring that the procedures
and processes around the approval of charitable donations are
appropriate and has endorsed the community investment
budget for 2016.
I have chaired the PCIOC since its establishment, with Lord Evans
of Weardale as the other non-executive Director member. In
addition, the committee has non-Director members, each of
whom brings valuable and relevant philanthropic and
community-focused experience to the committee: Sir Malcolm
Grant, who is the Chairman of NHS England and former President
and Provost of University College London, and Stephen Moss,
who is Group Head of Strategy & Planning.
In 2016, the Committee will additionally benefit from the
membership of Lord Robin Janvrin, former Private Secretary
to Queen Elizabeth II and chairman of trustees of The Royal
Foundation of The Duke and Duchess of Cambridge and
Prince Harry.
Laura Cha Chairman
Philanthropic & Community Investment Oversight Committee
22 February 2016
Members
Laura Cha (Chairman)
Lord Evans of Weardale
Sir Malcolm Grant (non-Director member)
Stephen Moss (non-Director member)
Lord Janvrin (non-Director member)
Role and responsibilities
The role and responsibilities of the PCIOC are set out in its
terms of reference. The terms of reference can be found
on our website at www.hsbc.com/about-hsbc/corporate-
governance/board-committees.
The PCIOC oversees philanthropic and community
investment initiatives, including both monetary donations
and employee volunteering activities and reports thereon to
the Board semi-annually.
How the PCIOC discharged its responsibilities
During the course of 2015, the PCIOC received regular
reports and presentations from the Global Head of
Marketing and the Head of Group Corporate Sustainability.
HSBC HOLDINGS PLC
274
Internal control
The Board is responsible for maintaining and reviewing the
effectiveness of risk management and internal control
systems and for determining the aggregate level and types
of risks it is willing to take in achieving its strategic
objectives.
Procedures
To meet this requirement and to discharge its obligations
under the FCA Handbook and PRA Handbook, procedures
have been designed for safeguarding assets against
unauthorised use or disposal; for maintaining proper
accounting records; and for ensuring the reliability and
usefulness of financial information used within the business
or for publication.
These procedures can only provide reasonable but not
absolute assurance against material mis-statement, errors,
losses or fraud. They are designed to provide effective
internal control within HSBC and accord with the Financial
Reporting Council’s guidance for directors issued in 2014,
internal control and related financial and business
reporting. Our procedures have been in place throughout
the year and up to 22 February 2016, the date of approval
of the Annual Report and Accounts 2015.
In 2014, the GAC endorsed the adoption of the COSO 2013
framework for the monitoring of risk management and
internal control systems to satisfy the requirements of
Section 404 of the Sarbanes-Oxley Act of 2002. Additionally,
the risk management framework enabled the GRC to
monitor controls over principal risks to meet the
requirements of the UK Corporate Governance Code and
the Hong Kong Corporate Governance Code.
HSBC’s key risk management and internal control
procedures include the following:
• Group Standards. The Global Standards Manual (‘GSM’)
brings together the common standards and principles
used in the conduct of all business, whatever its location
or nature. The GSM overlays all other manuals
throughout the Group and is a fundamental component
of the Group’s risk management structure. It establishes
the high level standards and policies by which, and
within which, all members of the Group conduct their
businesses. The GSM is mandatory and applies to, and
must be observed by, all businesses within the Group,
regardless of the nature or location of their activities.
• Delegation of authority within limits set by the Board.
Subject to certain matters reserved for the Board, the
Group Chief Executive has been delegated authority
limits and powers within which to manage the day-to-day
affairs of the Group, including the right to sub-delegate
those limits and powers. Each relevant Group Managing
Director or Group Executive Director has delegated
authority within which to manage the day-to-day affairs
of the business or function for which he or she is
accountable. Delegation of authority from the Board
requires those individuals to maintain a clear and
appropriate apportionment of significant responsibilities
and to oversee the establishment and maintenance of
systems of control that are appropriate to their business
or function. Appointments to the most senior positions
within HSBC require the approval of the Board.
• Risk identification and monitoring. Systems and
procedures are in place to identify, control and report
on the material risk types facing HSBC as set out below:
– wholesale credit risk;
– retail credit risk;
– insurance risk;
– asset, liability and capital management risk;
– market risk;
– financial management risk;
– model risk;
– reputational risk;
– pension risk;
– strategic risk;
– sustainability risk; and
– operational risk (including accounting, tax, legal,
regulatory compliance, financial crime compliance,
fiduciary, political, physical, internal, external,
contingency, information security, systems,
operations, project and people risks).
Exposure to these risks is monitored by risk
management committees, asset, liability and capital
management committees and executive committees in
subsidiaries and, for the Group, in Risk Management
Meetings of the GMB (‘RMM’) which are chaired by
the Group Chief Risk Officer. The RMM meets regularly
to discuss enterprise-wide risk management matters.
Asset, liability and capital management matters are
monitored by the Group ALCO, which reports to the
RMM.
HSBC’s operational risk profile and the effective
implementation of the Group’s operational risk
management framework are monitored by the Global
Operational Risk Committee, which reports to the RMM.
Model risks are monitored by the Model Oversight
Committee which also reports to the RMM.
• Changes in market conditions/practices. Processes are
in place to identify new risks arising from changes in
market conditions/practices or customer behaviours,
which could expose HSBC to heightened risk of loss or
reputational damage. The Group employs a top and
emerging risks framework at all levels of the organisation,
which enables it to identify current and forward-looking
risks and to take action which either prevents them
materialising or limits their impact. During 2015,
attention was focused on:
– economic outlook and capital flows;
– geopolitical risk;
– turning of the credit cycle;
– regulatory developments affecting the business
model and profitability;
– regulatory commitments and consent orders;
HSBC HOLDINGS PLC
275
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Corporate Governance (continued)
Internal control / Going concern and viability
– regulatory focus on conduct of business and financial
crime;
– dispute risk;
– people risk;
– execution risk;
– third-party risk management;
– model risk;
– cyber threat and unauthorised access to systems;
and
– data management.
• Strategic plans. Strategic plans are prepared for global
businesses, global functions and geographical regions
within the framework of the Group’s overall strategy.
Annual Operating Plans, informed by detailed analysis of
risk appetite describing the types and quantum of risk
that the Group is prepared to take in executing its
strategy, are prepared and adopted by all major HSBC
operating companies and set out the key business
initiatives and the likely financial effects of those
initiatives.
• Disclosure Committee. The Disclosure Committee
reviews material public disclosures made by HSBC
Holdings for any material errors, misstatements
or omissions. The membership of the Disclosure
Committee, which is chaired by the Group Company
Secretary, includes the heads of Finance, Legal, Risk,
Communications and Investor Relations. The integrity of
disclosures is underpinned by structures and processes
within the Global Finance and Global Risk functions that
support expert and rigorous analytical review of
financial reporting complemented by certified reviews
by heads of global businesses, global functions and
certain legal entities.
• Financial reporting. The Group’s financial reporting
process for preparing the consolidated Annual Report
and Accounts 2015 is controlled using documented
accounting policies and reporting formats, supported
by a chart of accounts with detailed instructions and
guidance on reporting requirements, issued by Group
Finance to all reporting entities within HSBC in advance
of each reporting period end. The submission of
financial information from each reporting entity
to Group Finance is subject to certification by the
responsible financial officer, and analytical review
procedures at reporting entity and Group levels.
• Responsibility for risk management. Management are
primarily accountable for measuring, monitoring,
mitigating and managing the risks and controls in their
areas of responsibility. Processes are in place to ensure
weaknesses are escalated to senior management and
addressed, supported by the three lines of defence
model.
• IT operations. Centralised control is exercised over all
IT developments and operations. Common systems are
employed for similar business processes wherever
practicable.
• Global function management. Management of the
global functions are responsible for setting policies,
procedures and standards to control the principal risks
detailed under ‘Risk identification and monitoring’
above.
Authorities to enter into credit and market risk
exposures are delegated with limits to line management
of Group companies. The concurrence of the appropriate
global function is required, however, to credit proposals
with specified higher risk characteristics. Credit
and market risks are measured and reported at
subsidiary company level and aggregated for risk
concentration analysis on a Group-wide basis.
• Internal Audit. The establishment and maintenance of
appropriate systems of risk management and internal
control is the responsibility of business management.
The Global Internal Audit function, which is centrally
controlled, provides independent and objective
assurance in respect of the adequacy of the design and
operating effectiveness of the Group’s framework of risk
management, control and governance processes across
the Group, focusing on the areas of greatest risk to
HSBC using a risk-based approach. The Group Head of
Internal Audit reports to the Chairman of the GAC and
administratively to the Group Chief Executive. Executive
management is responsible for ensuring that issues
raised by the Global Internal Audit function are
addressed within an appropriate and agreed timetable.
Confirmation to this effect must be provided to Global
Internal Audit.
Role of Board Committees
On behalf of the Board, the GAC has responsibility for
overseeing risk management and internal controls over
financial reporting and the GRC has responsibility for
overseeing risk management and internal controls,
other than over financial reporting.
During the year, the GRC and the GAC have kept under
review the effectiveness of this system of internal control
and have reported regularly to the Board. In carrying
out their reviews, the GRC and the GAC received:
• regular business and operational risk assessments;
• regular reports from the Group Chief Risk Officer and
the Group Head of Internal Audit;
• reports on the annual reviews of the risk control
framework of HSBC Holdings which cover all internal
controls, both financial and non-financial;
• half yearly confirmations to the GAC and GRC from audit
and risk committees of principal subsidiary companies
regarding, in relation to audit committees, whether their
financial statements have been prepared in accordance
with Group policies, present fairly the state of affairs of
the relevant principal subsidiary and are prepared on a
going concern basis;
• reports confirming if there have been any material
losses, contingencies or uncertainties caused by
weaknesses in internal controls;
• internal audit reports;
HSBC HOLDINGS PLC
276
• external audit reports;
• prudential reviews; and
• regulatory reports.
The GRC and GAC have separately established governance
frameworks for their respective oversight and interaction
with the audit and risk committees of key entities within the
Group. These provide for regular reporting, issues escalation
and processes for the nomination and endorsement of
subsidiary committee appointments. These principles and
processes have in turn been cascaded by these key entities to
their respective subsidiaries to provide clear vertical channels
of governance.
The internal control responsibilities of the GAC and GRC
are complemented by the activities of the Conduct & Values
Committee (‘CVC’) and the Financial System Vulnerabilities
Committee (‘FSVC’) which, respectively, oversee internal
controls over conduct-related matters and financial crime
compliance. The GRC receives regular reports at each of its
meetings on the activities of both the CVC and the FSVC. The
GRC monitors the status of top and emerging risks and
considers whether the mitigating actions put in place are
appropriate. In addition, when unexpected losses have arisen
or when incidents have occurred which indicate gaps in the
control framework or in adherence to Group policies,
the GRC and the GAC review special reports, prepared at
the instigation of management, which analyse the cause
of the issue, the lessons learned and the actions proposed by
management to address the issue.
Effectiveness of internal controls
The Directors, through the GRC and the GAC, have conducted
an annual review of the effectiveness of our system of risk
management and internal control covering all material
controls, including financial, operational and compliance
controls, risk management systems, the adequacy of
resources, qualifications and experience of staff of the
accounting and financial reporting teams and the Global Risk
function, and their training programmes and budget. The
annual review of effectiveness of our system of risk
management and internal control over financial reporting
was conducted with reference to the COSO framework. The
annual review of other controls was undertaken using the
risk management framework on pages 102 to 103.
The GRC and the GAC have received confirmation that
executive management has taken or is taking the necessary
actions to remedy any failings or weaknesses identified
through the operation of our framework of controls. In
particular, during the year it was determined that the control
environment associated with IT privileged access required
significant improvement. Deficiencies were noted in the
design and operation of controls for the granting, release and
monitoring of privileged access in a number of systems. For
the identified deficiencies management responded by
implementing a programme to determine the scale and
nature of the deficiencies, remediate identified control
deficiencies and determine if privileged access had been
misused during 2015. Management also identified and
assessed the effectiveness of relevant IT, business,
monitoring and period-end mitigating controls.
Going concern and viability
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 addition to the requirement to consider whether the going
concern basis is appropriate, the Directors now have an
obligation under the UK Corporate Governance Code to state
in a Viability Statement whether they believe the Group and
parent company will be able to continue in operation and
meet their liabilities, taking account of their current position
and principal risks, our top and emerging risks, and specify
the period covered by and the appropriateness of this
statement.
It is expected that the period assessed under the Viability
Statement will be significantly longer than 12 months, which
is the period over which going concern is assessed. For HSBC,
the Directors have a reasonable expectation that the Group
and parent company will be able to continue in operation
and meet liabilities as they fall due over the next three years.
In making the going concern and viability assessments,
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.
The assessment has been made over a period of three years
as this is within the period covered by the Group’s future
projections of profitability, the period over which regulatory
and internal stress testing is carried out, and the period over
which key capital and leverage ratios are forecast. Therefore
detailed management information exists for three years,
enabling Directors to assess the viability of the Group.
The Directors are satisfied that the period is sufficient to
enable a reasonable assessment of viability to be made. In
doing so, the Directors have assessed the principal risks
(which for the Group are set out in our top and emerging
risks on page 43), including the status of the DPA, as more
fully described on page 116, that could threaten the Group’s
future prospects and business model. They considered the
effect that those risks could have on the Group’s risk profile
relative to the risk appetite approved by the Board (see
pages 101 and 102). The Directors view all of the identified
top and emerging risks as relevant to the assessment of
viability. In doing so, the Directors considered the range of
information concerning each principal risk, including but not
limited to the Annual Operating Plan, the programme of
regulatory and internal stress tests, risk appetite and legal
reports. The Directors also considered the information from
the two reverse stress tests which the Group runs, one based
on extreme macroeconomic dislocation in Europe and Asia,
the other linked to the DPA. The Directors considered the
principal risks in forming the strategic actions set out on page
18, ensuring that the forward-looking risk profile of the
Group remained within our risk appetite.
HSBC HOLDINGS PLC
277
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Corporate Governance (continued)
Going concern and viability / Employees
Information relevant to the assessment of viability can be
found in the following sections of the Annual Report and
Accounts 2015:
• HSBC’s principal activities, business and operating
models, strategic direction and top and emerging risks
are described in the ‘Strategic Report’;
• a financial summary, including a review of the
consolidated income statement and the consolidated
balance sheet, is provided in the ‘Financial Review’;
• HSBC’s objectives, policies and processes for managing
credit, liquidity and market risk are described under
‘Risk’; and
• the capital position of the Group, regulatory
developments, and the approach to management and
allocation of capital are set out in the ‘Capital’ section.
Assessment of risks
The Directors have carried out a robust assessment of the
principal risks facing the Group, together with mitigating
actions planned or taken. The activities of the Board and its
subcommittees and the significant issues considered by
them are described on page 262.
In assessing these risks, Directors considered a wide range of
information including:
• enterprise risk reports: risk appetite (see page 102), top
and emerging risks (see page 103) and risk map (see
page 103);
• reports and updates from management of risk-related
issues identified for in-depth consideration;
• reports and updates over the course of the Bank of
England stress testing exercise;
• reports and updates on the Group’s compliance-related
initiatives made in connection with the resolution of the
investigations by US and UK regulatory and law
enforcement authorities in December 2012 and also
more generally;
• reports and updates on the Group’s initiatives to deliver
against key conduct, values and culture initiatives; and
• reports to the Board on matters discussed at the RMM.
Employees
At 31 December 2015 we had a total workforce of 264,000
full-time and part-time employees compared with 266,000 at
the end of 2014 and 263,000 at the end of 2013.
Our main centres of employment were the UK with
approximately 47,000 employees, India 33,000, Hong Kong
30,000, mainland China 22,000, Brazil 21,000, Mexico
16,000, the US 14,000 and France 9,000.
Employees performing at their best and the environment we
create to make that possible are critical. We encourage
employees to speak up, and reflect our purpose and values in
the decisions we make and how we make them, as these
decisions shape the future of our customers and colleagues.
Employee relations
We consult with and, where appropriate, negotiate with
employee representative bodies. It is our policy to maintain
well-developed communications and consultation
programmes with all employee representative bodies and
there have been no material disruptions to our operations
from labour disputes during the past five years.
Diversity and inclusion
HSBC is committed to building a culture where all employees
are valued and respected and where their opinions count.
We remain committed to meritocracy, which requires a
diverse and inclusive culture where employees believe that
their views are heard, their concerns are attended to and
they work in an environment where bias, discrimination and
harassment on any matter, including gender, age, ethnicity,
religion, sexual orientation and disability, are not tolerated
and where advancement is based on objective criteria. An
inclusive culture helps us respond to our diverse customer
base, while developing and retaining a secure supply of
skilled, committed employees. Our culture will be
strengthened by employing the best people and optimising
their ideas, abilities and differences.
Oversight of our diversity and inclusion agenda and related
activities resides with the Global Diversity and Inclusion
sub-function.
Employee development
The development of our employees is essential to the future
strength of our business. We continue to develop and
implement practices that build employee capability, and
identify, develop and deploy talented employees to ensure
an appropriate supply of high calibre individuals with the
values, skills and experience for current and future senior
management positions.
In 2015, we focused on developing technical skills,
experiences and behaviours necessary to deliver against our
Global Standards commitments, along with several Group-
wide programmes on individual leadership, team
management and on-boarding employees into HSBC.
Employment of disabled persons
We believe in providing equal opportunities for all
employees. The employment of disabled persons is included
in this commitment and the recruitment, training, career
development and promotion of disabled persons is based on
the aptitudes and abilities of the individual. Should
employees become disabled during their employment with
us, efforts are made to continue their employment and, if
necessary, appropriate training and reasonable equipment
and facilities are provided.
Health and safety
HSBC is committed to providing a safe and healthy
environment for our employees, customers and visitors.
We aim always to meet the minimum health and safety
standards required by law wherever we operate and, where
reasonably practical, to exceed them.
HSBC HOLDINGS PLC
278
Everyone at HSBC has a responsibility for helping to create
a safe working environment. Employees are expected to
take ownership of their safety and are encouraged and
empowered to report any concerns.
The financial and non-financial measures incorporated
in the annual and long-term scorecards are carefully
considered to ensure alignment with the long-term
strategy of the Group.
Corporate Real Estate has overall responsibility for setting
global health and safety policies and standards. Achieving
these policies and standards is the responsibility of each
country’s Chief Operating Officer. A global programme in
2015 involved the review of 1,850 premises in high and
medium risk earthquake zones resulting in training and
awareness for staff and the development of risk reduction
programmes.
In terms of physical and geopolitical risk, Global Security
and Fraud Risk provides regular security risk assessments
to assist management in judging the level of terrorist and
violent criminal threat. Its regional equivalents conduct
biannual security reviews of all critical Group buildings to
ensure measures to protect our staff, buildings, assets and
information are appropriate to the level of threat. HSBC
remains committed to the effective management of health
and safety and protecting employees, customers and
visitors to HSBC.
Employee health and safety
2015
2014
2013
Number of employee workplace
fatalities
Accidents involving more than
three days’ absence
All accident rate per 100,000 employees
–
110
274
21
–
96
388
101
355
1 Non-HSBC staff working on HSBC-related activity.
Remuneration policy
The quality and commitment of our employees is
fundamental to our success and accordingly the Board aims
to attract, retain and motivate the very best people. As
trust and relationships are vital in our business our goal is
to recruit those who are committed to making a long-term
career with the Group.
HSBC’s reward strategy supports this objective through
balancing both short-term and sustainable performance.
Our reward strategy aims to reward success, not failure,
and be properly aligned with our risk framework and
related outcomes. In order to ensure alignment between
remuneration and our business strategy, individual
remuneration is determined through assessment
of performance delivered against both annual and long-
term objectives summarised in performance scorecards,
and adherence to the HSBC Values of being ‘open,
connected and dependable’ and acting with ‘courageous
integrity’. Altogether, performance is judged, not only on
what is achieved over the short- and long-term, but also
on how it is achieved, as the latter contributes to the
sustainability of the Group.
Further information on the Group’s approach to remuneration is
given on page 285.
Employee share plans
Share options and discretionary awards of shares granted
under HSBC share plans align the interests of employees
with the creation of shareholder value. The tables on the
following pages set out the particulars of outstanding
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
and suppliers of goods or services, nor in excess of the
individual limit for each share plan. No options were
cancelled by HSBC during the year.
A summary for each plan of the total number of the
options which were granted, exercised or lapsed during
2015 is shown in the following tables. 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/investor-relations/governance/
share-plans and on the website of The Stock Exchange
of Hong Kong Limited at www.hkex.com.hk, or can be
obtained upon request from the Group Company
Secretary, 8 Canada Square, London E14 5HQ. Particulars
of options held by Directors of HSBC Holdings are set out
on page 314.
Note 6 on the Financial Statements gives details of share-based
payments, including discretionary awards of shares granted under
HSBC share plans.
All-employee share plans
HSBC operates all-employee share option plans under
which options are granted over HSBC ordinary shares.
Subject to leaver provisions, options are normally
exercisable after three to five years. During 2015, options
were granted at the middle market closing price for HSBC
Holdings ordinary shares quoted on the London Stock
Exchange which, as derived from the Daily Official List on
21 September 2015, the day prior to grant, was £4.95.
The all-employee share option plans will terminate on
23 May 2025 unless the Directors resolve to terminate the
plans at an earlier date. There will be no further grants
under the HSBC Holdings Savings-Related Share Option
Plan: International.
The HSBC International Employee Share Purchase Plan was
introduced in 2013 and now includes employees based in
25 jurisdictions.
HSBC HOLDINGS PLC
279
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Corporate Governance (continued)
Employees / Other disclosures / Annual General Meeting / Appendix to Corporate Governance
HSBC Holdings All-employee Share Option Plans
to
to
Dates of awards
from
Exercise price
from
Savings-Related Share Option Plan1
(£)
3.3116
22 Sep
2015
Savings-Related Share Option Plan: International2
24 Apr
2012
(£)
5.4573
(£)
5.4738
29 Apr
2009
29 Apr
2009
(£)
3.3116
29 Apr
2009
29 Apr
2009
29 Apr
2009
24 Apr
2012
($)
4.8876
24 Apr
2012
(€)
3.6361
($)
8.2094
(€)
6.0657
24 Apr
2012
(HK$)
37.8797
(HK$)
63.9864
Exercisable
from
to
At
1 Jan 2015
Granted
during year
Exercised
during year
Lapsed
during year
At
31 Dec 2015
HSBC Holdings ordinary shares
1 Aug
2014
30 April
2021
1 Aug
2014
1 Aug
2014
1 Aug
2014
1 Aug
2014
31 Jan
2018
31 Jan
2018
31 Jan
2018
31 Jan
2018
53,743,955
52,629,208
12,450,711
22,212,633
71,709,819
3,714,059
1,867,328
571,502
6,468,782
–
–
–
–
2,250,853
332,215
1,130,991
907,523
294,360
665,445
376,331
41,561
153,610
5,134,394
219,558
1,114,830
1 The weighted average closing price of the shares immediately before the dates on which options were exercised was £5.72.
2 The weighted average closing price of the shares immediately before the dates on which options were exercised was £5.73.
Discretionary share option plans
There have been no grants of discretionary share options under employee share plans since 30 September 2005.
Dates of awards
Exercise price (£)
Exercisable
from
to
HSBC Holdings ordinary shares
At
1 Jan 2015
Exercised
during year
Lapsed
during year
At
31 Dec 2015
HSBC Holdings Group Share Option Plan1
20 Apr 2005
7.2869
HSBC Share Plan1
20 Apr
2008
20 Apr
2015
6,373,982
30 Sep 2005
7.9911
30 Sep
2008
30 Sep
2015
86,046
–
–
6,373,982
86,046
–
–
1 The HSBC Holdings Group Share Option Plan expired on 26 May 2005 and the HSBC Share Plan expired on 27 May 2011. No options have been granted
under the Plans since that date.
Other disclosures
Further information about share capital, Directors’
interests, dividends and shareholders is set out in
the Appendix to this section on page 281.
Annual General Meeting
The Annual General Meeting (‘AGM’) will be held at
the Queen Elizabeth II Conference Centre, Broad Sanctuary,
Westminster, London SW1P 3EE on Friday 22 April 2016
at 11.00am.
An informal meeting of shareholders will be held at
1 Queen’s Road Central, Hong Kong on Monday 18 April
2016 at 4.30pm.
A live webcast of the AGM will be available on
www.hsbc.com. A recording of the proceedings will be
available shortly after the conclusion of the AGM until
22 May 2016 on www.hsbc.com.
On behalf of the Board
Douglas Flint, Group Chairman
HSBC Holdings plc
Registered number 617987
22 February 2016
HSBC HOLDINGS PLC
280
Appendix to Corporate Governance – Other disclosures
Share capital
Issued share capital
The nominal value of HSBC Holdings’ issued share capital paid up at 31 December 2015 was $9,842,562,967 divided
into 19,685,096,934 ordinary shares of $0.50 each, 1,450,000 non-cumulative preference shares of $0.01 each and
1 non-cumulative preference share of £0.01, representing approximately 99.9999%, 0.0001%, and 0%, respectively, of
the nominal value of HSBC Holdings’ total issued share capital paid up at 31 December 2015.
Rights and obligations attaching to shares
The rights and obligations attaching to each class of ordinary and non-cumulative preference shares in our share capital are set
out in full in our Articles of Association. The Articles of Association may be amended by special resolution of the shareholders
and can be found on our website at www.hsbc.com/about-hsbc/corporate-governance/corporate-governance-codes.
Ordinary shares
HSBC Holdings has one class of ordinary share, which carries no right to fixed income. There are no voting restrictions on the
issued ordinary shares, all of which are fully paid. On a show of hands, each member present has the right to one vote at
general meetings. On a poll, each member present or voting by proxy is entitled to one vote for every $0.50 nominal value of
share capital held. There are no specific restrictions on the transfer of ordinary shares which are governed by the general
provisions of the Articles of Association and prevailing legislation.
At the 2012 AGM, shareholders gave authority to the Directors to offer a scrip dividend alternative until the earlier of the
conclusion of the AGM in 2017 or 24 May 2017. In line with the Investment Association guidelines, shareholders’ approval is
being sought at the 2016 AGM to renew this authority for a further three-year period, expiring on the earlier of the conclusion
of the AGM in 2019 or 21 April 2019.
Information on the policy adopted by the Board for paying interim dividends on the ordinary shares may be found on page 470, under the
heading ‘Shareholder Information’.
Preference shares
The preference shares, which have preferential rights to income and capital, do not, in general, confer a right to attend and
vote at general meetings.
There are three classes of preference shares in the share capital of HSBC Holdings; non-cumulative preference shares of $0.01
each (the ‘dollar preference shares’); non-cumulative preference shares of £0.01 each (the ‘sterling preference shares’); and
non-cumulative preference shares of €0.01 (the ‘euro preference shares’). The dollar preference shares in issue are Series A
dollar preference shares and the sterling preference share in issue is a Series A sterling preference share. There are no euro
preference shares in issue.
Information on dividends declared for 2015 and 2016 may be found on page 283, under the heading ‘Dividends and shareholders’ and in Note 9
to the Financial Statements.
Further details of the rights and obligations attaching to the HSBC Holdings’ issued share capital may be found in Note 35 to the Financial
Statements.
Share capital changes in 2015
The following events occurred during the year in relation to the ordinary share capital of HSBC Holdings:
Scrip dividends
Issued in lieu of
Fourth interim dividend for 2014
First interim dividend for 2015
Second interim dividend for 2015
Third interim dividend for 2015
HSBC Holdings
ordinary shares issued
on
number
Aggregate
nominal value
$
30 April 2015
8 July 2015
2 October 2015
3 December 2015
236,223,184
24,351,484
18,425,272
96,956,825
118,111,592
12,175,742
9,212,636
48,478,413
Market value per share
$
8.5121
9.4959
8.6907
7.8417
£
5.6536
6.2020
5.5464
5.1270
HSBC HOLDINGS PLC
281
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Corporate Governance (continued)
Appendix to Corporate Governance
All-employee share plans
Number
Aggregate
nominal value
$
HSBC Holdings savings-related share option plans
HSBC ordinary shares issued in £
HSBC ordinary shares issued in HK$
HSBC ordinary shares issued in $
HSBC ordinary shares issued in €
Options over HSBC ordinary shares lapsed
Options over HSBC ordinary shares granted in response to
approximately 28,000 applications from HSBC employees in the
UK on 22 September 2015
HSBC International Employee Share Purchase Plan
Plan d’Epargne
HSBC ordinary shares issued for the benefit of non-UK resident
14,701,564
5,134,394
907,523
376,331
23,100,327
52,629,208
39,763
Exercise price
from
3.3116
37.8797
4.8876
3.6361
to
5.4738
63.9864
8.2094
6.0657
7,350,782
2,567,197
453,762
188,166
11,550,164
£
HK$
US$
€
19,882
£
€
4.8740
6.2590
7.4221
employees of HSBC France and its subsidiaries
1,497,450
748,725
HSBC share plans
Vesting of awards under the HSBC Share Plan and
HSBC Share Plan 2011
HSBC Holdings
ordinary shares
issued
Aggregate
nominal value
$
Market value per share
from (£)
to (£)
68,608,884
34,304,442
4.8555
6.4110
Authorities to allot and to purchase shares and pre-emption rights
At the AGM in 2015, shareholders renewed the general authority for the Directors to allot new shares up to 12,823,397,868
ordinary shares, 15,000,000 non-cumulative preference shares of £0.01 each, 15,000,000 non-cumulative preference shares of
$0.01 each and 15,000,000 non-cumulative preference shares of €0.01 each. Within this, the Directors have authority to allot
up to a maximum of 961,754,840 ordinary shares wholly for cash to persons other than existing shareholders. Shareholders
also renewed the authority for the Directors to make market purchases of up to 1,923,509,680 ordinary shares. The Directors
have not exercised this authority.
In addition, shareholders gave authority for the Directors to grant rights to subscribe for, or to convert any security into,
no more than 3,627,000,000 ordinary shares in relation to any issue by HSBC Holdings or any member of the Group of
contingent convertible securities that automatically convert into or are exchanged for ordinary shares in HSBC Holdings in
prescribed circumstances. Further details about the issue of contingent convertible securities may be found in Note 35 on the
Financial Statements.
Other than as disclosed in the table above headed ‘Share capital changes in 2015’, the Directors did not allot any shares
during 2015.
Treasury shares
In accordance with the terms of a waiver granted by the Hong Kong Stock Exchange on 19 December 2005, HSBC Holdings
will comply with the applicable law and regulation in the UK in relation to the holding of any shares in treasury and with the
conditions of the waiver in connection with any shares it may hold in treasury. Pursuant to Chapter 6 of the UK Companies Act
2006, no shares are currently held in treasury.
Directors’ interests
Pursuant to the requirements of the UK Listing Rules and according to the register of Directors’ interests maintained by HSBC
Holdings pursuant to section 352 of the Securities and Futures Ordinance of Hong Kong, the Directors of HSBC Holdings at
31 December 2015 had interests, all beneficial unless otherwise stated, in the shares or debentures of HSBC Holdings and its
associated corporations as tabulated overleaf.
Irene Lee and Pauline van der Meer Mohr did not hold any shares or debentures of HSBC Holdings plc or its associated
corporations during the year.
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 above, none of the Directors had an interest in
any shares or debentures of HSBC Holdings or any associated corporation at the beginning or at the end of the year, and none
of the Directors or their connected persons were awarded or exercised any right to subscribe for any shares or debentures in
any HSBC corporation during the year.
HSBC HOLDINGS PLC
282
Directors’ interests – shares and debentures
HSBC Holdings ordinary shares
Phillip Ameen3
Kathleen Casey3
Safra Catz3
Laura Cha
Lord Evans of Weardale
Joachim Faber
Rona Fairhead
Douglas Flint
Stuart Gulliver
Sam Laidlaw
John Lipsky3
Rachel Lomax
Iain Mackay
Heidi Miller3
Marc Moses
Sir Simon Robertson
Jonathan Symonds
HSBC USA Inc. $2.8575 Cumulative
Preferred Shares, Series Z
Phillip Ameen
HSBC Bank 2.875% Notes 2015
Joachim Faber4
At
1 January
2015
–
–
20,045
–
5,519
24,105
76,524
400,748
2,611,188
36,768
15,820
15,500
79,933
3,575
480,423
22,981
20,553
31
RMBm
5.1
Beneficial
owner
5,000
3,540
20,970
5,200
7,416
45,778
–
401,450
2,684,380
36,596
16,165
18,900
223,872
3,695
624,643
34,118
16,886
–
RMBm
–
At 31 December 2015
Child
under 18
or spouse
Jointly
with another
person
Trustee
–
–
–
–
–
–
77,888
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,4162
–
–
–
–
–
–
–
Total
interests1
5,000
3,540
20,970
5,200
7,416
45,778
77,888
401,450
2,861,265
38,012
16,165
18,900
223,872
3,695
624,643
34,118
21,771
–
RMBm
–
RMBm
–
–
–
RMBm
–
–
–
–
–
–
–
–
–
176,885
–
–
–
–
–
–
–
4,885
–
RMBm
–
1 Executive Directors’ other interests in HSBC Holdings ordinary shares arising from the HSBC Holdings savings-related share option plans and the HSBC
Share Plan 2011 are set out in the Scheme interests in the Directors’ Remuneration Report on page 312. At 31 December 2015, 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: Douglas Flint – 404,369; Stuart Gulliver – 5,909,069; Iain Mackay – 1,478,507; and Marc Moses – 2,171,463. Each Director’s total interests
represents less than 0.03% of the shares in issue.
2 Non-beneficial.
3 Phillip Ameen has an interest in 1,000, Kathleen Casey has an interest in 708, Safra Catz has an interest in 4,194, John Lipsky has an interest in 3,233
and Heidi Miller has an interest in 739 listed American Depositary Shares (‘ADS’), 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.
4 Non-beneficial interest in renminbi (‘RMB’) 1.2m 2.875% Notes 2015 which were redeemed on the due date of 30 April 2015.
Since the end of the year, the aggregate interests of the following Director have increased by the number of HSBC Holdings
ordinary shares shown against his name:
HSBC Holdings ordinary shares
Douglas Flint (beneficial owner)
311
1 The acquisition of shares in the HSBC Holdings UK Share Incentive Plan through regular monthly contributions.
There have been no other changes in the shares or debentures of the Directors from 31 December 2015 to the date of this
report. Any subsequent changes up to the last practicable date before the publication of the Notice of Annual General Meeting
will be set out in the notes to that notice.
At 31 December 2015, non-executive Directors and senior management (being executive Directors and Group Managing
Directors of HSBC Holdings) held, in aggregate, beneficial interests in 18,959,851 HSBC Holdings ordinary shares (0.10% of the
issued ordinary shares). At 31 December 2015, executive Directors and senior management held, in aggregate, options to
subscribe for 29,128 HSBC Holdings ordinary shares under the HSBC Holdings savings-related share option plans. These options
are exercisable between 2017 and 2021 at prices ranging from £4.0472 to £5.1887 per ordinary share.
Dividends and shareholders
Dividends for 2015
First, second and third interim dividends for 2015, each of $0.10 per ordinary share, were paid on 8 July 2015, 2 October 2015
and 3 December 2015, respectively. Note 9 on the Financial Statements gives more information on the dividends declared in
2015. On 22 February 2016, the Directors declared a fourth interim dividend for 2015 of $0.21 per ordinary share in lieu of a
final dividend, which will be payable on 20 April 2016 in cash in US dollars, or in sterling or Hong Kong dollars at exchange rates
to be determined on 11 April 2016, with a scrip dividend alternative. As the fourth interim dividend for 2015 was declared
after 31 December 2015 it has not been included in the balance sheet of HSBC as a debt. The reserves available for distribution
at 31 December 2015 were $46,591m.
HSBC HOLDINGS PLC
283
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the Directors: Corporate Governance / Directors’ Remuneration Report
Appendix to Corporate Governance / Statement from Group Remuneration Committee Chairman
A quarterly dividend of $15.50 per 6.20% non-cumulative US dollar preference share, Series A (‘Series A dollar preference
share’), (equivalent to a dividend of $0.3875 per Series A American Depositary Share, each of which represents one-fortieth of
a Series A dollar preference share), was paid on 16 March, 15 June, 15 September and 15 December 2015.
Dividends for 2016
Quarterly dividends of $15.50 per Series A dollar preference share (equivalent to a dividend of $0.3875 per Series A American
Depositary Share, each of which represents one-fortieth of a Series A dollar preference share) and £0.01 per Series A sterling
preference share were declared on 5 February 2016 for payment on 15 March 2016.
Communication with shareholders
Communication with shareholders is given high priority. The Board has adopted a shareholder communication policy which is
available on www.hsbc.com. Extensive information about our activities is provided to shareholders in the Annual Report and
Accounts, the Strategic Report and the Interim Report which are available on www.hsbc.com. There is regular dialogue with
institutional investors, and enquiries from individuals on matters relating to their shareholdings and our business are welcomed
and are dealt with in an informative and timely manner. All shareholders are encouraged to attend the Annual General Meeting or
the informal meeting of shareholders held in Hong Kong to discuss our progress. Shareholders may send enquiries to the Board in
writing to the Group Company Secretary, HSBC Holdings plc, 8 Canada Square, London E14 5HQ or by sending an email to
shareholderquestions@hsbc.com.
Shareholders may require the Directors to call a general meeting other than an annual general meeting as provided by the UK
Companies Act 2006. Requests to call a general meeting may be made by members representing at least 5% of the paid-up capital
of the Company as carries the right of voting at general meetings of HSBC Holdings (excluding any paid-up capital held as treasury
shares). A request must state the general nature of the business to be dealt with at the meeting and may include the text of a
resolution that may properly be moved and is intended to be moved at the meeting. A request may be in hard copy form or in
electronic form and must be authenticated by the person or persons making it. A request may be made in writing to the postal
address referred to in the paragraph above or by sending an email to shareholderquestions@hsbc.com. At any general meeting
convened on such request no business shall be transacted except that stated by the requisition or proposed by the Board.
Notifiable interests in share capital
At 31 December 2015, HSBC Holdings had received the following notification of major holdings of voting rights pursuant to the
requirements of Rule 5 of the Disclosure Rules and Transparency Rules:
• BlackRock, Inc. gave notice on 9 December 2009 that on 7 December 2009 it had the following: an indirect interest in
HSBC Holdings ordinary shares of 1,142,439,457; qualifying financial instruments with 705,100 voting rights that may
be acquired if the instruments are exercised or converted; and financial instruments with similar economic effect to
qualifying financial instruments which refer to 234,880 voting rights, each representing 6.56%, 0.0041% and 0.0013%,
respectively, of the total voting rights at that date.
At 31 December 2015, according to the register maintained by HSBC Holdings pursuant to section 336 of the Securities and
Futures Ordinance of Hong Kong:
• JPMorgan Chase & Co. gave notice on 24 December 2015 that on 22 December 2015 it had the following interests in HSBC
Holdings ordinary shares: a long position of 1,018,886,506 shares; a short position of 191,280,267 shares; and a lending
pool of 577,920,072 shares, each representing 5.17%, 0.97% and 2.93%, respectively, of the ordinary shares in issue at that
date. Since 31 December 2015 and following interim notifications on 13 and 19 January, JPMorgan Chase & Co. gave notice
on 21 January 2016 that on 19 January 2016 it had the following interests in HSBC Holdings ordinary shares: a long position
of 1,031,430,337 shares; a short position of 202,548,058 shares; and a lending pool of 570,470,431 shares, each
representing 5.23%, 1.02% and 2.89%, respectively, of the ordinary shares in issue at that date; and
• BlackRock, Inc. gave notice on 23 December 2015 that on 20 October 2015 it had the following interests in HSBC Holdings
ordinary shares: a long position of 1,266,331,205 shares and a short position of 4,177,847 shares, each representing 6.60%
and 0.02%, respectively, of the ordinary shares in issue at that date. Since 31 December 2015 and following interim
notifications on 22 January, BlackRock, Inc. gave notice on 26 January 2016 that on 21 January 2016 it had the following
interests in HSBC Holdings ordinary shares: a long position of 1,375,525,890 shares and a short position of 7,428,578 shares,
each representing 6.99% and 0.04%, respectively, of the ordinary shares in issue at that date.
Sufficiency of float
In compliance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited at least 25% of
the total issued share capital has been held by the public at all times during 2015 and up to the date of this report.
Dealings in HSBC Holdings listed securities
Except for dealings as intermediaries by subsidiaries of HSBC Holdings plc, neither HSBC Holdings plc nor any of its subsidiaries
purchased, sold or redeemed any of its securities listed on the Stock Exchange of Hong Kong Limited during the year ended
31 December 2015.
HSBC HOLDINGS PLC
284
Directors’ Remuneration
Report
Page
App1
Annual Statement from the Group
Remuneration Committee Chairman
Group performance in 2015
Group variable pay pool and risk adjustments
285
285
286
How our remuneration policy was applied in 2015 286
287
287
288
288
289
299
300
300
301
302
302
303
305
307
310
311
311
312
312
312
312
313
314
315
315
315
317
New remuneration policy for 2016
Looking ahead to 2016
Directors’ remuneration policy
Material factors taken into account when setting
pay policy
Remuneration policy – executive Directors
Remuneration policy – non-executive Directors
Remuneration policy for all employees
Link between pay and performance
Adjustment, malus and clawback
Annual report on remuneration
Remuneration Committee
Group variable pay pool
Single figure of remuneration
Determining executive Directors’ annual
performance
Awards under the GPSP
Non-executive Directors
Payments to past Directors
Total pension entitlements
Exit payments made in year
Scheme interests awarded during 2015
Summary of performance
CEO remuneration
Directors’ interests in shares
Shareholder context
Implementation of remuneration policy in 2016
for executive Directors
Annual bonus scorecards
Implementation of remuneration policy for
non-executive Directors
Additional disclosures
Employee compensation and benefits
Pillar 3 remuneration disclosures
1 Appendix to Directors’ Remuneration Report.
Annual Statement from the
Group Remuneration
Committee Chairman
Dear Shareholder,
This report sets out HSBC’s remuneration policy for
executive Directors, what we paid our Directors in 2015
and why.
This is my first year as Group Remuneration Committee
(the ‘Committee’) Chairman, although I have been a
member since 30 May 2008.
I have set out below how the Group has performed during
2015, how the remuneration policy was applied in
determining the remuneration outcome for our executive
Directors, and the new remuneration policy we are putting
forward for shareholder approval to give effect to the new
Remuneration Rules of the PRA and, to the extent we can
at this stage, the new European Banking Authority (‘EBA’)
guidelines.
Group performance in 2015
Management laid out its strategy in June 2015, which
sets out the plan to reshape our business, capture future
growth opportunities and adapt to structural changes in
the operating environment. Delivering these strategic
objectives will create value for our customers and
shareholders and contribute to the long-term sustainability
of HSBC. Our executives are focused on delivering on these
strategic objectives.
Although adjusted profit before tax fell in 2015, we
strengthened our capital position and increased our
dividends per ordinary share. We also increased our
revenue and, although operating expenses increased
from 2014, we made progress in implementing our cost
reduction programmes and cost growth slowed in the
second half of the year.
Return on equity (%)
2015
2014
2013
Adjusted profit before tax ($bn)
318
318
319
RBWM
CMB
GB&M
GPB
0.5
7.2
7.3
9.2
6.8
8.2
8.7
All disclosures in the Directors' Remuneration Report are unaudited
unless otherwise stated.
Other
(3.9)
Disclosures marked as audited should be considered audited in the
context of financial statements taken as a whole.
HSBC HOLDINGS PLC
285
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Directors’ Remuneration Report (continued)
Statement from Group Remuneration Committee Chairman
Overall performance summary/business context
We grew adjusted revenue, strengthened our capital position and increased our dividend payable to shareholders.
• Reported PBT for 2015 was up 1% at $18,867m compared with $18,680m for 2014.
• Adjusted PBT was down 7% for 2015 at $20,418m compared with $21,976m for 2014. Adjusted PBT was up in two of five regions.
• Adjusted revenue increased by $538m or 1% in 2015 to $57,765m compared with $57,227m for 2014, driven by revenue growth in client-
facing GB&M, principally in Equities and Foreign Exchange. Revenue also increased in CMB and Principal RBWM.
• Adjusted LICs increased by $553m or 17% to $3,721m compared with $3,168m in 2014. LICs increased in CMB and in RBWM.
• Adjusted operating expenses increased by $1,606m or 5% to $36,182m compared with $34,576m for 2014, reflecting investment in
growth, and regulatory programmes and compliance costs. Excluding the bank levy which is booked in the fourth quarter each year,
operating expenses in the second half of 2015 were broadly in line with the first half of the year. This was despite investment and
inflationary pressures, and partly reflects the initial effect of our cost saving initiatives and a strong focus on cost management.
• Dividends in respect of 2015 increased from $0.50 per ordinary share in 2014 to $0.51 per ordinary share.
• Our CRD IV end point CET1 capital ratio of 11.9% at 31 December 2015 was up from 11.1% at 31 December 2014. We continue to
generate capital from profit and our progress to achieve targeted RWA initiatives strengthened our CET1 ratio, creating capacity for
growth.
• The leverage ratio remained strong at 5.0%.
For further information on financial performance, see the Financial Summary and pages 22 to 27 of the Strategic Report.
Group variable pay pool and risk adjustments
Remuneration is an important tool for instilling the right
behaviours, driving and encouraging actions that are
aligned to organisational values and expectations. I believe
there should be a positive reward for achieving results in
the right way – and a penalty when they are not.
To drive positive change and influence the correct
behaviour, we launched a global At Our Best recognition
programme in July 2015, to be fully implemented by April
2016. This global programme enables everyone at HSBC
to recognise colleagues around the world who bring our
values to life in the way they think and act. It provides a
global shared understanding of what HSBC Values look like
in practice, and a consistent way of recognising people who
demonstrate them.
Where our aim to drive positive change is unsuccessful,
we have a process under which we apply downward
adjustments both at the variable pay pool level and at
the individual employee level. The 2015 variable pay was
determined after taking an automatic adjustment of
$431m to reflect fines, penalties and the cost of customer
redress. The Committee also reduced the payout ratio
from a target of 18.25% to 16%. This resulted in a further
adjustment of $398m to the variable pay pool. Additionally,
there were a number of actions taken, to reduce variable
pay proposed for 2015 for Group employees by $11m,
including members of senior management on account
of certain notable events that took place in the period.
The Group’s policy is for the vast majority of post-tax
profits to be allocated to capital retention and to dividends,
as described on page 304.
The Committee also reviewed the recommendation on
performance management and incentives in a report
issued by the G30: Banking Conduct and Culture: A Call
for Sustained and Comprehensive Reform. The review
confirmed that our practice on remuneration and
performance management is aligned with the
recommendations in the G30 report.
How our remuneration policy was applied
in 2015
Based on performance of the executive Directors against
their 2015 scorecards, the Committee approved 2015
annual incentive awards at 45% of the maximum for
Stuart Gulliver, 80.1% of the maximum for Iain Mackay
and 62% of the maximum for Marc Moses (details of the
performance outcomes are on page 307).
In respect of the Group Performance Share Plan (‘GPSP’),
we determined that 41.3% of the maximum award should
be granted (details of the performance outcomes are on
page 310).
In aggregate, total compensation for the Group Chief
Executive (‘CEO’) is down from 2014 reflecting the weaker
financial performance of the Group and the progress
towards implementation of Global Standards during
the year.
Before confirming the total variable pay to be awarded to the
executive Directors, we took into account reports from the
independent Monitor and received inputs from the Financial
System Vulnerabilities Committee on the progress on the
implementation of the Monitor’s recommendations on AML
and sanctions compliance and other Global Standards-related
initiatives. Based on the inputs received and each executive
Directors’ HSBC Values rating, we assessed that no further
downward override adjustment is required in respect of the
executive Directors or senior executives.
A significant portion of the variable pay awards for
executive Directors is deferred and subject to malus during
the vesting period. In addition, all variable pay awards are
subject to clawback for a minimum period of seven years
from the date of grant. The breakdown of the variable pay
award and the period over which the awards are paid are
set out on page 294.
HSBC HOLDINGS PLC
286
The following graph illustrates when the variable pay
awards for 2015 will be paid to our executive Directors.
£000
5,000
4,000
3,000
2,000
1,000
0
1,187
588
588
605
2016
2017
2018
2019
…
4,171
Later of
2021 or
retirement
Group CEO
Group Finance Director
Group CRO
New remuneration policy for 2016
We will be seeking approval for a new remuneration policy
at the AGM on 22 April 2016. The policy on pages 288 to
299 takes into account the new PRA Remuneration Rules,
which require deferral of variable pay over a longer period
of seven years, rather than three as is currently the case.
It also takes into account changes based on the EBA’s
Guidelines published in December 2015.
Changes to the policy also address shareholder feedback,
mainly the desire to implement a long-term incentive
structure in line with that of other FTSE companies and to
introduce forward-looking performance conditions. The
performance measures for both the annual incentive and
the long-term incentive have also been revised to reflect
the strategic and financial objectives set out in the update
presented to investors in June 2015.
First awards under the new policy will be granted in
March 2017, in respect of the 2016 performance year.
We have discussed the proposed changes to our
remuneration policy with a number of our large
shareholders and proxy advisory bodies, and overall
they have been broadly supportive of the changes.
I hope you will support the new remuneration policy, which
requires your approval to take effect, by voting for the
resolution.
Key changes
Element of pay
Cash in lieu of pension
Fixed pay allowance
Annual incentive
Long-term incentives
Shareholding requirement
Changes
• Reduced from 50% of base salary to 30% of base salary.
• To be released on a pro rata basis over five years.
• To be delivered in shares, subject to a minimum six-month retention period.
• The Committee will retain the discretion to apply longer retention periods or apply deferral to a proportion
of the award (with vesting aligned to the long-term incentive).
• Prior performance will be taken into consideration when determining the value of the grant.
• Awarded in shares, subject to a three-year forward-looking performance period commencing from the
start of the financial year in which the awards are granted.
• Awards will commence vesting after the end of the three-year performance period. Awards will vest in five
equal instalments with the first vesting on or around the third anniversary of the date of grant and the last
instalment vesting on or around the seventh anniversary of grant.
• A retention period may be applied to ensure compliance with regulatory requirements.
• Expressed as a percentage of base salary.
Looking ahead to 2016
The new PRA Remuneration Rules are more stringent than
the rules in force in the EU, US and Asia-Pacific, making it
challenging for UK banks to attract talent with transferable
skills or from other industries. We believe more regulator
co-ordination is required to ensure there are globally
consistent remuneration standards and a level playing
field.
The Committee will monitor the impact of the changes
to our remuneration policy to ensure it continues to be
aligned with our strategy, protects our business and
delivers shareholder value.
Sam Laidlaw Chairman
Group Remuneration Committee
22 February 2016
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
HSBC HOLDINGS PLC
287
Directors’ Remuneration Report (continued)
Directors’ remuneration policy
Directors’ remuneration
policy
Our new remuneration policy for executive and non-
executive Directors is subject to shareholder approval.
The policy has been amended to take into account the
new PRA Remuneration Rules, EBA guidelines and
shareholder feedback. We will seek approval at the Annual
General Meeting on 22 April 2016 and if approved, the
policy is intended to apply immediately, for three years
to the end of the AGM in 2019.
Material factors taken into account when setting remuneration policy
The Committee takes into account a variety of factors when determining the remuneration policy for Directors.
S
R
O
T
C
A
F
L
A
N
R
E
T
N
I
S
R
O
T
C
A
F
L
A
N
R
E
T
X
E
Group strategy
and objectives
Pay and employment
conditions within
the Group
Reinforcing the
Group’s values
• The Group strategic objectives are the key drivers for measuring performance and form the basis of the
annual scorecard and long term incentive scorecard for our executive Directors.
• The targets set for the scorecards are aligned to the strategic targets of the Group.
•
In considering individual awards, a comparison of the pay and employment conditions of our employees
and senior executives is considered by the Committee.
• The Group Head of Performance and Reward presents proposals for remuneration for the wider employee
population and consults with the Committee on the extent to which the different elements of remuneration
are provided to other employees.
• Feedback from employee engagement surveys and HSBC Exchange meetings are taken into account in
determining the Group’s remuneration policy.
• Given the size of the Group’s employee base and its geographical presence, the Committee did not consider
it appropriate to consult all employees on the Directors’ remuneration policy.
• The remuneration policy is designed to reinforce the Group’s values and behaviours and to drive sustainable
performance.
• The Committee receives input from the Group Risk Committee, the Financial System Vulnerabilities
Committee and the Conduct and Values Committee to ensure such behaviours are taken into account.
Regulation
• There is still a wide divergence in local regulations governing remuneration structures globally. This
Comparator group
Shareholder views
presents significant challenges to HSBC, which operates in over 70 countries worldwide.
•
In order to deliver long-term sustainable performance, it is important to have market-competitive
remuneration which is broadly equivalent across geographical boundaries in order to attract, motivate and
retain talented and committed employees around the world.
• We aim to ensure that our remuneration policy is aligned with regulatory practices and the interests
of shareholders. HSBC is fully compliant with the FSB, FCA, PRA, EBA and HKMA principles and rules on
remuneration which apply at the date of this report.
• The Committee considers market data for executive Directors’ remuneration packages from a defined
remuneration comparator group: Australia and New Zealand Banking Group Limited, Bank of America,
Barclays, BNP Paribas, Citigroup, Deutsche Bank, JPMorgan Chase & Co, Santander, Standard Chartered
and UBS.
• These ten global financial services companies were selected for 2015 on the basis of their business
coverage, size and international scope, and are subject to annual review for continuing relevance.
• The Committee can also review other companies where relevant in determining the remuneration policy.
• The Chairman of the Committee, the Group Head of Performance and Reward and the Group Company
Secretary meet with key institutional shareholders and other representative bodies to discuss our
remuneration policy design, impact of regulatory changes and any key changes introduced.
• We consider these meetings important to gather views on our current and developing remuneration
practices to ensure that our reward strategy continues to be aligned with the long-term interests of our
shareholders.
• We also took on board views expressed by our shareholders on our remuneration policy at previous annual
general meetings. We have changed our approach on the provision of cash in lieu of pension and long-term
incentive awards as a result.
HSBC HOLDINGS PLC
288
Remuneration policy – executive Directors
Our remuneration policy supports the achievement of our
strategic objectives through balancing reward for both
short-term and long-term sustainable performance.
Our strategy is designed to reward success, and to align
employees’ remuneration with our Values risk framework
and risk outcomes. For our most senior employees, the
majority of their reward is deferred, subject to malus,
and clawback.
The policy will apply to all executive Directors with the
exception of Douglas Flint, who is not eligible for a fixed
pay allowance or variable pay awards.
Remuneration policy – executive Directors
Purpose and link to strategy Operation
Maximum opportunity
Fixed pay
Base salary
To attract and retain key
talent by being market
competitive and rewarding
on-going contribution to
role.
Fixed pay allowance (‘FPA’)
To deliver fixed pay required
to reflect the role, skills,
and experience of the
Directors and to maintain
a competitive total
remuneration package for
the retention of key talent.
These elements of remuneration are not subject to performance metrics.
The annual base salary for each executive Director is set
out in the table on page 315.
Other than in exceptional circumstances, the base salary
for the current executive Directors will not increase by
more than 15% above the current levels during the
duration of this policy.
Fixed pay allowances are determined based on the role
and responsibility of each individual.
The fixed pay allowance for the duration of this policy
will be capped at 150% of base salary levels at the start
of this policy.
Base salary reflects the individual’s role,
experience and responsibility. The Committee
reviews and approves changes within the
context of local requirements and market
competitiveness.
Base salaries are benchmarked on an annual
basis against relevant comparator groups as
set out on page 288. Base salaries may be
reviewed more frequently at the discretion
of the Committee.
Fixed pay allowances are non-pensionable and
will be granted in shares that vest immediately
on a quarterly basis or at any other frequency
that the Committee deems appropriate.
These shares (net of shares sold to cover any
income tax and social security) will be subject
to a retention period. Shares will be released
annually on a pro rata basis over five years,
starting from the March immediately following
the end of the financial year in which the
shares are granted in respect of.
Dividends will be paid on the vested shares
held during the retention period.
The Committee retains the discretion to pay
the fixed pay allowance in cash if required to
do so by regulation.
Cash in lieu of pension
To attract and retain key
talent by being market
competitive.
Directors receive a cash allowance in lieu of a
30% of base salary.
pension entitlement.
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
HSBC HOLDINGS PLC
289
Directors’ Remuneration Report (continued)
Directors’ remuneration policy
Purpose and link to strategy Operation
Maximum opportunity
Performance metrics
Variable pay
Adhering to the HSBC Values is a prerequisite to be considered for any variable pay. The HSBC Values are key
to running the bank on a sound, sustainable basis. Executive Directors have an HSBC Values rating that is
considered by the Committee following the financial year end.
Annual incentive
To drive and reward
performance against annual
financial, non-financial and
personal objectives which
are consistent with the
strategy and align to
shareholder interests.
The maximum opportunity for
annual incentive award is up to
215% of base salary.
The Committee will assess and
judge performance against the
targets set to determine the level
of achievement.
The overall payout of the annual
incentive could be between 0%
and 100% of the maximum.
25% of the maximum award
opportunity will vest at threshold
performance and up to 50%
will vest for target performance.
100% of the award will pay out
for maximum performance.
The Committee can reduce (to
zero if appropriate) the annual
incentive payout based on the
outcome of the performance
measures, if it considers that
the payout determined does
not appropriately reflect the
overall position and performance
of the Company during the
performance period.
Awards are discretionary and are
generally delivered in the form of
shares.
On vesting, the shares (net of
shares sold to cover any income
tax and social security) will be
subject to a minimum retention
period of at least six months.
Awards are subject to clawback
for a period of seven years from
the date of award. This may be
extended to ten years in the
event of an ongoing internal/
regulatory investigation at the
end of the seven-year period.
The Committee retains the
discretion to:
• apply a longer retention
period;
• grant the award partially in
cash, as long as at least 50% of
the award is in shares; and
• defer a portion of the awards,
which will be subject to malus
during the deferral period.
Dividend equivalents will be paid
on the vested deferred shares,
equal to the dividends paid or
payable between the grant and
vesting date. These will normally
be paid in the form of additional,
i.e. scrip, shares. If not permissible
under regulatory requirements,
the number of shares to be
awarded may be based on a
share price discounted based on
a historical dividend yield.
Performance is measured against
an annual scorecard, based on
targets set for financial outcomes
and non-financial outcomes
(including risk-related measures
and personal objectives). The
scorecards vary by individual.
Examples of the types of
measures are shown on
page 294.
The financial measures will have
a weighting of 60% for the Group
CEO, 50% for the Group Chief
Financial Officer and 25% for the
Group CRO.
The Committee has the
discretion to:
• change the overall weighting
of the financial and non-
financial measures;
• vary the measures and their
respective weightings within
each category. The specific
performance measures will be
disclosed in the ‘Annual report
on remuneration’ for the
relevant year; and
• make adjustments to
performance targets to reflect
significant one-off items which
occur during the
measurement period. Full and
clear disclosure of any such
adjustments will be made
within the ‘Annual report on
remuneration’ at the end of
the performance year, subject
to commercial confidentiality.
HSBC HOLDINGS PLC
290
Purpose and link to strategy Operation
Maximum opportunity
Performance metrics
Long-term incentive (‘LTI’)
To incentivise sustainable
long-term performance
and long-term alignment
with shareholder interests.
Awards are discretionary and
are awarded in shares under
the HSBC Share Plan 2011,
subject to a forward-looking
three-year performance period
from the start of the financial
year in which the awards are
granted.
At the end of the performance
period, the performance
outcomes will be used to assess
what percentage of the awards
will vest. These awards will vest
in five equal instalments with
the first vesting on or around the
third anniversary of the grant
and the last instalment vesting
on or around the seventh
anniversary of the grant date.
This is based on the PRA’s
requirements.
On each vesting, the shares (net
of shares sold to cover any
income tax and social security)
will be subject to a minimum
retention period of six months
if required by regulators.
Awards are discretionary and
are subject to malus during the
vesting period and clawback for
a period of seven to ten years
from the date of award.
Dividend equivalents will be paid
on the vested deferred shares,
equal to the dividends paid or
payable between the grant and
vesting date. These will normally
be paid in the form of additional,
i.e. scrip, shares. If not permissible
under regulatory requirements,
the number of shares to be
awarded may be based on a
share price discounted based on
a historical dividend yield.
The Committee may adjust and
amend awards in accordance
with the rules of the HSBC Share
Plan 2011.
The maximum opportunity for
LTI award is up to 320% of base
salary.
The Committee will assess and
judge performance against the
targets set to determine the
level of achievement.
The overall payout level could
be between 0% and 100% of the
maximum.
25% of the maximum award
opportunity will vest at threshold
performance and up to 50%
will vest for target performance.
100% of the award will vest for
maximum performance.
The Committee can reduce (to
zero if appropriate) the LTI
payout based on the outcome
of the performance measures,
if it considers that the payout
determined does not
appropriately reflect the overall
position and performance of
the Company during the
performance period.
The Committee will take into
consideration prior performance
when assessing the value of the
LTI grant.
Forward-looking performance is
measured against a long-term
scorecard with financial
outcomes (60% weighting) and
non-financial outcome, including
risk and strategy-related
measures (40% weighting).
Relative Total Shareholder
Return (‘TSR’) will have a
weighting of one-third of the
total financial measures. One-third
will be based on achieving return
on equity targets and one-third
will be based on the attainment
of cost-efficiency targets.
Performance targets are set
annually for each three-year
cycle by the Committee.
The Committee has the
discretion to:
• change the overall weighting
of the financial and non-
financial measures;
• vary the measures and their
respective weightings within
each category. The specific
performance measures will be
disclosed in the ‘Annual report
on remuneration’ for the
relevant year; and
• make adjustments to
performance targets to
reflect significant one-off
items which occur during the
measurement period. Full and
clear disclosure of any such
adjustments will be made
within the ‘Annual report on
remuneration’, subject to
commercial confidentiality.
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
HSBC HOLDINGS PLC
291
Directors’ Remuneration Report (continued)
Directors’ remuneration policy
Purpose and link to strategy Operation
Maximum opportunity
Other
Benefits
To provide benefits in
accordance with local
market practice.
Shareholding guidelines
To ensure appropriate
alignment with the
interest of our
shareholders.
Determined by the nature of the benefit
provided. The benefit amount will be
disclosed in the Single Figure Table of
Remuneration for the relevant year.
These elements are not subject to performance metrics.
Benefits take account of local market practice and include,
but are not restricted to, the provision of medical insurance,
income protection insurance, health assessment, life
assurance, club membership, tax return assistance, car
benefit (including any tax due on the benefit) and travel
assistance.
Stuart Gulliver is also provided with accommodation and car
benefit in Hong Kong. HSBC pay any tax due on this benefit.
Additional benefits may also be provided where an
executive is relocated or spends a substantial proportion of
his/her time in more than one jurisdiction based on business
needs. Such benefits could include, but are not restricted to,
airfare, accommodation, shipment, storage, utilities and any
tax and social security that may be due in respect of such
benefits.
Executive Directors and other senior executives are subject
N/A
to shareholding guidelines.
The shareholding guidelines as a percentage of base salary
are:
• Group Chairman: 100%
• Group CEO: 400%
• Group Finance Director: 300%
• Group CRO: 300%
Individuals are given five years from 2014 or (if later) their
appointment to build up the recommended levels of
shareholding. The shareholding guideline does not count
unvested share-based incentives.
The Committee reviews compliance with the shareholding
guidelines. The Committee has full discretion in determining
any penalties in cases of non-compliance, which could
include a reduction of future awards and/or an increase in
the proportion of the annual variable pay that is deferred
into shares.
HSBC operates an anti-hedging policy and executive
Directors are required to certify each year that they have
not entered into any personal hedging strategies in relation
to their holdings of HSBC shares.
All employee share plans
To promote share
ownership by all
employees.
Executive Directors are also entitled to participate in all
employee share plans, such as the HSBC Sharesave, on the
same basis as all other employees.
Under the Sharesave, executive Directors can make monthly
savings over a period of three or five years towards the grant
of an option over HSBC shares. The option price can be at a
discount, currently of up to 20%, on the share price at the
start of the savings period.
The number of options determined by
maximum savings set by HM Revenue and
Customs per month, currently £500.
HSBC HOLDINGS PLC
292
Purpose and link to strategy Operation
Maximum opportunity
Performance metrics
Provisions of previous policy that will continue to apply:
2011 – 2015 Group
Performance Share Plan
(‘GPSP’), deferred cash
and share awards.
Vesting of outstanding deferred
cash and share-based awards
granted in prior years, including
2016. This includes deferred
shares and GPSP awards granted
under the HSBC Share Plan 2011
and HSBC Share Plan, which will
continue to form part of the
remuneration policy until
vesting.
The awards normally vest over a
period of up to five years from
the date of grant. On vesting,
shares (net of any shares sold
to cover income tax and social
security) will be subject to the
applicable retention period set
out at the time of the award.
Dividend equivalents will be paid
on the vested shares. A notional
return will be paid for vested
deferred cash awards.
Award levels have already been
determined based on the
outcome of relevant performance
measures in the relevant prior
year.
The vesting of these awards is
subject to a service condition.
In respect of performance year
2012, vesting of the deferred
shares portion of the annual
incentive awards granted in
March 2013 is subject to
satisfactory conclusion of the
Deferred Prosecution Agreement
with the US Department of
Justice (‘US DPA’). No further
performance conditions apply
for any other awards.
The US DPA condition ends on
the fifth anniversary of the award
date unless it is extended or
otherwise continues beyond that
date, in which case the awards
will vest on the date on which
the US DPA expires and
otherwise ceases to operate.
The Committee reserves the right to make any
remuneration payments and payments for loss of office,
notwithstanding that they are not in line with the policy set
out above where the terms of the payment were agreed:
(i) before the policy set out above, or any previous policy
Differences in policy applied to employees generally
The following table illustrates the differences in policy
that apply to different groups of employees. For further
details, see Remuneration policy for all employees on
pages 300 to 301.
came into effect;
(ii) at a time where a previous policy, approved by
shareholders, was in place provided the payment is
in line with the terms of that policy; or
(iii) at a time when the relevant individual was not a
director of the Company and the payment was not in
consideration for the individual becoming a Director
of the Company.
Elements of remuneration applied to employees
Base salary
Fixed pay allowance
Annual incentive
GPSP/long-term incentive
Benefits and pension
Executive
Directors
Group
Managing
Directors
Other
Employees
–
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
HSBC HOLDINGS PLC
293
Directors’ Remuneration Report (continued)
Directors’ remuneration policy
Release profile of total compensation
The following chart provides an illustrative release profile of target performance total compensation for the Group CEO based
on the new remuneration policy.
Illustration of release profile at target total compensation
100%
6%
6%
6%
11%
11%
5%
5%
26%
25%
0%
2016
2017
2018
2019
2020
2021
2022
2023
2024
Base salary
Pension
Annual incentive
Fixed pay allowance
LTI
Choice of performance measures and targets
The performance measures were selected as they reflect
the Group’s financial targets and strategy. The measures
were determined in consultation with major shareholders.
The targets take into account a number of factors,
including the economic environment, market conditions
and expectations, the Group’s strategic actions and risk
appetite.
Further details of the measures and targets under the
policy are in the tables below.
Performance measures for annual incentive
Financial measures
Will be aligned to achievement of our
annual operating plan targets and linked
to the key Group’s key strategic actions.
Measures may include but are not limited
to:
• profit before tax;
• reduction of Group risk-weighted assets
(‘RWA’s);
• delivery of cost savings; and
• strategic growth.
Targets for threshold and maximum
vesting will be based on various factors
including each year’s annual operating
plan targets.
Global Standards, including risk
and compliance
Drive implementation of our Global
Standards and risk and compliance policies.
Measures may include but are not limited
to:
• progress and embedding of anti-money
laundering and sanctions policies;
•
•
implementation of enhanced customer
due diligence programmes worldwide;
and
implementation and embedding of
conduct programmes.
The targets set will be linked to milestones
agreed with the Monitor, regulators and
overall Group objectives.
Personal objectives
Progress made on delivering key non-
financial milestones aligned to the Group’s
strategic actions, leadership and people
metrics.
HSBC HOLDINGS PLC
294
Performance measures for long-term incentives
Financial measures
Will be strongly aligned to the business
strategy and based on primary long-term
financial goals.
Measures may include but are not limited
to:
• return on equity;
• cost efficiency (jaws); and
• relative TSR against a global financial
services peer group.
Targets set for threshold and maximum
vesting will be based on long-term financial
goals.
Global Standards, including risk
and compliance
Strategy
Will drive delivery of long-term Group
strategic actions.
Will be used in line with the Monitor’s
guidance and as part of regulatory
requirement to use non-financial measures
as part of a balanced scorecard.
Measures may include but are not limited
to:
• completion of US DPA commitments;
• management of key risks; and
• regulatory transparency.
Targets set will be based on achievement
of key long-term commitments and
achievement of a successful Global
Standards roll-out.
Changes in remuneration policy for 2016
The following table provides a summary of key changes to the remuneration policy for 2016.
Remuneration component
Policy changes
Base salary
No change
Rationale for change
N/A
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
Fixed pay allowance
Released pro rata over a period of five years.
Cash in lieu of pension
Maximum reduced from 50% of base salary to
30% of base salary.
Annual incentive
Maximum is 215% of base salary.
Delivered 100% in shares, subject to a retention
period.
Long-term incentive
Maximum is 320% of base salary.
Prior performance will be taken into consideration
when assessing the value of the grant.
Performance targets set annually for each three-
year forward-looking performance period.
Introduction of relative TSR as a performance
measure.
Awards to vest, subject to the outcome of the
performance conditions at the end of the three-
year performance period, in equal instalments
between the third and seventh anniversary of
the grant date.
A retention period may be applied to ensure
compliance with regulatory requirements.
Retention period changed to be consistent with
market practice and to reflect longer deferral
requirements.
Feedback from shareholders that cash in lieu of
pension was high relative to large FTSE
companies.
The Committee considered it appropriate to
have the annual incentive subject to a retention
period, to align with the overall variable pay
structure of the PRA Remuneration Rules and to
take into account the overall time horizons of
the total remuneration package of the executive
Directors.
Shareholder feedback on preference to have a
more conventional long-term incentive structure,
with a forward-looking performance period in
line with FTSE practice.
Longer deferral period required under the PRA
Remuneration Rules.
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
HSBC HOLDINGS PLC
295
Directors’ Remuneration Report (continued)
Directors’ remuneration policy
Remuneration scenarios
Other directorships
Executive Directors may accept appointments as non-
executive directors of companies which are not part
of HSBC if so authorised by either the Board or the
Nomination Committee.
When considering a request to accept a non-executive
appointment, the Board or the Nomination Committee will
take into account, amongst other things, the expected time
commitment associated with the proposed appointment.
The time commitment for external appointments is also
routinely reviewed to ensure that they will not compromise
the Directors’ commitment to HSBC. The Directors’
biographies as set out on pages 294 to 254 includes those
directorships provided for under CRD IV.
Any remuneration receivable in respect of an external
appointment of an executive Director is normally paid to
the Group, unless otherwise approved by the Nomination
Committee or the Board.
Approach to recruitment remuneration –
executive Directors
On the recruitment or appointment of a new executive
Director, the Committee would adhere to the following
principles:
• remuneration packages should be in line with the
approved policy for executive Directors;
• remuneration packages must meet any applicable
local regulatory requirements; and
• where necessary, compensation may be provided
in respect of forfeiture of awards from an existing
employer (buyout awards).
Outlined in the following table are all components that
would be considered for inclusion in the remuneration
package of a new executive Director and, for each, the
approach that would be adopted.
In the case of an internal appointment, any variable
element awarded in respect of the prior role may be
allowed to pay out according to its terms on grant.
For the proposed new remuneration policy, the total
remuneration opportunity for target and maximum
performance has been reduced for executive Directors.
The following charts show how the total value of
remuneration (excluding benefits) and its composition
would vary under different performance scenarios for
executive Directors. ‘Previous’ models the policy in place
prior to shareholder approval in 2014. ‘Current’ models
the policy approved at the 2014 AGM. ‘New’ models the
proposed policy, which will be effective from the date of
the 2016 AGM, subject to shareholders’ approval. Target
is set at 50% of maximum variable pay.
There is no chart for Douglas Flint, who is not eligible for
variable pay awards.
Stuart Gulliver
Amounts in £’000
7,500
7,150
6,650
30%
20%
33%
17%
50%
50%
3,575
3,325
100%
100%
1,875
100%
50%
25%
25%
13,125
57%
29%
14%
10,725
9,975
45%
40%
22%
27%
33%
33%
Previous Current
New
Previous Current
New
Previous Current
New
Minimum
Target
Maximum
Iain Mackay
Amounts in £’000
2,000
1,860
100%
100%
1,050
100%
4,200
4,000
50%
25%
25%
33%
17%
50%
3,720
30%
20%
50%
7,350
57%
29%
14%
6,000
5,580
45%
40%
22%
27%
33%
33%
Previous Current
New
Previous Current
New
Previous Current
New
Minimum
Target
Maximum
Marc Moses
Amounts in £’000
2,000
1,860
100%
100%
1,050
100%
4,200
4,000
50%
25%
25%
33%
17%
50%
3,720
30%
20%
50%
7,350
57%
29%
14%
6,000
5,580
45%
40%
22%
27%
33%
33%
Previous Current
New
Previous Current
New
Previous Current
New
Minimum
Target
Maximum
Fixed pay
Annual incentive
GPSP / LTI
HSBC HOLDINGS PLC
296
Components of remuneration package of a new executive Director
Component
Fixed pay
Approach taken to each component of remuneration
Base salary and fixed pay allowance to reflect the individual’s role, experience and responsibility and be set
in the context of market practice.
Pension in line with policy as set out in the ‘Remuneration policy’ table on page 289.
Benefits
Benefits to be provided will be dependent on circumstances but in line with Group policy and the
‘Remuneration policy’ table, including the global mobility policy, where applicable, and local regulations.
Annual incentive
New joiners will be eligible to be considered for an annual incentive award as set out in the ‘Remuneration
policy’ table on page 290.
Guaranteed bonuses are only permitted by exception and must be limited to the first year of service,
subject to the Group Deferral Policy and performance requirements.
Long-term incentive
May be considered for LTI award in year as set out in the ‘Remuneration policy’ table on page 291.
Buyout
May be offered if the individual holds any outstanding unvested awards which are forfeited on resignation
from the previous employer.
Group buyout policy is in line with the PRA Remuneration Rules which states that both the terms and
amount of any replacement awards will not be more generous than the award forfeited on departure from
the former employer.
Delivered as HSBC deferred shares with vesting and retention periods to match the terms of forfeited
awards with previous employer as closely as possible, subject to proof of forfeiture and other relevant
documentation. Where the time to vesting is less than 60 days, cash or deferred cash may be awarded for
administrative purposes.
Where appropriate, the Committee retains the discretion to utilise the provisions provided in the Listing
Rules for the purpose of making buy-out awards.
Service contracts and policy on payments on loss of
office – executive Directors
Our policy is to employ executive Directors on service
agreements with 12 months’ notice period.
Service contracts
Director
Douglas Flint
Stuart Gulliver
Iain Mackay
Marc Moses
Contract date
(rolling)
Notice period
(Director & HSBC)
14 February 2011
10 February 2011
4 February 2011
27 November 2014
12 months
12 months
12 months
12 months
Letters setting out the terms of appointment of each of
the executive Directors are available for inspection at the
Company’s registered office. Consistent with the best
interests of the Group, the Committee will seek to minimise
termination payments. Directors may be eligible for a
payment in relation to statutory rights.
The following table sets out the basis on which payments
on loss of office may be made. Other than as set out in the
table, there are no further obligations which could give rise
to remuneration payments or payments for loss of office:
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
HSBC HOLDINGS PLC
297
Directors’ Remuneration Report (continued)
Directors’ remuneration policy
Payments on loss of office
Component of
remuneration
Approach taken
Fixed pay and benefits
Executive Directors may be entitled to payments in lieu of:
• notice, which shall consist of base salary, pension entitlements and other contractual benefits, or an
amount in lieu of; and/or
• accrued but untaken holiday entitlement.
Annual incentives and
long-term incentives
In exceptional circumstances as determined by the Committee, the executive Director may be eligible for
annual incentives and long-term incentives based on the time worked in the performance year and on the
individual executive Director’s contribution.
Unvested deferred awards
All unvested awards will be forfeited when an executive Director ceases employment voluntarily and is not
deemed a good leaver. An executive Director may be considered a good leaver at the discretion of the
Committee and the following will apply:
• unvested awards will continue to vest in line with the applicable vesting dates, subject to the original
performance conditions, the share plan rules, malus and clawback provisions; or
• vested shares, subject to retention, will be released to the executive Director on cessation of
employment.
In the event of death unvested awards will vest and will be released to the executive Director’s estate as
soon as practicable.
In respect of outstanding unvested awards, for an individual to be considered as a good leaver, the
Committee needs to be satisfied that the executive has no current or future intention at the date of leaving
HSBC of being employed by any competitor financial services firm. The Committee determines the list of
competitor firms and length of time this restriction applies. If the Committee becomes aware of any
evidence to the contrary before vesting, the award will lapse.
If the executive Director is not deemed a good leaver for purposes of the GPSP, vested shares, subject to
retention, will be released to the executive Director in three equal tranches on each of the first, second and
third anniversary of cessation of employment.
Repatriation
Where an executive Director has been relocated as part of their employment, the Committee retains the
discretion to pay the repatriation costs. This may include, but are not restricted to, airfare, accommodation,
shipment, storage, utilities and any tax and social security that may be due in respect of such benefits.
Post-departure benefits
Applicable for the duration of the clawback period, up to a maximum of seven years from date of departure
for those who depart under good leaver provisions under the HSBC Share Plan and subject to non-compete
provisions, in accordance with the terms of the policy. Benefits may include medical coverage, tax return
preparation assistance and legal expenses for the duration of the clawback period.
The Committee also has the discretion to extend the post-departure benefit of medical coverage to former
executive Directors, up to a maximum of seven years from their date of departure.
Legal claims
The Committee retains the discretion to make payments (including professional and outplacement fees) to
mitigate against legal claims, subject to any such payments being made in accordance with the terms of an
appropriate agreement waiving all claims against the Group.
Change of control
In the event of a change of control, outstanding awards will be treated in line with the provisions set out in
the respective plan rules.
HSBC HOLDINGS PLC
298
Remuneration policy – non-executive Directors
Purpose and link to strategy
Operation
Maximum opportunity
Fees
The fee levels payable reflect the time
commitment and responsibilities of a non-
executive Director of HSBC Holdings.
The Board will review the amount
of each component of fees
periodically to assess whether,
individually and in aggregate,
they remain competitive and
appropriate in light of changes in
roles, responsibilities, and/or time
commitment of the non-executive
Directors and to ensure that
individuals of the appropriate
calibre are able to be retained
or appointed.
Other than in exceptional
circumstances, fees will not
increase by more than 20% above
the current fee levels during the
duration of this policy.
The policy for non-executive Directors is to pay:
• base fees; and
•
further fees for additional Board duties such as
chairmanship, membership of a committee, or
acting as the senior independent Director or
deputy Chairman acting as one.
Fees are paid in cash. The Board retains the discretion
to pay in shares rather than cash where appropriate.
Any non-executive Chairman would be paid a fixed
annual fee for all Board responsibilities based on their
experience and the time commitments expected for
the role, together with such other benefits as the
Committee may in its absolute discretion determine.
Any newly appointed non-executive Director would be
paid in line with the policy on a time apportioned basis
in the first year as necessary. No sign-on payments are
offered to non-executive Directors.
The Board (excluding the non-executive Directors) has
discretion to approve changes to the fees. The Board
may also introduce any new component of fee for
non-executive Directors subject to the principles,
parameters and other requirements set out in this
remuneration policy.
Certain non-executive Directors may be entitled to
receive fees for their services as directors of subsidiary
companies of HSBC Holdings plc. Such additional
remuneration is determined by the board of directors
of each relevant subsidiary within a framework set by
the Group Remuneration Committee.
Expenses
Shareholding guidelines
Reimbursed for any expenses incurred in performing their role and any related tax cost on
such reimbursement.
To ensure appropriate alignment with the interests of our shareholders, non-executive
Directors, individually or with their connected persons, are expected to satisfy a
shareholding guideline of 15,000 shares within five years from 2014 or (if later) their
appointment.
The Committee reviews compliance with the guidelines annually. The Committee has full
discretion in determining any consequences in cases of non-compliance.
Service contracts and policy on payments on loss of
office – non-executive Directors
Non-executive Directors are appointed for fixed terms
not exceeding three years, which may be renewed subject
to their re-election by shareholders at annual general
meetings. Non-executive Directors do not have service
contracts, but are bound by letters of appointment issued
for and on behalf of HSBC Holdings plc. Other than as set
out above, there are no obligations in the non-executive
Directors’ letters of appointment which could give rise
to remuneration payments or payments for loss of office.
Non-executive Directors’ current terms of appointment
will expire as follows:
• in 2016, Rona Fairhead and Sir Simon Robertson, who
are not seeking reappointment;
• in 2017, Kathleen Casey, Laura Cha, Lord Evans of
Weardale, Sam Laidlaw and Jonathan Symonds;
• in 2018, Phillip Ameen, Joachim Faber, John Lipsky,
Rachel Lomax and Heidi Miller; and
• in 2019, Henri de Castries, Irene Lee, Pauline van der
Meer Mohr and Paul Walsh.
HSBC HOLDINGS PLC
299
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Directors’ Remuneration Report (continued)
Directors’ remuneration policy for all employees
Remuneration policy for all
employees
The Committee oversees the Group’s remuneration policy
and its application to the wider employee population.
The Committee periodically reviews the adequacy and
effectiveness of the policy and ensures that it:
• meets the commercial requirement to remain
competitive;
• is affordable;
Component of remuneration
Approach taken
• allows flexibility in response to prevailing circumstances;
and
• is consistent with effective risk management.
The mix of fixed and variable pay granted to an employee
corresponds to the individual’s role, local market factors
and regulatory requirements. The variable pay for all
material risk takers (‘MRT’s) is restricted to a maximum
of 200% of their fixed pay.
The table provides an overview of the different remuneration
elements and how this is operated for our employees:
Base salary
Market competitive pay for the role, skills and experience required for the business. Used to attract and
retain employees.
Fixed pay allowances
Given where a rebalancing of the fixed and variable pay components of remuneration is appropriate.
The criteria used for determining fixed pay allowances include: the role, skills, experience, technical
expertise, market compensation and other remuneration that the employee may receive in the year.
Allowances may be in cash and/or vested shares.
The shares (net of shares sold to cover any income tax and social security) would be subject to a retention
period.
Pension and benefits
Provided in accordance with local market practice. This includes but is not limited to the provision of
pensions, medical coverage, life insurance, health assessment, tax return preparation, legal fees and
relocation allowances.
Annual incentives
Awards to drive and reward performance based on annual financial and non-financial measures consistent
with the medium to long-term strategy, shareholder interests and adherence to HSBC Values.
For MRTs, awards are normally subject to a 40% or 60% deferral. Normally delivered in cash and/or
shares, subject to a minimum six-month retention period. The vesting schedule is normally over 3 years.
For 2016, it could be 3 years, 5 years or 3-7 years, depending on the regulatory status of the employee.
Deferred awards are subject to malus and all awards are subject to clawback.
MRTs who meet the de minimis requirements of the PRA are subject to the normal deferral rates
applicable to all other employees.
For all other employees, awards can be in the form of cash and/or shares. Awards above a specified
threshold are subject to deferral based on a deferral table. All deferred awards are subject to malus.
HSBC operates an anti-hedging policy for all employees. As part of this all employees are required to
certify each year that they have not entered into any personal hedging strategies in relation to their
unvested awards and holdings of HSBC shares subject to a retention period.
Long-term incentives
Share awards made to incentivise sustainable long-term performance and align to shareholder interests.
Only Group Managing Directors are eligible to receive long-term incentives. All awards are subject to
malus and clawback.
Link between pay and performance
Under our remuneration framework, pay decisions are
made based on the following factors: business results,
performance against scorecard objectives, general
individual performance of the role, and adherence to
HSBC Values, business principles, risk-related policies,
procedures and Global Standards.
At the end of each performance year, performance against
scorecard objectives, including risk objectives, form the
basis of remuneration decisions. This ensures risk
management is embedded and forms an integral part of
all our activities. This is especially important for senior
executives and MRTs as risk and compliance measures in
their scorecards ensure that their individual remuneration
has been appropriately assessed with regard to risk.
The performance and remuneration of individuals in control
functions is assessed according to a balanced scorecard of
objectives specific to the functional role they undertake, to
ensure their remuneration is determined independent of the
performance of the business areas they control.
HSBC Values are key to the running of a sound, sustainable
bank. All employees have a separate behavioural rating,
which informs their eligibility for variable pay and
influences their variable pay determinations.
Regular reviews are undertaken to assess instances of non-
compliance with risk procedures and expected behaviours.
Instances of non-compliance are escalated for consideration
in variable pay decisions, using the adjustment, malus and
clawback policies described in the next section. For MRTs,
the Committee has oversight of such decisions.
HSBC HOLDINGS PLC
300
Adjustment, malus and clawback
Where there are instances of conduct breaches, the
following actions can be taken. The Committee has
exclusive discretion to apply the malus and clawback under
the policies that it has adopted, taking into consideration
an individual’s proximity to, and responsibility for, the issue
in question. Where possible, an adjustment will be made to
current year variable pay, before the application of malus,
then clawback.
This is in line with the PRA and FCA regulatory requirements.
Type of
action
Adjustment
Type of variable pay
award affected
Current year
variable pay
Adjustment
under the
downward
override policy
Current year variable
pay for executive
Directors and other
senior executives
Circumstances where it may apply (including, but not limited to):
• Detrimental conduct or conduct which brings the business into disrepute.
•
Involvement in Group-wide events resulting in significant operational losses, including
events which have caused or have the potential to cause significant harm to HSBC.
• Non-compliance with HSBC Values and other mandatory requirements.
• Based on the recommendations received from the independent Monitor, the Committee
introduced the policy in 2014.
• The criteria used to determine the downward adjustment will include:
‒
insufficient yearly progress in developing an effective AML and sanctions compliance
programme; or
‒ non-compliance with the US DPA and other relevant orders.
•
In deciding the application and degree of any such downward override to reduce variable
pay awards, the Committee will factor in the Financial System Vulnerabilities Committee’s
recommendations and the feedback from the Monitor in relation to cooperation with their
review and progress in developing an effective AML and sanctions compliance programme.
Malus
Unvested deferred
awards granted in
prior years
• Detrimental conduct or conduct which brings the business into disrepute.
• Past performance being materially worse than originally reported.
• Restatement, correction or amendment of any financial statements.
•
Improper or inadequate risk management.
Clawback
Vested or paid awards
• Applicable only to awards granted to MRTs on or after 1 January 2015 for seven years. May
be extended to ten years for employees under the Senior Manager Regime in the event of
ongoing internal/regulatory investigation at the end of the seven-year period.
• Participation in or responsibility for conduct which results in significant losses.
• Failing to meet appropriate standards of fitness and propriety.
• Reasonable evidence of misconduct or material error that would justify, or would have
justified, summary termination of a contract of employment.
• HSBC or a business unit suffers a material failure of risk management within the context
of Group-risk management standards, policies and procedures.
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
HSBC HOLDINGS PLC
301
Directors’ Remuneration Report (continued)
Annual report on remuneration
Annual report on
remuneration
Remuneration Committee
Role
Within the authority delegated by the Board, the
Committee is responsible for approving the Group’s
remuneration policy. The Committee also determines the
remuneration of executive Directors, senior employees,
and employees whose activities have or could have a
material impact on our risk profile. No executive Directors
are involved in deciding their own remuneration.
Details of the Committee’s key activities
Membership
The members of the Group Remuneration Committee
during 2015 were Sir Simon Robertson (stepped down as
Chairman of this Committee on 24 April 2015), Sam Laidlaw
(appointed Chairman on 24 April 2015), and John Lipsky.
Pauline van der Meer and Paul Walsh joined the Group
Remuneration Committee on 1 January 2016.
Activities
The Committee met 11 times during 2015. The following is
a summary of the Committee’s key activities during 2015.
Month
Activities
Month
Activities
January
• 2014 performance year pay review matters
• Directors’ Remuneration report
• Share Plan – HSBC UK Share Incentive Plan
• Governance matters
February
• 2014 performance year pay review matters
• 2015 GPSP and Group CEO Annual Scorecards
• Update on notable events
• Downward Override Policy
• 2014 Directors’ Remuneration Report and
Strategic Report
• Regulatory submissions and disclosures
• Governance matters
March
• 2015 Monitor’s report on remuneration-related
matters
• Downward Override Policy
• Final regulatory submissions and disclosures
• Review of draft EBA remuneration guidelines
• 2014 performance year pay review matters
• Country/business policies and practice
• Governance matters
April
• Performance management and reward survey
• Regulatory update on EBA guidelines and FCA
guidance on ex-post risk adjustment
• Group share plans
• Country/business policies and practice
• Governance matters
May
July
• Remuneration policy review
• 2015 Material Risk Taker review
• Update on notable events
• Regulatory updates
• Country/business policies and practice
• Governance reports
• Country/business policies and practice
• Regulatory updates
• Update on notable events
• Remuneration policy design considerations
• Governance matters
September • Regulatory updates and submissions
• Update on notable events
• Remuneration policy design considerations
• 2015 performance year pay review matters
• Group share plans
• Governance matters
October
• G30 study on banking conduct and culture
• Remuneration policy design considerations
• Country/business policies and practice
• Governance matters
November • 2015 performance year pay review matters
• 2015 regulatory submissions
• Update on notable events
• Remuneration policy design considerations
• Shareholder consultation on new remuneration
policy
• Governance matters
December • 2015 performance year pay review matters
• 2015 regulatory submissions
• Governance matters
• Country/business policies and practice
• Group share plans
Advisers
The Committee received input and advice from different
advisers on specific topics during 2015. In 2015, Deloitte
was appointed as an objective, independent adviser to
support the Committee on a one-off basis with respect
to the new remuneration policy.
Deloitte LLP provided benchmarking data on remuneration
policy design considerations and independent advice to
the Committee. Deloitte also provided tax compliance and
other advisory services to the Group. To ensure the advice
from Deloitte was objective, the Committee required the
advice to be independent and distinct from any internal
review and analysis on remuneration policy matters.
HSBC HOLDINGS PLC
302
During 2015, total fees of £116,200 were paid to Deloitte in
relation to the remuneration related advice provided to the
Committee. This was based on a fixed fee agreed on an
estimated time spent basis.
During the year, the Group CEO provided regular briefings
to the Committee. In addition, the Committee received
advice from the following employees as part of their
executive role as employees of HSBC:
• Ann Almeida, former Group Head of Human Resources
and Corporate Sustainability (last meeting attended
February 2015),
• Pierre Goad, Group Head of Human Resources,
• Alexander Lowen, Group Head of Performance and
Reward,
• Marc Moses, Group Chief Risk Officer,
• Robert Werner, Global Head of Financial Crime
Compliance and Group Money Laundering Reporting
Officer, and
Variable pay pool determination
• John Flint, Chief Executive Retail Banking and Wealth
Management.
The Committee also received feedback and input from the
Group Risk Committee, Financial System Vulnerabilities
Committee and Conduct & Values Committee on risk and
compliance-related matters relevant to remuneration. This
included the input from Financial System Vulnerabilities
Committee on the implementation and annual assessment
of progress on the implementation and progress on the AML
and sanctions compliance programme for the purposes of
the Committee’s determination on any adjustments to be
made under the downward override policy.
Group variable pay pool
Variable pay pool determination
The Committee considers many factors in determining
the Group’s variable pay pool funding. Both the annual
incentive and GPSP are funded from a single annual
variable pay pool from which individual awards are
considered.
Performance and risk
appetite statement
Countercyclical funding
methodology
Distribution of profits
Commerciality and
affordability
• The variable pay pool takes into account the performance of the Group considered within the context of our
risk appetite statement (‘RAS’) which includes a number of earnings/capital related metrics, such as return
on equity, return on notional risk weighted assets, common equity tier 1 capital ratio and the leverage ratio.
This ensures that the variable pay pool is both economic and shaped by risk considerations and any Group-
wide notable events.
• Additionally, individual RAS has been developed for Financial Crime Compliance and Regulatory Compliance
to reflect the current regulatory focus on these risks.
• The Group CRO regularly updates the Committee on the Group’s performance against the risk appetite
statement and summarises the notable issues for the various business lines.
• The Committee uses these updates along with feedback from the Group Risk Committee as delivered by the
Group CRO when determining the annual variable pay pool to ensure that return, risk and remuneration are
aligned.
• We use a countercyclical funding methodology which is categorised by both a floor and a ceiling and the
payout ratio reduces as performance increases to avoid pro-cyclicality risk.
• The floor recognises that even in challenging times, remaining in a competitive position is important.
• The ceiling recognises that at higher levels of performance it is possible to limit reward as it is not necessary
to continue to increase the variable pay pool, thereby limiting the risk of inappropriate behaviour to drive
financial performance.
•
•
In addition, our funding methodology considers the relationship between capital, dividends and variable pay
to ensure that the distribution of post-tax profits between these three elements is considered appropriate
(see next page for the 2015 and 2014 split).
It is deemed fundamental that the majority of post-tax profits should be allocated to capital and to
shareholders, particularly when strong performance is delivered.
• Finally, we consider the commercial requirement to remain competitive in the market and overall
affordability. Funding of the Group’s annual variable pay pool is determined in the context of Group
profitability, capital strength, shareholder returns and the overall compensation and benefits expense. This
approach ensures that performance-related awards for individual global businesses, global functions,
geographical regions and levels of staff are considered in a holistic fashion.
• Market competiveness is also considered in determining the variable pay pool. This allows us to address
any gaps to market identified when comparing total reward with our global peers. This also recognises the
challenges which arise from being headquartered in the UK and having to apply more stringent reward
practices than those in all other markets. We need to retain a competitive market position in Asia, the
Middle East and the US in attracting and retaining talent, where our competitors are not subject to discounts
applied by employees on their pay due to regulatory requirements including a variable pay cap, higher and
longer deferrals, malus and clawback.
HSBC HOLDINGS PLC
303
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Directors’ Remuneration Report (continued)
Annual report on remuneration
2015 variable pay pool
Relative importance of spend on pay
This year’s variable pay pool is established by reference to
the Group’s reported profit before tax, which is adjusted
to exclude movements in the fair value of own debt
attributable to credit spread, the gains and losses from
disposals, and debit valuation adjustment. Reported profit
before tax includes the costs of fines, penalties and other
items of redress.
The Committee has taken into account all of the factors in
the previous table to determine the outcome below:
Variable pay pool outcome ($m)
2015
2014
-5%
3,462
3,660
-3%
1,086
1,120
Group
Global Banking and Markets
Group
2015
2014
Global Banking
and Markets
2015
2014
Variable compensation
incentive pool as a %
of pre-tax profit
(pre-variable pay)1
% of variable pay pool
deferred2
16%
16%
12%
15%
15%
14%
26%
25%
The chart below provides a breakdown of total staff pay
relative to the amount paid out in dividends.
$m
2015
2014
-2%
19,900
20,366
4%
10,000
9,600
Ordinary dividends¹
Employee compensation
and benefits²
1 Dividends per ordinary share in respect of that year. For 2015, this
includes the first, second and third interim dividends paid in 2015
of $5.9bn (gross of scrip) and a fourth interim dividend of $4.1bn.
2 Employee compensation and benefits in 2015 and 2014 includes
fixed pay, benefits and variable pay as outlined on page 16.
Pro-forma post-tax profits allocation
On a pro-forma basis, attributable post-tax profits
(excluding the movements in the fair value of own debt
and before pay distributions) for 2015 were allocated in
the proportions shown in the chart below. The overall
compensation benefits expense to net revenue was 33%
for 2015.
16%
25%
15%
1 The 2015 Group pre-tax pre-variable pay profit calculation as
described above.
2 The percentage of variable pay deferred for 2015 material risk-taker
population is 51%.
2015
59%
39%
2014
46%
Retained earnings/capital
Dividends1
Variable pay2
1 Inclusive of dividends to holders of other equity instruments and net
of scrip issuance based on an assumption of scrip take up for the
fourth quarter of 2015 of 20%. Dividends per ordinary share declared
in respect of 2015 were $0.51, an increase of 2% compared with
2014. The post-tax profits allocation figures shown in the Annual
Report and Accounts 2014 in respect of that year assumed a scrip
take up of 20%. The figures shown above in relation to 2014 have
been calculated based on an actual scrip take up of 52%.
2 Total variable pay pool net of tax and portion to be delivered by the
award of HSBC shares.
HSBC HOLDINGS PLC
304
Single figure of remuneration
Executive Directors
(Audited)
Douglas Flint
2015
£000
2014
£000
Stuart Gulliver
2015
£000
2014
£000
Iain Mackay
2015
£000
2014
£000
Marc Moses
2015
£000
2014
£000
Fixed pay
Base salary
Fixed pay allowance
Pension
Variable pay
Annual incentive
GPSP
1,500
–
750
2,250
–
–
–
1,500
–
750
2,250
–
–
–
Total fixed and variable pay
2,250
2,250
Benefits
Non-taxable benefits
Notional return on deferred cash
151
95
–
136
105
41
1,250
1,700
625
3,575
1,072
1,969
3,041
6,616
662
53
9
1,250
1,700
625
3,575
1,290
2,112
3,402
6,977
589
53
–
700
950
350
700
950
350
700
950
350
700
950
350
2,000
2,000
2,000
2,000
1,068
1,101
2,169
4,169
54
28
5
867
1,131
1,998
3,998
43
28
11
827
1,101
1,928
3,928
6
29
5
1,033
1,131
2,164
4,164
6
33
36
Total single figure of remuneration
2,496
2,532
7,340
7,619
4,256
4,080
3,968
4,239
Notes to the single figure of remuneration
(Audited)
Base salary
• Salary paid in year for executive Directors. No fees were paid to executive Directors.
Fixed pay allowance
• Fixed pay allowance granted in immediately vested shares in the year for executive Directors.
• The shares are subject to a retention period. 20% released in the March immediately following the end of the financial year. 80% released
after a period of five years from the date of the first release.
• Dividends will be paid on the vested shares held during the retention period.
Pension
• The amounts consist of an allowance of 50% of annual base salary in lieu of personal pension arrangements.
• No other benefits were received by the executive Directors from the Group pension plans.
Benefits
• All taxable benefits (gross value before payment of tax). Benefits include provision of medical insurance, accommodation and car,
club membership, tax gross-up for accommodation and car benefit, and car allowance.
• Non-taxable benefits include the provision of life assurance and other insurance cover.
The values of the significant benefits in the above table were as follows:
Car benefit (UK and Hong Kong)
Hong Kong bank-owned
accommodation2
Tax expense on car benefit and
Hong Kong bank-owned
accommodation
Insurance benefit (non-taxable)
Douglas Flint
2015
£000
69
–
57
80
2014
£000
70
–
58
80
Stuart Gulliver
2015
£000
2014
£000
87
281
275
–1
88
246
239
–1
Iain Mackay
2015
£000
–1
2014
£000
–1
Marc Moses
2015
£000
–1
–
–1
–1
–
–1
–1
–
–1
–1
2014
£000
–
–
–
–
1 The car benefit and tax on car benefit for Iain Mackay and Marc Moses is not included in the above table as it was not significant. The insurance
benefit for Stuart Gulliver, Iain Mackay and Marc Moses is not included in the above table as it was not significant.
2 Based on the current market rental value of the bank-owned property in Hong Kong, as estimated by an external lease service provider, plus utility
costs, rates, the taxable value of furniture and taking into account the business use of the property. The taxable value of the accommodation is
considered to be 70% of the total of these amounts.
Annual incentive
• Annual incentive awarded (including deferred amounts) as a result of achievement of performance measures for the relevant financial year.
60% of the award is deferred. 50% of both the deferred and non-deferred component of the award is payable in cash and the remaining
50% in shares, subject to a six-month retention period on vesting.
• The deferred element of the 2015 award pays out over a period of three years, subject to service and malus conditions: 33% vests on or
around the first and second anniversary of grant and 34% on or around the third anniversary of grant. For the 2015 award the performance
measures and the outcomes of the performance conditions can be found on page 307. Outcomes for the 2014 award can be found in the
Directors’ Remuneration Report in the Annual Report and Accounts 2014.
HSBC HOLDINGS PLC
305
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Directors’ Remuneration Report (continued)
Annual report on remuneration
• The deferred share awards also include a right to receive dividend equivalents. Dividend equivalents are delivered in the form of additional
shares, in the same time, manner and proportion as the original deferred award at vesting. The expected value of these dividend
equivalents is included in the value of deferred share awards.
Illustration of annual incentives
2015
2016
2017
Mar
Sep
Mar
2018
Mar
2019 and beyond
Mar
6-month
retention
6 months
1 year
1 year
Performance period
3-year vesting period
Award level
based on 2015
performance
Award made
in March
2016, 50%
paid in cash
immediately
50% paid
in shares
released
after six
months
33% vests on or
around the first
anniversary of
grant and subject to
6-month retention
33% vests on or
around the second
anniversary of
grant and subject to
6-month retention
34% vests on or
around the third
anniversary of
grant and subject to
6-month retention
N
o
n
-
d
e
f
e
r
r
e
d
p
o
r
t
i
o
n
D
e
f
e
r
r
e
d
p
o
r
t
i
o
n
4
0
%
6
0
%
Awards subject to malus and clawback provisions at the discretion of the Remuneration Committee
GPSP
• GPSP awarded as a result of achievement of sustainable long-term performance. Figures shown reflect the face value of awards granted in
2015 and 2014, respectively.
• Award levels are determined by considering performance against enduring performance measures set out in the long-term performance
scorecard. There are no post-grant performance conditions.
• The award is subject to a five-year cliff vesting period during which the Committee has the authority to cancel all or part of the award. On
vesting, the shares (net of tax) must be retained for the duration of the participant’s employment.
• For the 2015 award the outcomes of the performance conditions can be found in the section titled ‘Awards under the GPSP’ on page 310.
Outcomes for the 2014 award can be found in the Directors’ Remuneration Report in the Annual Report and Accounts 2014.
• For the 2014 award, the Committee used their discretion to reduce the executive Directors’ GPSP awards by £500,000 for Stuart Gulliver,
and by £330,000 each for Iain Mackay and Marc Moses.
• The GPSP awards also include a right to receive dividend equivalents for the period between the grant and the vesting date. Dividend
equivalents on the GPSP awards will be delivered when the GPSP awards vest. There was no vesting of historical GPSP awards in 2015. The
expected value of these dividend equivalents is included in the value of GPSP awards.
Illustration of GPSP
Historical to
2015
2016
2017
2018
2019
2020
2021
and beyond
Performance period
5-year vesting period
Award level
based on 2015
and long-term
sustainable
performance
Award made in
March 2016
Value of GPSP award fluctuates up or down
based on share price performance
Vesting awards
subject to retention
Although shares
are fully vested,
executive Directors
must retain the
shares for duration
of employment
Award vests fully
after five years
in March 2021
Awards subject to malus and clawback provisions at the discretion of the Remuneration Committee
HSBC HOLDINGS PLC
306
Notional return on deferred cash
• The deferred cash award portion of the annual incentive also includes a right to receive notional returns for the period between grant date
and vesting date and is determined by reference to the dividend yield on HSBC shares, determined annually.
• A payment of notional return is made annually in the same proportion as the vesting of the deferred awards on each vesting date.
The amount is disclosed on a paid basis in the year in which the payment is made.
Determining executive Directors’ annual
performance
(Audited)
Awards made to executive Directors reflected the
Committee’s assessment of the extent to which they had
achieved personal and corporate objectives set within
their performance scorecard as agreed by the Board at
the beginning of the year, which had been set to reflect
the risk appetite and strategic priorities. In addition, in
accordance with the downward override policy, the
Committee also consulted the Financial System
Vulnerabilities Committee and took into consideration
their feedback in relation to progress on enhancing AML
Value of annual incentives awarded to each executive Director
and sanctions compliance along with progress in meeting
the Group’s obligations under the US DPA and other
relevant orders. The Committee also took into consideration
the report of the independent Monitor in determining the
scorecard outcomes.
In order for any award of annual incentive to be made
under the above performance scorecard, each executive
Director must meet a required behavioural rating which is
assessed around HSBC Values of being ‘open, connected
and dependable’ and acting with ‘courageous integrity’. For
2015, all executive Directors met the required behavioural
rating.
Fixed pay
Value (£000)
Annual incentive
Maximum multiple of fixed pay
Performance outcome
Multiple awarded
Value (£000)
Stuart Gulliver
Stuart Gulliver
Iain Mackay Marc Moses
3,575
0.67
45.0%
0.30
1,072
2,000
0.67
80.1%
0.53
1,068
2,000
0.67
62.0%
0.41
827
Stuart Gulliver achieved a performance outcome for the
year of 45% against his annual scorecard.
The chart shows the value and composition of Stuart
Gulliver’s remuneration based on the current policy in
comparison with the actual 2015 variable pay outcomes.
2015 actual
54%
16%
30%
6,616
Maximum policy
33%
22%
45%
10,725
Target policy
50%
17%
33%
7,150
Fixed pay
Annual incentive
GPSP
Annual assessment
Measure
Profit before tax1
Return on equity
Jaws2
Grow dividends3
Financial
Strategy execution
Global Standards including risk and compliance
Non-financial
Promoting HSBC Values
Total
Weighting
%
Target
Performance
Assessment
%
Outcome
%
15
15
15
15
60
15
25
$21.2bn
7.3
–
0.50
$21.1bn
7.2%
(3.7%)
0.51
Judgement – see commentary
Judgement – see commentary
50
–
–
75
75
60
%
40
Over-riding test
100
7.5
–
–
11.2
18.7
11.3
15.0
26.3
Met
45.0
1 Profit before tax, as defined for the Group variable pay pool.
2 Revenue growth less operating expense, on an adjusted basis.
3 Dividend per ordinary share (US dollar) in respect of the year, measured year on year; consistent with the growth of the overall profitability of the
Group, predicated on the continued ability to meet with regulatory capital requirements.
Profit before tax • Although the target was not fully met, profit before tax fell marginally short of the baseline. In acknowledgement
L
A
I
C
N
A
N
I
F
of a resilient performance in difficult market conditions, an assessment of 50% was awarded.
Return on equity • Return on equity for 2015 was 7.2%, 190 basis points lower than 2014, impacted by low revenue growth as well
as significant items. While the Committee acknowledged efforts to improve medium-term returns, it decided to
not make an award under this opportunity.
HSBC HOLDINGS PLC
307
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Directors’ Remuneration Report (continued)
Annual report on remuneration
L
A
I
C
N
A
N
I
F
L
A
I
C
N
A
N
I
F
-
N
O
N
Jaws
• The Group targeted the achievement of positive adjusted jaws in 2015. Based on the profile of the Group’s
revenues and cost base, it was judged that no award should be made under this element of the scorecard.
Grow dividends
• The Group is committed to paying out progressive dividends to shareholders, predicated on the growth of overall
profitability and the continuing ability to meet regulatory capital requirements. Prospective dividend growth
remains dependent upon the long term overall profitability of the Group and delivering further release of less
efficiently deployed capital.
• The Group was able to increase the dividend per ordinary share in 2015 as well as improve its capital position.
Strategy
execution
Global Standards
including risk and
compliance
• Committee reviewed the progress to date in driving the Strategic Actions announced during the June 2015
Investor Update, particularly around re-sizing and simplifying the Group, and re-deploying capital to invest in
higher-return businesses.
• The Group had achieved $124bn reduction in RWAs in the year, ahead of the 2015 target and accounting for
45% of the total RWA reduction to be achieved by the end of 2017 to drive improved profitability.
• The Committee further recognised favourable progress in optimising the global network with the planned sale
of our operations in Brazil. The Committee acknowledged the work under way to re-build profitability in the
United States, although noted that underlying revenue growth remains challenged. The Committee also noted
the implementation of several initiatives to control costs, improve efficiency, and shift the Group’s front office
to back office ratio towards customer facing activities.
• There were advances made in re-deploying capital to invest in higher-return businesses. The Committee
recognised the Group’s progress in leveraging its global network to drive growth from global connectivity, in
particular through its range of transaction banking products, and to deliver revenue synergies from its universal
banking model. The Pivot to Asia strategy is being executed to capture growth opportunities in China's Pearl
River Delta, in the Association of Southeast Asian Nations, and in the Asian Asset Management and Insurance
businesses.
• The Group continues to play a leading role in the Internationalisation of the renminbi, being able to grow
revenues and demonstrate several market firsts during 2015, such as the first Panda bond issued by a foreign
bank in mainland China.
• The Committee was advised that the Group has continued to make progress in the implementation of Global
Standards, including completion of certain milestones related to customer due diligence, transaction monitoring
and sanctions screening. In addition, the global businesses are focusing on increasing operational impact and
improving consistency across geographies to support the implementation of global AML and sanctions policies.
• During 2015, the Global Standards programme assurance function has been strengthened to provide additional
insight into programme outcomes and effectiveness. This has resulted in enhanced visibility of potential risks
and compliance weaknesses and has enabled proactive mitigating actions.
• The Committee recognised that the Group had progressed with the implementation of other compliance and
regulatory programmes in addition to Global Standards, including global stress testing, ring-fencing and global
conduct (e.g. development of Conduct Management Information Dashboard). The Committee further noted
favourable trends in customer redress, regulatory fines and regulatory provisions.
• However, the Committee exercised its discretion and reduced the assessment from 75% to 60%. This was based
on feedback received from the Monitor, matters arising from risk and compliance incidents, and the number and
extent of unsatisfactory internal audits covering AML and sanctions related issues.
Iain Mackay
Iain Mackay achieved a performance outcome for the year
of 80.1% against his annual scorecard.
The chart shows the value and composition of Iain
Mackay’s remuneration based on the current policy in
comparison with the actual 2015 variable pay outcomes.
2015 actual
48%
26%
26%
4,169
Maximum policy
33%
22%
45%
6,000
Target policy
50%
17%
33%
4,000
Fixed pay
Annual incentive
GPSP
Annual assessment
Measure
Grow both business and dividends
Global Standards including risk and compliance
Streamline processes and procedures
Strategic priorities
People
Promoting HSBC Values
Total
Weighting
%
Target
Performance
Assessment
%
Outcome
%
15
50
25
90
10
Judgement – see commentary
Judgement – see commentary
Judgement – see commentary
Judgement – see commentary
90
75
88
72
Over-riding test
100
HSBC HOLDINGS PLC
308
13.5
37.5
21.9
72.9
7.2
Met
80.1
Grow both business
and dividends
• Assessed the contribution of the Global Finance function in setting the framework to track progress against
the 10 Strategic Actions, and its on-going partnership and support to global businesses on initiatives
orientated to the reduction of Group RWAs and revenue generation programmes.
Global Standards
including risk and
compliance
• Noted the progress towards compliance with regulatory requirements and implementing Global Standards.
This was evidenced by the successful execution of the 2015 PRA stress test and the reporting on revised
‘Delegated Act’ basis of the liquidity coverage ratio, as well as by Finance’s tax transparency engagement
with global businesses’ clients.
Streamline processes
and procedures
• Recognised the support that the Global Finance function has provided to global businesses and functions
on key streamlining and cost saving initiatives, as well as the progress on its own Finance Transformation
Programme.
People
• Noted the full implementation of the revised Finance Operating Model as well as the delivery of
I
S
E
I
T
I
R
O
R
P
C
I
G
E
T
A
R
T
S
accelerated development programmes to targeted Finance populations.
• The sustained work of the Global Finance function on improving gender diversity was also noted.
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
Marc Moses
Marc Moses achieved a performance outcome for the year
of 62% against his annual scorecard.
The chart shows the value and composition of Marc Moses’
remuneration based on the current policy in comparison
with the actual 2015 variable pay outcomes.
2015 actual
51%
21%
28%
3,928
Policy maximum
33%
22%
45%
6,000
i
w
e
v
e
R
Policy target
50%
17%
33%
4,000
Fixed pay
Annual incentive
GPSP
l
i
a
c
n
a
n
F
i
Annual assessment
Measure
Grow both business and dividends
Global Standards including risk and compliance
Streamline processes and procedures
Strategic priorities
People
Promoting HSBC Values
Total
Weighting
%
Target
$bn
Performance
$bn
Assessment
%
Outcome
%
20
50
20
90
10
Judgement – see commentary
Judgement – see commentary
Judgement – see commentary
Judgement – see commentary
85
45
75
75
Over-riding test
100
17.0
22.5
15.0
54.5
7.5
Met
62.0
I
S
E
I
T
I
R
O
R
P
C
I
G
E
T
A
R
T
S
Grow both business
and dividends
• Recognised the use of risk appetite statements to enable a sustainable business, and the provision of
resources to support business growth (e.g., each global business has a formal governance process around
the management of RWAs).
Global Standards
including risk and
compliance
• Continued progress towards driving strategic priorities for Global Standards, progressing compliance with
regulatory requirements, and de-risking the organisation. Activity has continued at pace ensuring delivery
of the Regulatory Compliance Framework.
• We continue to prioritise our efforts on material inherent risk areas and implement targeted governance
and remediation efforts.
• However, the Committee exercised its discretion and reduced the assessment from 75% to 45%. This was
based on feedback received from the Monitor, matters arising from risk and compliance incidents, and the
number and extent of unsatisfactory internal audits covering AML and sanctions related issues.
Streamline processes
and procedures
• These objectives have progressed, supported by the management of business performance, delivery of key
transformation initiatives, and re-engineering of policies, procedures and systems.
• For example, credit risk management was significantly strengthened through the implementation of
multiple new policies on collections, allowances, stress testing, approval authorities and products.
• One significant structural change was the announcement of a new development in risk analytics at HSBC:
the creation of a centralised team called Global Risk Analytics.
People
• The execution of the pay and performance plans, as well as the learning and development plans which
were part of the comprehensive people strategy for the Global Risk function were noted.
• Key initiatives include the first Aspiring CRO programme and further investment in the three lines of
defence.
HSBC HOLDINGS PLC
309
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Directors’ Remuneration Report (continued)
Annual report on remuneration
Awards under the GPSP
(Audited)
Awards in respect of 2015 were assessed against the 2015
long-term scorecard published in the Annual Report and
Accounts 2014 and reproduced below, the objectives of
which were set within the context of the risk appetite and
strategic direction agreed by the Board.
Value of the GPSP awarded to each executive Director
As per the annual incentive, in order for GPSP awards to
be made, each executive Director must meet a required
behavioural rating. For 2015, all executive Directors met
the required behavioural rating.
Fixed pay
Value (£000)
GPSP
Maximum multiple of fixed pay
Performance outcome
Multiple awarded
Value (£000)
Assessment – GPSP
Measure
Return on equity
Jaws1
Grow dividends2
Financial
Strategy execution
Global standards including risk and compliance
Non-financial
Total performance outcome
Stuart Gulliver
Iain Mackay Marc Moses
3,575
1.33
41.3%
0.55
1,969
Weighting
%
Long-term
target range
Actual 2015
performance
20
>10%
20 Positive adjusted
Progressive
20
7.2%
(3.7%)
Progressive
60
15
25
40
100
2,000
2,000
1.33
41.3%
0.55
1,101
Assessment
%
–
–
75
75
60
1.33
41.3%
0.55
1,101
Outcome
%
–
–
15.0
15.0
11.3
15.0
26.3
41.3
1 Revenue growth less operating expense, on an adjusted basis.
2 Dividend per ordinary share (US dollar) in respect of the year, measured year on year; consistent with the growth of the overall profitability of the
Group, predicated on the continued ability to meet with regulatory capital requirements.
L
A
I
C
N
A
N
I
F
Return on equity
•
In February 2015, the Group announced an updated medium-term return on equity target of greater than
10%. The Group did not achieve the stated target in 2015, with return on equity decreasing from 7.3% in
2014 to 7.2% for the year.
• Significant items, including fines, penalties, UK customer redress and associated provisions, as well as the
UK bank levy, continue to have a significant effect, reducing our return on equity in 2015 by 190 basis
points.
• The Committee acknowledged the progress being made to implement the 10 strategic actions announced at
the June 2015 Investor Update which are being undertaken to improve the return on equity. However, the
Committee decided not to make any award under this opportunity.
Jaws
• The Group targeted the achievement of positive adjusted jaws in 2015. As this target was not met, the
Committee judged that no award should be made under this element of the scorecard.
• The Group’s ability to generate revenue growth was affected by a slowdown in global trade, reflecting
reduced commodity prices, and weaker investor sentiment in the second half of 2015 following stock
market corrections in Asia. Operating expenses increased, as expected, reflecting wage inflation, continuing
investment in strategic growth areas and in regulatory programmes and compliance.
• The Committee noted positive momentum on costs in the second half of the year, with cost growth slowing
and a reduction in staff numbers. This was achieved through a strong focus on cost management and the
initial effect of our cost saving programmes.
Grow dividends
• The Group is committed to increasing the dividends we pay to shareholders each year, measured by
dividends per ordinary share in respect of the year. Prospective dividend growth remains dependent upon
the long term overall profitability of the Group and delivering further release of less efficiently deployed
capital. Actions to address these points are core elements of the Investor Update provided in June 2015.
• The Group was able to increase the dividend per ordinary share in 2015 as well as improve its capital
position. The Group's strong capital position supports its capacity to generate dividend growth, despite a
challenging operating environment.
HSBC HOLDINGS PLC
310
L
A
I
C
N
A
N
I
F
-
N
O
N
Strategy execution
• The Group outlined 10 Strategic Actions at the June 2015 Investor Update to re-size and simplify the Group
and redeploy resources to capture future growth opportunities.
• There was strong progress in driving reductions in RWAs, with 45% of the targeted 2017 RWA reduction
delivered to date. The Group is implementing several transformation programmes to streamline the cost
base, and it was noted that more work is required to meet related medium-term targets in this regard.
• The Group has set the foundations for further growth in Asia, investing in select locations, for example,
the Pearl River Delta in mainland China and in products, including Insurance and asset management. The
Committee also noted the Group’s role in driving the internationalisation of the renminbi and business
scale in ASEAN.
Global Standards
including risk and
compliance
• The Group published Global Standards for AML and sanctions compliance in all countries and progressed
the implementation of enhanced controls and related data initiatives. Significant effort continues towards
embedding the enhanced standards and controls and improving operational effectiveness.
• The Committee noted progress made, and that material work remains to comply fully with enhanced
Global Standards by the end of 2017.
• However, the Committee exercised its discretion and the assessment was reduced from 75% to 60%. This
was based on feedback received from the Monitor, matters arising from risk and compliance incidents,
and the number and extent of unsatisfactory internal audits covering AML and sanctions related issues.
Non-executive Directors
Fees and benefits
(Audited)
Phillip Ameen1
Kathleen Casey
Safra Catz2
Laura Cha3
Lord Evans of Weardale
Joachim Faber
Rona Fairhead4
Sam Laidlaw
Irene Lee5
John Lipsky
Rachel Lomax
Heidi Miller6
Sir Simon Robertson
Jonathan Symonds7
Pauline van der Meer Mohr8
Total
Total ($000)
Fees
2015
£000
403
155
95
238
190
145
510
174
184
180
253
175
195
520
32
2014
£000
–
129
95
197
167
145
494
140
–
168
205
52
260
365
–
3,449
5,274
2,417
3,979
Benefits9
2015
£000
2014
£000
Total
2015
£000
–
12
4
22
14
10
19
–
–
27
21
–
6
3
–
416
184
99
252
199
159
524
187
186
229
264
206
207
521
37
2014
£000
–
141
99
219
181
155
513
140
–
195
226
52
266
368
–
138
229
3,670
5,609
2,555
4,208
13
29
4
14
9
14
14
13
2
49
11
31
12
1
5
221
338
1 Appointed as a non-executive Director of HSBC Holdings plc on 1 January 2015. Includes fees of £278,000 in 2015 as Director, Chairman of the Audit
Committee and member of the Risk Committee of HSBC North America Holdings Inc.
2 Retired as a Director on 31 December 2015.
3 Includes fees of £63,000 in 2015 (£57,000 for 2014) as Director, Deputy Chairman and member of the Nomination Committee of The Hongkong and
Shanghai Banking Corporation Limited.
4 Includes a fee of £360,000 in 2015 (£334,000 for 2014) as non-executive Chairman of HSBC North America Holdings Inc.
5 Appointed as a non-executive Director of HSBC Holdings plc on 1 July 2015. Includes fees of £137,000 in 2015 as Director and member of the Audit
Committee of The Hongkong and Shanghai Banking Corporation Limited and as Director, member of the Audit Committee and Chairman of the Risk
Committee of Hang Seng Bank Limited.
6 Includes a fee of £20,000 as a non-executive Director and member of the Nominating and Governance Committee of HSBC North America Holdings
Inc. following appointment on 1 October 2015.
7 Includes a fee of £345,000 in 2015 (£247,000 for 2014) as non-executive Chairman of HSBC Bank plc.
8 Appointed on 1 September 2015.
9 Benefits include accommodation and travel-related expenses relating to the attendance at Board and other meetings at HSBC Holdings registered
office. Amounts disclosed have been grossed up using a tax rate of 45%, where relevant.
Payments to past Directors
(Audited)
Alexander Flockhart
Mr Flockhart’s employment with HSBC ended on 30 April
2012. The Directors’ Remuneration Report in the 2012 ARA
provided details of the remuneration arrangements that
applied to Mr Flockhart at the time of his retirement. The
former executive Director moved from Hong Kong to the
UK on 1 January 2011 to undertake his appointment as
executive Director, Chairman of Europe, MENA, LAM and
CMB. Due to the number of visits he was required to make
to the UK prior to his appointment, additional UK tax
relating to the period prior to his appointment and
relocation to the UK became due. This liability is in addition
to the Hong Kong taxes paid and borne by Mr Flockhart in
respect of the same employment related income, i.e. it was
subject to double taxation both in Hong Kong and the UK,
therefore does not represent any additional remuneration
HSBC HOLDINGS PLC
311
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Directors’ Remuneration Report (continued)
Annual report on remuneration
payable to Mr Flockhart in relation to services provided to
HSBC. A payment of £155,503 was made to Mr Flockhart in
2015 in relation to the tax incurred in this respect and the
professional services provided by Deloitte LLP in resolving
this matter.
This report does not include details of payments made
to past Directors below the de minimis limit set by the
company of £50,000.
Total pension entitlements
(Audited)
No employees who served as executive Directors during the
year have a right to amounts under any HSBC final salary
pension schemes for their services as executive Directors
or are entitled to additional benefits in the event of early
Scheme awards in 2015
(Audited)
retirement. There is no retirement age set for Directors,
but the normal retirement age for employees is 65.
Exit payments made in year
(Audited)
No payments for loss of office were made in 2015 to any
person serving as a Director in the year or any previous years.
Scheme interests awarded during 2015
(Audited)
The table below sets out the scheme interests awarded to
Directors in 2015 (for performance in 2014) as disclosed in
the 2014 Directors’ Remuneration Report. No non-executive
Directors received scheme interests during the financial year.
Type of interest
awarded
Deferred cash
Deferred shares
Deferred shares
Deferred cash
Deferred shares
Deferred shares
Deferred cash
Deferred shares
Deferred shares
Basis on which
award made
Annual incentive 2014
Annual incentive 2014
GPSP 2014
Annual incentive 2014
Annual incentive 2014
GPSP 2014
Annual incentive 2014
Annual incentive 2014
GPSP 2014
Stuart Gulliver
Stuart Gulliver
Stuart Gulliver
Iain Mackay
Iain Mackay
Iain Mackay
Marc Moses
Marc Moses
Marc Moses
Dates of
award
Face value
awarded1
£000
Percentage
receivable
for minimum
performance2
Number of
shares
awarded
Share price
on date
of grant1
End of
performance
period
2 Mar 2015
2 Mar 2015
2 Mar 2015
2 Mar 2015
2 Mar 2015
2 Mar 2015
2 Mar 2015
2 Mar 2015
2 Mar 2015
387
387
2,112
260
260
1,131
310
310
1,131
–
–
–
–
–
–
–
–
–
n/a
67,016
365,864
n/a
45,037
195,969
n/a
53,698
195,969
n/a 31 Dec 2014
£5.773 31 Dec 2014
£5.773 31 Dec 2014
n/a 31 Dec 2014
£5.773 31 Dec 2014
£5.773 31 Dec 2014
n/a 31 Dec 2014
£5.773 31 Dec 2014
£5.773 31 Dec 2014
GPSP awards made based on performance up to the financial year-end preceding the grant date with no further performance conditions after grant.
Vesting occurs five years after grant date and is normally subject to the Director remaining an employee on the vesting date. Any shares (net of tax)
which the director becomes entitled to on the vesting date are subject to a retention requirement.
The above table does not include details of shares issued as part of the Fixed Pay Allowances, as those shares vest immediately and are not subject to any
service or performance conditions.
1 Share price used is the closing mid-market price on the last working day preceding the date of grant.
2 Awards determined based on performance achieved during the period to 31 December 2014. The overall award level could have been 0% of the
maximum opportunity if minimum performance was achieved for the period to 31 December 2014. After grant, awards are subject to service condition
and malus provisions.
Summary of performance
HSBC TSR and FTSE 100 Index
The graph shows the TSR performance against the FTSE 100
Index for the seven-year period that ended on 31 December
2015. The FTSE 100 Index has been chosen as this is a
recognised broad equity market index of which HSBC
Holdings is a member.
220%
180%
140%
100%
60%
Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 Dec 2013 Dec 2014 Dec 2015
HSBC
FTSE 100
Source: Datastream
HSBC HOLDINGS PLC
312
CEO remuneration
Historical CEO remuneration
The table below summarises the CEO’s single figure remuneration over the past seven years together with the outcomes of the
respective annual incentive and long-term incentive awards.
2015
2014
2013
2012
2011
20101
20091
Stuart Gulliver
Stuart Gulliver
Stuart Gulliver
Stuart Gulliver
Stuart Gulliver
Michael Geoghegan
Michael Geoghegan
Single
figure of
remuneration
(£000)
Annual
incentive
maximum2
Annual
incentive
paid2
(% of fixed pay)3 (% of maximum)
Long-term
incentive
maximum4
Long-term
incentive
paid4
(% of fixed pay)3 (% of maximum)
7,340
7,619
8,033
7,532
8,047
7,932
7,580
67
67
300
300
300
400
400
45.0
54.1
49.0
52.0
57.5
81.6
93.5
133
133
600
600
600
700
700
41.3
44.3
49.0
40.0
50.0
19.1
25.4
1 The GPSP was introduced in 2011. Prior to this, values shown relate to awards of Performance Shares under the HSBC Share Plan. Under this plan
Performance Share awards vest three years after grant subject to performance conditions of total shareholder return, economic profit and earnings
per share, and an over-riding ‘sustained improvement’ judgement by the committee.
2 The 2012 annual incentive figure for Stuart Gulliver used for this table includes 60% of the annual incentive disclosed in the 2012 Directors’
Remuneration Report which was deferred for five years. The vesting of these awards is subject to service condition and satisfactory completion of the
US DPA. The US DPA condition ends on or around the fifth anniversary of the award date unless the DPA is extended or otherwise continues beyond
that date, in which case the awards will vest on or around the date on which it expires and otherwise ceases to operate.
3 For 2014 and 2015, fixed pay includes base salary, fixed pay allowance and pension allowance for the year, and excludes benefits. For 2013 and
earlier, fixed pay includes base salary only.
4 Long-term incentive awards are shown in the year where the performance period is deemed to be substantially completed. For performance share
awards this is at the end of the third financial year following the date of grant (Performance Share awards shown in 2010 therefore relate to awards
granted in 2008). For GPSP awards this is at the end of the financial year preceding the date of grant (GPSP awards shown in 2011 to 2015 therefore
relate to awards granted in 2012 to 2016).
Comparison of Group CEO and all-employee pay
The following table compares the changes in Group CEO pay to changes in employee pay between 2014 and 2015:
Percentage change in remuneration
Group CEO
Employee group
Base
salary
–1
8%2
Benefits
12%3
(5)%4
Annual
incentive5
(17)%
(5)%
1 Group CEO’s total fixed pay has not increased since 1 January 2014.
2 The comparator group has been changed to local full-time UK employees as representative of employees from the different business and functions
across the Group. During 2015, certain allowances and other benefits were rolled up into base salaries, resulting in an overall increase in the average
base salary per employee.
3 There has been no change in the benefits provided to the Group CEO or any new benefit provided to the Group CEO during 2015. The benefit value of
the bank-owned property in Hong Kong is based on the current market rental value as estimated by an external lease service provider. As the market
value of the accommodation has increased in 2015 this has resulted in a higher reportable value of this benefit in the single figure table.
4 Employee group consists of UK employees eligible for taxable benefits only as it was deemed the most appropriate comparison for the Group CEO
given varying local requirements. There has been no change in the benefit coverage from 2014 to 2015 and the reduction in the average cost of
benefit per employee is reflective of the decrease in the cost of providing such benefit on average. During 2015, approximately 20,000 more
employees became eligible for these benefits and the overall cost per employee reduced.
5 Employee group consists of all employees globally, based on annual incentive pool less GPSP as disclosed in financial reports and staff numbers
(full-time equivalents at the financial year-end).
HSBC HOLDINGS PLC
313
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Directors’ Remuneration Report (continued)
Annual report on remuneration
Directors’ interests in shares
(Audited)
The shareholdings of all persons who were Directors in
2015 (including the shareholdings of their connected
persons) at 31 December 2015 are set out below. The table
below shows the comparison of shareholdings to the
company shareholding guidelines.
Shares
(Audited)
Executive Directors
Douglas Flint
Stuart Gulliver
Iain Mackay
Marc Moses
Group Managing Directors5
Non-executive Directors6
Phillip Ameen
Kathleen Casey
Safra Catz7
Laura Cha
Lord Evans of Weardale
Joachim Faber
Rona Fairhead
Sam Laidlaw
John Lipsky
Rachel Lomax
Heidi Miller
Sir Simon Robertson
Jonathan Symonds
Shareholding
guidelines
(number of
shares)2
400,000
750,000
450,000
450,000
250,000
15,000
15,000
15,000
15,000
15,000
15,000
15,000
15,000
15,000
15,000
15,000
15,000
15,000
At 31 December 2015
Share
interests
(number of
shares)
401,450
2,861,265
223,872
624,643
n/a
Share
options3
2,919
–
3,469
–
n/a
Scheme interests
Shares awarded subject to deferral1
with
performance
conditions
without
performance
conditions4
–
2,955,619
1,187,436
1,484,903
n/a
–
92,185
63,730
61,917
n/a
5,000
3,540
20,970
5,200
7,416
45,778
77,888
38,012
16,165
18,900
3,695
34,118
21,771
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
1 The gross number of shares is disclosed. A portion of these shares will be sold at vesting to cover any income tax and social security which falls due at
the time of vesting.
2 The current shareholding guideline does not count unvested share-based incentives.
3 All share options are unvested and unexercised.
4 Includes GPSP awards which are made following an assessment of performance over the relevant period ending on 31 December immediately before
the grant date but are subject to a five-year vesting period.
5 All of the Group Managing Directors are expected to meet their minimum shareholding guideline by 2019 or within five years of the date of their
appointment, whichever is later.
6 Irene Lee and Pauline van der Meer Mohr did not hold any HSBC Holdings plc shares during the year.
7 Retired as a Director on 31 December 2015.
Share options
(Audited)
Douglas Flint
Douglas Flint
Iain Mackay
Date of award Exercise price
Exercisable
From1
until
At 1 Jan
2015
Exercised
in year
At 31 Dec
2015
24 Apr 2012
23 Sep 2014
23 Sep 2014
4.4621
5.1887
5.1887
1 Aug 2015
1 Nov 2019
1 Nov 2017
1 Feb 2016
1 May 2020
1 May 2018
2,016
2,919
3,469
2,016
–
–
–
2,919
3,469
1 May be advanced to an earlier date in certain circumstances, e.g. retirement.
The HSBC Sharesave is an all-employee share plan under
which eligible employees may be granted options to
acquire HSBC Holdings ordinary shares. Employees may
make contributions of up to £500 (or equivalent) each
month over a period of three or five years which may be
used on or around the third or fifth anniversary of the
commencement of the relevant savings contract, at the
employee’s election, to exercise the options. The plans
help align the interests of employees with the creation
of shareholder value. The options were awarded for nil
consideration and are exercisable at a 20% discount to the
average market value of the ordinary shares on the five
business days immediately preceding the invitation date.
There are no performance criteria conditional upon which
the outstanding options are exercisable and there have
been no variations to the terms and conditions since the
awards were made. The market value per ordinary share
at 31 December 2015 was £5.3620. The market value per
ordinary share at the time Douglas Flint exercised his
options during the year was £5.5620. Market value is the
mid-market price derived from the London Stock Exchange
Daily Official List on the relevant date. Under the Securities
and Futures Ordinance of Hong Kong, the options are
categorised as unlisted physically settled equity derivatives.
HSBC HOLDINGS PLC
314
Shareholder context
The table below shows the outcome of the remuneration-related votes at the AGM held on 24 April 2015 and the last policy
vote at the AGM held on 23 May 2014.
Advisory vote on 2014 Remuneration Report
Binding vote on the Remuneration Policy
Number of
votes cast
8,808,959,472
9,781,954,191
For
Against
6,720,428,674
(76.29%)
7,762,051,505
(79.35%)
2,088,530,798
(23.71%)
2,019,902,686
(20.65%)
Withheld
677,821,869
167,509,544
At the AGM on 24 April 2015, investors who voted against
the 2014 remuneration report expressed concerns with
the level of cash in lieu of pension and the structure and
measurement of performance outcome in the annual
incentive and GPSP scorecard. The Committee chairman
met with representative group of shareholders to discuss
these concerns.
Taking on board investor concerns, the Committee reduced
the cash in lieu of pension for executive Directors from 50%
of base salary to 30% of base salary from 1 January 2016.
This reduces the fixed pay of all executive Directors and
also the maximum variable pay potential for the executive
Directors due to the regulatory variable pay cap limiting
the variable pay to 200% of fixed pay.
We have also changed the approach to our long-term
incentive going forward so that awards are subject to
three-year forward-looking performance period in line with
FTSE practice. This change in approach brings clearer and
greater alignment between the scorecard outcome and
the achievement of our group strategic objectives, our
performance and shareholder value creation. The annual
and long-term incentive scorecards are provided below.
Implementation of remuneration policy in 2016 for executive Directors
The table below summarises how each element of pay will be implemented in 2016.
Douglas Flint
Operation and planned changes to policy
Stuart Gulliver
Iain Mackay
Marc Moses
Element of pay
Fixed pay
Base salary
Fixed pay allowance
Pension
Benefits
Benefits
Variable pay
Annual incentive
Not eligible
Long-term incentive
Not eligible
£1,500,000
Nil
£1,250,000
£1,700,000
£700,000
£950,000
£700,000
£950,000
30% of base salary
30% of base salary
30% of base salary
30% of base salary
Addition of post-departure benefits to support obligations under the Senior Managers Regime for up to
seven years from departure.
• Awards delivered in shares, subject into a minimum six-month retention period.
• Maximum opportunity will be 213% of base salary.
• Awards made in shares, subject to a three-year performance period from
1 January 2017.
• Awards will vest pro rata over five years, with the first vesting in 2020.
• A retention period may be applied to ensure compliance with regulatory
requirements.
• Maximum opportunity will be 319% of base salary.
Annual bonus scorecards
The weightings and performance measures to apply to the
2016 annual incentive for Stuart Gulliver, Iain Mackay and
Marc Moses are disclosed. These align to the Group’s
strategic and financial objectives set out in June 2015.
The performance targets for the annual incentive are
commercially sensitive and it would be detrimental to the
interests of the Group to disclose them before the start of
the financial year. Subject to commercial sensitivity, we will
disclose the targets after the end of the relevant financial
year in that year’s remuneration report.
HSBC HOLDINGS PLC
315
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Directors’ Remuneration Report (continued)
Annual report on remuneration
2016 annual incentive scorecards
Stuart Gulliver
Measures
Profit before tax
Deliver cost savings
Reduce Group RWA
Strategic growth
Description
• Group’s reported profit before tax1
• Group adjusted cost base
• Reduction of Group RWAs
• Asia growth
•
– Pearl River Delta revenue, ASEAN revenue, RMB revenue
International (ex-Asia) growth
– Rebuild profitability in Mexico and US
– Revenue growth from international network
Total financial outcomes
Global Standards including risk and compliance
• Embedding of AML, Sanctions and Anti-Bribery and Corruption policies
Personal objectives
Total risk
Total2
Iain Mackay
Measures
Profit before tax
Deliver cost savings
Reduce Group RWA
Total financial outcomes
Global Standards including risk and
compliance
Implementation and embedding of global conduct programme
• Enhancement of customer due diligence
•
• Progress on embedding Global Standards
• Progress transactions in Brazil and Turkey
• Progress key milestones on set-up of UK ring-fenced bank
• Delivery of other high priority projects
• People development including diversity
Description
• Group’s reported profit before tax1
• Group adjusted cost base
• Reduction of Group RWAs
• Strengthen governance and control around financial processes
Implementation and embedding of global conduct programme
• Delivery of controls optimisation project
•
• Enhancement of operational risk management framework
• Successful delivery of stress testing in key markets
Personal objectives
• Deliver cost savings
Implementation of consistent capital management framework
•
• Progress key milestones on set-up of UK ring-fenced bank
• People development including diversity
Total risk
Total2
Marc Moses
Measures
Profit before tax
Reduce Group RWA
Total financial outcomes
Description
• Group’s reported profit before tax1
• Reduction of Group RWAs
Global Standards including risk and
• Embedding of AML, Sanctions and Anti-Bribery and Corruption policies
compliance
Implementation and embedding of global conduct programme
• Enhancement of customer due diligence
•
• Enhancement of operational risk management framework
•
Implementation of US risk management measures
Personal objectives
• Deliver cost savings
• Successful delivery of stress testing
• Support business growth and improve RWA effectiveness/efficiency
• People development including diversity
Total risk
Total2
HSBC HOLDINGS PLC
316
Weighting
20%
20%
10%
10%
60%
25%
15%
40%
100%
Weighting
20%
20%
10%
50%
25%
25%
50%
100%
Weighting
10%
15%
25%
50%
25%
75%
100%
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
Group long-term incentive scorecard
The measures and weightings of the performance
measures to apply to the long-term incentives for Stuart
Gulliver, Iain Mackay and Marc Moses are given below. The
first grant will be in March 2017, as such the performance
period will run from 1 January 2017 to 31 December 2019.
As the performance period does not start until 1 January
2017, the performance targets for this award have not yet
been set. The targets set will be disclosed in the Directors’
Remuneration Report in the Annual Report and Accounts
2016.
Measures
Return on equity
Cost efficiency (jaws)
Description
Weighting
• Target strongly aligned to the business strategy and a primary
financial goal of the Group based on expected capital requirements
• Focuses management on driving revenue growth while managing
operating expense
Relative total shareholder return
• Ensures alignment with shareholder value creation
• Measured by ranking against a global financial services peer group
Total financial outcomes
Global Standards including risk and
• Successfully embed Global Standards across the Group
compliance
Strategy
Total risk
Total2
• Progress on Group strategic objectives
20%
20%
20%
60%
25%
15%
40%
100%
1 Adjusted to exclude movements in fair value of own debt attributable to credit spread, the gains and losses from disposals and the debit valuation
adjustment.
2 Eligibility for an annual incentive and long-term incentive award requires confirmation of adherence to HSBC Values through a minimum behavioural
rating.
Implementation of remuneration policy in
2016 for non-executive Directors
The Committee has reviewed the fee levels payable to the
non-executive Directors. No changes have been made to
the fees for 2016.
Category
Base fee
Senior Independent Director
Audit, Risk, Remuneration, Financial System Vulnerabilities Committee and Conduct & Values
Committee
Nomination Committee
Philanthropic & Community Investment Oversight Committee
Current
£95,000
£45,000
£50,000
£30,000
£40,000
£25,000
£25,000
£15,000
Chairman
Member
Chairman
Member
Chairman
Member
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
HSBC HOLDINGS PLC
317
Directors’ Remuneration Report (continued)
Appendix
Appendix to Directors’ Remuneration Report
Additional disclosures
This appendix provides disclosures required under the Hong Kong Ordinances, Hong Kong Listing Rules, Project Merlin
agreement, Financial Conduct Authority’s Prudential Sourcebook for Banks and the US Securities and Exchange Commission
Form 20-F disclosures.
Employee compensation and benefits
Emoluments of Directors
Set out below are details of emoluments paid to executive Directors for the year ended 31 December 2015.
Basic salaries, allowances and benefits in kind
Pension contributions
Performance-related pay paid or receivable
Inducements to join paid or receivable
Compensation for loss of office
Total
Total ($000)
Douglas Flint
2015
£000
2014
£000
Stuart Gulliver
2015
£000
2014
£000
Iain Mackay
2015
£000
2014
£000
Marc Moses
2015
£000
2014
£000
2,496
–
–
–
–
2,496
3,815
2,491
–
–
–
–
2,491
4,101
4,290
–
3,041
–
–
7,331
4,217
–
3,402
–
–
7,619
11,204
12,545
2,082
–
2,169
–
–
4,251
6,497
2,071
–
1,998
–
–
2,035
–
1,928
–
–
4,069
3,963
6,700
6,057
2,039
–
2,164
–
–
4,203
6,922
The aggregate amount of Directors emoluments as defined above (including both executive Directors and non-executive
Directors) for the year ended 2015 was $33,182,072. Additionally, the aggregate amount of payments in relation to notional
return on deferred cash for the year ended 2015 was $29,339. As per policy, benefits in kind may include, but are not limited
to, the provision of medical insurance, income protection insurance, health assessment, life assurance, club membership, tax
assistance, Hong Kong accommodation for Stuart Gulliver, car benefit, travel assistance, and relocation costs (including any tax
due on the benefit, where applicable). Amounts are converted into US dollars based on the average year-to-date exchange
rates for the respective year.
Emoluments of senior management
Set out below are details of emoluments paid to senior management (being executive Directors and Group Managing Directors
of HSBC Holdings) for the year ended 31 December 2015 or for the period of appointment as a Director or Group Managing
Director.
Emoluments of senior management
Basic salaries, allowances and benefits in kind
Pension contributions
Performance-related pay paid or receivable
Inducements to join paid or receivable
Compensation for loss of office
Total
Total ($000)
Senior
management
£000
31,713
408
26,858
–
–
58,979
90,142
The aggregate emoluments of senior management for the year ended 31 December 2015 was $89,415,897. The emoluments
of senior management were within the following bands:
£0 – £1,000,000
£1,000,001 – £2,000,000
£2,000,001 – £3,000,000
£3,000,001 – £4,000,000
£4,000,001 – £5,000,000
£5,000,001 – £6,000,000
£6,000,001 – £7,000,000
£7,000,001 – £8,000,000
Number of
senior
management
5
1
5
1
2
2
1
1
The aggregate amount set aside or accrued to provide pension, retirement or similar benefits for executive Directors and
senior management for the year ended 31 December 2015 was $624,072.
HSBC HOLDINGS PLC
318
Emoluments of five highest paid employees
Set out below are details of remuneration paid to the five individuals whose emoluments were the highest in HSBC (including
two executive Directors and three Group Managing Directors of HSBC Holdings), for the year ended 31 December 2015.
Emoluments of the five highest paid employees
Basic salaries, allowances and benefits in kind
Pension contributions
Performance-related pay paid or receivable
Inducements to join paid or receivable
Compensation for loss of office
Total
Total ($000)
The emoluments of the five highest paid employees were within the following bands:
£4,200,001 – £4,300,000
£5,200,001 – £5,300,000
£6,800,001 – £6,900,000
£7,300,001 – £7,400,000
5 highest paid
employees
£000
16,108
117
12,700
–
–
28,925
44,207
Number of
5 highest paid
employees
1
2
1
1
Remuneration of eight highest paid senior executives
Set out below are details of the remuneration of the eight highest paid senior executives (including members of the GMB, but
not Directors of HSBC Holdings):
Fixed
Cash based
Shares-based
Total fixed
Annual incentive1
Cash
Non-deferred shares2
Deferred cash3
Deferred shares3
Total annual incentive
GPSP
Deferred shares
Total variable pay
Total remuneration
Total remuneration ($000)
5
£000
6
£000
7
£000
8
£000
1
£000
655
3,016
3,671
549
549
824
824
2
£000
656
1,678
2,333
375
375
563
563
3
£000
655
904
Employee
4
£000
667
786
1,559
1,453
424
424
635
635
394
394
590
590
276
449
725
271
271
407
407
654
327
981
216
216
323
323
354
444
797
227
227
341
341
2,746
1,876
2,118
1,968
1,356
1,078
1,136
305
3,051
6,722
10,272
209
2,085
4,418
6,754
235
2,353
3,912
5,979
219
2,187
3,640
5,563
151
1,507
2,232
3,410
120
1,198
2,179
3,330
126
1,262
2,059
3,148
655
224
879
194
194
290
290
968
108
1,076
1,955
2,986
1 Annual incentive in respect of performance year 2015.
2 Awards vested, subject to a six-month retention period.
3 Awards vest over a three-year period, 33% vests on or around the first and second anniversary of grant and 34% on or around third anniversary
of grant.
Pillar 3 remuneration disclosures
The following tables show the remuneration awards made by HSBC to its Identified Staff and MRTs for 2015. Individuals
have been identified as MRTs based on the qualitative and quantitative criteria set out in the Regulatory Technical Standard
EU 604/2014 and additional criteria determined by the Committee. Given this, the total number of MRTs for 2015 has
increased from 2014.
These disclosures reflect the requirements of the FCA’s Prudential Sourcebook for Banks.
HSBC HOLDINGS PLC
319
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Directors’ Remuneration Report (continued)
Appendix
Aggregate remuneration expenditure
Global business aligned
Retail
Banking
and Wealth
Management
$m
Commercial
Banking
$m
Global
Banking and
Markets
$m
Global
Private
Banking
Non-global
business
aligned
$m
$m
Total
$m
106.9
94.3
77.6
61.7
797.8
741.3
76.2
70.2
411.9
374.4
1,470.4
1,341.9
Aggregate remuneration expenditure1
2015
2014
1 Includes salary and incentives awarded in respect of performance in the years 2014 and 2015 (including deferred component) and any pension or
benefits outside of policy.
Remuneration – fixed and variable amounts – Group-wide
Number of MRTs
Fixed
Cash-based
Shares-based
Total fixed
Variable2
Cash
Non-deferred shares3
Deferred cash
Deferred shares
Total variable pay4
2015
MRTs
(non-senior
manage-
ment)
Senior
manage-
ment1
101
$m
67.9
51.3
119.2
20.0
20.0
27.5
47.1
114.6
1,208
$m
567.3
82.8
650.1
157.5
147.8
135.1
146.0
586.4
2014
MRTs
(non-senior
manage-
ment)
1,080
$m
517.0
88.7
605.7
138.9
132.0
119.5
126.4
516.8
Senior
manage-
ment1
98
$m
64.1
51.8
115.9
18.5
18.5
24.9
41.5
103.4
Total
1,309
$m
635.2
134.1
769.3
177.5
167.8
162.6
193.1
701.0
Total
1,178
$m
581.1
140.5
721.6
157.4
150.5
144.4
167.9
620.2
1 Definition of senior management includes members of the GMB, Group General Managers and non-executive Directors.
2 Variable pay awarded in respect of performance in the years 2014 and 2015.
3 Vested shares, subject to a six-month retention period.
4 In accordance with shareholder approval received on 23 May 2014, for each material risk-taker the variable component of remuneration for any one
year is limited to 200% of fixed component of total remuneration of the material risk-taker.
Remuneration – fixed and variable amounts – UK based
Number of MRTs
Total fixed
Total variable pay1
2015
MRTs
(non-senior
manage-
ment)
505
$m
274.1
238.4
Senior
manage-
ment
67
$m
77.6
68.5
2014
MRTs
(non-senior
manage-
Senior
manage-
ment
ment)
64
$m
73.1
60.7
446
$m
244.5
205.2
Total
572
$m
351.7
306.9
Total
510
$m
317.6
265.9
1 Variable pay awarded in respect of performance in the years 2014 and 2015.
HSBC HOLDINGS PLC
320
Deferred remuneration1
Deferred remuneration at 31 December
Outstanding, unvested
Awarded during the year
Paid out2
Reduced through malus
2015
MRTs
(non-senior
manage-
ment)
$m
591.8
286.5
408.8
–
Senior
manage-
ment
$m
254.9
67.3
73.6
–
2014
MRTs
(non-senior
manage-
ment)
$m
691.8
353.8
210.3
–
Senior
manage-
ment
$m
270.2
112.6
33.9
–
Total
$m
846.7
353.8
482.4
–
Total
$m
962.0
466.4
244.2
–
1 This table provides details of actions taken during the performance years 2014 and 2015. For details of variable pay awards granted for the
performance years 2014 and 2015, please refer to both the Remuneration tables above.
2 Vested shares are valued using share price as at day of vesting.
Sign-on and severance payments
Sign-on payments1
Made during year ($m)
Number of beneficiaries
Severance payments2
Awarded and paid during year ($m)
Number of beneficiaries
Highest such award to single person ($m)
2015
MRTs
(non-senior
manage-
ment)
Senior
manage-
ment
2014
MRTs
(non-senior
manage-
Senior
manage-
Total
ment
ment)
Total
–
–
–
–
–
14.0
22
0.9
6
0.3
14.0
22
0.9
6
0.3
1.9
1
–
–
–
2.6
5
4.1
13
0.5
4.5
6
4.1
13
0.5
1 Guaranteed variable pay awards granted to new hires and limited to their first year of service.
2 Represents non-standard termination payments made in excess of any local policies, standards or statutory amounts.
Material risk takers’ remuneration by band1
€0 – €1,000,000
€1,000,001 – €1,500,000
€1,500,001 – €2,000,000
€2,000,001 – €2,500,000
€2,500,001 – €3,000,000
€3,000,001 – €3,500,000
€3,500,001 – €4,000,000
€4,000,001 – €4,500,000
€4,500,001 – €5,000,000
€5,000,001 – €6,000,000
€6,000,001 – €7,000,000
€7,000,001 – €8,000,000
€8,000,001 – €9,000,000
€9,000,001 – €10,000,000
Number of 2015 MRTs
Number of 2014 MRTs
Senior
manage-
ment
MRTs
(non-senior
manage-
ment)
Senior
manage-
MRTs
(non-senior
manage-
Total
ment
ment)
Total
29
11
19
9
7
8
4
2
4
5
1
–
1
1
827
236
71
38
15
11
3
2
4
1
–
–
–
–
856
247
90
47
22
19
7
4
8
6
1
–
1
1
29
20
10
13
10
6
3
2
2
1
–
1
1
–
829
150
54
23
12
7
3
1
1
–
–
–
–
–
858
170
64
36
22
13
6
3
3
1
–
1
1
–
1 Table prepared in euros in accordance with Article 450 of the Capital Requirements Regulation, using the rates published by the European Commission
for financial programming and budget for December of the reported year as published on their website.
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
HSBC HOLDINGS PLC
321
Directors’ Responsibility Statement
Statement
Directors’ Responsibility Statement
The Directors are responsible for preparing the Annual Report and Accounts, the Directors’ Remuneration Report and the
financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have
prepared the parent company (‘Company’) and Group financial statements in accordance with International Financial
Reporting Standards (‘IFRSs’) as adopted by the European Union. In preparing these financial statements, the Directors have
also elected to comply with IFRSs, issued by the International Accounting Standards Board (‘IASB’). Under company law the
Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of
affairs of the Company and Group and of the profit or loss of the Company and Group for that period. In preparing these financial
statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• state whether applicable IFRSs as adopted by the European Union and IFRSs issued by IASB have been followed, subject to
any material departures disclosed and explained in the financial statements; and
• prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company and
Group will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and
enable them to ensure that the financial statements and the Directors’ Remuneration Report comply with the Companies Act
2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding
the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and
other irregularities.
The Directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The Directors consider that the Annual Report and Accounts 2015, taken as a whole, is fair, balanced and understandable and
provides the information necessary for shareholders to assess the company’s performance, business model and strategy.
Each of the Directors1, whose names and functions are listed in the ‘Report of the Directors: Corporate Governance’ section
on pages 249 to 255 of the Annual Report and Accounts 20151, confirm that, to the best of their knowledge:
• the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and
fair view of the assets, liabilities, financial position and profit or loss of the Group; and
• the management report represented by the Report of the Directors includes a fair review of the development and
performance of the business and the position of the Group, together with a description of the principal risks
and uncertainties that it faces.
In accordance with Section 418 of the Companies Act 2006, the Directors’ report includes a statement, in the case of each
Director in office as at the date the Report of the Directors is approved, that:
• so far as the Director is aware, there is no relevant audit information of which the Company’s auditors are unaware; and
• they have taken all the steps they ought to have taken as a director in order to make themselves aware of any relevant
audit information and to establish that the Company’s auditors are aware of that information.
On behalf of the Board
Douglas Flint
Group Chairman
22 February 2016
1 Other than Henri de Castries who was not a Director at the time of approval of the Annual Report and Accounts 2015.
HSBC HOLDINGS PLC
322
Report of the independent auditors to the members of HSBC Holdings plc
Audit Report
Report of the independent auditors to the members of
HSBC Holdings plc
Report on the financial statements1
Our opinion on the financial statements
In our opinion HSBC Holdings plc’s (‘HSBC’) Group financial statements and Parent Company financial statements:
• give a true and fair view of the state of the Group’s and Parent Company's affairs at 31 December 2015 and of the Group’s
and Parent Company’s profit and cash flows for the year then ended;
• have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European
Union (‘IFRS’); and
• have been prepared in accordance with the requirements of the Companies Act 2006, and as regards the Group financial
statements, Article 4 of the IAS Regulation.
Performing the audit
On behalf of PricewaterhouseCoopers LLP (‘PwC’), it is my responsibility to form these opinions. This was the first year that you
have appointed PwC as HSBC’s auditors, and I have therefore provided more information on how PwC prepared for the audit
together with an explanation of the audit approach applied and details of the significant discussions on accounting issues I, and
my colleagues, have had with the Group Audit Committee (‘GAC’).
Preparing to change auditors
Before commencing audit work in September 2014, PwC member firms, their partners and staff took 12 months to ensure that
we were independent of HSBC. This involved ceasing commercial relationships and changing financial arrangements for our
partners and more than 2,000 staff who work on the audit of HSBC and its subsidiaries worldwide. During this period, members of
my team took the opportunity to meet with HSBC’s management team to understand the issues faced by the business, and to
gather information which we required to plan our audit.
From September 2014 and throughout the 31 December 2014 year-end process, we worked alongside the former auditors,
attending their key meetings with HSBC and understanding the complex or significant audit judgements which they made.
We also observed the GAC and Group Risk Committee meetings and met with the primary regulators of HSBC.
In September 2014, I chaired a two day meeting of the partners and staff from PwC member firms who undertake audits of the
most significant HSBC subsidiaries. This meeting ensured that we would have one approach to the audit globally, assisted in
our determination of the most significant audit risks and provided an opportunity for those partners and staff to hear directly
from HSBC management.
We also reviewed the working papers of the former auditors, to help familiarise ourselves with the controls on which they
relied for the purposes of issuing their opinion, and to understand the evidence they obtained over key judgements.
How the audit approach was structured
I structured the audit approach to reflect how HSBC is organised. It incorporated four important aspects.
(i) Risk assessment and audit planning at a Group level, having regard to both regions and HSBC’s global businesses
In addition to having partners coordinate the audit in each region, I appointed partners for each global business. These
global business partners met regularly with the relevant HSBC management to understand strategy and matters which
arose throughout the year that could have impacted the financial reporting. These partners are specialists in the nature
of the relevant businesses and were best placed to design an appropriate audit approach for that part of HSBC. They
oversaw each PwC member firm involved in the audit of that global business and assisted me in my review of their work.
(ii) Audit work performed at global shared service centres
A significant amount of HSBC’s operational processes which are critical to financial reporting are undertaken in offshore
shared service centres across 11 sites in five countries. Working closely with me, a partner coordinated our audit work on
shared service centres, building up an end to end picture of the key processes that supported material balances, classes of
transactions and disclosures within the HSBC financial statements. We then evaluated the effectiveness of controls over
these processes and considered the implications for the remainder of our audit work.
1 HSBC Holdings plc’s financial statements comprise the consolidated and Parent Company balance sheets as at 31 December 2015, the consolidated
and Parent Company income statements and the consolidated statement of comprehensive income for the year then ended, the consolidated and
Parent Company cash flow statements for the year then ended; the consolidated and Parent Company statements of changes in equity for the year
then ended, and the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information.
HSBC HOLDINGS PLC
323
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the independent auditors to the members of HSBC Holdings plc
Audit Report
(iii) Audit work executed on individual legal entities
We received opinions from PwC member firms which had been appointed as the external auditors of The Hongkong and
Shanghai Banking Corporation Limited, HSBC Bank plc, HSBC North America Holdings Inc, HSBC Mexico S.A., HSBC Bank
Brasil S.A. – Banco Multiplo, HSBC Vida e Previdência (Brasil) S.A., HSBC Bank Argentina S.A., HSBC Bank Middle East
Limited, HSBC Bank Canada, HSBC Private Banking Holdings (Suisse) S.A. and HSBC Insurance (Bermuda) Limited. I was in
active dialogue throughout the year with the partners responsible for these audits; this included consideration of how
they planned and performed their work. I visited most of these subsidiaries since HSBC’s decision to appoint PwC as
auditor, as well as businesses in a further 7 countries. I also attended meetings with management in each of these key
subsidiaries at the year end.
The audits of these key subsidiaries relied upon work performed by PwC member firms in Germany, France, Turkey,
Malta, China, India, Australia, Qatar, Oman, the UAE and Bahrain. I considered how my subsidiary audit teams instructed
and reviewed the work undertaken in these locations in order to ensure the quality and adequacy of the work.
Collectively, these teams completed procedures covering 81% of total assets, 77% of total operating income and 88% of
profit before tax.
(iv) Audit procedures undertaken at a Group level and on the Parent Company.
I ensured that appropriate further audit work was undertaken for HSBC as the Parent Company. This work included
auditing, for example, the consolidation of the Group’s results, the preparation of the financial statements, certain
disclosures within the Directors remuneration report, litigation provisions and exposures and management’s entity level
and oversight controls relevant to financial reporting.
In aggregate, these four areas provided me with the evidence required to form an opinion on the consolidated financial
statements of HSBC.
The purpose and scope of my audit
An audit has an important role in providing confidence in the financial statements that are provided by companies to their
members. The audit opinion does not provide assurance over any particular number or disclosure, but over the financial
statements taken as a whole. It is the Directors’ responsibility to prepare the financial statements and to be satisfied that they
give a true and fair view. These responsibilities have been recognised on behalf of the Board of Directors on page 322.
The scope of an audit is sometimes not fully understood. I believe that it is important that you understand the scope in order
to understand the assurance that my opinion provides. My responsibility is to undertake my work and express my opinion in
accordance with applicable law and the International Standards on Auditing (UK and Ireland) as issued by the Financial
Reporting Council of the United Kingdom. These standards also require me to comply with the APB’s Ethical Standards for
auditors. A description of the scope of an audit is provided on the Financial Reporting Council’s website at
www.frc.org.uk/auditscopeukprivate; I recommend that you read this description carefully. It is also important that you
understand the inherent limitations of the audit which are disclosed in the description, for example the possibility that an
approach based upon sampling and other audit techniques may not identify all issues.
In order for me to perform my work, I had regard to the concept of materiality. I have determined materiality as follows:
Overall Group materiality
$1,050m.
How I determined it
5% of adjusted profit before tax excluding the debt valuation adjustment and non-qualifying
hedges.
Why I believe this is appropriate
Given the geographically dispersed nature of HSBC and the diversity of its banking activities, I
believe a standard benchmark of 5% of adjusted profit before tax is an appropriate quantitative
indicator of materiality, although of course an item could also be material for qualitative reasons.
I selected adjusted profit before tax, because as discussed on page 48, management believes it best
reflects the performance of HSBC. I excluded the debt valuation adjustment and non-qualifying
hedges as they are recurring items.
HSBC HOLDINGS PLC
324
When planning the audit, I considered if multiple errors may exist which, when aggregated, could exceed $1,050m. In order to
reduce the risk of multiple errors which could aggregate to this amount I used a lower level of materiality, known as
performance materiality, of $788m to identify the individual balances, classes of transactions and disclosures that were subject
to audit. I asked each of the partners reporting to me on the subsidiaries of HSBC to work to assigned materiality levels
reflecting the size of the operations they audited. These ranged from $67m (HSBC Mexico S.A.) to $840m (The Hongkong and
Shanghai Banking Corporation Limited).
Where the audit identified some items that were not reflected appropriately in the audited financial information, I considered
these items carefully to assess if they were individually or in aggregate material. I reported any such items which exceeded
$50m to the GAC, who were responsible for deciding whether adjustments should be made to the financial statements in
respect of those items. The Directors have concluded that all items which remained unadjusted were not material to the
financial statements, either individually or in aggregate. I agree with their conclusion.
Matters discussed with the GAC
I attended each of the seven GAC meetings held during the year. Part of each meeting involved a discussion with me without
management present. I also met with members of the Committee on an ad hoc basis. During these various conversations we
discussed my observations on a variety of accounting matters, and initial observations on controls over financial reporting.
In November 2014, the Committee held a special meeting to understand and challenge the audit plan. The plan included the
matters which I considered presented the highest risk to the audit and other information on our audit approach such as our
approach to the audit of journals, interest income and financial instrument valuation, and where the latest technology would
be used to obtain better quality audit evidence.
The areas of highest risk to the audit and where I focused most effort and resource, were:
• Access to technology applications and data
• Carrying value of goodwill
• Application of hedge accounting
• Impairment of loans and advances
• Litigation and conduct
• Investment in Bank of Communications Co., Ltd (‘BoCom’)
• Impact of the deferred prosecution agreement (‘DPA’)
• Recoverability of deferred tax assets.
To help you understand their impact on the audit, I have listed them in order of decreasing audit effort. Some of them are
common with other international banks, and some are specific to HSBC. I have included at the end of this report an
explanation of each item, why it was discussed and how the audit approach was tailored to address the concerns.
Going concern
The Directors have made a statement on page 277 regarding going concern. This statement is based on their belief that the
Group and Parent Company intend to, and have sufficient resources to remain in business for 12 months from the date of this
report. I am required to review this statement, and in doing so I have considered HSBC’s budgets, cash flows, capital plan and
stress tests. I have nothing to report as a result of my review. I also have nothing material to add or draw attention to in
relation to the statement.
Other reporting
The Annual Report and Accounts also contains a considerable amount of other information that is required by various
regulators or standard setters. In respect of this information my responsibilities and my reporting are set out in the table
below.
HSBC HOLDINGS PLC
325
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the independent auditors to the members of HSBC Holdings plc
Audit Report /Appendix
Area of the Annual Report and Accounts
2015
My responsibility
My reporting
Directors Remuneration Report on pages 285 to 321
Those parts of which are clearly marked as
audited.
Consider whether the information is
properly prepared.
Other remuneration report disclosures.
Other areas
Strategic Report and the Directors’ Report.
Viability statement on page 277 which
considers the longer term sustainability of the
Group’s business model.
Directors’ confirmation of their robust
assessment of principal risks, and disclosures
describing those risks and how they are
managed or mitigated on page 278.
GAC Report on page 262.
Directors’ statement (on page 322) that they
consider the HSBC Annual Report and Accounts
2015, taken as a whole, to be fair, balanced and
understandable and provides the information
necessary for you to assess HSBC’s
performance, business model and strategy.
Corporate governance report (on pages 249 to
284).
All other information in the Annual Report aside
from the audited financial statements.
Consider whether certain other disclosures
specified by the Companies Act have been
made.
In my opinion, this information has been
properly prepared in accordance with
the Companies Act 2006.
The other required disclosures have
been made.
Consider whether they are consistent with
the audited financial statements.
Review the statement in the light of the
knowledge gathered during the audit.
In my opinion, the information in these
reports is consistent with the audited
financial statements.
I have nothing material to draw
attention to or to add to the statement.
Review the confirmation and description in
the light of the knowledge gathered during
the audit.
I have nothing material to draw
attention to or to add to the
confirmation or description.
Consider whether it deals appropriately
with those matters that I reported to the
GAC.
Consider whether any information found
during the course of the audit would cause
me to disagree.
No exceptions to report.
No disagreements to report.
Nothing to report following our review.
No exceptions to report.
Review the remaining 10 provisions of the
UK Corporate Governance Code specified
for our review by the UK Listing Rules.
Consider whether it is materially
inconsistent or materially incorrect based
on the knowledge gained in my audit, or
otherwise misleading.
Consider whether it is materially
inconsistent with the audited financial
statements.
In addition, I am required to report to you if:
• I have not received all of the information and explanations required for my audit;
• Adequate accounting records have not been kept by the Parent Company;
• Returns adequate for my audit have not been received from branches not visited by PwC;
• The Parent Company financial statements and the audited part of the Directors’ Remuneration Report do not agree with
the accounting records and returns.
I have no exceptions to report as a result of any of these responsibilities.
Use of this report
This report, including the opinions, has been prepared for and only for you, the Parent Company’s members as a body in
accordance with Chapter 3 of Part 16 of the Companies Act 2006, and for no other purpose. We do not, in giving these
opinions, 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 except where expressly agreed by our prior written consent.
Richard Oldfield (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London, United Kingdom
22 February 2016
HSBC HOLDINGS PLC
326
Appendix: Matters discussed with the Group Audit
Committee (‘GAC’)
Those areas which presented the greatest risk of material misstatement in the financial statements are required to be
discussed with the GAC. They had the greatest effect on the audit, including the allocation of resources and effort and are
discussed below together with an explanation of how the audit was tailored to address these specific areas. The first table
indicates which segments and businesses were impacted by the matters discussed.
This is not a complete list of all risks identified by the audit.
Matters discussed
IT access management
Goodwill and intangible assets
Application of hedge
accounting
Impairment of loans
and advances
Litigation and conduct
Investment in BoCom
Impact of the DPA
Recoverability of deferred
tax assets
Segments
Global businesses
Europe
Asia
North
America
Latin
America
RBWM
CMB
GB&M
GPB
Group
wide
HSBC HOLDINGS PLC
327
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the independent auditors to the members of HSBC Holdings plc
Appendix
IT access management
Nature of the area of focus
Access rights to technology are provided to individuals in order to
support their specific roles. These rights are important because they
ensure that changes to applications and data are authorised and
made in an appropriate manner. Ensuring staff only have
appropriate access, and that the access is monitored, are key
controls to mitigate the potential for fraud or error as a result of a
change to an application or underlying data.
During the year, it was identified that controls over access rights to
operating systems, applications, and data used in the financial
reporting process required improvement to ensure that access was
sufficiently monitored, restricted or segregated.
All banks are highly dependent on technology due to the significant
number of transactions that are processed daily. The audit approach
relies extensively on automated controls and therefore procedures
are designed to test access and control over IT systems. As a
consequence of the control findings, the assessed risk of a material
misstatement arising from access to technology was changed to
significant. The audit approach was modified, with the extent of
testing increased substantially to obtain the necessary evidence
that a material error or fraud remained undetected.
Procedures performed to support our discussions and conclusions
Matters discussed with the GAC
A specific pre-year end GAC meeting was held to discuss the control
issues identified, and to agree a response.
A revised audit approach and plan was presented along with examples
of how the application and database findings impacted specific
products transacted by HSBC.
At the GAC meeting held prior to approving the Annual Report and
Accounts 2015, a summary of the findings of the audit work was
discussed, together with a consideration of the additional work
performed by management to address the issues identified. This
included the work undertaken to evidence that access was not used
inappropriately, and also detective controls which operated at many
levels within HSBC to prevent a material error or fraud remaining
undetected.
Access rights were tested over the various aspects of technology relied upon for financial reporting. Specifically, the audit tested that:
• new access requests for joiners were properly reviewed and authorised;
• application user access rights were removed on a timely basis when an individual left or moved role; and
• access rights to applications were periodically monitored for appropriateness.
Other areas that were independently assessed included password policies, security configurations, controls over changes to applications and
databases and that business users, developers and production support did not have access to change applications, the operating system or
databases in the production environment.
As a consequence of the findings that were identified a range of other procedures were performed;
• Where possible, the extent of inappropriate access was identified and the changes made with this access assessed to determine that they
were appropriate.
• Automated controls in applications impacted were considered as manual, and therefore tested on multiple occasions rather than once.
• Additional substantive testing was performed on the year-end balance sheet and income statement where this was deemed to be
effective.
• Where possible, testing was performed on other compensating controls or processes not impacted by systems.
• A list of users with access to systems was obtained and manually compared to other access lists where segregation of duties was deemed
to be of higher risk, for example within GB&M.
Relevant references in the Annual Report and Accounts 2015
GAC Report, page 262.
Effectiveness of internal controls, page 277.
HSBC HOLDINGS PLC
328
Goodwill and intangible assets
Nature of the area of focus
Matters discussed with the GAC
Goodwill of $16.3bn has arisen from a number of historic
acquisitions. The largest balances are in Europe, North America and
Latin America.
An assessment is required annually to establish whether this
goodwill should continue to be recognised, or if any impairment is
required. The assessment was performed for each global business
within a region, which is the lowest level at which HSBC could
allocate and assess goodwill, which is referred to as a cash
generating unit (‘CGU’).
The impairment assessment relied on the calculation of a value-in-
use for each of the CGUs. This calculation was based on estimated
future cash flows for each CGU discounted at an appropriate cost of
equity rate. HSBC used its Annual Operating Plan as the basis for the
first 5 years of cash flows and then extrapolated returns into
perpetuity using a terminal growth factor. Cost of equity discount
rates were based on the investment rates used within the global
business and approved by the Board of Directors.
The estimation of future cash flows and the level to which they are
discounted is inherently uncertain and requires significant
judgement. The extent of judgement and the size of the goodwill,
resulted in this matter being identified as an area of audit focus.
Procedures performed to support our discussions and conclusions
The judgements used by management were most important when the
calculated value-in-use was close to the carrying value of the CGU.
Reasonably possible alternative assumptions were considered to
identify those CGU’s which were most sensitive to a change in value
in use. During the third quarter, goodwill for GB&M in North America,
Latin America and Europe, together with the Global Private Bank in
Europe were of most interest in the discussion with the GAC as these
four CGUs have low levels of headroom as a proportion of carrying
value. Subsequently, at 31 December the goodwill for Global Private
Bank Europe and GB&M North America was retested as a result of
indications of impairment being present.
The discussion with the GAC focused on the key assumptions, both
individually and when combined together. During these discussions,
management confirmed their view that the forecasts for each CGU
remained appropriate.
As disclosed on page 410, a small deterioration in either performance
or long term growth forecasts, or an increase in the discount rate may
lead to impairment in one or more of the CGUs identified.
• PwC’s independent valuation experts critically assessed the discount rate and terminal growth rates used in the discounted cashflow
models. The critical challenge was focused on the methodology used to reconcile the discount rates used by each CGU to the overall
calculated cost of capital for HSBC; and whether the use of the country GDP growth rates was the most appropriate in determining the
terminal growth of cash flows for each CGU.
• The calculations used in the model were re-performed to check accuracy and the key inputs in the model were agreed to approved
sources.
• Management’s strategic cash flow forecasts used in the model were assessed by:
– testing that the forecasts agreed to the 2015 Annual Operating Plan, which had been approved by the Board of Directors and
considering how plans announced in HSBC’s strategy update to investors on 9 June 2015 impacted that plan. For Global Private
Banking Europe and GB&M North America flows in the forecasted 2016 Annual Operating Plan were agreed to the retest of
impairment at 31 December;
– considering current year performance against plan and the reasons for any deviation. This was discussed with management of the
Global Businesses for each sensitive CGU; and
– reviewing the historical achievement of the Annual Operating Plan. Given the uncertainties in forecasting, this identified that
forecasts have been less accurate for prior periods, and we considered if this was appropriately factored into the discount rates used.
•
Independent sensitivity analysis was performed, making adjustments to a number of modelled assumptions simultaneously to identify
any further CGUs with a risk of impairment. This identified more CGU’s requiring consideration than initially identified by management.
• The appropriateness of disclosures made in relation to goodwill was also reviewed.
Relevant references in the Annual Report and Accounts 2015
GAC Report, page 262.
Note 20: Goodwill and intangible assets, page 406.
HSBC HOLDINGS PLC
329
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the independent auditors to the members of HSBC Holdings plc
Appendix
Application of hedge accounting
Nature of the area of focus
Matters discussed with the GAC
The disqualified hedges resulted in an immaterial adjustment to
the income statement. A discussion was held with the GAC about
whether the adjustment would have been more appropriate to 2014.
Due to the size of the adjustment it was concluded that the
adjustment should be recognised in 2015.
The control implications of the findings were also discussed. A
project team was established by management, which regularly
reported progress and proposed a revised control structure be
established.
To qualify for hedge accounting, certain criteria must be met
including documenting the nature and purpose of the hedge and
performing regular testing over its effectiveness.
Due to the complex nature of the hedge accounting rules this is often
an area of significant risk for banks. However, given the nature of
HSBC’s business we initially believed the risk to be lower.
The audit testing identified a number of instances where hedge
accounting was applied, but the accounting rules had not been
adequately met. This led to the disqualification for hedge accounting
purposes of some macro cash flow hedges in the UK, France and
Canada.
As a result of these findings, management instigated a full review of
all hedge accounting relationships. The audit risk associated with
hedge accounting was reassessed to be significant for certain hedges,
and the extent of testing increased.
Procedures performed to support our discussions and conclusions
• Material macro cash flow hedge documentation was examined and the relationships assessed to determine if the hedges had been
appropriately designated. This included consideration of the hedge objectives and specific compliance with IFRS.
• A sample of all other hedging relationships was examined and the relationships assessed to determine if they had been appropriately
designated. This included consideration of the hedge objectives and specific compliance with IFRS.
• Management’s hedge effectiveness reviews, and the measurement and recording of hedge ineffectiveness, were tested for a sample of
hedge relationships.
• Understood and tested controls over the documentation and review of the hedge relationships and their initial and ongoing
effectiveness.
• Examined the output from management’s review of hedge accounting relationships.
Relevant references in the Annual Report and Accounts 2015
GAC Report, page 262.
Note 16: Derivatives, page 394.
HSBC HOLDINGS PLC
330
Impairment of loans and advances
Nature of the area of focus
Matters discussed with the GAC
Impairment allowances represent management's best estimate of
the losses incurred within the loan portfolios at the balance sheet
date. They are calculated on a collective basis for portfolios of loans
of a similar nature and on an individual basis for significant loans.
The calculation of both collective and individual impairment
allowances is inherently judgemental for any bank.
Collective impairment allowances are calculated using statistical
models which approximate the impact of current economic and
credit conditions on large portfolios of loans. The inputs to these
models are subject to management judgement and model overlays
are often required.
For specific impairments, judgement is required to determine when
an impairment event has occurred and then to estimate the
expected future cash flows related to that loan.
The audit was focused on impairment due to the materiality of the
balances and the subjective nature of the calculation. The largest
loan portfolios are in Europe and Asia. The most significant
impairment allowances are in Europe, North America and Latin
America.
Procedures performed to support our discussions and conclusions
The policies and methodologies used by HSBC were discussed with
the GAC. The impairment policies and practices applied are consistent
with the requirements of IFRS. The methodologies used to calculate
collective impairment allowances are relatively standard which means
that modelling risk is low but that changes in individual inputs can
have a significant bearing on the impairment charge.
The discussion covered positive observations around the governance
supporting changes to model inputs and our observations on
suggested enhancements to documentation.
At each GAC and Group Risk Committee meeting there was a
discussion on changes to risk factors and other inputs within the
collective allowance models as well as discussions on individually
significant loan impairments. In light of the further deterioration in
the spot price of oil, a specific discussion on the exposures to the oil
and gas sector was held with GAC at the year end. This discussion
considered the appropriate treatment of the Group’s exposure within
the collective impairment calculation and the additional $0.2bn
increase at the year-end.
• The controls management has established to support their collective and specific impairment calculations were tested.
• For collective impairment this included controls over the appropriateness of models used to calculate the charge, the process of
determining key assumptions and the identification of loans to be included within the calculation.
• For specific impairment charges on individual loans this included controls over the compilation and review of the credit watch list, credit
file review processes, approval of external collateral valuation vendors and review controls over the approval of significant individual
impairments.
• For collective allowances the appropriateness of the modelling policy and methodology used for material portfolios was independently
assessed by reference to the accounting standards and market practices and model calculations were tested through re-performance
and code review.
• The appropriateness of management’s judgements was also independently considered in respect of calculation methodologies and
segmentation, economic factors and judgemental overlays, period of historical loss rates used, loss emergence periods, cure rates for
impaired loans and the valuation of recovery assets and collateral.
• For specific allowances the appropriateness of provisioning methodologies and policies was independently assessed for a sample of
loans across the portfolio selected on the basis of risk. An independent view was formed on the levels of provisions booked based on the
detailed loan and counterparty information in the credit file. Calculations within a sample of discounted cash flow models were re-
performed.
Relevant references in the Annual Report and Accounts 2015
Impaired loans, page 128.
Areas of special interest, page 116.
GAC Report, page 262.
Note 1 (j): Impairment of loans and advances, page 354.
HSBC HOLDINGS PLC
331
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the independent auditors to the members of HSBC Holdings plc
Appendix
Litigation and conduct
Nature of the area of focus
Matters discussed with the GAC
HSBC, like other global banking institutions, is exposed to a
significant number of open legal cases and regulatory investigations
in a number of its markets. Given the business is geographically
dispersed, the same matter could be subject to investigation in
multiple jurisdictions.
Provisions of $4.5bn have been established to account for legal
settlements, regulatory fines, customer redress payments and
related operational costs.
The most significant provisions relate to Payment Protection
Insurance, Jaffe vs Household Inc, tax-related investigations and
Foreign Exchange market manipulation.
There is an inherent risk that conduct and legal exposures are not
identified and considered for financial reporting purposes on a
timely basis. Importantly, the decision to recognise a provision and
the basis of measurement are judgemental.
Each material provision was discussed with the GAC when established
or changed, including whether HSBC’s policy had been applied in an
appropriate manner.
A number of other matters, for which provisions were not established,
were discussed to ensure the appropriateness of that decision.
Specifically:
Legal cases: Group Legal provided to each GAC meeting an update on
the status of legal cases. Material matters were discussed during the
meeting and the need for changes to provisions considered. These
discussions considered whether all related litigation or investigations
about a specific matter had been identified.
Customer redress payments: The most significant provision has been
in relation to PPI. The change in approach to the provision as a result of
the FCA consultation paper released in November 2015 was discussed,
as well as the judgements made to reflect ongoing claim history.
Procedures performed to support our discussions and conclusions
• Controls designed to ensure the completeness and adequacy of current legal and regulatory provisions were tested. Regulatory
correspondence from material markets was also read, and a sample of legal expenses were reviewed.
• Open legal cases were discussed with Group Legal and in certain instances we obtained and reviewed the relevant regulatory and
litigation documents in order to assess the facts and circumstances.
• The range of reasonably possible outcomes was considered for material provisions to independently assess the appropriateness of the
judgement made by HSBC.
• The disclosures of conduct and legal exposures and provisions were assessed for completeness and accuracy.
• For customer redress, the provisioning models and underlying assumptions used, were independently assessed. For example, for PPI the
inputs examined included customer complaint volumes and response rates. For the material models testing was performed to check that
the models were maintained appropriately and relevant calculations within the models were re-performed.
Relevant references in the Annual Report and Accounts 2015
GAC Report, page 262.
Note 29: Provisions, page 421.
Note 40: Legal proceedings and regulatory matters, page 445.
HSBC HOLDINGS PLC
332
Matters discussed with the GAC
The critical assumptions used by HSBC in the model were discussed
with the GAC. For each assumption an independent view was
provided of the range of possible alternative inputs that could have
been used.
The discussion focussed on the long term loan impairment charge
ratio and the long term growth rate. These are difficult to
substantiate and require management to form a view on future
growth in China as well as BoCom’s potential future impairment
charges.
Investment in BoCom
Nature of the area of focus
HSBC holds 19.03% of the listed equity of BoCom. This investment is
accounted for as an associate using the equity method, because of
the significant influence that comes from the shareholding.
At 31 December, the market value of the investment based on the
share price ($9.9bn), was below the carrying value of the investment
($15.3bn).
This is considered an indicator of potential impairment under IFRS.
An impairment test was performed by HSBC using a value in use
model to estimate the investment’s value assuming the investment
continues to be held rather than sold ($17.0bn). On this basis no
impairment was required and the share of BoCom’s profits has been
recognised in the income statement.
The many assumptions used in the model to estimate future profits
attributable to HSBC are derived from a combination of analysts’
forecasts and management’s best estimates and are highly
judgemental.
Procedures performed to support our discussions and conclusions
• PwC’s independent valuation experts reviewed the appropriateness of the model and the inputs selected to calculate the value in use.
•
They independently recalculated the discount rate applied to the cash flows in the model.
Inputs used in the determination of assumptions for the calculation of the value in use were agreed back to third-party sources, where
available, including external data from analysts’ reports.
• The controls in place over the model including security access and end user controls were tested.
• The mathematical accuracy of the model was tested.
• The quarterly meeting between senior BoCom executive management and HSBC held specifically to assess the current performance of
the business was observed.
• Disclosures made in relation to BoCom were reviewed.
Relevant references in the Annual Report and Accounts 2015
GAC Report, page 262.
Note 19: Interests in associates and joint ventures, page 402.
HSBC HOLDINGS PLC
333
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Report of the independent auditors to the members of HSBC Holdings plc
Appendix
Impact of the DPA
Nature of the area of focus
Matters discussed with the GAC
HSBC and HSBC Bank USA NA entered into a DPA with the US
Department of Justice (‘DoJ’) and Financial Conduct Authority in 2012
regarding non-compliance with the US Bank Secrecy Act, anti-money
laundering rules, and sanctions laws. The duration of the DPA is five
years.
If the DOJ concluded that a breach of the DPA had occurred, there
are a number of potential penalties that could be imposed that could
have a material adverse effect on HSBC’s business. This could include
loss of business and withdrawal of funding, restrictions on US dollar
clearing functions through HSBC Bank USA or revocation of bank
licences. The loss of this ability could have a significant adverse
impact on the going concern status of HSBC and its individual
subsidiaries in the future.
In considering going concern as the basis of preparation of the
financial statements, a discussion was held with the GAC about the
progress being made in responding to the requirements of the DPA.
The conversation specifically considered the 2015 report of the
Monitor. In the report he expressed significant concerns about the
pace of progress, instances of potential financial crime and systems
and controls deficiencies, whether HSBC is on track to meet its goal
to the Monitor’s satisfaction within the five-year period and, pending
further review and discussion with HSBC, did not certify as to HSBC’s
implementation of, and adherence to, remedial measures specified in
the DPA.
Assurances were sought from the Directors that they were not aware
of any information to suggest that the DoJ had concluded that the
DPA had been breached.
Procedures performed to support our discussions and conclusions
• The likelihood of the DPA being breached and a restriction to US dollar clearing imposed was independently assessed through:
–
Inquiry with the Monitor, whose role is explained on page 116, to understand the status of his work, the outcome of his most recent
country reviews, his assessment of management’s progress against the requirements of the DPA and his reporting to the DoJ and FCA.
– Reading the 2015 and 2014 Monitor reports and the 9 country reports issued during the year.
– Reading the detailed reports produced by the compliance function that undertook testing of controls and processes related to the
DPA, and an assessment of the findings.
• Each Group Risk Committee meeting was attended during the year. At each meeting a report was provided by Group Risk on the status of
Global Standards Programme, which aims to address all of the DPA recommendations. The related discussion was observed.
• The papers supporting the Financial System Vulnerabilities Committee meeting at the year-end were reviewed. This meeting discussed
the 2015 Monitor report and management’s response.
• Compliance with the DPA was discussed with Group Legal and other members of senior management.
Relevant references in the Annual Report and Accounts 2015
Top and emerging risks, page 43.
Areas of special interest: the Monitor, page 116.
Financial System Vulnerabilities Committee, page 268.
Going concern and viability statements, page 277.
Note 40: Legal proceedings and regulatory matters, page 445.
HSBC HOLDINGS PLC
334
Recoverability of deferred tax assets
Nature of the area of focus
Matters discussed with the GAC
HSBC has deferred tax assets of $6.1bn as at 31 December 2015, of
which $4.5bn relates to the US. A further $1.2bn net deferred assets
are included in Assets Held For Sale and relates to Brazil.
These assets have arisen because of historic losses, deferred relief for
impairment and other temporary differences. An assessment is
required as to whether sufficient future taxable profits are likely to
be generated to enable the assets to be realised.
The estimation of future taxable profits is inherently judgemental,
particularly when this extends beyond the normal planning cycle. In
the case of Brazil, this is exacerbated by recent performance not
being in accordance with plan.
The carrying value of deferred tax assets in Brazil and the US was
discussed several times during the year. HSBC updated performance
against forecasts to support the continued recognition of the assets
and this was considered during GAC meetings.
Brazil: In light of the disposal of the business discussed on page 416,
the appropriate basis on which to assess future taxable profits was
discussed. HSBC has considered both the internal strategic plan as
well as profits implied by the agreed sales price using the
Price/Earnings ratios considered appropriate for Brazilian banks.
Whilst performance in 2015 has not been in line with the strategic
plan, the implicit profit forecast derived from the sales price provides
support for the expected profitability of the business. Sufficient
taxable profits to support recognition are expected to be earned
within 8 years in the best case scenario and within 13 years in the
worst case scenario.
North America: As at 1 January 2015, the recognition of the US
deferred tax asset relied upon capital support from HSBC. Given
improved performance and forecasts management considered that it
was appropriate to recognise the asset on the basis of future taxable
profits. This change led to the recognition of additional deferred tax
assets. The change in the basis of recognition, and the increased
assets recognised, were discussed with the GAC.
Procedures performed to support our discussions and conclusions
• The application of tax rules was examined to check they had been appropriately applied and that a loss or deductible temporary
difference exists.
• Supporting calculations were tested to check that the valuation of the asset is appropriate based on the temporary differences identified
and the tax rates applied.
• The basis for management’s assessment of recoverability including the profit projections and underlying assumptions and the
calculations performed to arrive at taxable profits from these projections, was challenged using our knowledge of the business, future
strategy and past performance.
• The appropriateness and validity of tax planning strategies relied upon to support recognition where relevant was assessed.
• The range of reasonably possible alternative outcomes was assessed for the projections in each market.
• The calculation methodology used to determine the implied profits from the sales price achieved for the Brazilian subsidiary was
evaluated.
• The completeness and accuracy of the disclosures was also assessed.
Relevant references in the Annual Report and Accounts 2015
GAC Report, page 262.
Note 8: Tax, page 369.
Note 23: Assets held for sale and liabilities of disposal groups held for sale, page 416.
Note:
The maintenance and integrity of the HSBC Holdings plc website is the responsibility of the directors; the work carried out by
the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any
changes that may have occurred to the financial statements since they were initially presented on the website.
HSBC HOLDINGS PLC
335
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Financial Statements
Financial Statements / Consolidated income statement
Financial Statements
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of cash flows
Consolidated statement of changes in equity
HSBC Holdings balance sheet
HSBC Holdings statement of cash flows
HSBC Holdings statement of changes in equity
Notes on the Financial
Statements
1
Basis of preparation and significant accounting
policies
2
Net income from financial instruments
3
4
designated at fair value
Net insurance premium income
Net insurance claims and benefits paid and
movement in liabilities to policyholders
5 Operating profit
6
7
8
9
10
11
12
13
Employee compensation and benefits
Auditors’ remuneration
Tax
Dividends
Earnings per share
Segmental analysis
Trading assets
Fair values of financial instruments carried at
fair value
14
Fair values of financial instruments not carried at
fair value
15
16
Financial assets designated at fair value
Derivatives
337
338
339
340
341
343
344
345
347
359
359
360
361
361
368
369
371
372
373
377
378
390
393
394
17
18
19
20
21
22
23
24
25
26
27
28
29
30
Financial investments
Assets charged as security for liabilities, assets
transferred and collateral accepted as security
for assets
Interests in associates and joint ventures
Goodwill and intangible assets
Investments in subsidiaries
Prepayments, accrued income and other assets
Assets held for sale and liabilities of disposal
groups held for sale
Trading liabilities
Financial liabilities designated at fair value
Debt securities in issue
Accruals, deferred income and other liabilities
Liabilities under insurance contracts
Provisions
Subordinated liabilities
31 Maturity analysis of assets, liabilities and
off-balance sheet commitments
32
33
34
35
36
37
38
39
40
41
42
43
Offsetting of financial assets and financial liabilities
Foreign exchange exposures
Non-controlling interests
Called up share capital and other equity
instruments
Notes on the statement of cash flows
Contingent liabilities, contractual commitments
and guarantees
Lease commitments
Structured entities
Legal proceedings and regulatory matters
Related party transactions
Events after the balance sheet date
HSBC Holdings’ subsidiaries, joint ventures and
associates
398
401
402
406
414
416
416
417
418
418
419
419
421
423
426
434
436
436
437
439
441
442
442
445
454
457
457
HSBC HOLDINGS PLC
336
Consolidated income statement
for the year ended 31 December 2015
Interest income
Interest expense
Net interest income
Fee income
Fee expense
Net fee income
Trading income excluding net interest income
Net interest income on trading activities
Net trading income
Changes in fair value of long-term debt issued and related derivatives
Net income from other financial instruments designated at fair value
Net income from financial instruments designated at fair value
Gains less losses from financial investments
Dividend income
Net insurance premium income
Other operating income
Total operating income
Net insurance claims and benefits paid and movement in liabilities to policyholders
Net operating income before loan impairment charges and other credit risk
provisions
Loan impairment charges and other credit risk provisions
Net operating income
Employee compensation and benefits
General and administrative expenses
Depreciation and impairment of property, plant and equipment
Amortisation and impairment of intangible assets
Total operating expenses
Operating profit
Share of profit in associates and joint ventures
Profit before tax
Tax expense
Profit for the year
Profit attributable to shareholders of the parent company
Profit attributable to non-controlling interests
Basic earnings per ordinary share
Diluted earnings per ordinary share
Notes
2
3
4
5
6
20
5
19
8
10
10
2015
$m
47,189
(14,658)
32,531
18,016
(3,311)
14,705
6,948
1,775
8,723
863
669
1,532
2,068
123
10,355
1,055
71,092
2014
$m
50,955
(16,250)
34,705
19,545
(3,588)
15,957
4,853
1,907
6,760
508
1,965
2,473
1,335
311
11,921
1,131
74,593
2013
$m
51,192
(15,653)
35,539
19,973
(3,539)
16,434
6,643
2,047
8,690
(1,228)
1,996
768
2,012
322
11,940
2,632
78,337
(11,292)
(13,345)
(13,692)
59,800
(3,721)
56,079
(19,900)
(17,662)
(1,269)
(937)
(39,768)
16,311
2,556
18,867
(3,771)
15,096
13,522
1,574
$
0.65
0.64
61,248
(3,851)
57,397
(20,366)
(18,565)
(1,382)
(936)
(41,249)
16,148
2,532
18,680
(3,975)
14,705
13,688
1,017
$
0.69
0.69
64,645
(5,849)
58,796
(19,196)
(17,065)
(1,364)
(931)
(38,556)
20,240
2,325
22,565
(4,765)
17,800
16,204
1,596
$
0.84
0.84
The accompanying notes on pages 347 to 469 form an integral part of these financial statements1.
For footnote, see page 346.
HSBC HOLDINGS PLC
337
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Financial Statements (continued)
Consolidated statement of comprehensive income / Consolidated balance sheet
Consolidated statement of comprehensive income
for the year ended 31 December 2015
Profit for the year
Other comprehensive income/(expense)
Items that will be reclassified subsequently to profit or loss when specific
conditions are met:
Available-for-sale investments
– fair value gains/(losses)
– fair value gains reclassified to the income statement
– amounts reclassified to the income statement in respect of impairment losses
– income taxes
Cash flow hedges
– fair value gains
– fair value gains reclassified to the income statement
– income taxes
Share of other comprehensive income/(expense) of associates and
joint ventures
– share for the year
– reclassified to income statement on disposal
Exchange differences
– foreign exchange gains reclassified to income statement on disposal of a
foreign operation
– other exchange differences
– Income tax attributable to exchange differences
Items that will not be reclassified subsequently to profit or loss:
Remeasurement of defined benefit asset/liability
– before income taxes
– income taxes
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Attributable to:
– shareholders of the parent company
– non-controlling interests
Total comprehensive income for the year
2015
$m
15,096
(3,072)
(1,231)
(2,437)
127
469
(24)
704
(705)
(23)
(9)
(9)
–
(10,945)
–
(11,112)
167
101
130
(29)
(13,949)
1,147
460
687
1,147
2014
$m
14,705
2,972
4,794
(1,672)
374
(524)
188
1,512
(1,244)
(80)
80
78
2
(8,903)
(21)
(8,917)
35
1,985
2,419
(434)
(3,678)
11,027
9,245
1,782
11,027
2013
$m
17,800
(1,718)
(1,787)
(1,277)
286
1,060
(128)
776
(894)
(10)
(71)
(35)
(36)
(1,372)
(290)
(1,154)
72
(458)
(601)
143
(3,747)
14,053
12,644
1,409
14,053
The accompanying notes on pages 347 to 469 form an integral part of these financial statements1.
For footnote, see page 346.
HSBC HOLDINGS PLC
338
Consolidated balance sheet
at 31 December 2015
Notes
2015
$m
Assets
Cash and balances at central banks
Items in the course of collection from other banks
Hong Kong Government certificates of indebtedness
Trading assets
Financial assets designated at fair value
Derivatives
Loans and advances to banks
Loans and advances to customers
Reverse repurchase agreements – non-trading
Financial investments
Assets held for sale
Prepayments, accrued income and other assets
Current tax assets
Interests in associates and joint ventures
Goodwill and intangible assets
Deferred tax assets
Total assets at 31 December
Liabilities and equity
Liabilities
Hong Kong currency notes in circulation
Deposits by banks
Customer accounts
Repurchase agreements – non-trading
Items in the course of transmission to other banks
Trading liabilities
Financial liabilities designated at fair value
Derivatives
Debt securities in issue
Liabilities of disposal groups held for sale
Accruals, deferred income and other liabilities
Current tax liabilities
Liabilities under insurance contracts
Provisions
Deferred tax liabilities
Subordinated liabilities
Total liabilities at 31 December
Equity
Called up share capital
Share premium account
Other equity instruments
Other reserves
Retained earnings
Total shareholders’ equity
Non-controlling interests
Total equity at 31 December
Total liabilities and equity at 31 December
12
15
16
17
23
22
19
20
8
24
25
16
26
23
27
28
29
8
30
35
34
2014
$m
129,957
4,927
27,674
304,193
29,037
345,008
112,149
974,660
161,713
415,467
7,647
67,529
1,309
18,181
27,577
7,111
98,934
5,768
28,410
224,837
23,852
288,476
90,401
924,454
146,255
428,955
43,900
54,398
1,221
19,139
24,605
6,051
2,409,656
2,634,139
28,410
54,371
1,289,586
80,400
5,638
141,614
66,408
281,071
88,949
36,840
38,116
783
69,938
5,552
1,760
22,702
2,212,138
9,842
12,421
15,112
7,109
143,976
188,460
9,058
197,518
27,674
77,426
1,350,642
107,432
5,990
190,572
76,153
340,669
95,947
6,934
46,462
1,213
73,861
4,998
1,524
26,664
2,434,161
9,609
11,918
11,532
20,244
137,144
190,447
9,531
199,978
2,409,656
2,634,139
The accompanying notes on pages 347 to 469 form an integral part of these financial statements1.
For footnote, see page 346.
Douglas Flint, Group Chairman
Iain Mackay, Group Finance Director
HSBC HOLDINGS PLC
339
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Financial Statements (continued)
Consolidated statement of cash flows / Consolidated statement of changes in equity
Consolidated statement of cash flows
for the year ended 31 December 2015
Cash flows from operating activities
Profit before tax
Adjustments for:
Notes
2015
$m
2014
$m
2013
$m
18,867
18,680
22,565
– net gain from investing activities
– share of profits in associates and joint ventures
– (gain)/loss on disposal of associates, joint ventures, subsidiaries and businesses
– other non-cash items included in profit before tax
– change in operating assets
– change in operating liabilities
– elimination of exchange differences3
– dividends received from associates
– contributions paid to defined benefit plans
– tax paid
36
36
36
Net cash generated from/(used in) operating activities
Cash flows from investing activities
Purchase of financial investments
Proceeds from the sale and maturity of financial investments
Purchase of property, plant and equipment
Proceeds from the sale of property, plant and equipment
Net cash inflow/(outflow) from disposal of customer and loan portfolios
Net investment in intangible assets
Proceeds from disposal of Ping An
Net cash inflow/(outflow) from disposal of other subsidiaries, businesses,
associates and joint ventures
Net cash generated from/(used in) investing activities
Cash flows from financing activities
Issue of ordinary share capital
Net sales/(purchases) of own shares for market-making and investment purposes
Issue of other equity instruments
Redemption of preference shares and other equity instruments
Subordinated loan capital issued
Subordinated loan capital repaid
Dividends paid to shareholders of the parent company
Dividends paid to non-controlling interests
Dividends paid to holders of other equity instruments
Net cash used in financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at 1 January
Exchange differences in respect of cash and cash equivalents
Cash and cash equivalents at 31 December
36
(1,935)
(2,556)
–
10,765
65,828
(106,762)
18,308
879
(664)
(3,852)
(1,122)
(438,376)
399,636
(1,352)
103
2,023
(954)
–
8
(38,912)
147
331
3,580
(463)
3,180
(2,157)
(6,548)
(697)
(950)
(3,577)
(43,611)
301,301
(13,827)
243,863
(1,928)
(2,532)
9
11,262
25,877
(93,814)
24,571
757
(681)
(3,573)
(21,372)
(384,199)
382,837
(1,477)
88
(1,035)
(903)
–
(272)
(4,961)
267
(96)
5,681
(234)
3,500
(3,163)
(6,611)
(639)
(573)
(1,868)
(28,201)
346,281
(16,779)
301,301
(1,458)
(2,325)
(1,173)
11,995
(148,899)
164,757
4,479
694
(962)
(4,696)
44,977
(363,979)
342,539
(1,952)
441
6,518
(834)
7,413
3,269
(6,585)
297
(32)
–
–
1,989
(1,662)
(6,414)
(586)
(573)
(6,981)
31,411
315,308
(438)
346,281
The accompanying notes on pages 347 to 469 form an integral part of these financial statements1.
For footnotes, see page 346.
HSBC HOLDINGS PLC
340
Consolidated statement of changes in equity
for the year ended 31 December 2015
Called up
share
capital
$m
Share
premium
$m
Other
equity
instru-
ments2
Available-
for-sale
fair value
reserve5
Retained
Earnings4,6
$m
$m
Other reserves
Cash flow
hedging
reserve5
$m
Foreign
exchange
reserve5
$m
Merger
reserve6,7
$m
(9,265)
27,308
At 1 January 2015
Profit for the year
Other comprehensive income (net of tax)
– available-for-sale investments
– cash flow hedges
– remeasurement of defined benefit asset/liability
– share of other comprehensive income of associates and joint
ventures
– exchange differences
3
4
1
H
S
B
C
H
O
L
D
N
G
S
P
L
C
I
Total comprehensive income for the year
Shares issued under employee remuneration and share plans
Shares issued in lieu of dividends and amounts arising thereon
Capital securities issued
Dividends to shareholders
Cost of share-based payment arrangements
Other movements
9,609
11,918
11,532
137,144
–
–
–
–
–
–
–
–
4
45
188
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
691
(188)
–
–
–
–
–
–
3,580
–
–
–
13,522
73
–
–
82
(9)
–
13,595
(589)
3,162
–
(10,660)
757
567
$m
2,143
–
(2,332)
(2,332)
–
–
–
–
58
–
(24)
–
(24)
–
–
–
–
(10,779)
–
–
–
–
(10,779)
(2,332)
(24)
(10,779)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
share-
holders’
equity
$m
190,447
13,522
(13,062)
(2,332)
(24)
82
(9)
(10,779)
460
147
3,162
3,580
(10,660)
757
567
Non-
controlling
interests
$m
9,531
1,574
(887)
(740)
–
19
–
(166)
687
–
–
–
(697)
–
(463)
Total
equity
$m
199,978
15,096
(13,949)
(3,072)
(24)
101
(9)
(10,945)
1,147
147
3,162
3,580
(11,357)
757
104
–
–
–
–
–
–
–
–
–
–
–
–
–
–
At 31 December 2015
At 1 January 2014
Profit for the year
Other comprehensive income (net of tax)
– available-for-sale investments
– cash flow hedges
– remeasurement of defined benefit asset/liability
– share of other comprehensive income of associates and joint
ventures
– exchange differences
Total comprehensive income for the year
Shares issued under employee remuneration and share plans
Shares issued in lieu of dividends and amounts arising thereon
Capital securities issued
Dividends to shareholders
Cost of share-based payment arrangements
Other movements
9,842
12,421
15,112
143,976
(189)
34
(20,044)
27,308
188,460
9,058
197,518
9,415
11,135
5,851
128,728
−
−
−
−
−
−
−
−
60
134
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
917
(134)
−
−
−
−
−
−
5,681
−
−
−
13,688
2,066
−
−
1,986
80
−
15,754
(710)
2,709
−
(9,893)
732
(176)
97
−
2,025
2,025
−
−
−
−
2,025
−
−
−
−
−
21
(121)
(542)
27,308
181,871
−
(8,723)
−
−
−
−
(8,723)
(8,723)
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
13,688
(4,443)
2,025
189
1,986
80
(8,723)
9,245
267
2,709
5,681
(9,893)
732
(165)
−
189
−
189
−
−
−
189
−
−
−
−
−
(10)
58
8,588
1,017
765
947
(1)
(1)
−
(180)
1,782
−
−
−
(712)
−
(127)
190,459
14,705
(3,678)
2,972
188
1,985
80
(8,903)
11,027
267
2,709
5,681
(10,605)
732
(292)
At 31 December 2014
9,609
11,918
11,532
137,144
2,143
(9,265)
27,308
190,447
9,531
199,978
Shareholder Information
Financial Statements
Corporate Governance
Financial Review
Strategic Report
Consolidated statement of changes in equity (continued)
At 1 January 2013
Profit for the year
Other comprehensive income (net of tax)
– available-for-sale investments
– cash flow hedges
– remeasurement of defined benefit asset/liability
– share of other comprehensive income of associates and joint
ventures
– exchange differences
Total comprehensive income for the year
Shares issued under employee remuneration and share plans
Shares issued in lieu of dividends and amounts arising thereon
Dividends to shareholders
Cost of share-based payment arrangements
Other movements
Other reserves
Cash flow
hedging
reserve
$m
Foreign
exchange
reserve
$m
Merger
reserve6,7
$m
752
27,308
Called up
share
capital
$m
Share
premium
$m
Other
equity
instru-
ments
$m
Retained
Earnings4,6
$m
9,238
10,084
5,851
120,347
−
−
−
−
−
−
−
−
60
117
−
−
−
−
−
−
−
−
−
−
−
1,168
(117)
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
16,204
(561)
−
−
(490)
(71)
−
(931)
2,523
(9,510)
630
26
Available-
for-sale
fair value
reserve
$m
1,649
−
(1,577)
(1,577)
−
−
−
−
−
−
−
−
25
97
13
−
(128)
−
(128)
−
−
−
−
(1,294)
−
−
−
−
(1,294)
−
−
−
−
(6)
−
−
−
−
−
15,643
(1,577)
(128)
(1,294)
Total
share-
holders’
equity
$m
175,242
16,204
(3,560)
(1,577)
(128)
(490)
(71)
(1,294)
12,644
297
2,523
(9,510)
630
45
Non-
controlling
interests
$m
7,887
1,596
(187)
(141)
−
32
−
(78)
1,409
−
−
(718)
−
10
Total
equity
$m
183,129
17,800
(3,747)
(1,718)
(128)
(458)
(71)
(1,372)
14,053
297
2,523
(10,228)
630
55
−
−
−
−
−
−
−
−
−
−
−
−
−
(121)
(542)
27,308
181,871
8,588
190,459
3
4
2
H
S
B
C
H
O
L
D
N
G
S
P
L
C
I
At 31 December 2013
9,415
11,135
5,851
128,728
The accompanying notes on pages 347 to 469 form an integral part of these financial statements1.
For footnotes, see page 346.
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
(
c
o
n
t
i
n
u
e
d
)
C
o
n
s
o
l
i
d
a
t
e
d
s
t
a
t
e
m
e
n
t
o
f
c
h
a
n
g
e
s
i
l
n
e
q
u
i
t
y
/
H
S
B
C
H
o
d
n
g
s
b
a
a
n
c
e
s
h
e
e
t
l
i
HSBC Holdings balance sheet
at 31 December 2015
Notes
2015
$m
Assets
Cash at bank and in hand:
– balances with HSBC undertakings
Derivatives
Loans and advances to HSBC undertakings
Financial investments in HSBC undertakings
Prepayments, accrued income and other assets
Current tax assets
Investments in subsidiaries
Intangible assets
Deferred tax assets
Total assets at 31 December
Liabilities and equity
Liabilities
Amounts owed to HSBC undertakings
Financial liabilities designated at fair value
Derivatives
Debt securities in issue
Accruals, deferred income and other liabilities
Deferred tax liabilities
Subordinated liabilities
Total liabilities
Equity
Called up share capital
Share premium account
Other equity instruments
Other reserves
Retained earnings
Total equity
Total liabilities and equity at 31 December
The accompanying notes on pages 347 to 469 form an integral part of these financial statements1.
For footnote, see page 346.
16
21
25
16
26
30
35
2014
$m
249
2,771
43,910
4,073
125
472
96,264
–
–
242
2,467
44,350
4,285
265
723
97,770
75
17
150,194
147,864
2,152
19,853
2,278
960
1,642
–
15,895
42,780
9,842
12,421
15,020
37,907
32,224
107,414
150,194
2,892
18,679
1,169
1,009
1,398
17
17,255
42,419
9,609
11,918
11,476
37,456
34,986
105,445
147,864
Douglas Flint
Group Chairman
Iain Mackay
Group Finance Director
HSBC HOLDINGS PLC
343
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Financial Statements (continued)
HSBC Holdings statement of cash flows / HSBC Holdings statement of changes in equity
HSBC Holdings statement of cash flows
for the year ended 31 December 2015
Notes
2015
$m
Cash flows from operating activities
Profit before tax
Adjustments for:
– non-cash items included in profit before tax
– change in operating assets
– change in operating liabilities
– tax received
Net cash generated from/(used in) operating activities
Cash flows from investing activities
Net cash outflow from acquisition of or increase in stake of subsidiaries
Repayment of capital from subsidiaries
Net investment in intangible assets
Net cash generated from/(used in) investing activities
Cash flows from financing activities
Issue of ordinary share capital
Issue of other equity instruments
Subordinated loan capital issued
Subordinated loan capital repaid
Debt securities repaid
Dividends paid on ordinary shares
Dividends paid to holders of other equity instruments
Net cash used in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
The accompanying notes on pages 347 to 469 form an integral part of these financial statements1.
For footnote, see page 346.
4,282
114
543
(2,342)
470
3,067
(2,118)
790
(79)
(1,407)
678
3,538
3,180
(1,565)
–
(6,548)
(950)
(1,667)
(7)
249
242
36
36
36
36
2014
$m
6,228
52
1,854
(9,914)
133
(1,647)
(1,603)
3,505
–
1,902
924
5,635
3,500
(1,654)
(1,634)
(6,611)
(573)
(413)
(158)
407
249
HSBC HOLDINGS PLC
344
HSBC Holdings statement of changes in equity
for the year ended 31 December 2015
Called up
share
capital
$m
Share
premium
$m
Other
equity
instru-
ments
$m
Available-
for-sale
fair value
reserve
$m
Other
paid-in
capital9
$m
Merger
and other
reserves7
$m
Total
share-
holders’
equity
$m
Retained
earnings8
$m
Other reserves
At 1 January 2015
9,609
11,918
11,476
34,986
240
2,089
35,127
105,445
Profit for the year
Other comprehensive income (net of tax)
– available-for-sale investments
– income tax
Total comprehensive income for the year
Shares issued under employee share plans
Shares issued in lieu of dividends and amounts
arising thereon
Capital securities issued
Dividends to shareholders
Tax credit on distributions
Own shares adjustment
Exercise and lapse of share options
Cost of share-based payment arrangements
Income taxes on share-based payments
Equity investments granted to employees of
subsidiaries under employee share plans
–
–
–
–
–
45
188
–
–
–
–
–
–
–
–
–
–
–
–
–
691
(188)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,544
–
–
–
–
–
–
4,853
–
–
–
4,853
(59)
3,162
–
(10,660)
157
180
(508)
86
1
–
–
26
–
(57)
(77)
20
(57)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
508
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4,853
(57)
(77)
20
4,796
677
3,162
3,544
(10,660)
157
180
–
86
1
26
At 31 December 2015
9,842
12,421
15,020
32,224
183
2,597
35,127
107,414
At 1 January 2014
9,415
11,135
5,828
35,406
Profit for the year
Other comprehensive income (net of tax)
– available-for-sale investments
– income tax
Total comprehensive income for the year
Shares issued under employee share plans
Shares issued in lieu of dividends and amounts
arising thereon
Capital securities issued
Dividends to shareholders
Tax credit on distributions
Own shares adjustment
Exercise and lapse of share options
Cost of share-based payment arrangements
Income taxes on share-based payments
Equity investments granted to employees of
subsidiaries under employee share plans
–
–
–
–
–
60
134
–
–
–
–
–
–
–
–
–
–
–
–
–
917
(134)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5,648
–
–
–
–
–
–
6,527
–
–
–
6,527
(53)
2,709
–
(9,893)
104
103
(37)
74
(2)
–
–
48
124
–
116
152
(36)
116
–
–
–
–
–
–
–
–
–
–
2,052
35,127
99,087
–
–
–
–
–
–
–
–
–
–
–
37
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6,527
116
152
(36)
6,643
924
2,709
5,648
(9,893)
104
103
–
74
(2)
48
At 31 December 2014
9,609
11,918
11,476
34,986
240
2,089
35,127
105,445
Dividends per ordinary share at 31 December 2015 were $0.50 (2014: $0.49; 2013: $0.48).
The accompanying notes on pages 347 to 469 form an integral part of these financial statements1.
For footnotes, see page 346.
HSBC HOLDINGS PLC
345
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Financial Statements (continued)
Footnotes
Footnotes to the Financial Statements
1 The audited sections of ‘Risk’ on pages 101 to 226, the audited sections of ‘Capital’ on pages 227 to 248 and the audited sections of
‘Directors’ Remuneration Report’ on pages 285 to 321 are also an integral part of these financial statements.
2 During 2015, HSBC Holdings issued $2,450m and €1,000 of Perpetual Subordinated Contingent Convertible Capital Securities, on which
there were $12m of external issuance costs, $25m of intra-group issuance costs and $19m of tax. In 2014, HSBC Holdings issued $2,250m,
$1,500m and €1,500m of Perpetual Subordinated Contingent Convertible Capital Securities, on which there were $13m of external issuance
costs and $33m of intra-group issuance costs.Under IFRSs these issuance costs and tax benefits are classified as equity.
3 Adjustment to bring changes between opening and closing balance sheet amounts to average rates. This is not done on a line-by-line basis,
as details cannot be determined without unreasonable expense.
4 Retained earnings include 81,580,180 ($1,604m) of own shares held within HSBC’s Insurance business, retirement funds for the benefit of
policyholders or beneficiaries within employee trusts for the settlement of shares expected to be delivered under employee share schemes or
bonus plans, and the market-making activities in Markets (2014: 85,337,430 ($641m); 2013: 85,997,271 ($915m)).
5 At 31 December 2015, our operations in Brazil were classified as held for sale (see Note 23). The cumulative amount of other reserves
attributable to these operations were as follows: available-for-sale fair value reserve debit of $176m, cash flow hedging reserve credit of
$34m and foreign exchange reserve debit of $2.6bn.
6 Cumulative goodwill amounting to $5,138m has been charged against reserves in respect of acquisitions of subsidiaries prior to 1 January
1998, including $3,469m charged against the merger reserve arising on the acquisition of HSBC Bank plc. The balance of $1,669m has been
charged against retained earnings.
7 Statutory share premium relief under Section 131 of the Companies Act 1985 (the ‘Act’) was taken in respect of the acquisition of HSBC Bank
plc in 1992, HSBC France in 2000 and HSBC Finance Corporation in 2003 and the shares issued were recorded at their nominal value only. In
HSBC’s consolidated financial statements the fair value differences of $8,290m in respect of HSBC France and $12,768m in respect of HSBC
Finance Corporation were recognised in the merger reserve. The merger reserve created on the acquisition of HSBC Finance Corporation
subsequently became attached to HSBC Overseas Holdings (UK) Limited (‘HOHU’), following a number of intra-group reorganisations.
During 2009, pursuant to Section 131 of the Companies Act 1985, statutory share premium relief was taken in respect of the rights issue and
$15,796m was recognised in the merger reserve. The merger reserve includes the deduction of $614m in respect of costs relating to the
rights issue, of which $149m was subsequently transferred to the income statement. Of this $149m, $121m was a loss arising from
accounting for the agreement with the underwriters as a contingent forward contract. The merger reserve excludes the loss of $344m on a
forward foreign exchange contract associated with hedging the proceeds of the rights issue.
8 Retained earnings include 67,881 ($1m) (2014: 179,419 ($3m)) of own shares held to fund employee share plans.
9 Other paid-in capital arises from the exercise and lapse of share options granted to employees of HSBC Holdings subsidiaries.
HSBC HOLDINGS PLC
346
Notes on the Financial Statements
1 – Basis of preparation and significant accounting policies
1 Basis of preparation and significant accounting policies
(a) Compliance with International Financial Reporting Standards
International Financial Reporting Standards (‘IFRSs’) comprise accounting standards issued or adopted by the International
Accounting Standards Board (‘IASB’) and interpretations issued or adopted by the IFRS Interpretations Committee (‘IFRS IC’).
The consolidated financial statements of HSBC and the separate financial statements of HSBC Holdings have been prepared in
accordance with IFRSs as issued by the IASB and as endorsed by the European Union (‘EU’). EU-endorsed IFRSs could differ
from IFRSs as issued by the IASB if, at any point in time, new or amended IFRSs were not to be endorsed by the EU.
At 31 December 2015, there were no unendorsed standards effective for the year ended 31 December 2015 affecting these
consolidated and separate financial statements, and there was no difference between IFRSs endorsed by the EU and IFRSs
issued by the IASB in terms of their application to HSBC. Accordingly, HSBC’s financial statements for the year ended 31
December 2015 are prepared in accordance with IFRSs as issued by the IASB.
Standards adopted during the year ended 31 December 2015
There were no new standards applied during the year ended 31 December 2015.
During 2015, HSBC adopted a number of interpretations and amendments to standards which had an insignificant effect on
the consolidated financial statements of HSBC and the separate financial statements of HSBC Holdings.
(b) Differences between IFRSs and Hong Kong Financial Reporting Standards
There are no significant differences between IFRSs and Hong Kong Financial Reporting Standards in terms of their application
to HSBC and consequently there would be no significant differences had the financial statements been prepared in accordance
with Hong Kong Financial Reporting Standards. The Notes on the Financial Statements, taken together with the Report of the
Directors, include the aggregate of all disclosures necessary to satisfy IFRSs and Hong Kong reporting requirements.
(c) Future accounting developments
In addition to completing its projects on financial instrument accounting, revenue recognition and leasing, discussed below,
the IASB is working on a project on insurance accounting which could represent significant changes to accounting
requirements in the future.
Minor amendments to IFRSs
The IASB has published a number of minor amendments to IFRSs through the Annual Improvements to IFRSs 2012–2014 cycle
and in a series of stand-alone amendments, one of which has not yet been endorsed for use in the EU. HSBC has not early
applied any of the amendments effective after 31 December 2015 and it expects they will have an insignificant effect, when
applied, on the consolidated financial statements of HSBC and the separate financial statements of HSBC Holdings.
Major new IFRSs
The IASB has published IFRS 9 ‘Financial Instruments’, IFRS 15 ‘Revenue from Contracts with Customers’ and IFRS 16 ‘Leases’.
None of these IFRSs have yet been endorsed for use in the EU.
IFRS 9 ‘Financial Instruments’
In July 2014, the IASB issued IFRS 9 ‘Financial Instruments’, which is the comprehensive standard to replace IAS 39 ‘Financial
Instruments: Recognition and Measurement’, and includes requirements for classification and measurement of financial assets
and liabilities, impairment of financial assets and hedge accounting.
Classification and measurement
The classification and measurement of financial assets will depend on how these are managed (the entity’s business model)
and their contractual cash flow characteristics. These factors determine whether the financial assets are measured at
amortised cost, fair value through other comprehensive income (‘FVOCI’) or fair value through profit or loss (‘FVPL’). In many
instances, the classification and measurement outcomes will be similar to IAS 39, although differences will arise. For example,
under IFRS 9, embedded derivatives are not separated from host financial assets and equity securities are measured at FVPL
or, in limited circumstances, fair value movements will be shown in OCI. The combined effect of the application of the business
model and the contractual cash flow characteristics tests may result in some differences in the population of financial assets
measured at amortised cost or fair value compared with IAS 39. The classification of financial liabilities is essentially unchanged.
For certain liabilities measured at fair value, gains or losses relating to changes in the entity’s own credit risk are to be included
in other comprehensive income.
HSBC conducted an assessment of potential classification and measurement changes to financial assets based on the
composition of the balance sheet as at 31 December 2014. This may not be fully representative of the impact as at 1 January
2018 because IFRS 9 requires that business models be assessed based on the facts and circumstances from the date of initial
application. In addition, the contractual terms and conditions of the financial assets assessed as at 31 December 2014 may
not reflect the contractual terms and conditions of HSBC’s financial assets at transition. However, based on the assessment
HSBC HOLDINGS PLC
347
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
1 – Basis of preparation and significant accounting policies
of financial assets as at 31 December 2014 and expectations around changes to balance sheet composition, HSBC expects that
generally:
• loans and advances to banks and to customers and non-trading reverse repurchase agreements that are classified as loans
and receivables under IAS 39 will be measured at amortised cost under IFRS 9;
• financial assets designated at FVPL will remain at FVPL, because it is required under IFRS 9 or designation will continue;
• debt securities classified as available for sale will primarily be measured at amortised cost or FVOCI, with a small minority
at FVPL either because of their contractual cash flow characteristics or the business model within which they are held;
• debt securities classified as held to maturity will be measured at amortised cost;
• Treasury and other eligible bills classified as available for sale will be measured at amortised cost or FVOCI depending upon
the business model in which they are held; and
• all equity securities will remain measured at fair value. A significant majority will have fair value movements shown in profit
or loss, while a minority will have fair value movements presented in other comprehensive income. The equity securities
for which fair value movements will be shown in other comprehensive income are business facilitation and other similar
investments where HSBC holds the investments other than to generate a capital return.
Impairment
The impairment requirements apply to financial assets measured at amortised cost and FVOCI, and lease receivables and
certain loan commitments and financial guarantee contracts. At initial recognition, allowance (or provision in the case of
commitments and guarantees) is required for expected credit losses (‘ECL’) resulting from default events that are possible
within the next 12 months (’12-month ECL’). In the event of a significant increase in credit risk, allowance (or provision) is
required for ECL resulting from all possible default events over the expected life of the financial instrument (‘lifetime ECL’).
Financial assets where 12-month ECL is recognised are considered to be ‘stage 1’; financial assets which are considered to have
experienced a significant increase in credit risk are in ‘stage 2’; and financial assets for which there is objective evidence of
impairment so are considered to be in default or otherwise credit impaired are in ‘stage 3’.
The assessment of whether credit risk has increased significantly since initial recognition is performed for each reporting period
by considering the change in the risk of default occurring over the remaining life of the financial instrument, rather than by
considering an increase in ECL.
The assessment of credit risk and the estimation of ECL are required to be unbiased and probability-weighted, and should
incorporate all available information which is relevant to the assessment including information about past events, current
conditions and reasonable and supportable forecasts of economic conditions at the reporting date. In addition, the estimation
of ECL should take into account the time value of money. As a result, the recognition and measurement of impairment is
intended to be more forward-looking than under IAS 39 and the resulting impairment charge will tend to be more volatile. It
will also tend to result in an increase in the total level of impairment allowances, since all financial assets will be assessed for at
least 12-month ECL and the population of financial assets to which lifetime ECL applies is likely to be larger than the population
for which there is objective evidence of impairment in accordance with IAS 39.
Hedge accounting
The general hedge accounting requirements aim to simplify hedge accounting, creating a stronger link with risk management
strategy and permitting hedge accounting to be applied to a greater variety of hedging instruments and risks. The standard
does not explicitly address macro hedge accounting strategies, which are being considered in a separate project. To remove the
risk of any conflict between existing macro hedge accounting practice and the new general hedge accounting requirements,
IFRS 9 includes an accounting policy choice to remain with IAS 39 hedge accounting.
Based on the analysis performed to date, HSBC expects to exercise the accounting policy choice to continue IAS 39 hedge
accounting and therefore is not currently planning to change hedge accounting, although it will implement the revised hedge
accounting disclosures required by the related amendments to IFRS 7 ‘Financial Instruments: Disclosures’.
Transition
The classification and measurement and impairment requirements are applied retrospectively by adjusting the opening
balance sheet at the date of initial application, with no requirement to restate comparative periods.
The mandatory application date for the standard as a whole is 1 January 2018, but it is possible to apply the revised presentation
for certain liabilities measured at fair value from an earlier date. HSBC intends to revise the presentation of fair value gains
and losses relating to the entity’s own credit risk on certain liabilities as soon as permitted by EU law. If this presentation
was applied at 31 December 2015, the effect would be to decrease profit before tax with the opposite effect on other
comprehensive income based on the change in fair value attributable to changes in HSBC’s credit risk for the year, with no
effect on net assets. Further information on the change in fair value attributable to changes in credit risk, including HSBC’s
credit risk, is disclosed in Note 25.
HSBC HOLDINGS PLC
348
HSBC is assessing the impact that the financial asset classification and impairment requirements will have on the financial
statements.
IFRS 9 implementation programme
Within HSBC, a joint Global Risk and Global Finance IFRS 9 Implementation Programme (‘the Programme’) has been set up to
prepare for implementation of IFRS 9 since 2012 and significant preparatory and design work has taken place. The Programme
is sponsored by the Group Chief Risk Officer and Group Finance Director. A Steering Committee comprising senior management
from Risk, Finance and HSBC Operations, Services and Technology has been established. In common with all significant change
programmes in HSBC, the Programme is managed according to the Group’s business transformation framework. Delivery of
the required changes will be undertaken by individual workstreams, with Global Risk leading the work to calculate impairments
and Global Finance leading the development of financial reporting systems and processes. Significant legal entities in the
Group have established steering committees to manage implementation locally, within this global framework. Global
businesses have been engaged but are not themselves responsible for the implementation activity.
To date, the Programme has been directed towards preliminary impact analysis, documenting Group accounting policy,
developing the operating and system target operating models and developing risk modelling methodologies for the calculation
of impairment. In addition, an impact assessment of the classification and measurement requirements was performed during
2015. The Programme’s focus is now on the impairment models and processes which need to be developed by the end of
2016 as HSBC intends to perform a parallel run during 2017 to gain a better understanding of the potential effect of the new
standard. The Programme has a defined governance framework to operate over the impairment process once it becomes live.
The framework includes dedicated committees to review, challenge and sign off the assumptions used and the results in each
significant legal entity, and second-line assurance capabilities for each key step in the process. An expert panel will be
established to govern the setting of forward-looking economic assumptions used in the process. Governance over the
impairment process is the responsibility of the Global Risk and Global Finance functions, operating within each member
company of the Group. Global businesses are consulted but are not granted decision making power.
HSBC intends to quantify the potential impact of IFRS 9 once it is practicable to provide reliable estimates, which will be no
later than in the Annual Report and Accounts 2017.
Until sufficient models have been developed and tested, HSBC will not have a reliable understanding of the potential impact
on its financial statements and any consequential effects on regulatory capital requirements. In the absence of information on
whether there will be any changes to the regulatory requirements, assumptions will have to be made about how the existing
regulatory requirements will be interpreted when IFRS 9 is adopted. For example, the relationship between specific and
general credit risk adjustments in accordance with Basel requirements and the IFRS 9 stages is unclear. The Basel Committee
is considering the implications of the new accounting requirements for existing regulatory requirements.
Comparison of IAS 39 accounting policies with IFRS 9
The accounting policies and critical accounting estimates and judgements for the impairment of loans and advances and
available-for-sale financial assets (in accordance with IAS 39 ‘Financial Instruments’) are set out in Note 1(j). Their equivalents
for financial assets at amortised cost and at FVOCI (in accordance with IFRS 9) are being developed, but the following similarities
and differences are likely to be important to understanding the potential effect of the change in accounting policy resulting
from the implementation of IFRS 9 ‘Financial Instruments’:
• Amortised cost
The accounting policies in accordance with IAS 39 generally make a distinction between individually significant loans and
homogeneous groups of loans which are assessed collectively. This distinction has less relevance in developing IFRS 9
accounting policies. However, under IFRS 9, whether the loans are managed through wholesale credit risk systems or retail
credit risk systems becomes the more relevant distinction because of differences in the types of information available and the
way credit risk is managed.
• Stage 3
Financial assets will be included in stage 3 when there is objective evidence that the loan is credit impaired. The objective
evidence that is used is the same as the criteria used by HSBC to determine whether an individually significant loan is impaired
in accordance with IAS 39 and is set out on page 355. Therefore, the population included in stage 3 is expected to be
consistent with impaired loans under IAS 39 which are considered individually significant.
For wholesale loans, individual discounted cash flow calculations will continue to be performed and impairment losses
determined as set out on page 355. Changes may be made to these calculations to ensure the measurement requirements of
IFRS 9 are met. For example, the net realisable value of security will be adjusted for expected future changes in market prices.
In accordance with IAS 39, statistical methods are used to determine impairment losses on a collective basis for homogeneous
groups of loans that are not considered individually significant using either roll rate methodologies or historical loss rate
experience for loans. Under these methodologies, impairment allowances are recognised at a portfolio level. However, loans
are classified as impaired for presentation purposes when they are more than 90 days past due or have been renegotiated for
HSBC HOLDINGS PLC
349
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
1 – Basis of preparation and significant accounting policies
credit risk reasons. For retail loans, an exception is made for individual loans that are in arrears by more than 90 days but have
been individually assessed to have no indications of impairment, and these are not classified as impaired. Under IFRS 9, HSBC
expects to determine stage 3 for these populations by considering the relevant objective evidence, primarily whether contractual
payments of either principal or interest are past due for more than 90 days, or a concession has been granted to the borrower
for economic or legal reasons relating to the borrower’s financial condition, or the loan is otherwise considered to be in default.
HSBC does not expect to rebut the presumption in IFRS 9 that loans which are 90 days past due are in default for retail loans,
even where regulatory rules permit default to be defined based on 180 days past due. The impairment allowance is expected
to be determined by the same calculation used for stage 2, with the probability of default set to 1. The result may, therefore,
not be the same as that determined by the current statistical methods and the population disclosed as stage 3 will not
necessarily correspond with that disclosed as impaired in accordance with IAS 39.
Except for retail portfolios with regulatory default definitions of 180 days, HSBC’s intention is to align the definition of default
with the regulatory definition as far as possible and for stage 3 to represent all loans which are considered defaulted or
otherwise credit impaired.
The policy on the write-off of loans and advances included on page 357 is expected to remain unchanged.
As described on page 197, the contractual terms of a loan may be modified for a number of reasons, which include
forbearance. Only some of the forbearance strategies result in loans being ‘renegotiated’. For such modifications, the current
treatment as described on pages 197-198 and 357 will remain the same under IFRS 9, except for new loans recognised
as a result of the original loan being derecognised following a renegotiation. These loans will be classified as originated credit-
impaired and will retain this classification until derecognition. For all other modifications, the general policy on derecognition
as described on page 401 will apply.
Other than originated credit-impaired loans, all other modified loans could be transferred out of stage 3 if they no longer
exhibit any evidence of being credit impaired or, in the case of renegotiated loans, there is sufficient evidence to demonstrate
a significant reduction in the risk of non-payment of future cash flows and there are no other indicators of impairment, as
described on page 198. These loans could be transferred to stages 1 or 2 based on the mechanism as described below by
comparing the risk of a default occurring at the reporting date (based on the modified contractual terms) and the risk of a
default occurring at initial recognition (based on the original, unmodified contractual terms). Any amount written off as a
result of the modification of contractual terms would not be reversed.
• Stage 2
In accordance with IFRS 9, financial assets are considered to be in stage 2 when their credit risk has increased significantly
since initial recognition so it is appropriate to recognise lifetime ECL. Since this is not a concept in IAS 39, it is likely to result
in increased allowance as the result of the recognition of lifetime ECL for populations that are not considered to be credit
impaired.
The analysis of credit risk is multifactor and the determination of whether a specific factor is relevant and its weight compared
with other factors will depend on the type of product, the characteristics of the financial instrument and the borrower, and the
geographical region. Therefore, it is not possible to provide a single set of criteria that will determine what is considered to
be a significant increase in credit risk. Since the concept is relative and significance in part depends on the credit risk at initial
recognition, credit quality disclosures that report credit grades as at the balance sheet date may not reflect the populations
in stage 2 or those that are at risk of moving to stage 2.
For wholesale portfolios and significant retail portfolios, HSBC intends to consider whether credit risk has increased significantly
since initial recognition using a combination of individual and collective information, and will reflect the increase in credit risk
at the individual loan level to the extent practicable.
The main factor that will be considered is a lifetime probability of default (‘PD’) or a 12-month PD where this provides a
reasonable approximation of changes in the lifetime risk of default, adjusted to be consistent with the current economic
conditions and the expected future economic conditions which are expected to affect credit risk. The PD will be derived from
the customer risk rating for wholesale portfolios and from the credit scores for retail portfolios. The PD for wholesale is
determined on an obligor level and for retail at the level of the individual facility. In situations where a 12-month PD would not
be appropriate, for example, where the financial instrument only has significant payment obligations beyond the next 12
months, additional factors will be considered or adjustments made to ensure that the lifetime credit risk is appropriately
considered.
The PDs will also be adjusted to incorporate the effect of economic assumptions, such as interest rates, unemployment rates
and GDP forecasts that can be statistically related to changes in PD which have an impact beyond the next 12 months. These
statistical relationships are expected to be established through the processes developed for stress testing. In addition, other
relevant factors which may not be adequately reflected in the information used to derive PDs, including past due status and
whether the financial asset is subject to additional monitoring through the watch list process for wholesale portfolios, will be
taken into account.
HSBC is in the process of calibrating and testing the thresholds or magnitude of change required and mechanisms for transfer
from stage 1 to stage 2 (and vice versa) across different portfolios so it is not possible to provide further detail at this time. The
HSBC HOLDINGS PLC
350
aim is to establish the points where the change in credit risk is considered meaningful in risk management terms and to test
these points against subsequent stage movements and defaults. Where less sophisticated default metrics are used or credit
scores are not available, as tends to apply with the less significant retail portfolios, a consistent but simplified approach is
expected to be used. In particular, for any retail portfolio, days past due will be considered in determining loans transferred to
stage 2 and the more significant portfolios will supplement this information with additional mechanisms linked to PDs. HSBC
expects to finalise the transfer criteria for the more significant portfolios during 2016.
• Stage 1
In accordance with IAS 39 (see page 356), incurred but not yet identified impairment is recognised on individually assessed
loans for which no evidence of impairment has been specifically identified by estimating a collective allowance determined
after taking into account factors including the estimated period between impairment occurring and the loss being identified.
This is assessed empirically on a periodic basis and may vary over time. Similarly, for homogeneous groups of loans and
advances which are assessed under IAS 39 on a collective basis, the inherent loss is determined using risk factors including the
period of time between loss identification and write-off which is regularly benchmarked against actual outcomes. Under IFRS
9, financial assets which are not considered to have significantly increased in credit risk have loss allowances measured at an
amount equal to 12 months ECL. This 12-month time horizon is likely to be equal to or longer than the period estimated under
IAS 39 (typically between 6 and 12 months), which will tend to result in IFRS 9 allowances being larger. In the absence of
models able to calculate IFRS 9 allowances, it is not possible to estimate the difference.
Methodologies applied to measure 12-month and lifetime expected credit losses
ECLs are calculated using three main components, i.e. a probability of default (‘PD’), a loss given default (‘LGD’) and the
exposure at default (‘EAD’). For accounting purposes, the 12-month and lifetime PDs represent the probability of a default
occurring over the next 12 months or the lifetime of the financial instruments, respectively, based on conditions existing at
the balance sheet date and future economic conditions that affect credit risk. The LGD represents losses expected on default,
taking into account the mitigating effect of collateral, its expected value when realised and the time value of money. The EAD
represents the expected balance at default, taking into account the repayment of principal and interest from the balance sheet
date to the default event together with any expected drawdown of a committed facility.
12-month ECL is calculated by multiplying the 12-month PD, LGD and EAD. Lifetime ECL is calculated using the lifetime PD
rather than the 12-month PD.
Credit loss modelling techniques
HSBC plans to base the ECL calculations on the systems used to calculate Basel expected losses (‘EL’s). This is considered to
be most efficient given the similarities in the calculations. However, certain adjustments need to be made to the Basel risk
components (PD, LGD, and EAD) to meet IFRS 9 requirements.
For wholesale portfolios and material residential mortgage and fixed-term loan portfolios, ECL will be calculated at the
individual loan level. The main adjustments necessary to Basel risk components are explained in the table below:
Model
PD
Regulatory capital
• Through the cycle (represents long-run average
IFRS 9
• Point in time (based on current conditions, adjusted
PD throughout a full economic cycle)
• The definition of default includes a backstop
of 90+ days past due, although this has been
modified to 180+ days past due for some
portfolios, particularly UK and US mortgages
to take into account estimates of future conditions that
will impact PD)
• Default backstop of 90+ days past due for all portfolios
• Cannot be lower than current balance
• Amortisation captured for term products
• Downturn LGD (consistent losses expected to be
suffered during a severe but plausible economic
downturn)
• Regulatory floors may apply to mitigate risk of
underestimating downturn LGD due to lack of
historical data
• Discounted using cost of capital
• All collection costs included
• Expected LGD (based on estimate of loss given default
including the expected impact of future economic
conditions such as changes in value of collateral)
• No floors
• Discounted using the original effective interest rate of
the loan
• Only costs associated with obtaining/selling collateral
included
• Discounted back from point of default to balance sheet
date
EAD
LGD
Other
IFRS 9 PD and LGD estimates also have to be flexed to capture the effects of forward-looking macroeconomic variables. The
aim is to use existing stress testing models to measure these effects. Transferring between stages will be applied at individual
loan level and will also capture the effects of forward-looking macroeconomic variables.
For material non-term retail loans, transfer between stages will also be applied at individual loan level. However, loans will be
aggregated into segments based on PD or other risk drivers for the purpose of ECL measurement, to make the calculations
HSBC HOLDINGS PLC
351
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
1 – Basis of preparation and significant accounting policies
more efficient. For smaller portfolios where less information is available, simplified approaches will be applied which will result
in more aggregated transfers between stages and ECL calculation. Such aggregation will affect the granularity of disclosure.
A new global committee, supported by Global Risk Strategy, internal economics experts and external economic forecasting
services, will be established to consider and approve the forward-looking macroeconomic assumptions that should be applied,
with the objective of developing unbiased internally coherent economic scenarios for each jurisdiction. This committee will
also be charged with ensuring that ECL allowance meets the IFRS 9 measurement principle for unbiased and probability-
weighted amounts derived by evaluating a range of possible outcomes. The calculation methodologies to meet this principle
and review and challenge structures are in the process of being developed. In addition, local risk committees will review and
challenge the impairment allowances recognised in the individual legal entity’s financial statements.
Fair value through other comprehensive income
For financial assets measured at FVOCI, impairment determined in accordance with the policies and processes outlined above
is recognised in profit or loss. The financial assets are recognised on the balance sheet at fair value so the amortised cost
impairment allowance balance is disclosed as a memorandum item.
IFRS 15 ‘Revenue from Contracts with Customers’
In May 2014, the IASB issued IFRS 15 ‘Revenue from Contracts with Customers’. The original effective date of IFRS 15 has been
delayed by one year and the standard is now effective for annual periods beginning on or after 1 January 2018 with early
application permitted. IFRS 15 provides a principles-based approach for revenue recognition, and introduces the concept of
recognising revenue for obligations as they are satisfied. The standard should be applied retrospectively, with certain practical
expedients available. HSBC has assessed the impact of IFRS 15 and it expects that the standard will have no significant effect,
when applied, on the consolidated financial statements of HSBC and the separate financial statements of HSBC Holdings.
IFRS 16 ‘Leases’
In January 2016, the IASB issued IFRS 16 ‘Leases’ with an effective date of annual periods beginning on or after 1 January 2019.
IFRS 16 results in lessees accounting for most leases within the scope of the standard in a manner similar to the way in
which finance leases are currently accounted for under IAS 17 ‘Leases’. Lessees will recognise a ‘right of use’ asset and a
corresponding financial liability on the balance sheet. The asset will be amortised over the length of the lease and the financial
liability measured at amortised cost. Lessor accounting remains substantially the same as in IAS 17. HSBC is currently assessing
the impact of IFRS 16 and it is not practicable to quantify the effect as at the date of the publication of these financial
statements.
(d) Presentation of information
Disclosures under IFRS 4 ‘Insurance Contracts’ and IFRS 7 ‘Financial Instruments: Disclosures’ concerning the nature and extent
of risks relating to insurance contracts and financial instruments are included in the audited sections of the ‘Report of the
Directors: Risk’ on pages 101 to 226.
Capital disclosures under IAS 1 ‘Presentation of Financial Statements’ are included in the audited sections of ‘Report of
the Directors: Capital’ on pages 227 to 248.
Disclosures relating to HSBC’s securitisation activities and structured products are included in the audited section of ‘Report
of the Directors: Risk’ on pages 101 to 226.
In accordance with HSBC’s policy to provide disclosures that help investors and other stakeholders understand the Group’s
performance, financial position and changes thereto, the information provided in the Notes on the Financial Statements and
the Report of the Directors goes beyond the minimum levels required by accounting standards, statutory and regulatory
requirements and listing rules. In particular, HSBC provides additional disclosures having regard to the recommendations of
the Enhanced Disclosures Task Force report ‘Enhancing the Risk Disclosures of Banks’ issued in October 2012 and ‘Impact of
Expected Credit Loss Approaches on Bank Risk Disclosures’ issued in December 2015. The report aims to help financial
institutions identify areas that investors had highlighted as needing better and more transparent information about banks’
risks, and how these risks relate to performance measurement and reporting. In addition, HSBC follows the British Bankers’
Association Code for Financial Reporting Disclosure (‘the BBA Code’). The BBA Code aims to increase the quality and
comparability of UK banks’ disclosures and sets out five disclosure principles together with supporting guidance. In line with
the principles of the BBA Code, HSBC assesses good practice recommendations issued from time to time by relevant regulators
and standard setters and will assess the applicability and relevance of such guidance, enhancing disclosures where
appropriate.
In publishing the parent company financial statements together with the Group financial statements, HSBC Holdings has taken
advantage of the exemption in section 408(3) of the Companies Act 2006 not to present its individual income statement and
related notes.
HSBC’s consolidated financial statements are presented in US dollars because the US dollar and currencies linked to it form the
major currency bloc in which HSBC transacts and funds its business. The US dollar is also HSBC Holdings’ functional currency
because the US dollar and currencies linked to it are the most significant currencies relevant to the underlying transactions,
HSBC HOLDINGS PLC
352
events and conditions of its subsidiaries, as well as representing a significant proportion of its funds generated from financing
activities.
(e) Critical accounting estimates and judgements
The preparation of financial information requires the use of estimates and judgements about future conditions. In view of the
inherent uncertainties and the high level of subjectivity involved in the recognition or measurement of items listed below, it is
possible that the outcomes in the next financial year could differ from those on which management’s estimates are based,
resulting in materially different conclusions from those reached by management for the purposes of the 2015 Financial
Statements. Management’s selection of HSBC’s accounting policies which contain critical estimates and judgements is listed
below; it reflects the materiality of the items to which the policies are applied and the high degree of judgement and
estimation uncertainty involved:
• Impairment of loans and advances: Note 1(j);
• Deferred tax assets: Note 8;
• Valuation of financial instruments: Note 13;
• Impairment of interests in associates: Note 19;
• Goodwill impairment: Note 20;
• Provisions: Note 29.
(f) 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 and capital resources.
(g) Consolidation and related disclosures
HSBC controls and consequently consolidates an entity when it is exposed, or has rights, to variable returns from its
involvement with the entity and has the ability to affect those returns through its power over the entity. Control is initially
assessed based on consideration of all facts and circumstances, and is subsequently reassessed when there are significant
changes to the initial setup.
Where an entity is governed by voting rights, HSBC would consolidate when it holds, directly or indirectly, the necessary voting
rights to pass resolutions by the governing body. In all other cases, the assessment of control is more complex and requires
judgement of other factors, including having exposure to variability of returns, power over relevant activities or holding the
power as agent or principal.
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured at the fair
value of the consideration, including contingent consideration, given at the date of exchange. Acquisition-related costs are
recognised as an expense in the income statement in the period in which they are incurred. The acquired identifiable assets,
liabilities and contingent liabilities are generally measured at their fair values at the date of acquisition. Goodwill is measured
as the excess of the aggregate of the consideration transferred, the amount of non-controlling interest and the fair value
of HSBC’s previously held equity interest, if any, over the net of the amounts of the identifiable assets acquired and the
liabilities assumed. The amount of non-controlling interest is measured either at fair value or at the non-controlling interest’s
proportionate share of the acquiree’s identifiable net assets. For acquisitions achieved in stages, the previously held equity
interest is remeasured at the acquisition-date fair value with the resulting gain or loss recognised in the income statement.
All intra-HSBC transactions are eliminated on consolidation.
The consolidated financial statements of HSBC also include the attributable share of the results and reserves of joint ventures
and associates, based on either financial statements made up to 31 December or pro-rated amounts adjusted for any material
transactions or events occurring between the date of financial statements available and 31 December.
(h) Foreign currencies
Transactions in foreign currencies are recorded in the functional currency at the rate of exchange prevailing on the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at
the rate of exchange at the balance sheet date. Any resulting exchange differences are included in the income statement.
Non-monetary assets and liabilities that are measured at historical cost in a foreign currency are translated into the functional
currency using the rate of exchange at the date of the initial transaction. Non-monetary assets and liabilities measured at fair
value in a foreign currency are translated into the functional currency using the rate of exchange at the date the fair value
was determined. Any foreign exchange component of a gain or loss on a non-monetary item is recognised either in other
comprehensive income or in the income statement depending on where the gain or loss on the underlying non-monetary item
is recognised.
HSBC HOLDINGS PLC
353
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
1 – Basis of preparation and significant accounting policies
In the consolidated financial statements, the assets and liabilities of branches, subsidiaries, joint ventures and associates whose
functional currency is not US dollars are translated into the Group’s presentation currency at the rate of exchange at the
balance sheet date, while their results are translated into US dollars at the average rates of exchange for the reporting period.
Exchange differences arising from the retranslation of opening foreign currency net assets, and the retranslation of the results
for the reporting period from the average rate to the exchange rate at the period end, are recognised in other comprehensive
income. Exchange differences on a monetary item that is part of a net investment in a foreign operation are recognised in the
income statement of the separate financial statements and in other comprehensive income in consolidated financial
statements. On disposal of a foreign operation, exchange differences previously recognised in other comprehensive income are
reclassified to the income statement as a reclassification adjustment.
(i) Loans and advances to banks and customers
These include loans and advances originated by HSBC, not classified as held for trading or designated at fair value. They are
recognised when cash is advanced to a borrower and are derecognised when either the borrower repays its obligations or the
loans are sold or substantially all the risks and rewards of ownership are transferred. They are initially recorded at fair value
plus any directly attributable transaction costs and are subsequently measured at amortised cost using the effective interest
method, less impairment allowance.
Loans and advances are reclassified to ‘Assets held for sale’ when they meet the criteria presented in Note 23, though their
measurement remains in accordance with this policy.
HSBC may commit to underwrite loans on fixed contractual terms for specified periods of time. When the loan arising from the
lending commitment is expected to be held for trading, the commitment to lend is recorded as a derivative. On drawdown, the
loan is classified as held for trading. When HSBC intends to hold the loan, a provision on the loan commitment is only recorded
where it is probable that HSBC will incur a loss. On inception, the loan to be held is recorded at its fair value and subsequently
measured at amortised cost. For certain transactions, such as leveraged finance and syndicated lending activities, the cash
advanced may not be the best evidence of the fair value of the loan. For these loans, where the initial fair value is lower than
the cash amount advanced, the difference is charged to the income statement in other operating income. The write-down is
recovered over the life of the loan through the recognition of interest income, unless the loan becomes impaired.
(j)
Impairment of loans and advances and available-for-sale financial assets
Critical accounting estimates and judgements
Impairment of loans and advances
Loan impairment allowances represent management’s best estimate of losses incurred in the loan portfolios at the balance sheet date.
Management is required to exercise judgement in making assumptions and estimates when calculating loan impairment allowances on
both individually and collectively assessed loans and advances. See the ‘Movement in impairment allowances by industry sector and by
geographical region’ table on page 134 for a breakdown of individual and collective impairment allowances.
Collective impairment allowances are subject to estimation uncertainty, in part because it is not practicable to identify losses on an individual
loan basis due to the large number of individually insignificant loans in the portfolio. The estimation methods include the use of statistical
analyses of historical information, supplemented with significant management judgement, to assess whether current economic and credit
conditions are such that the actual level of incurred losses is likely to be greater or less than historical experience.
Where changes in economic, regulatory or behavioural conditions result in the most recent trends in portfolio risk factors being not fully
reflected in the statistical models, risk factors are taken into account by adjusting the impairment allowances derived solely from historical
loss experience.
Risk factors include loan portfolio growth, product mix, unemployment rates, bankruptcy trends, geographical concentrations, loan product
features, economic conditions such as national and local trends in housing markets, the level of interest rates, portfolio seasoning, account
management policies and practices, changes in laws and regulations and other influences on customer payment patterns. Different factors
are applied in different regions and countries to reflect local economic conditions, laws and regulations. The methodology and the
assumptions used in calculating impairment losses are reviewed regularly in the light of differences between loss estimates and actual loss
experience. For example, roll rates, loss rates and the expected timing of future recoveries are regularly benchmarked against actual
outcomes to ensure they remain appropriate.
For individually assessed loans, judgement is required in determining whether there is objective evidence that a loss event has occurred and,
if so, the measurement of the impairment allowance. In determining whether there is objective evidence that a loss event has occurred,
judgement is exercised in evaluating all relevant information on indicators of impairment, including the consideration of whether payments
are contractually past-due and the consideration of other factors indicating deterioration in the financial condition and outlook of borrowers
affecting their ability to pay. A higher level of judgement is required for loans to borrowers showing signs of financial difficulty in market
sectors experiencing economic stress, particularly where the likelihood of repayment is affected by the prospects for refinancing or the sale
of a specified asset. For those loans where objective evidence of impairment exists, management determine the size of the allowance
required based on a range of factors such as the realisable value of security, the likely dividend available on liquidation or bankruptcy, the
viability of the customer’s business model and the capacity to trade successfully out of financial difficulties and generate sufficient cash flow
to service debt obligations.
HSBC might provide loan forbearance to borrowers experiencing financial difficulties by agreeing to modify the contractual payment terms of
loans in order to improve the management of customer relationships, maximise collection opportunities or avoid default or repossession.
Where forbearance activities are significant, higher levels of judgement and estimation uncertainty are involved in determining their effects
on loan impairment allowances. Judgements are involved in differentiating the credit risk characteristics of forbearance cases, including
HSBC HOLDINGS PLC
354
those which return to performing status following renegotiation. Where collectively assessed loan portfolios include significant levels of loan
forbearance, portfolios are segmented to reflect the different credit risk characteristics of forbearance cases, and estimates are made of the
incurred losses inherent within each forbearance portfolio segment. Forbearance activities take place in both retail and wholesale loan
portfolios, but our largest concentration is in the US, in HSBC Finance’s CML portfolio.
The exercise of judgement requires the use of assumptions which are highly subjective and very sensitive to the risk factors, in particular
to changes in economic and credit conditions across a large number of geographical areas. Many of the factors have a high degree of
interdependency and there is no single factor to which our loan impairment allowances as a whole are sensitive.
Impairment of loans and advances
Losses for impaired loans are recognised when there is objective evidence that impairment of a loan or portfolio of loans has
occurred. Impairment allowances that are calculated on individual loans or on groups of loans assessed collectively are
recorded as charges to the income statement and are recorded against the carrying amount of impaired loans on the balance
sheet. Losses which may arise from future events are not recognised.
Individually assessed loans and advances
The factors considered in determining whether a loan is individually significant for the purposes of assessing impairment
include the size of the loan, the number of loans in the portfolio, the importance of the individual loan relationship and how
this is managed. Loans that are determined to be individually significant based on the above and other relevant factors will be
individually assessed for impairment, except when volumes of defaults and losses are sufficient to justify treatment under a
collective methodology.
Loans considered as individually significant are typically to corporate and commercial customers, are for larger amounts and
are managed on an individual basis. For these loans, HSBC considers on a case-by-case basis at each balance sheet date
whether there is any objective evidence that a loan is impaired. The criteria used to make this assessment include:
• known cash flow difficulties experienced by the borrower;
• contractual payments of either principal or interest being past due for more than 90 days;
• the probability that the borrower will enter bankruptcy or other financial realisation;
• a concession granted to the borrower for economic or legal reasons relating to the borrower’s financial difficulty that
results in forgiveness or postponement of principal, interest or fees, where the concession is not insignificant; and
• there has been deterioration in the financial condition or outlook of the borrower such that its ability to repay is considered
doubtful.
For loans where objective evidence of impairment exists, impairment losses are determined considering the following factors:
• HSBC’s aggregate exposure to the customer;
• the viability of the customer’s business model and its capacity to trade successfully out of financial difficulties and generate
sufficient cash flow to service debt obligations;
• the amount and timing of expected receipts and recoveries;
• the likely dividend available on liquidation or bankruptcy;
• the extent of other creditors’ commitments ranking ahead of, or pari passu with, HSBC and the likelihood of other creditors
continuing to support the company;
• the complexity of determining the aggregate amount and ranking of all creditor claims and the extent to which legal and
insurance uncertainties are evident;
• the realisable value of security (or other credit mitigants) and likelihood of successful repossession;
• the likely costs of obtaining and selling collateral as part of foreclosure;
• the ability of the borrower to obtain, and make payments in, the currency of the loan if not denominated in local currency;
and
• when available, the secondary market price of the debt.
The determination of the realisable value of security is based on the most recently updated market value at the time the
impairment assessment is performed. The value is not adjusted for expected future changes in market prices, though
adjustments are made to reflect local conditions such as forced sale discounts.
Impairment losses are calculated by discounting the expected future cash flows of a loan, which include expected future
receipts of contractual interest, at the loan’s original effective interest rate or an approximation thereof, and comparing the
resultant present value with the loan’s current carrying amount. The impairment allowances on individually significant
accounts are reviewed at least quarterly and more regularly when circumstances require.
HSBC HOLDINGS PLC
355
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
1 – Basis of preparation and significant accounting policies
Collectively assessed loans and advances
Impairment is assessed collectively to cover losses which have been incurred but have not yet been identified on loans subject
to individual assessment or for homogeneous groups of loans that are not considered individually significant. Retail lending
portfolios are generally assessed for impairment collectively as the portfolios are generally large homogeneous loan pools.
Incurred but not yet identified impairment
Individually assessed loans for which no evidence of impairment has been specifically identified on an individual basis are
grouped together according to their credit risk characteristics for a collective impairment assessment. These credit risk
characteristics may include country of origination, type of business involved, type of products offered, security obtained or
other relevant factors. This assessment captures impairment losses that HSBC has incurred as a result of events occurring
before the balance sheet date which HSBC is not able to identify on an individual loan basis, and that can be reliably estimated.
When information becomes available which identifies losses on individual loans within a group, those loans are removed from
the group and assessed individually.
The collective impairment allowance is determined after taking into account:
• historical loss experience in portfolios of similar credit risk characteristics (for example, by industry sector, loan grade or
product);
• the estimated period between a loss occurring and the loss being identified and evidenced by the establishment of an
appropriate allowance against the individual loan; and
• management’s judgement as to whether current economic and credit conditions are such that the actual level of inherent
losses at the balance sheet date is likely to be greater or less than that suggested by historical experience.
The period between a loss occurring and its identification is estimated by management for each identified portfolio based on
economic and market conditions, customer behaviour, portfolio management information, credit management techniques and
collection and recovery experiences in the market. As it is assessed empirically on a periodic basis, the estimated period may
vary over time as these factors change.
Homogeneous groups of loans and advances
Statistical methods are used to determine collective impairment losses for homogeneous groups of loans not considered
individually significant. The methods that are used to calculate collective allowances are:
• When appropriate empirical information is available, HSBC utilises roll-rate methodology, which employs statistical analyses
of historical data and experience of delinquency and default to reliably estimate the amount of the loans that will
eventually be written off as a result of the events occurring before the balance sheet date but which HSBC is not able to
identify individually. Individual loans are grouped using ranges of past due days; statistical analysis is then used to estimate
the likelihood that loans in each range will progress through the various stages of delinquency and become irrecoverable.
Additionally, individual loans are segmented based on their credit characteristics as described above. In applying this
methodology, adjustments are made to estimate the periods of time between a loss event occurring and its discovery, for
example through a missed payment (known as the emergence period) and the period of time between discovery and write-
off (known as the outcome period). Current economic conditions are also evaluated when calculating the appropriate level
of allowance required to cover inherent loss. In certain highly-developed markets, sophisticated models also take into
account behavioural and account management trends as revealed in, for example, bankruptcy and rescheduling statistics.
• When the portfolio size is small or when information is insufficient or not reliable enough to adopt a roll-rate methodology,
HSBC adopts a basic formulaic approach based on historical loss rate experience, or a discounted cash flow model. Where
a basic formulaic approach is undertaken, the period between a loss event occurring and its identification is explicitly
estimated by local management, and is typically between six and twelve months.
The inherent loss within each portfolio is assessed on the basis of statistical models using historical data observations which
are updated periodically to reflect recent portfolio and economic trends. When the most recent trends arising from changes in
economic, regulatory or behavioural conditions are not fully reflected in the statistical models, they are taken into account by
adjusting the impairment allowances derived from the statistical models to reflect these changes as at the balance sheet date.
Write-off of loans and advances
Loans (and the related impairment allowance accounts) are normally written off, either partially or in full, when there is no
realistic prospect of recovery. Where loans are secured, this is generally after receipt of any proceeds from the realisation of
security. In circumstances where the net realisable value of any collateral has been determined and there is no reasonable
expectation of further recovery, write-off may be earlier.
HSBC HOLDINGS PLC
356
Reversals of impairment
If the amount of an impairment loss decreases in a subsequent period, and the decrease can be related objectively to an event
occurring after the impairment was recognised, the excess is written back by reducing the loan impairment allowance account
accordingly. The write-back is recognised in the income statement.
Assets acquired in exchange for loans
Non-financial assets acquired in exchange for loans as part of an orderly realisation are recorded as ‘Assets held for sale’ and
reported in ‘Other assets’ if those assets are classified as held for sale. The asset acquired is recorded at the lower of its fair
value less costs to sell and the carrying amount of the loan (net of impairment allowance) at the date of exchange. No
depreciation is charged in respect of assets held for sale. Write-downs of the acquired asset to fair value less cost to sell and
any reversals of previous write-downs are recognised in the income statement in ‘Other operating income’, together with any
realised gains or losses on disposal.
Renegotiated loans
Loans subject to collective impairment assessment whose terms have been renegotiated are no longer considered past due,
but are treated as up to date loans for measurement purposes once a minimum number of payments required have been
received. Where collectively assessed loan portfolios include significant levels of renegotiated loans, these loans are
segregated from other parts of the loan portfolio for the purposes of collective impairment assessment to reflect their risk
profile. Loans subject to individual impairment assessment, whose terms have been renegotiated, are subject to ongoing
review to determine whether they remain impaired. The carrying amounts of loans that have been classified as renegotiated
retain this classification until maturity or derecognition.
A loan that is renegotiated is derecognised if the existing agreement is cancelled and a new agreement made on substantially
different terms or if the terms of an existing agreement are modified such that the renegotiated loan is substantially a
different financial instrument. Any new loans that arise following derecognition events will continue to be disclosed as
renegotiated loans and are assessed for impairment as above.
Impairment of available-for-sale financial assets
Available-for-sale financial assets are assessed at each balance sheet date for objective evidence of impairment. If such
evidence exists as a result of one or more events that occurred after the initial recognition of the financial asset (a ‘loss event’),
and that loss event has an impact which can be reliably measured on the estimated future cash flows of the financial asset, an
impairment loss is recognised.
If the available-for-sale financial asset is impaired, the difference between its acquisition cost (net of any principal repayments
and amortisation) and its current fair value, less any previous impairment loss recognised in the income statement, is
recognised in the income statement.
Impairment losses are recognised in the income statement within ‘Loan impairment charges and other credit risk provisions’
for debt instruments and within ‘Gains less losses from financial investments’ for equities. The impairment methodologies for
available-for-sale financial assets are set out as follows:
• Available-for-sale debt securities. In assessing objective evidence of impairment at the reporting date, HSBC considers all
available evidence, including observable data or information about events specifically relating to the securities which may
result in a shortfall in the recovery of future cash flows. Financial difficulties of the issuer, as well as other factors such as
information about the issuers’ liquidity, business and financial risk exposures, levels of and trends in default for similar
financial assets, national and local economic trends and conditions, and the fair value of collateral and guarantees may be
considered individually, or in combination, to determine if there is objective evidence of impairment.
In addition, the performance of underlying collateral and the extent and depth of market price declines is relevant when
assessing objective evidence of impairment of available-for-sale ABSs. The primary indicators of potential impairment are
considered to be adverse fair value movements and the disappearance of an active market for a security, while changes in
credit ratings are of secondary importance.
• Available-for-sale equity securities. Objective evidence of impairment may include specific information about the issuer as
detailed above, but may also include information about significant changes in technology, markets, economics or the law
that provides evidence that the cost of the equity securities may not be recovered.
A significant or prolonged decline in the fair value of the equity below its cost is also objective evidence of impairment.
In assessing whether it is significant, the decline in fair value is evaluated against the original cost of the asset at initial
recognition. In assessing whether it is prolonged, the decline is evaluated against the continuous period in which the fair
value of the asset has been below its original cost at initial recognition.
Once an impairment loss has been recognised, the subsequent accounting treatment for changes in the fair value of that asset
depends on the type of asset:
• for an available-for-sale debt security, a subsequent decline in the fair value of the instrument is recognised in the income
statement when there is objective evidence of impairment as a result of further decreases in the estimated future cash
HSBC HOLDINGS PLC
357
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
1 – Significant accounting policies / 2 – Net income from financial instruments at FV / 3 – Net insurance premium income
flows of the financial asset. Where there is no further objective evidence of impairment, the decline in the fair value of the
financial asset is recognised in other comprehensive income. If the fair value of a debt security increases in a subsequent
period, and the increase can be objectively related to an event occurring after the impairment loss was recognised in the
income statement, or the instrument is no longer impaired, the impairment loss is reversed through the income statement;
• for an available-for-sale equity security, all subsequent increases in the fair value of the instrument are treated as a
revaluation and are recognised in other comprehensive income. Impairment losses recognised on the equity security are
not reversed through the income statement. Subsequent decreases in the fair value of the available-for-sale equity security
are recognised in the income statement to the extent that further cumulative impairment losses have been incurred.
(k) Non-trading reverse repurchase and repurchase agreements
When securities are sold subject to a commitment to repurchase them at a predetermined price (‘repos’), they remain on the
balance sheet and a liability is recorded in respect of the consideration received. Securities purchased under commitments to
resell (‘reverse repos’) are not recognised on the balance sheet and an asset is recorded in respect of the initial consideration
paid.
Non-trading repos and reverse repos are measured at amortised cost. The difference between the sale and repurchase price
or between the purchase and resale price is treated as interest and recognised in net interest income over the life of the
agreement.
(l) Operating income
Interest income and expense
Interest income and expense for all financial instruments except for those classified as held for trading or designated at fair
value (except for debt securities issued by HSBC and derivatives managed in conjunction with those debt securities) are
recognised in ‘Interest income’ and ‘Interest expense’ in the income statement using the effective interest method. The
effective interest rate is the rate that exactly discounts estimated future cash receipts or payments through the expected life
of the financial instrument or, where appropriate, a shorter period, to the net carrying amount of the financial asset or
financial liability.
Interest on impaired financial assets is recognised using the rate of interest used to discount the future cash flows for the
purpose of measuring the impairment loss.
Non-interest income and expense
Fee income is earned from a diverse range of services provided by HSBC to its customers. Fee income is accounted for as
follows:
• income earned on the execution of a significant act is recognised as revenue when the act is completed (for example, fees
arising from negotiating or participating in the negotiation of a transaction for a third party, such as an arrangement for the
acquisition of shares or other securities);
• income earned from the provision of services is recognised as revenue as the services are provided (for example, asset
management, portfolio and other management advisory and service fees); and
• income which forms an integral part of the effective interest rate of a financial instrument is recognised as an adjustment
to the effective interest rate (for example, certain loan commitment fees) and recorded in ‘Interest income’.
Net trading income comprises all gains and losses from changes in the fair value of financial assets and financial liabilities held
for trading, together with the related interest income, expense and dividends.
Dividend income is recognised when the right to receive payment is established. This is the ex-dividend date for listed equity
securities, and usually the date when shareholders approve the dividend for unlisted equity securities.
The accounting policies for net income/(expense) from financial instruments designated at fair value and for net insurance
premium income are disclosed in Note 2 and Note 3.
HSBC HOLDINGS PLC
358
2 Net income from financial instruments designated at fair value
Accounting policy
Net income from financial instruments designated at fair value includes all gains and losses from changes in the fair value of financial assets
and liabilities designated at fair value through profit or loss, including derivatives that are managed in conjunction with those financial assets
and liabilities, and liabilities under investment contracts. Interest income, interest expense and dividend income in respect of those financial
instruments are also included, except for interest arising from debt securities issued by HSBC and derivatives managed in conjunction with
those debt securities, which is recognised in ‘Interest expense’.
Net income from financial instruments designated at fair value
Net income/(expense) arising on:
– financial assets held to meet liabilities under insurance and investment contracts
– other financial assets designated at fair value
– derivatives managed in conjunction with other financial assets designated
at fair value
– liabilities to customers under investment contracts
– HSBC’s long-term debt issued and related derivatives
– changes in own credit spread on long-term debt
– derivatives managed in conjunction with HSBC’s issued debt securities
– other changes in fair value
– other financial liabilities designated at fair value
– derivatives managed in conjunction with other financial liabilities designated
at fair value
Year ended 31 December
HSBC Holdings
2015
$m
531
89
13
633
34
863
1,002
(1,997)
1,858
3
(1)
899
1,532
Net income/(expense) arising on HSBC Holdings long-term debt issued and related derivatives
Net income/(expense) arising on:
– changes in own credit spread on long-term debt
– derivatives managed in conjunction with HSBC Holdings issued debt securities
– other changes in fair value
Year ended 31 December
3 Net insurance premium income
Accounting policy
2015
$m
348
(927)
855
276
2014
$m
2,300
131
(19)
2,412
(435)
508
417
333
(242)
(23)
11
61
2,473
2014
$m
339
126
(27)
438
2013
$m
3,170
118
(26)
3,262
(1,237)
(1,228)
(1,246)
(3,743)
3,761
(39)
10
(2,494)
768
2013
$m
(695)
(1,558)
1,213
(1,040)
Premiums for life insurance contracts are accounted for when receivable, except in unit-linked insurance contracts where premiums are
accounted for when liabilities are established.
Reinsurance premiums are accounted for in the same accounting period as the premiums for the direct insurance contracts to which they
relate.
Net insurance premium income
Gross insurance premium income
Reinsurers’ share of gross insurance premium income
Year ended 31 December 2015
Non-linked
insurance1
$m
7,506
(648)
6,858
Linked life
insurance
$m
1,409
(9)
1,400
Investment
contracts
with DPF2
$m
2,097
−
2,097
Total
$m
11,012
(657)
10,355
HSBC HOLDINGS PLC
359
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
4 – Net insurance claims / 5 – Operating profit / 6 – Employee compensation and benefits
Net insurance premium income (continued)
Gross insurance premium income
Reinsurers’ share of gross insurance premium income
Year ended 31 December 2014
Gross insurance premium income
Reinsurers’ share of gross insurance premium income
Year ended 31 December 2013
1 Includes non-life insurance.
2 Discretionary participation features.
Non-linked
insurance1
$m
Linked life
insurance
$m
Investment
contracts
with DPF2
$m
7,705
(441)
7,264
7,002
(450)
6,552
2,195
(8)
2,187
3,012
(8)
3,004
2,470
−
2,470
2,384
–
2,384
Total
$m
12,370
(449)
11,921
12,398
(458)
11,940
4 Net insurance claims and benefits paid and movement in liabilities to policyholders
Accounting policy
Gross insurance claims for life insurance contracts reflect the total cost of claims arising during the year, including claim handling costs and
any policyholder bonuses allocated in anticipation of a bonus declaration.
Maturity claims are recognised when due for payment. Surrenders are recognised when paid or at an earlier date on which, following
notification, the policy ceases to be included within the calculation of the related insurance liabilities. Death claims are recognised when
notified.
Reinsurance recoveries are accounted for in the same period as the related claim.
Net insurance claims and benefits paid and movement in liabilities to policyholders
Gross claims and benefits paid and movement in liabilities
– claims, benefits and surrenders paid
– movement in liabilities
Reinsurers’ share of claims and benefits paid and movement in liabilities
– claims, benefits and surrenders paid
– movement in liabilities
Year ended 31 December 2015
Gross claims and benefits paid and movement in liabilities
– claims, benefits and surrenders paid
– movement in liabilities
Reinsurers’ share of claims and benefits paid and movement in liabilities
– claims, benefits and surrenders paid
– movement in liabilities
Year ended 31 December 2014
Gross claims and benefits paid and movement in liabilities
– claims, benefits and surrenders paid
– movement in liabilities
Reinsurers’ share of claims and benefits paid and movement in liabilities
– claims, benefits and surrenders paid
– movement in liabilities
Year ended 31 December 2013
1 Includes non-life insurance.
2 Discretionary participation features.
Non-linked
insurance1
$m
Linked life
insurance
$m
7,746
3,200
4,546
(575)
(153)
(422)
7,171
7,770
3,575
4,195
(411)
(176)
(235)
7,359
6,892
3,014
3,878
(367)
(164)
(203)
6,525
1,398
1,869
(471)
(5)
(64)
59
1,393
2,765
1,499
1,266
33
(88)
121
2,798
3,379
1,976
1,403
111
(426)
537
3,490
Investment
contracts
with DPF2
$m
2,728
2,101
627
–
–
–
Total
$m
11,872
7,170
4,702
(580)
(217)
(363)
2,728
11,292
3,188
2,215
973
–
–
–
13,723
7,289
6,434
(378)
(264)
(114)
3,188
13,345
3,677
2,308
1,369
–
–
–
13,948
7,298
6,650
(256)
(590)
334
3,677
13,692
HSBC HOLDINGS PLC
360
5 Operating profit
Operating profit is stated after the following items of income, expense, gains and losses, and loan impairment charges and
other credit risk provisions:
Income
Interest recognised on impaired financial assets
Fees earned on financial assets or liabilities not held for trading nor designated at
fair value, other than fees included in effective interest rate calculations on these
types of assets and liabilities
Fees earned on trust and other fiduciary activities where HSBC holds or invests assets
on behalf of its customers
Income from listed investments
Income from unlisted investments
Expense
Interest on financial instruments, excluding interest on financial liabilities held
for trading or designated at fair value
Fees payable on financial assets or liabilities not held for trading nor designated at
fair value, other than fees included in effective interest rate calculations on these
types of assets and liabilities
Fees payable relating to trust and other fiduciary activities where HSBC holds or
invests assets on behalf of its customers
Payments under lease and sublease agreements
– minimum lease payments
– contingent rents and sublease payments
UK bank levy
Restructuring provisions
Gains/(losses)
Impairment of available-for-sale equity securities
Gains/(losses) recognised on assets held for sale
Gains on the partial sale of shareholding in Industrial Bank
Gains/(losses) arising from dilution of interest in Industrial Bank and other associates and
joint ventures
Gains on disposal of HSBC Bank (Panama) S.A.
Loan impairment charges and other credit risk provisions
– net impairment charge on loans and advances
– release of available-for-sale debt securities
– impairment in respect of other credit risk provisions
6 Employee compensation and benefits
Wages and salaries
Social security costs
Post-employment benefits
Year ended 31 December
Average number of persons employed by HSBC during the year
Europe
Asia
Middle East and North Africa
North America
Latin America
Year ended 31 December
2015
$m
934
8,736
3,052
5,760
5,581
2014
$m
1,137
9,438
3,253
6,726
5,874
2013
$m
1,261
9,799
3,176
5,432
6,860
(13,680)
(15,322)
(14,610)
(1,251)
(166)
(1,190)
(1,058)
(132)
(1,421)
(430)
(111)
(244)
1,372
–
–
(3,721)
(3,592)
17
(146)
2015
$m
17,245
1,600
1,055
19,900
2015
73,868
121,438
9,007
21,506
42,614
268,433
(1,427)
(185)
(1,548)
(1,199)
(349)
(1,066)
(147)
(373)
220
–
(32)
–
(3,851)
(4,055)
319
(115)
2014
$m
17,477
1,666
1,223
20,366
2014
74,024
116,492
8,616
21,983
43,652
264,767
(1,396)
(171)
(1,425)
(1,098)
(327)
(916)
(179)
(175)
(729)
–
1,051
1,107
(5,849)
(6,048)
211
(12)
2013
$m
16,879
1,594
723
19,196
2013
75,334
114,216
9,181
22,568
47,496
268,795
HSBC HOLDINGS PLC
361
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
6 – Employee compensation and benefits
Reconciliation of total incentive awards granted to incentive awards in employee compensation and benefits
Total incentive awards approved and granted for the current year1
Less: deferred bonuses awarded for the current year, expected to be recognised
in future periods
Total incentives awarded and recognised in the current year
Current year charges for deferred bonuses from previous years
Other
Total incentive awards for the current year included in employee compensation
and benefits
2015
$m
3,462
(387)
3,075
483
(40)
3,518
2014
$m
3,660
(359)
3,301
425
(114)
3,612
1 This represents the amount of the Group variable pay pool that has been approved and granted. The total amount of Group variable pay pool
approved by the Group Remuneration Committee is disclosed in the Directors’ Remuneration Report on page 304.
Income statement charge: deferred bonuses
2015
Charge recognised in 2015
– deferred share awards
– deferred cash awards
Charge expected to be recognised in 2016 or later
– deferred share awards
– deferred cash awards
2014
Charge recognised in 2014
– deferred share awards
– deferred cash awards
Charge expected to be recognised in 2015 or later
– deferred share awards
– deferred cash awards
2013
Charge recognised in 2013
– deferred share awards
– deferred cash awards
Charge expected to be recognised in 2014 or later
– deferred share awards
– deferred cash awards
Share-based payments
Accounting policy
Current year
bonus pool
$m
Prior year
bonus pools
$m
253
186
67
387
260
127
245
147
98
359
250
109
269
188
81
436
356
80
483
382
101
346
279
67
425
373
52
381
334
47
427
354
73
306
259
47
2013
$m
3,920
(436)
3,484
427
(164)
3,747
Total
$m
736
568
168
733
539
194
670
520
150
740
584
156
696
542
154
742
615
127
HSBC enters into both equity-settled and cash-settled share-based payment arrangements with its employees as compensation for services
provided by employees. The cost of equity-settled share-based payment arrangements with employees is measured by reference to the fair
value of equity instruments on the date they are granted and recognised as an expense on a straight-line basis over the vesting period, with
a corresponding credit to ‘Retained earnings’.
For cash-settled share-based payment arrangements, the services acquired and liability incurred are measured at the fair value of the liability
and recognised as the employees render service. Until settlement, the fair value of the liability is re-measured, with changes in fair value
recognised in the income statement.
Fair value is determined by using appropriate valuation models. Vesting conditions include service conditions and performance conditions;
any other features of the arrangement are non-vesting conditions. Market performance conditions and non-vesting conditions are taken into
account when estimating the fair value of the award at the date of grant. Vesting conditions other than market performance conditions are
not taken into account in the initial estimate of the fair value at the grant date. They are taken into account by adjusting the number of
equity instruments included in the measurement of the transaction.
A cancellation that occurs during the vesting period is treated as an acceleration of vesting and is recognised immediately for the amount
that would otherwise have been recognised for services over the vesting period.
Where HSBC Holdings enters into share-based payment arrangements involving employees of subsidiaries for which the subsidiaries are re-
charged, the difference between the cost of the share-based payment arrangement and the fair value of the equity instruments expected to
be issued to satisfy those arrangements is recognised as an adjustment to ‘Investment in subsidiaries’ over the vesting period.
HSBC HOLDINGS PLC
362
‘Wages and salaries’ include the effect of share-based payments arrangements, of which $757m were equity settled (2014:
$732m; 2013: $630m), as follows:
2015
$m
748
43
791
2014
$m
738
36
774
2013
$m
599
63
662
Purpose
• To drive and reward performance consistent
with strategy and align to shareholder
interests.
• Deferral provides an incentive for a longer-
term commitment and the ability to apply
malus.
Restricted share awards
Savings-related and other share award option plans
Year ended 31 December
HSBC share awards
Award
Policy
• An assessment of performance over the relevant period
ending on 31 December is used to determine the amount
of the award to be granted.
• Deferred awards generally require employees to remain in
employment over the vesting period and are not subject to
performance conditions after the grant date.
• Deferred share awards generally vest over a period of three
years and GPSP awards vest after five years.
• Vested shares may be subject to a retention requirement
(restriction) post-vesting. GPSP awards are retained until
cessation of employment.
• Awards granted from 2010 onwards are subject to a malus
provision prior to vesting.
• Awards granted to Material Risk Takers from 2015 onwards
are subject to clawback post vesting.
Restricted share
awards (including
annual incentive
awards delivered
in shares) and
GPSP
International
Employee Share
Purchase Plan
(‘ShareMatch’)
• The plan was first introduced in Hong Kong in 2013 and now
• To align the interests of employees with the
includes employees based in 25 jurisdictions.
creation of shareholder value.
• Shares are purchased in the market each quarter up to a
maximum value of £750, or the equivalent in local currency.
• Matching awards are added at a ratio of one free share for
every three purchased.
• Matching awards vest subject to continued employment and
the retention of the purchased shares for a maximum period of
two years and nine months.
Movement on HSBC share awards
Restricted share awards outstanding at 1 January
Additions during the year
Released in the year
Forfeited in the year
Restricted share awards outstanding at 31 December
Weighted average fair value of awards granted ($)
2015
Number
(000s)
116,483
80,749
(75,235)
(3,332)
118,665
9.67
2014
Number
(000s)
116,932
82,871
(78,224)
(5,096)
116,483
10.18
HSBC HOLDINGS PLC
363
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
6 – Employee compensation and benefits
HSBC share option plans
Main plans
Policy
Savings-related
share option plans
(‘Sharesave’)
• Two plans: the UK Plan and the International Plan. The last
grant of options under the International Plan was in 2012.
• From 2014, eligible employees can save up to £500 per month
with the option to use the savings to acquire shares.
• Exercisable within six months following either the third or fifth
anniversaries of the commencement of a three-year or five-
year contract, respectively.
• The exercise price is set at a 20% (2014: 20%) discount to the
market value immediately preceding the date of invitation.
Purpose
• To align the interests of employees with
the creation of shareholder value.
HSBC Holdings
Group share
option plan
• Plan ceased in May 2005.
• Exercisable between the third and tenth anniversaries of the
date of grant.
• Long-term incentive plan between 2000
and 2005 during which certain HSBC
employees were awarded share options.
Calculation of fair values
The fair values of share options are calculated using a Black-Scholes model. The fair value of a share award is based on the
share price at the date of the grant.
Movement on HSBC share option plans
Outstanding at 1 January 2015
Granted during the year2
Exercised during the year3
Expired during the year
Outstanding at 31 December 2015
Weighted average remaining contractual life (years)
Outstanding at 1 January 2014
Granted during the year2
Exercised during the year3
Expired during the year
Outstanding at 31 December 2014
Weighted average remaining contractual life (years)
Savings-related
share option plans
Number
(000s)
WAEP1
£
66,366
52,629
(21,120)
(23,100)
74,775
3.92
93,760
28,689
(50,393)
(5,690)
66,366
2.66
4.89
4.05
4.45
5.11
4.36
4.04
5.19
3.48
4.81
4.89
HSBC Holdings Group
share option plan
Number
(000s)
6,374
–
–
(6,374)
–
–
55,026
–
(1)
(48,651)
6,374
0.30
WAEP1
£
7.29
–
–
7.29
–
7.23
–
7.22
7.22
7.29
1 Weighted average exercise price.
2 The weighted average fair value of options granted during the year was $1.09 (2014: $1.90).
3 The weighted average share price at the date the options were exercised was $8.50 (2014: $9.91) and $0 (2014: $9.49) for the savings-related share
option plans and HSBC Holdings Group share option plan, respectively.
Post-employment benefit plans
Accounting policy
HSBC operates a number of pension and other post-employment benefit plans throughout the world. These plans include both defined
benefit and defined contribution plans and various other post-employment benefits such as post-employment healthcare.
Payments to defined contribution plans and state-managed retirement benefit plans, where HSBC’s obligations under the plans are
equivalent to a defined contribution plan, are charged as an expense as the employees render service.
The defined benefit pension costs and the present value of defined benefit obligations are calculated at the reporting date by the schemes’
actuaries using the projected unit credit method. The net charge to the income statement mainly comprises the service cost and the net
interest on the net defined benefit asset or liability and is presented in operating expenses.
The past service cost, which is charged immediately to the income statement, is the change in the present value of the defined benefit
obligation for employee service in prior periods resulting from a plan amendment (the introduction or withdrawal of, or changes to, a
defined benefit plan) or curtailment (a significant reduction by the entity in the number of employees covered by a plan). A settlement is a
transaction that eliminates all further legal and constructive obligations for part or all of the benefits provided under a defined benefit plan,
other than a payment of benefits to, or on behalf of, employees that is set out in the terms of the plan and included in the actuarial
assumptions.
Re-measurements of the net defined benefit asset or liability, which comprise actuarial gains and losses, return on plan assets (excluding
interest) and the effect of the asset ceiling (if any, excluding interest), are recognised immediately in other comprehensive income.
HSBC HOLDINGS PLC
364
Actuarial gains and losses comprise experience adjustments (the effects of differences between the previous actuarial assumptions and what
has actually occurred), as well as the effects of changes in actuarial assumptions.
The net defined benefit asset or liability represents the present value of defined benefit obligations reduced by the fair value of plan assets.
Any net defined benefit surplus is limited to the present value of available refunds and reductions in future contributions to the plan.
The cost of obligations arising from other post-employment defined benefit plans, such as defined benefit health-care plans, are accounted
for on the same basis as defined benefit pension plans.
The Group operates a number of pension plans throughout the world. Some are defined benefit plans, of which the largest is
the HSBC Bank (UK) Pension Scheme (‘the principal plan’). The Pension Risk section on page 189 and the Appendix to Risk on
page 225 contain details about the characteristics, risks and amount, timing and uncertainty of future cash flows and policies
and practices associated with the principal plan.
Income statement charge
Defined benefit pension plans
Defined contribution pension plans
Pension plans
Defined benefit and contribution healthcare plans
Year ended 31 December
2015
$m
256
793
1,049
6
1,055
2014
$m
469
687
1,156
67
1,223
Net assets/(liabilities) recognised on the balance sheet in respect of defined benefit plans
Fair value of
plan assets
$m
Present value of
defined benefit
obligations
$m
Effect of
limit on plan
surpluses
$m
Defined benefit pension plans
Defined benefit healthcare plans
At 31 December 2015
Total employee benefit liabilities
(within ‘Accruals, deferred income and other liabilities’)
Total employee benefit assets
(within ‘Prepayments, accrued income and other assets’)
Defined benefit pension plans
Defined benefit healthcare plans
At 31 December 2014
Total employee benefit liabilities
(within ‘Accruals, deferred income and other liabilities’)
Total employee benefit assets
(within ‘Prepayments, accrued income and other assets’)
41,424
141
41,565
(38,326)
(762)
(39,088)
44,824
179
45,003
(42,062)
(1,104)
(43,166)
Cumulative actuarial gains/(losses) recognised in other comprehensive income
At 1 January
HSBC Bank (UK) Pension Scheme
Other plans
Healthcare plans
Change in the effect of limit on plan surpluses
Total actuarial gains/(losses) recognised in other comprehensive income
At 31 December
HSBC pension plans
Percentage of HSBC employees:
– enrolled in defined contribution plans
– enrolled in defined benefit plans
– covered by HSBC pension plans
2015
$m
(2,026)
121
(55)
94
(30)
130
(1,896)
2015
%
66
22
88
(14)
–
(14)
(17)
–
(17)
2014
$m
(4,445)
2,764
(274)
(88)
17
2,419
(2,026)
2014
%
66
22
88
2013
$m
54
597
651
72
723
Total
$m
3,084
(621)
2,463
(2,809)
5,272
2,745
(925)
1,820
(3,208)
5,028
2013
$m
(3,844)
(1,524)
796
143
(16)
(601)
(4,445)
2013
%
64
23
87
HSBC HOLDINGS PLC
365
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
6 – Employee compensation and benefits
Defined benefit pension plans
Net asset/(liability) under defined benefit pension plans
Fair value of plan assets
Present value of defined
benefit obligations
Effect of the asset ceiling
Net defined benefit
asset/(liability)
The
principal
Other
plans
$m
plan
$m
4,764
(129)
(53)
(182)
177
121
(1,521)
1,392
250
(261)
376
159
217
–
–
–
Other
plans
$m
(2,019)
(268)
68
(200)
(51)
(85)
(394)
309
–
106
279
227
52
–
59
–
(17)
–
–
–
(2)
(30)
–
(30)
–
35
–
–
–
–
–
–
(14)
4,995
(1,911)
(30)
–
–
–
(4)
17
–
–
17
–
–
–
–
–
–
–
2,036
(228)
(26)
(254)
95
2,764
4,864
(2,317)
217
(274)
397
265
132
–
–
–
(1,911)
(257)
6
(251)
(59)
(172)
845
(987)
(30)
41
278
239
39
–
55
–
(17)
4,764
(2,019)
At 1 January 2015
Current service cost
Past service cost and gains/(losses)
from settlements
Service cost
Net interest income/(cost) on the net
defined benefit asset/(liability)
Re-measurement effects recognised in
other comprehensive income
– return on plan assets (excluding
interest income)
– actuarial gains/(losses)
– other changes
Exchange differences
Contributions by HSBC
– normal
– special
Contributions by employees
Benefits paid
Administrative costs and taxes
paid by plan
At 31 December 2015
Present value of defined benefit
obligation relating to:
– actives
– deferreds
– pensioners
At 1 January 2014
Current service cost
Past service cost and gains/(losses)
from settlements
Service cost
Net interest income/(cost) on the net
defined benefit asset/(liability)
Re-measurement effects recognised in
other comprehensive income
– return on plan assets (excluding
interest income)
– actuarial losses
– other changes
Exchange differences
Contributions by HSBC
– normal
– special
Contributions by employees
Benefits paid
Administrative costs and taxes
paid by plan
At 31 December 2014
Present value of defined benefit
obligation relating to:
– actives
– deferreds
– pensioners
The
principal
plan
$m
35,244
–
The
principal
plan
$m
(30,480)
(129)
Other
plans
$m
9,580
–
–
–
(3)
(3)
(53)
(182)
Other
plans
$m
(11,582)
(268)
71
(197)
1,265
322
(1,088)
(371)
(1,521)
(394)
1,642
(1,521)
–
–
(1,704)
376
159
217
17
(970)
(394)
–
–
(458)
279
227
52
35
(590)
(37)
(17)
–
1,392
250
1,443
–
–
–
(17)
970
37
339
–
339
–
529
–
–
–
(35)
649
17
32,670
8,754
(27,675)
(10,651)
(6,310)
(7,919)
(13,446)
(29,629)
(228)
(26)
(254)
(5,350)
(2,239)
(3,062)
(10,838)
(257)
11
(246)
(1,291)
(425)
(2,100)
(1,034)
–
(2,317)
217
1,838
–
–
–
(38)
954
40
–
(987)
(47)
357
–
–
–
(17)
598
23
31,665
–
8,957
–
–
–
1,386
4,864
4,864
–
–
(2,112)
397
265
132
38
(954)
(40)
(5)
(5)
370
845
845
–
–
(316)
278
239
39
17
(543)
(23)
35,244
9,580
(30,480)
(11,582)
(9,782)
(8,799)
(11,899)
(5,605)
(2,498)
(3,479)
The
principal
plan
$m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
HSBC HOLDINGS PLC
366
HSBC expects to make $458m of contributions to defined benefit pension plans during 2016. Benefits expected to be paid from
the plans to retirees over each of the next five years, and in aggregate for the five years thereafter, are as follows:
Benefits expected to be paid from plans
The principal plan1
Other plans1
2016
$m
1,006
482
2017
$m
1,040
466
2018
$m
1,075
476
2019
$m
1,109
511
2020
$m
1,204
530
2021-2025
$m
6,425
2,692
1 The duration of the defined benefit obligation is 17.0 years for the principal plan under the disclosure assumptions adopted (2014: 19.8 years) and
13.9 years for all other plans combined (2014: 14.2 years).
Fair value of plan assets by asset classes
31 December 2015
Quoted
market price
in active
market
$m
No quoted
market price
in active
market
$m
Thereof
HSBC1
$m
29,370
4,990
22,704
–
1,676
7,882
1,900
5,458
–
524
3,300
740
–
1,011
1,549
872
534
261
7
70
513
–
–
513
–
148
1
2
1
144
Value
$m
32,670
5,730
22,704
1,011
3,225
8,754
2,434
5,719
7
594
31 December 2014
Quoted
market price
in active
market
$m
No quoted
market price
in active
market
$m
Thereof
HSBC1
$m
31,355
4,557
22,965
52
3,781
6,390
1,778
4,109
(8)
511
3,889
945
–
1,317
1,627
3,190
756
2,267
(92)
259
930
–
–
930
–
(13)
11
7
(107)
76
Value
$m
35,244
5,502
22,965
1,369
5,408
9,580
2,534
6,376
(100)
770
The principal plan
Fair value of plan assets
– equities
– bonds
– derivatives
– other
Other plans
Fair value of plan assets
– equities
– bonds
– derivatives
– other
1 The fair value of plan assets includes derivatives entered into with HSBC Bank plc as detailed in Note 41.
Post-employment defined benefit plans’ principal actuarial financial assumptions
HSBC determines the discount rates to be applied to its obligations in consultation with the plans’ local actuaries, on the basis
of current average yields of high quality (AA-rated or equivalent) debt instruments with maturities consistent with those of the
defined benefit obligations.
Key actuarial assumptions for the principal plan
UK
At 31 December 2015
At 31 December 2014
At 31 December 2013
Discount
rate
%
Inflation
rate
%
Rate of
increase for
pensions
Rate of
pay increase
%
%
Interest
credit rate
%
3.70
3.70
4.45
3.20
3.20
3.60
3.00
3.00
3.30
3.70
3.70
4.10
n/a
n/a
n/a
Mortality tables and average life expectancy at age 65 for the principal plan
UK
At 31 December 2015
At 31 December 2014
Mortality
table
Life expectancy at age 65 for
a male member currently:
Aged 65
Aged 45
Life expectancy at age 65 for
a female member currently:
Aged 45
Aged 65
SAPS S11
SAPS S11
23.6
23.6
25.0
25.2
24.9
25.0
26.7
26.9
1 Self-administered Pension Scheme (‘SAPS’) Light Table with a multiplier of 1.01 for male pensioners and 1.02 for female pensioners. Improvements are
projected in accordance with Continuous Mortality Investigation (‘CMI’) core projection model 2015 (2014: CMI 2014) with a long-term rate of
improvement of 1.25% pa.
HSBC HOLDINGS PLC
367
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
6 – Employee compensation and benefits / 7 – Auditors’ remuneration / 8 – Tax
Actuarial assumption sensitivities
The effect of changes in key assumptions on the principal plan
Discount rate
Change in pension obligation at year-end from a 25bps increase
Change in pension obligation at year-end from a 25bps decrease
Change in 2016 pension cost from a 25bps increase
Change in 2016 pension cost from a 25bps decrease
Rate of inflation
Change in pension obligation at year-end from a 25bps increase
Change in pension obligation at year-end from a 25bps decrease
Change in 2016 pension cost from a 25bps increase
Change in 2016 pension cost from a 25bps decrease
Rate of increase for pensions in payment and deferred pensions
Change in pension obligation at year-end from a 25bps increase
Change in pension obligation at year-end from a 25bps decrease
Change in 2016 pension cost from a 25bps increase
Change in 2016 pension cost from a 25bps decrease
Rate of pay increase
Change in pension obligation at year-end from a 25bps increase
Change in pension obligation at year-end from a 25bps decrease
Change in 2016 pension cost from a 25bps increase
Change in 2016 pension cost from a 25bps decrease
Mortality
Change in pension obligation from each additional year of longevity assumed
HSBC Holdings
HSBC Bank (UK) Pension Scheme
2015
$m
(1,107)
1,180
(58)
55
747
(855)
28
(31)
990
(937)
37
(34)
119
(119)
4
(4)
670
2014
$m
(1,420)
1,523
(75)
73
1,026
(1,184)
44
(48)
1,188
(1,127)
50
(45)
237
(232)
12
(11)
768
Employee compensation and benefit expense in respect of HSBC Holdings’ employees in 2015 amounted to $908m (2014:
$681m). The average number of persons employed during 2015 was 2,656 (2014: 2,070). Employees who are members of
defined benefit pension plans are principally members of either the HSBC Bank (UK) Pension Scheme or the HSBC International
Staff Retirement Benefits Scheme. HSBC Holdings pays contributions to such plans for its own employees in accordance with
the schedules of contributions determined by the trustees of the plans and recognises these contributions as an expense as
they fall due. During 2015, most employees were transferred to the ServCo group (see page 242). Their remuneration and
numbers have been included in the narrative above as they have been seconded back to HSBC Holdings on an interim basis.
Directors’ emoluments
Details of directors’ emoluments, pensions and their interests are disclosed in the Director’ Remuneration Report on page 318.
7 Auditors’ remuneration
Audit fees payable to PwC/KPMG1
Other audit fees payable
Year ended 31 December
1 PwC became the Group’s principal auditor in 2015. KPMG was the principal auditor during 2014.
The following fees were payable by HSBC to the Group’s principal auditor:
Fees payable by HSBC to PwC/KPMG1
Fees for HSBC Holdings’ statutory audit2
– relating to current year
– relating to prior year
Fees for other services provided to HSBC
Audit of HSBC’s subsidiaries3
Audit-related assurance services4
Taxation-related services:
– taxation compliance services
– taxation advisory services
Other assurance services5
Other non-audit services5
Year ended 31 December
1 PwC became the Group’s principal auditor in 2015. KPMG was the principal auditor during 2014.
HSBC HOLDINGS PLC
368
2015
$m
62.0
1.2
63.2
2015
$m
13.1
13.1
–
85.1
48.9
16.6
1.0
0.9
2.8
14.9
98.2
2014
$m
40.6
1.2
41.8
2014
$m
13.4
13.4
–
62.5
27.2
22.6
1.5
0.8
0.7
9.7
75.9
2013
$m
43.4
1.1
44.5
2013
$m
12.9
12.6
0.3
67.5
30.5
27.4
1.3
1.3
0.5
6.5
80.4
2 Fees payable to KPMG and PwC for the statutory audit of the consolidated financial statements of HSBC and the separate financial statements of
HSBC Holdings. They include amounts payable for services relating to the consolidation returns of HSBC Holdings’ subsidiaries which are clearly
identifiable as being in support of the Group audit opinion. Excluded from fees are those payable to KPMG related to the transition of the audit to PwC
of $1.2m.
3 Fees payable for the statutory audit of the financial statements of HSBC’s subsidiaries, including the 2015 changes in scope and additional procedures
performed due to the technology systems and data access controls matter as described on page 328.
4 Including services for assurance and other services that relate to statutory and regulatory filings, including comfort letters and interim reviews.
5 Including other permitted services relating to advisory, corporate finance transactions, etc.
No fees were payable by HSBC to PwC or KPMG as principal auditor for the following types of services: internal audit services
and services related to litigation, recruitment and remuneration.
Fees payable by HSBC’s associated pension schemes to PwC/KPMG1
Audit of HSBC’s associated pension schemes
Audit related assurance services
Year ended 31 December
2015
$000
352
5
357
2014
$000
322
5
327
2013
$000
379
5
384
1 PwC became the Group’s principal auditor in 2015. KPMG was the principal auditor during 2014.
No fees were payable by HSBC’s associated pension schemes to PwC or KPMG as principal auditor for the following types of
services: audit-related assurance services, internal audit services, other assurance services, services related to corporate
finance transactions, valuation and actuarial services, litigation, recruitment and remuneration, and information technology.
In addition to the above, the estimated fees paid to PwC by third parties other than HSBC amount to $2.4m (KPMG 2014:
$3.6m; KPMG 2013: $5.3m). In these cases, HSBC is connected with the contracting party and may therefore be involved in
appointing PwC. These fees arise from services such as auditing mutual funds managed by HSBC and reviewing the financial
position of corporate concerns which borrow from HSBC.
Fees payable for non-audit services for HSBC Holdings are not disclosed separately because such fees are disclosed on a
consolidated basis for the HSBC Group.
8 Tax
Accounting policy
Income tax comprises current tax and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to
items recognised in other comprehensive income or directly in equity, in which case it is recognised in the same statement in which the
related item appears.
Current tax is the tax expected to be payable on the taxable profit for the year, calculated using tax rates enacted or substantively enacted
by the balance sheet date, and any adjustment to tax payable in respect of previous years. HSBC provides for potential current tax liabilities
that may arise on the basis of the amounts expected to be paid to the tax authorities. Current tax assets and liabilities are offset when HSBC
intends to settle on a net basis and the legal right to offset exists.
Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the balance sheet and the
amounts attributed to such assets and liabilities for tax purposes. Deferred tax liabilities are generally recognised for all taxable temporary
differences and deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which
deductible temporary differences can be utilised.
Deferred tax is calculated using the tax rates expected to apply in the periods in which the assets will be realised or the liabilities settled,
based on tax rates and laws enacted, or substantively enacted, by the balance sheet date. Deferred tax assets and liabilities are offset when
they arise in the same tax reporting group and relate to income taxes levied by the same taxation authority, and when HSBC has a legal right
to offset.
Deferred tax relating to actuarial gains and losses on post-employment benefits is recognised in other comprehensive income. Deferred tax
relating to share-based payment transactions is recognised directly in equity to the extent that the amount of the estimated future tax
deduction exceeds the amount of the related cumulative remuneration expense. Deferred tax relating to fair value re-measurements of
available-for-sale investments and cash flow hedging instruments is charged or credited directly to other comprehensive income and is
subsequently recognised in the income statement when the deferred fair value gain or loss is recognised in the income statement.
HSBC HOLDINGS PLC
369
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
8 – Tax / 9 – Dividends
Critical accounting estimates and judgements
Deferred tax assets
The recognition of a deferred tax asset relies on an assessment of the probability and sufficiency of future taxable profits, future reversals of
existing taxable temporary differences and ongoing tax planning strategies. In the absence of a history of taxable profits, the most significant
judgements relate to expected future profitability and to the applicability of tax planning strategies, including corporate reorganisations.
In previous years the US deferred tax recognition relied on capital support from HSBC Holdings plc due to significant losses in the past. The
US has been profitable in recent years and the improved performance is expected to continue, so the US deferred tax recognition is now
based on projections of future business profits.
Tax expense
Current tax
– for this year
– adjustments in respect of prior years
Deferred tax
– origination and reversal of temporary differences
– effect of changes in tax rates
– adjustments in respect of prior years
Year ended 31 December
2015
$m
3,882
(85)
3,797
(26)
(153)
110
17
3,771
2014
$m
4,477
(527)
3,950
25
(477)
83
419
3,975
2013
$m
4,050
(109)
3,941
824
739
93
(8)
4,765
1 Current tax included Hong Kong profits tax of $1,294m (2014: $1,135m; 2013: $1,133m). The Hong Kong tax rate applying to the profits of subsidiaries
assessable in Hong Kong was 16.5% (2014: 16.5%; 2013: 16.5%). Other overseas subsidiaries and overseas branches provided for taxation at the
appropriate rates in the countries in which they operated.
Tax reconciliation
The tax charged to the income statement differs from the tax charge that would apply if all profits had been taxed at the UK
corporation tax rate as follows:
Profit before tax
Tax expense
Tax at 20.25% (2014: 21.5%; 2013: 23.25%)
Effect of differently taxed overseas profits
Adjustments in respect of prior period liabilities
Deferred tax temporary differences not recognised/
(previously not recognised)
Effect of profits in associates and joint ventures
Tax effect of disposal of Ping An
Tax effect of reclassification of Industrial Bank
Non-taxable income and gains
Permanent disallowables
Change in tax rates
Local taxes and overseas withholding taxes
Other items
Year ended 31 December
2015
$m
18,867
3,821
71
(68)
(205)
(508)
–
–
(728)
978
110
416
(116)
3,771
%
20.25
0.4
(0.4)
(1.1)
(2.7)
–
–
(3.9)
5.2
0.6
2.2
(0.6)
20.0
2014
$m
18,680
4,016
33
(108)
(154)
(547)
–
–
(668)
969
22
434
(22)
%
21.5
0.2
(0.6)
(0.8)
(2.9)
–
–
(3.5)
5.1
0.1
2.3
(0.1)
2013
$m
22,565
5,246
(177)
(117)
332
(543)
(111)
(317)
(871)
647
93
551
32
3,975
21.3
4,765
%
23.25
(0.8)
(0.5)
1.5
(2.4)
(0.5)
(1.4)
(3.9)
2.9
0.4
2.4
0.1
21.1
The Group’s profits are taxed at different rates depending on the country in which the profits arise. The key applicable tax
rates include Hong Kong (16.5%), USA (35%) and UK (20.25%). If the Group’s profits were taxed at the statutory rates of the
countries in which the profits arise then the tax rate for the year would have been 20.65%. The effective tax rate for the year
was 20.0% (2014: 21.3%) and is in line with expectations. We expect the effective tax rate to increase due to the introduction
of the 8% surcharge on UK banking profits in 2016.
Accounting for taxes involves some estimation because the tax law is uncertain and the application requires a degree of
judgement, which authorities may dispute. Liabilities are recognised based on best estimates of the probable outcome, taking
into account external advice where appropriate. We do not expect significant liabilities to arise in excess of the amounts
provided. HSBC only recognises current and deferred tax assets where recovery is probable.
HSBC HOLDINGS PLC
370
Movement of deferred tax assets and liabilities
Loan
impairment
provisions
$m
Unused tax
losses and
tax credits
$m
Derivatives,
FVOD1
and other
investments
$m
Insurance
business
$m
Assets
Liabilities
At 1 January 2015
Income statement
Other comprehensive income
Equity
Reclassification to Assets Held for Sale
Foreign exchange and other adjustments
At 31 December 2015
Assets
Liabilities
Assets
Liabilities
At 1 January 2014
Income statement
Other comprehensive income
Equity
Foreign exchange and other adjustments
At 31 December 2014
Assets
Liabilities
2,264
–
2,264
45
(673)
(285)
1,351
1,351
–
2,837
–
2,837
(408)
–
–
(165)
2,264
2,264
–
1,332
–
1,332
379
(186)
(137)
1,388
1,388
–
978
–
978
396
–
–
(42)
1,332
1,332
–
1,764
(233)
1,531
(557)
22
76
98
1,170
1,400
(230)
1,383
(213)
1,170
361
(12)
–
12
1,531
1,764
(233)
–
(861)
(861)
(143)
87
(139)
(1,056)
–
(1,056)
–
(840)
(840)
(76)
–
–
55
(861)
–
(861)
Expense
provisions
$m
1,244
–
1,244
418
156
(386)
(161)
1,271
1,271
–
1,398
–
1,398
(86)
–
–
(68)
1,244
1,244
–
Other
$m
836
(759)
77
(116)
321
4
(136)
17
167
1,050
(883)
1,748
(745)
1,003
(212)
(680)
(20)
(14)
77
836
(759)
Total
$m
7,440
(1,853)
5,587
26
499
4
(1,218)
(607)
4,291
6,4602
(2,169)2
8,344
(1,798)
6,546
(25)
(692)
(20)
(222)
5,587
7,4402
(1,853)2
1 Fair value of own debt.
2 After netting off balances within countries, the balances as disclosed in the accounts are as follows: deferred tax assets $6,051m (2014: $7,111m); and
deferred tax liabilities $1,760m (2014:$1,524m).
The net deferred tax asset of $4.3bn (2014: $5.6bn) includes $4.5bn (2014: $4.1bn) deferred tax assets relating to the US. In
applying judgement in recognising deferred tax assets, management has critically assessed all available information, including
future business profit projections and the track record of meeting forecasts. On the basis of this assessment, management
expects substantially all the US deferred tax assets to be utilised by 2021. The fall in net deferred tax assets since 31 December
2014 is mainly attributable to the reclassification of $1.2bn Brazilian net deferred tax balances to assets held for sale.
Unrecognised deferred tax
The amount of temporary differences, unused tax losses and tax credits for which no deferred tax asset is recognised in the
balance sheet was $15.5bn (2014: $22.6bn). These amounts included unused state losses arising in the Group’s US operations
of $11.3bn (2014: $14.1bn). Of the total amounts unrecognised, $3.1bn (2014: $4.2bn) had no expiry date, $0.9bn (2014:
$0.9bn) was scheduled to expire within 10 years and the remaining is expected to expire after 10 years.
Deferred tax is not recognised in respect of the Group’s investments in subsidiaries and branches where HSBC is able to control
the timing of remittance or other realisation and where remittance or realisation is not probable in the foreseeable future. The
aggregate temporary differences relating to unrecognised deferred tax liabilities arising on investments in subsidiaries and
branches is $9.1bn – the corresponding unrecognised deferred tax liability is $0.6bn.
9 Dividends
Dividends to shareholders of the parent company
2015
Per
share
$
Settled
in scrip
$m
Total
$m
Per
share
$
2014
Total
$m
Settled
in scrip
$m
Per
share
$
2013
Total
$m
Settled
in scrip
$m
Dividends paid on ordinary shares
In respect of previous year:
– fourth interim dividend
In respect of current year:
– first interim dividend
– second interim dividend
– third interim dividend
Total
0.20
3,845
2,011
0.19
3,582
1,827
0.18
3,339
0.10
0.10
0.10
0.50
1,951
1,956
1,958
9,710
231
160
760
3,162
0.10
0.10
0.10
0.49
1,906
1,914
1,918
9,320
284
372
226
0.10
0.10
0.10
1,861
1,864
1,873
2,709
0.48
8,937
2,523
540
167
952
864
Total dividends on preference shares classified
as equity (paid quarterly)
62.00
90
62.00
90
62.00
90
HSBC HOLDINGS PLC
371
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
9 – Dividends / 10 – Earnings per share / 11 – Segmental analysis
Total coupons on capital securities classified as equity
Perpetual subordinated capital securities1,3
– $2,200m
– $3,800m
Perpetual subordinated contingent convertible securities2,3
– $2,250m
– $1,500m
– €1,500m
– $2,450m
Total
2015
First Per security
call date
Apr 2013
Dec 2015
Sep 2024
Jan 2020
Sep 2022
Mar 2025
$2.032
$2.000
$63.750
$56.250
€52.500
$63.750
Total
$m
179
304
143
70
86
78
860
2014
Total
$m
179
304
–
–
–
–
2013
Total
$m
179
304
–
–
–
–
483
483
1 Discretionary coupons are paid quarterly on the perpetual subordinated capital securities, in denominations of $25 per security.
2 Discretionary coupons are paid semi-annually on the perpetual subordinated contingent convertible securities, in denominations of 1,000 per security.
3 Further details of these securities can be found in Note 35.
The Directors declared after the end of the year a fourth interim dividend in respect of the financial year ended 31 December
2015 of $0.21 per ordinary share, a distribution of approximately $4,134m. The fourth interim dividend will be payable on
20 April 2016 to holders of record on 4 March 2016 on the Principal Register in the UK, the Hong Kong or the Bermuda
Overseas Branch registers. No liability was recorded in the financial statements in respect of the fourth interim dividend for
2015.
On 15 January 2016, HSBC paid a coupon on the $2,200m subordinated capital securities of $0.508 per security, a distribution
of $45m. On 19 January 2016, HSBC paid a coupon on the $1,500m subordinated contingent convertible securities of $28.125
per security, a distribution of $42m. No liability was recorded in the balance sheet at 31 December 2015 in respect of these
coupon payments.
In September 2015, HSBC issued a €1,000m subordinated contingent convertible securities as set out in Note 35 which is
classified as equity under IFRSs. Coupons are paid semi-annually and to date no payments have fallen due.
10 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 the ordinary shareholders of the parent company
Profit attributable to shareholders of the parent company
Dividend payable on preference shares classified as equity
Coupon payable on capital securities classified as equity
Year ended 31 December
Basic and diluted earnings per share
2015
$m
13,522
(90)
(860)
12,572
2014
$m
13,688
(90)
(483)
13,115
Basic1
Effect of dilutive potential ordinary shares
Diluted1
2015
Number
of shares
(millions)
19,380
137
19,517
Profit
$m
12,572
–
12,572
Per
share
$
0.65
–
0.64
2014
Number
of shares
(millions)
18,960
96
19,056
Profit
$m
13,115
–
13,115
Per
share
$
2013
Number
of shares
(millions)
Profit
$m
0.69 15,631
–
–
18,530
124
0.69 15,631
18,654
1 Weighted average number of ordinary shares outstanding (basic) or assuming dilution (diluted).
The weighted average number of dilutive potential ordinary shares excluded 7m employee share options that were
anti-dilutive (2014: 6m; 2013: 60m).
2013
$m
16,204
(90)
(483)
15,631
Per
Share
$
0.84
–
0.84
HSBC HOLDINGS PLC
372
11 Segmental analysis
Accounting policy
HSBC has a matrix management structure. HSBC’s chief operating decision-maker is the Group Management Board (‘GMB’) which operates
as a general management committee under the direct authority of the Board. The GMB regularly reviews operating activity on a number of
bases, including by geographical region and by global business. HSBC considers that geographical operating segments represent the most
appropriate information for the users of the financial statements to best evaluate the nature and financial effects of the business activities in
which HSBC engages, and the economic environments in which it operates. This reflects the importance of geographical factors on business
strategy and performance, the allocation of capital resources, and the role of geographical regional management in executing strategy. As a
result, HSBC’s operating segments are considered to be geographical regions.
Geographical information is classified by the location of the principal operations of the subsidiary or, for The Hongkong and Shanghai Banking
Corporation, HSBC Bank plc, HSBC Bank Middle East and HSBC Bank USA, by the location of the branch responsible for reporting the results
or providing funding.
Measurement of segmental assets, liabilities, income and expenses is in accordance with the Group’s accounting policies. Segmental income
and expenses include transfers between segments and these transfers are conducted at arm’s length. Shared costs are included in segments
on the basis of the actual recharges made. The expense of the UK bank levy is included in the Europe geographical region as HSBC regards
the levy as a cost of carrying on business and being headquartered in the UK.
Products and services
HSBC provides a comprehensive range of banking and related financial services to its customers in its five geographical regions.
HSBC’s operating segments are Europe, Asia, Middle East and North Africa, North America and Latin America. The products
and services offered to customers are organised by global business.
• Retail Banking and Wealth Management (‘RBWM’) offers a broad range of products and services to meet the personal
banking and wealth management needs of individual customers. Typically, customer offerings include personal banking
products (current and savings accounts, mortgages and personal loans, credit cards, debit cards and local and international
payment services) and wealth management services (insurance and investment products, global asset management
services and financial planning services).
• 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 its customers access to products and
services offered by other global businesses, for example Global Banking and Markets (‘GB&M’), which include foreign
exchange products, raising capital on debt and equity markets and advisory services.
• GB&M 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.
• Global Private Banking (‘GPB’) provides a range of services to high net worth individuals and families with complex and
international needs within the Group’s priority markets.
HSBC HOLDINGS PLC
373
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
North
America
$m
Latin
America
$m
Intra-
HSBC items
$m
4,532
2,018
545
562
7,657
(544)
7,113
(3,113)
(3,168)
4,318
1,131
664
479
6,592
(1,495)
5,097
(2,092)
(2,378)
(165)
(116)
(4,786)
3,375
(39,768)
Total
$m
32,531
14,705
8,723
3,841
59,800
(3,721)
56,079
(19,900)
(17,662)
(1,269)
(937)
(39)
−
39
(3,375)
(3,375)
−
(3,375)
−
3,375
−
−
−
−
−
−
−
(23)
−
23
(2,972)
(2,972)
−
(2,972)
−
2,972
−
−
16,311
2,556
18,867
(3,771)
15,096
34,705
15,957
6,760
3,826
61,248
(3,851)
57,397
(20,366)
(18,565)
(1,382)
(936)
(200)
311
(1)
310
(74)
236
5,310
1,415
856
691
8,272
(2,124)
6,148
(2,565)
(2,894)
(231)
(55)
(6,501)
612
2
614
80
694
5,015
1,940
411
786
8,152
(322)
7,830
(3,072)
(3,108)
(69)
(6,429)
1,401
16
1,417
(195)
1,222
(180)
(242)
(5,932)
2,972
(41,249)
216
−
216
(46)
170
−
−
−
−
−
16,148
2,532
18,680
(3,975)
14,705
Notes on the Financial Statements (continued)
11 – Segmental analysis
Profit/(loss) for the year
2015
Net interest income
Net fee income
Net trading income
Other income
Net operating income1
Loan impairment (charges)/recoveries
and other credit risk provisions
Net operating income
Employee compensation and benefits
General and administrative expenses
Depreciation and impairment of
property, plant and equipment
Amortisation and impairment of
intangible assets
Total operating expenses
Operating profit
Share of profit in associates and joint ventures
Profit before tax
Tax expense
Profit/(loss) for the year
2014
Net interest income
Net fee income
Net trading income
Other income
Net operating income1
Loan impairment (charges)/recoveries
and other credit risk provisions
Net operating income
Employee compensation and benefits
General and administrative expenses
Depreciation and impairment of
property, plant and equipment
Amortisation and impairment of
intangible assets
Total operating expenses
Operating profit
Share of profit in associates and joint ventures
Profit before tax
Tax expense
Profit/(loss) for the year
Europe
$m
10,005
4,891
4,060
2,102
21,058
(690)
20,368
(7,872)
(10,849)
(552)
(460)
Asia
$m
12,184
6,032
3,090
3,997
25,303
(693)
24,610
(6,105)
(4,164)
(410)
(210)
(19,733)
(10,889)
635
8
643
(1,095)
(452)
10,611
6,042
2,534
2,384
21,571
(764)
20,807
(8,191)
(11,076)
(543)
(407)
13,721
2,042
15,763
(2,346)
13,417
12,273
5,910
2,622
2,872
23,677
(647)
23,030
(5,862)
(3,959)
(389)
(217)
MENA
$m
1,531
633
325
76
2,565
(299)
2,266
(718)
(478)
(26)
(12)
(1,234)
1,032
505
1,537
(336)
1,201
1,519
650
314
65
2,548
6
2,554
(676)
(500)
(28)
(12)
(20,217)
(10,427)
(1,216)
590
6
596
(853)
(257)
12,603
2,022
14,625
(2,542)
12,083
1,338
488
1,826
(339)
1,487
HSBC HOLDINGS PLC
374
Profit/(loss) for the year (continued)
2013
Net interest income
Net fee income
Net trading income
Other income/(expense)
Net operating income1
Loan impairment (charges)/recoveries
and other credit risk provisions
Net operating income
Employee compensation and benefits
General and administrative expenses
Depreciation and impairment of
property, plant and equipment
Amortisation and impairment of
intangible assets
Total operating expenses
Operating profit
Share of profit in associates and joint ventures
Profit before tax
Tax expense
Profit for the year
Europe
$m
10,693
6,032
4,423
(181)
20,967
(1,530)
19,437
(7,175)
(9,479)
(559)
(400)
(17,613)
1,824
1
1,825
(1,279)
546
Asia
$m
MENA
$m
North
America
$m
Latin
America
$m
Intra-
HSBC items
$m
11,432
5,936
2,026
5,038
24,432
(498)
23,934
(5,666)
(3,660)
(392)
(218)
(9,936)
13,998
1,855
15,853
(2,170)
13,683
1,486
622
357
38
2,503
42
2,545
(634)
(607)
(35)
(13)
(1,289)
1,256
438
1,694
(328)
1,366
5,742
2,143
948
(30)
8,803
(1,197)
7,606
(3,098)
(3,051)
6,186
1,701
936
1,745
10,568
(2,666)
7,902
(2,623)
(2,896)
(176)
(202)
(91)
(6,416)
1,190
31
1,221
(313)
908
(209)
(5,930)
1,972
–
1,972
(675)
1,297
Total
$m
35,539
16,434
8,690
3,982
64,645
(5,849)
58,796
(19,196)
(17,065)
(1,364)
(931)
–
–
–
(2,628)
(2,628)
–
(2,628)
–
2,628
–
–
2,628
(38,556)
–
–
–
–
–
20,240
2,325
22,565
(4,765)
17,800
1 Net operating income before loan impairment charges and other credit risk provisions, also referred to as revenue.
Other information about the profit/(loss) for the year
2015
Net operating income1
– external
– inter-segment
Profit for the year includes the following
significant non-cash items:
Depreciation, amortisation and impairment
Loan impairment losses gross of recoveries
and other credit risk provisions
Changes in fair value of long-term debt and
related derivatives
2014
Net operating income1
– external
– inter-segment
Profit for the year includes the following
significant non-cash items:
Depreciation, amortisation and impairment
Loan impairment losses gross of recoveries
and other credit risk provisions
Changes in fair value of long-term debt and
related derivatives
2013
Net operating income1
– external
– inter-segment
Profit for the year includes the following
significant non-cash items:
Depreciation, amortisation and impairment
Loan impairment losses gross of recoveries
and other credit risk provisions
Changes in fair value of long-term debt and
related derivatives
Europe
$m
21,058
19,778
1,280
1,013
1,082
671
21,571
20,450
1,121
950
1,066
614
20,967
20,108
859
957
2,165
(936)
Asia
$m
25,303
23,477
1,826
620
858
5
23,677
22,071
1,606
606
800
(4)
24,432
22,853
1,579
610
665
(1)
MENA
$m
2,565
2,559
6
38
331
6
2,548
2,524
24
40
37
(3)
2,503
2,497
6
48
45
(3)
7,657
7,386
271
195
618
181
8,152
7,937
215
182
437
(99)
8,803
8,569
234
North
America
$m
Latin
America
$m
Intra-
HSBC items
$m
6,592
6,600
(8)
(3,375)
–
(3,375)
315
1,641
–
8,272
8,266
6
473
2,466
–
–
–
–
(2,972)
–
(2,972)
–
–
–
Total
$m
59,800
59,800
–
2,181
4,530
863
61,248
61,248
–
2,251
4,806
508
10,568
10,618
(50)
(2,628)
–
(2,628)
64,645
64,645
–
303
412
1,321
2,949
(288)
–
–
–
–
2,330
7,145
(1,228)
1 Net operating income before loan impairment charges and other credit risk provisions, also referred to as revenue.
HSBC HOLDINGS PLC
375
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
11 – Segmental analysis / 12 – Trading assets
Balance sheet information
At 31 December 2015
Loans and advances to customers
Interests in associates and joint ventures
Total assets
Customer accounts
Total liabilities
Capital expenditure incurred1
At 31 December 2014
Loans and advances to customers
Interests in associates and joint ventures
Total assets
Customer accounts
Total liabilities
Capital expenditure incurred1
At 31 December 2013
Loans and advances to customers
Interests in associates and joint ventures
Total assets
Customer accounts
Total liabilities
Capital expenditure incurred1
Europe
$m
392,041
198
1,129,365
497,876
1,067,127
1,182
409,733
175
1,290,926
545,959
1,223,371
1,168
456,110
169
1,392,959
581,933
1,326,537
907
Asia
$m
356,375
15,720
889,747
598,620
813,466
725
362,955
14,958
878,723
577,491
807,998
637
336,897
13,822
831,791
548,483
770,938
1,236
MENA
$m
29,894
3,176
59,236
36,468
49,126
34
29,063
2,955
62,417
39,720
52,569
25
27,211
2,575
60,810
38,683
50,706
32
North
America
$m
128,851
45
393,960
135,152
355,506
198
129,787
83
436,859
138,884
398,356
208
127,953
74
432,035
140,809
393,635
265
Latin
America
$m
Intra-
HSBC items
$m
Total
$m
17,293
–
86,262
21,470
75,827
187
43,122
10
115,354
48,588
102,007
348
43,918
–
113,999
51,389
99,319
385
–
–
(148,914)
–
(148,914)
924,454
19,139
2,409,656
1,289,586
2,212,138
-
2,326
–
–
(150,140)
–
(150,140)
974,660
18,181
2,634,139
1,350,642
2,434,161
–
2,386
–
–
(160,276)
–
(160,276)
992,089
16,640
2,671,318
1,361,297
2,480,859
–
2,825
1 Expenditure incurred on property, plant and equipment and other intangible assets. Excludes assets acquired as part of business combinations and goodwill.
Other financial information
Net operating income by global business
2015
Net operating income2
– external
– internal
2014
Net operating income2
– external
– internal
2013
Net operating income2
– external
– internal
Information by country
UK
Hong Kong
USA
France
Brazil
Other countries
Year ended/at 31 December
RBWM3
$m
23,516
20,941
2,575
25,149
23,202
1,947
27,453
25,702
1,751
CMB3
$m
14,870
15,021
(151)
15,748
16,369
(621)
15,652
16,577
(925)
GB&M
$m
18,233
20,994
(2,761)
17,778
20,055
(2,277)
19,176
20,767
(1,591)
GPB
$m
2,172
1,888
284
2,377
1,980
397
2,439
1,955
484
Other1
$m
7,604
956
6,648
6,365
(358)
6,723
5,651
(356)
6,007
Intra-HSBC
items
$m
(6,595)
–
(6,595)
(6,169)
–
(6,169)
(5,726)
–
(5,726)
2015
2014
2013
External net
operating
income2,4
$m
Non-
current
assets5
$m
External net
operating
income2,4
$m
Non-
current
assets5
$m
External net
operating
income2,4
$m
14,132
14,447
5,541
2,706
3,546
19,428
59,800
7,581
10,979
4,066
9,326
28
27,503
59,483
14,392
12,656
5,736
2,538
4,817
21,109
61,248
8,671
12,376
5,685
10,301
1,403
28,273
66,709
13,347
12,031
6,121
3,111
5,364
24,671
64,645
Total
$m
59,800
59,800
–
61,248
61,248
–
64,645
64,645
–
Non-
current
assets5
$m
17,481
12,170
4,189
11,565
1,715
27,879
74,999
1 The main items reported in ‘Other’ are certain property activities, unallocated investment activities, centrally held investment companies, movements
in fair value of own debt and HSBC’s holding company and financing operations. ‘Other’ also includes gains and losses on the disposal of certain
significant subsidiaries or business units.
2 Net operating income before loan impairment charges and other credit risk provisions, also referred to as revenue.
3 In the first half of 2015, a portfolio of customers was transferred from CMB to RBWM in Latin America in order to better align the combined banking
needs of the customers with our established global businesses. Comparative data have been re-presented accordingly.
4 External net operating income is attributed to countries on the basis of the location of the branch responsible for reporting the results or advancing the funds.
5 Non-current assets consist of property, plant and equipment, goodwill, other intangible assets, interests in associates and joint ventures and certain
other assets expected to be recovered more than 12 months after the reporting period.
HSBC HOLDINGS PLC
376
12 Trading assets
Accounting policy
Financial assets are classified as held for trading if they have been acquired principally for the purpose of selling in the near term, or form
part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent pattern of short-
term profit-taking. They are recognised on trade date, when HSBC enters into contractual arrangements with counterparties, and are
normally derecognised when sold. They are initially measured at fair value, with transaction costs taken to the income statement.
Subsequent changes in their fair values and interest are recognised in the income statement in ‘Net trading income’.
Trading assets
Trading assets:
– not subject to repledge or resale by counterparties
– which may be repledged or resold by counterparties
At 31 December
Treasury and other eligible bills
Debt securities
Equity securities
Trading securities at fair value
Loans and advances to banks1
Loans and advances to customers1
At 31 December
2015
$m
192,204
32,633
224,837
7,829
99,038
66,491
173,358
22,303
29,176
224,837
1 Loans and advances to banks and customers include settlement accounts, stock borrowing, reverse repos and other amounts.
2014
$m
247,586
56,607
304,193
16,170
141,532
75,249
232,951
27,581
43,661
304,193
2014
$m
25,880
9,280
6,946
78,774
3,494
33,328
75,249
2015
$m
14,833
10,177
6,495
48,567
3,135
23,660
66,491
173,358
232,951
Trading securities valued at fair value1
US Treasury and US Government agencies2
UK Government
Hong Kong Government
Other government
Asset-backed securities3
Corporate debt and other securities
Equity securities
At 31 December
1 Included within these figures are debt securities issued by banks and other financial institutions of $16,403m (2014: $22,399m), of which $1,034m
(2014: $2,949m) are guaranteed by various governments.
2 Includes securities that are supported by an explicit guarantee issued by the US Government.
3 Excludes asset-backed securities included under US Treasury and US Government agencies.
Trading securities listed on a recognised exchange and unlisted
Fair value
Listed1
Unlisted2
At 31 December 2015
Fair value
Listed1
Unlisted2
At 31 December 2014
Treasury
and other
eligible bills
$m
295
7,534
7,829
1,311
14,859
16,170
Debt
securities
$m
Equity
securities
$m
71,184
27,854
99,038
98,028
43,504
141,532
66,152
339
66,491
74,542
707
75,249
Total
$m
137,631
35,727
173,358
173,881
59,070
232,951
1 Included within listed investments are $5,722m (2014: $5,956m) of securities listed in Hong Kong.
2 Unlisted treasury and other eligible bills primarily comprise treasury bills not listed on an exchange but for which there is a liquid market.
HSBC HOLDINGS PLC
377
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
13 – Fair values of financial instruments carried at fair value
13 Fair values of financial instruments carried at fair value
Accounting policy
All financial instruments are recognised initially at fair value. Fair value is the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the measurement date. The fair value of a financial instrument on initial
recognition is generally its transaction price (that is, the fair value of the consideration given or received). However, sometimes the fair value
will be based on other observable current market transactions in the same instrument, without modification or repackaging, or on a
valuation technique whose variables include only data from observable markets, such as interest rate yield curves, option volatilities and
currency rates. When such evidence exists, HSBC recognises a trading gain or loss at inception (‘day 1 gain or loss’), being the difference
between the transaction price and the fair value. When significant unobservable parameters are used, the entire day 1 gain or loss is
deferred and is recognised in the income statement over the life of the transaction until the transaction matures or is closed out, the
valuation inputs become observable or HSBC enters into an offsetting transaction.
The fair value of financial instruments is generally measured on an individual basis. However, in cases where HSBC manages a group of
financial assets and liabilities according to its net market or credit risk exposure, the fair value of the group of financial instruments is
measured on a net basis but the underlying financial assets and liabilities are presented separately in the financial statements, unless they
satisfy the IFRSs offsetting criteria as described in Note 32.
Critical accounting estimates and judgements
Valuation of financial instruments
The best evidence of fair value is a quoted price in an actively traded principal market. The fair values of financial instruments that are
quoted in active markets are based on bid prices for assets held and offer prices for liabilities issued. When a financial instrument has a
quoted price in an active market, the fair value of the total holding of the financial instrument is calculated as the product of the number of
units and the quoted price. The judgement as to whether a market is active may include, but is not restricted to, consideration of factors
such as the magnitude and frequency of trading activity, the availability of prices and the size of bid/offer spreads. The bid/offer spread
represents the difference in prices at which a market participant would be willing to buy compared with the price at which they would be
willing to sell. Valuation techniques may incorporate assumptions about factors that other market participants would use in their valuations,
including:
•
the likelihood and expected timing of future cash flows on the instrument. Judgement may be required to assess the counterparty’s
ability to service the instrument in accordance with its contractual terms. Future cash flows may be sensitive to changes in market rates;
• selecting an appropriate discount rate for the instrument. Judgement is required to assess what a market participant would regard as the
appropriate spread of the rate for an instrument over the appropriate risk-free rate; and
•
judgement to determine what model to use to calculate fair value in areas where the choice of valuation model is particularly subjective,
for example, when valuing complex derivative products.
A range of valuation techniques is employed, dependent on the instrument type and available market data. Most valuation techniques are
based upon discounted cash flow analyses, in which expected future cash flows are calculated and discounted to present value using a
discounting curve. Prior to considering credit risk, the expected future cash flows may be known, as would be the case for the fixed leg of an
interest rate swap, or may be uncertain and require projection, as would be the case for the floating leg of an interest rate swap. ‘Projection’
utilises market forward curves, if available. In option models, the probability of different potential future outcomes must be considered. In
addition, the value of some products is dependent on more than one market factor, and in these cases it will typically be necessary to
consider how movements in one market factor may affect the other market factors. The model inputs necessary to perform such calculations
include interest rate yield curves, exchange rates, volatilities, correlations and prepayment and default rates. For interest rate derivatives
with collateralised counterparties and in significant currencies, HSBC uses a discounting curve that reflects the overnight interest rate.
The majority of valuation techniques employ only observable market data. However, certain financial instruments are valued on the basis of
valuation techniques that feature one or more significant market inputs that are unobservable, and for them the measurement of fair value
is more judgemental. An instrument in its entirety is classified as valued using significant unobservable inputs if, in the opinion of
management, a significant proportion of the instrument’s inception profit or greater than 5% of the instrument’s valuation is driven by
unobservable inputs. ‘Unobservable’ in this context means that there is little or no current market data available from which to determine
the price at which an arm’s length transaction would be likely to occur. It generally does not mean that there is no data available at all upon
which to base a determination of fair value (consensus pricing data may, for example, be used).
Control framework
Fair values are subject to a control framework designed to ensure that they are either determined or validated by a function
independent of the risk taker.
For all financial instruments where fair values are determined by reference to externally quoted prices or observable pricing
inputs to models, independent price determination or validation is utilised. In inactive markets HSBC will source alternative
market information to validate the financial instrument’s fair value, with greater weight given to information that is considered
to be more relevant and reliable. The factors that are considered in this regard are, inter alia:
• the extent to which prices may be expected to represent genuine traded or tradeable prices;
• the degree of similarity between financial instruments;
• the degree of consistency between different sources;
• the process followed by the pricing provider to derive the data;
• the elapsed time between the date to which the market data relates and the balance sheet date; and
HSBC HOLDINGS PLC
378
• the manner in which the data was sourced.
For fair values determined using valuation models, the control framework may include, as applicable, development or
validation by independent support functions of (i) the logic within valuation models; (ii) the inputs to these models; (iii) any
adjustments required outside the valuation models; and (iv) where possible, model outputs. Valuation models are subject to
a process of due diligence and calibration before becoming operational and are calibrated against external market data on
an ongoing basis.
Changes in fair value are generally subject to a profit and loss analysis process. This process disaggregates changes in fair
value into three high level categories; (i) portfolio changes, such as new transactions or maturing transactions, (ii) market
movements, such as changes in foreign exchange rates or equity prices, and (iii) other, such as changes in fair value
adjustments (see further below).
The majority of financial instruments measured at fair value are in GB&M. GB&M’s fair value governance structure is
illustrated below as an example:
Group Finance Director
Finance
Valuation Committees
Valuation Committee
Review Group
Responsible for fair value:
− Establishing accounting policies
for fair value
− Establishing procedures
governing valuation
− Ensuring compliance with all
relevant accounting standards
Provides
results
Consist of valuation experts from
Chaired by Global Head of
several independent support
functions (product control,
market risk management,
quantitative risk and valuation
group and finance), in addition
to senior management
Overseen by and
report all valuations
considered to have
material subjectivity
Product Control,
Global Markets
Consists of Heads of
Global Markets, Finance
and Risk functions
Financial liabilities measured at fair value
In certain circumstances, HSBC records its own debt in issue at fair value, based on quoted prices in an active market for the
specific instrument concerned, where available. An example of this is where own debt in issue is hedged with interest rate
derivatives. When quoted market prices are unavailable, the own debt in issue is valued using valuation techniques, the inputs
for which are either based upon quoted prices in an inactive market for the instrument or are estimated by comparison with
quoted prices in an active market for similar instruments. In both cases, the fair value includes the effect of applying the credit
spread which is appropriate to HSBC’s liabilities. The change in fair value of issued debt securities attributable to the Group’s
own credit spread is computed as follows: for each security at each reporting date, an externally verifiable price is obtained or
a price is derived using credit spreads for similar securities for the same issuer. Then, using discounted cash flow, each security
is valued using a Libor-based discount curve. The difference in the valuations is attributable to the Group’s own credit spread.
This methodology is applied consistently across all securities.
Structured notes issued and certain other hybrid instrument liabilities are included within trading liabilities and are measured
at fair value. The credit spread applied to these instruments is derived from the spreads at which HSBC issues structured notes.
Gains and losses arising from changes in the credit spread of liabilities issued by HSBC reverse over the contractual life of the
debt, provided that the debt is not repaid at a premium or a discount.
Fair value hierarchy
Fair values of financial assets and liabilities are determined according to the following hierarchy:
• Level 1 – valuation technique using quoted market price: financial instruments with quoted prices for identical instruments
in active markets that HSBC can access at the measurement date.
• Level 2 – valuation technique using observable inputs: financial instruments with quoted prices for similar instruments in
active markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued
using models where all significant inputs are observable.
• Level 3 – valuation technique with significant unobservable inputs: financial instruments valued using valuation techniques
where one or more significant inputs are unobservable.
HSBC HOLDINGS PLC
379
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
13 – Fair values of financial instruments carried at fair value
The following table sets out the financial instruments by fair value hierarchy.
Financial instruments carried at fair value and bases of valuation
Recurring fair value measurements at 31 December 2015
Assets
Trading assets
Financial assets designated at fair value
Derivatives
Financial investments: available for sale
Liabilities
Trading liabilities
Financial liabilities designated at fair value
Derivatives
Recurring fair value measurements at 31 December 2014
Assets
Trading assets
Financial assets designated at fair value
Derivatives
Financial investments: available for sale
Liabilities
Trading liabilities
Financial liabilities designated at fair value
Derivatives
Quoted
market
price
Level 1
$m
133,095
18,947
1,922
262,929
41,462
5,260
2,243
180,446
23,697
4,366
241,464
62,385
3,792
4,649
Valuation techniques
Using
observable
inputs
Level 2
$m
With significant
unobservable
inputs
Level 3
$m
84,886
4,431
284,292
117,197
95,867
61,145
277,618
117,279
4,614
337,718
131,264
122,048
72,361
334,113
6,856
474
2,262
4,727
4,285
3
1,210
6,468
726
2,924
4,988
6,139
–
1,907
Total
$m
224,837
23,852
288,476
384,853
141,614
66,408
281,071
304,193
29,037
345,008
377,716
190,572
76,153
340,669
The decrease in Level 1 and Level 2 trading assets and liabilities during the period reflects a decrease in inventory across a wide
range of securities. The decrease in Level 2 derivative assets and liabilities is driven by participation in ‘portfolio compression’
exercises and market movement.
Transfers between Level 1 and Level 2 fair values
Assets
Available
for sale
$m
Held for
trading
$m
Designated
at fair value
through
profit or loss
$m
Derivatives
$m
–
–
67
487
2,702
–
18,149
–
–
–
–
–
56
2
–
–
Held for
trading
$m
1,563
515
22,964
–
At 31 December 2015
Transfers from Level 1 to Level 2
Transfers from Level 2 to Level 1
At 31 December 2014
Transfers from Level 1 to Level 2
Transfers from Level 2 to Level 1
Fair value adjustments
Liabilities
Designated
at fair value
through
profit or loss
Derivatives
$m
$m
857
2
–
–
100
–
–
–
Fair value adjustments are adopted when HSBC considers that there are additional factors that would be considered by a
market participant which are not incorporated within the valuation model. HSBC classifies fair value adjustments as either
‘risk-related’ or ‘model-related’. The majority of these adjustments relate to GB&M.
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.
HSBC HOLDINGS PLC
380
Global Banking and Markets fair value adjustments
Type of adjustment
Risk-related
– bid-offer
– uncertainty
– credit valuation adjustment
– debit valuation adjustment
– funding fair value adjustment
– other
Model-related
– model limitation
– other
Inception profit (Day 1 P&L reserves) (Note 16)
At 31 December
2015
$m
1,402
477
95
853
(465)
442
0
97
92
5
97
1,596
2014
$m
1,958
539
357
871
(270)
460
1
57
52
5
114
2,129
Fair value adjustments declined by $533m during the year. The most significant movement was a decline of $262m in respect
of the uncertainty category, driven by the reclassification to model limitation of an adjustment relating to derivative
discounting assumptions. This adjustment reduced significantly following contract renegotiations with certain counterparties.
The debit valuation adjustment increased by $195m as a result of the widening of HSBC’s credit spreads.
Risk-related adjustments
Bid-offer
IFRS 13 ‘Fair value measurement’ requires use of the price within the bid-offer spread that is most representative of fair value.
Valuation models will typically generate mid-market values. The bid-offer adjustment reflects the extent to which bid-offer
costs would be incurred if substantially all residual net portfolio market risks were closed using available hedging instruments
or by disposing of or unwinding the position.
Uncertainty
Certain model inputs may be less readily determinable from market data, and/or the choice of model itself may be more
subjective. In these circumstances, there exists a range of possible values that the financial instrument or market parameter
may assume and an adjustment may be necessary to reflect the likelihood that in estimating the fair value of the financial
instrument, market participants would adopt more conservative values for uncertain parameters and/or model assumptions
than those used in the valuation model.
Credit valuation adjustment
The CVA is an adjustment to the valuation of over-the-counter (‘OTC’) derivative contracts to reflect within fair value the
possibility that the counterparty may default and that HSBC may not receive the full market value of the transactions (see
below).
Debit valuation adjustment
The DVA is an adjustment to the valuation of OTC derivative contracts to reflect within fair value the possibility that HSBC may
default, and that HSBC may not pay full market value of the transactions (see below).
Funding fair value adjustment
The funding fair value adjustment (‘FFVA’) is calculated by applying future market funding spreads to the expected future
funding exposure of any uncollateralised component of the OTC derivative portfolio. This includes the uncollateralised
component of collateralised derivatives in addition to derivatives that are fully uncollateralised. The expected future funding
exposure is calculated by a simulation methodology, where available. The expected future funding exposure is adjusted for
events that may terminate the exposure such as the default of HSBC or the counterparty. The FFVA and DVA are calculated
independently.
Model-related adjustments
Model limitation
Models used for portfolio valuation purposes may be based upon a simplifying set of assumptions that do not capture all
material market characteristics. Additionally, markets evolve, and models that were adequate in the past may require
development to capture all material market characteristics in current market conditions. In these circumstances, model
limitation adjustments are adopted. As model development progresses, model limitations are addressed within the valuation
models and a model limitation adjustment is no longer needed.
HSBC HOLDINGS PLC
381
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
13 – Fair values of financial instruments carried at fair value
Inception profit (Day 1 P&L reserves)
Inception profit adjustments are adopted when the fair value estimated by a valuation model is based on one or more
significant unobservable inputs. The accounting for inception profit adjustments is discussed on page 378.
Credit valuation adjustment/debit valuation adjustment methodology
HSBC calculates a separate CVA and DVA for each HSBC legal entity, and within each entity for each counterparty to which the
entity has exposure. HSBC calculates the CVA by applying the probability of default (‘PD’) of the counterparty, conditional on
the non-default of HSBC, to HSBC’s expected positive exposure to the counterparty and multiplying the result by the loss
expected in the event of default. Conversely, HSBC calculates the DVA by applying the PD of HSBC, conditional on the non-
default of the counterparty, to the expected positive exposure of the counterparty to HSBC and multiplying the result by the
loss expected in the event of default. Both calculations are performed over the life of the potential exposure.
For most products HSBC uses a simulation methodology to calculate the expected positive exposure to a counterparty. This
incorporates a range of potential exposures across the portfolio of transactions with the counterparty over the life of the portfolio.
The simulation methodology includes credit mitigants such as counterparty netting agreements and collateral agreements with the
counterparty.
For certain types of exotic derivatives where the products are not currently supported by the simulation, or for derivative
exposures in smaller trading locations where the simulation tool is not yet available, HSBC adopts alternative methodologies.
The methodologies do not, in general, account for ‘wrong-way risk’. Wrong-way risk arises when the underlying value of the
derivative prior to any CVA is positively correlated to the probability of default by the counterparty. When there is significant
wrong-way risk, a trade-specific approach is applied to reflect the wrong-way risk within the valuation.
With the exception of certain central clearing parties, we include all third-party counterparties in the CVA and DVA calculations
and do not net these adjustments across Group entities. We review and refine the CVA and DVA methodologies on an ongoing
basis.
Fair value valuation bases
Financial instruments measured at fair value using a valuation technique with significant unobservable inputs – Level 3
Available
for sale
$m
Held for
trading
$m
Private equity including strategic
investments
Asset-backed securities
Loans held for securitisation
Structured notes
Derivatives with monolines
Other derivatives
Other portfolios
At 31 December 2015
Private equity including strategic
investments
Asset-backed securities
Loans held for securitisation
Structured notes
Derivatives with monolines
Other derivatives
Other portfolios
At 31 December 2014
3,443
1,053
–
–
–
–
231
4,727
3,120
1,462
–
–
–
–
406
4,988
55
531
30
4
–
–
6,236
6,856
164
616
39
2
–
–
5,647
6,468
Assets
At fair
value1
$m
Deriva-
tives
$m
453
–
–
–
–
–
21
474
432
–
–
–
–
–
294
26
726
–
–
–
–
196
2,066
–
2,262
–
–
–
–
239
2,685
–
2,924
Total
$m
3,951
1,584
30
4
196
2,066
6,488
14,319
3,716
2,078
39
2
239
2,685
6,347
15,106
Held for
trading
$m
35
–
–
4,250
–
–
–
4,285
47
–
–
6,092
–
–
–
6,139
Liabilities
Deriva-
tives
At fair
value1
$m
$m
–
–
–
–
–
1,210
–
1,210
–
–
–
–
1
1,906
–
1,907
Total
$m
35
–
–
4,250
–
1,210
3
5,498
47
–
–
6,092
1
1,906
–
8,046
–
–
–
–
–
–
3
3
–
–
–
–
–
–
–
–
1 Designated at fair value through profit or loss.
Level 3 instruments are present in both ongoing and legacy businesses. Loans held for securitisation, derivatives with
monolines, certain ‘other derivatives’ and predominantly all Level 3 ABSs are legacy positions. HSBC has the capability to hold
these positions.
Private equity including strategic investments
HSBC’s private equity and strategic investments are generally classified as available for sale and are not traded in active
markets. In the absence of an active market, an investment’s fair value is estimated on the basis of an analysis of the investee’s
financial position and results, risk profile, prospects and other factors, as well as by reference to market valuations for similar
entities quoted in an active market, or the price at which similar companies have changed ownership.
HSBC HOLDINGS PLC
382
Asset-backed securities
While quoted market prices are generally used to determine the fair value of these securities, valuation models are used to
substantiate the reliability of the limited market data available and to identify whether any adjustments to quoted market
prices are required. For ABSs including residential mortgage-backed securities, the valuation uses an industry standard model
and the assumptions relating to prepayment speeds, default rates and loss severity based on collateral type, and performance,
as appropriate. The valuations output is benchmarked for consistency against observable data for securities of a similar nature.
Loans, including leveraged finance and loans held for securitisation
Loans held at fair value are valued from broker quotes and/or market data consensus providers when available. In the absence
of an observable market, the fair value is determined using alternative valuation techniques. These techniques include
discounted cash flow models, which incorporate assumptions regarding an appropriate credit spread for the loan, derived
from other market instruments issued by the same or comparable entities.
Structured notes
The fair value of structured notes valued using a valuation technique with significant unobservable inputs is derived from the
fair value of the underlying debt security, and the fair value of the embedded derivative is determined as described in the
paragraph below on derivatives.
Level 3 structured notes principally comprise equity-linked notes which are issued by HSBC and provide the counterparty with
a return that is linked to the performance of certain equity securities, and other portfolios. The notes are classified as Level 3
due to the unobservability of parameters such as long-dated equity volatilities and correlations between equity prices,
between equity prices and interest rates and between interest rates and foreign exchange rates.
Derivatives
OTC (i.e. non-exchange traded) derivatives are valued using valuation models. Valuation models calculate the present value of
expected future cash flows, based upon ‘no-arbitrage’ principles. For many vanilla derivative products, such as interest rate
swaps and European options, the modelling approaches used are standard across the industry. For more complex derivative
products, there may be some differences in market practice. Inputs to valuation models are determined from observable
market data wherever possible, including prices available from exchanges, dealers, brokers or providers of consensus pricing.
Certain inputs may not be observable in the market directly, but can be determined from observable prices via model
calibration procedures or estimated from historical data or other sources. Examples of inputs that may be unobservable
include volatility surfaces, in whole or in part, for less commonly traded option products, and correlations between market
factors such as foreign exchange rates, interest rates and equity prices.
Derivative products valued using valuation techniques with significant unobservable inputs include certain types of correlation
products, such as foreign exchange basket options, equity basket options, foreign exchange interest rate hybrid transactions
and long-dated option transactions. Examples of the latter are equity options, interest rate and foreign exchange options and
certain credit derivatives. Credit derivatives include certain tranched CDS transactions.
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
HSBC HOLDINGS PLC
383
Notes on the Financial Statements (continued)
13 – Fair values of financial instruments carried at fair value
Reconciliation of fair value measurements in Level 3 of the fair value hierarchy
The following table provides a reconciliation of the movement between opening and closing balances of Level 3 financial
instruments, measured at fair value using a valuation technique with significant unobservable inputs:
Liabilities
Designated
at fair value
through
profit or loss Derivatives
$m
$m
Derivatives
$m
2,924
95
Held for
trading
$m
6,139
(573)
95
(573)
–
–
–
(126)
–
(4)
(122)
–
–
–
(38)
(1,015)
422
2,262
89
89
–
–
–
–
–
(118)
–
–
(118)
2
1,471
(66)
(1,260)
(1,743)
433
4,285
384
384
–
–
–
(1)
–
(1)
–
–
(1)
–
–
(1)
9
–
(4)
–
–
–
3
(1)
–
(1)
–
1,907
(209)
(209)
–
–
–
(64)
–
–
(64)
–
–
–
(241)
(283)
100
1,210
267
267
–
–
Movement in Level 3 financial instruments
Assets
At 1 January 2015
Total gains/(losses) recognised in profit or loss
– trading income/(expense) excluding net
Available
for sale
$m
4,988
(34)
Held for
trading
$m
6,468
109
interest income
–
109
– net income from other financial
instruments designated at fair value
– gains less losses from financial investments
– loan impairment charges and other credit
risk provisions
Total gains/(losses) recognised in other
comprehensive income1
– available-for-sale investments:
fair value gains
– cash flow hedges: fair value gains/(losses)
– exchange differences
Purchases
New issuances
Sales
Settlements
Transfers out
Transfers in
At 31 December 2015
Unrealised gains/(losses) recognised in profit
or loss relating to assets and liabilities held
at 31 December 2015
– trading income/(expense) excluding net
interest income
– net income/(expense) from other financial
instruments designated at fair value
– loan impairment charges and other credit
risk provisions
–
(269)
235
226
393
–
(167)
594
–
(757)
(32)
(1,471)
1,213
4,727
235
–
–
235
–
–
–
(192)
–
–
(192)
1,745
–
(1,206)
(146)
(206)
284
6,856
(9)
(9)
–
–
Designated
at fair value
through
profit or loss
$m
726
30
–
30
–
–
(11)
–
–
(11)
250
–
(50)
(135)
(336)
–
474
12
–
12
–
HSBC HOLDINGS PLC
384
Assets
At 1 January 2014
Total gains/(losses) recognised in profit or loss
– trading income/(expense) excluding net
interest income
– net income from other financial
instruments designated at fair value
– gains less losses from financial investments
– loan impairment charges and other credit
risk provisions
Total gains/(losses) recognised in other
comprehensive income1
– available-for-sale investments:
fair value gains/(losses)
– cash flow hedges: fair value gains/(losses)
– exchange differences
Purchases
New issuances
Sales
Settlements
Transfers out
Transfers in
At 31 December 2014
Unrealised gains/(losses) recognised in profit
or loss relating to assets and liabilities held
at 31 December 2014
– trading income/(expense) excluding net
interest income
– net income from other financial
instruments designated at fair value
– loan impairment charges and other credit
risk provisions
Available
for sale
$m
7,245
174
–
–
198
(24)
126
208
–
(82)
1,505
–
(1,237)
(1,255)
(3,027)
1,457
4,988
(24)
–
–
(24)
Held for
trading
$m
5,347
194
194
–
(178)
–
–
(178)
705
–
(481)
(49)
(112)
1,042
6,468
1
1
–
–
Designated
at fair value
through
profit or loss
$m
Derivatives
$m
608
56
–
56
(16)
–
–
(16)
273
–
(149)
(78)
–
32
726
46
–
46
–
2,502
959
959
–
(126)
–
(9)
(117)
–
–
–
27
(544)
106
2,924
946
946
–
–
Held for
trading
$m
7,514
(25)
(25)
–
(123)
–
–
(123)
(31)
2,067
–
(1,655)
(1,918)
310
6,139
(122)
(122)
–
–
Liabilities
Designated
at fair value
through
profit or loss Derivatives
$m
$m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,335
(5)
(5)
–
54
–
34
20
–
–
–
(69)
(527)
119
1,907
134
134
–
–
1 Included in ‘Available-for-sale investments: fair value gains/(losses)’ and ‘Exchange differences’ in the consolidated statement of comprehensive
income.
In 2015 movement of Level 3 available-for-sale assets are driven by ABS activity, predominantly in the securities investment
conduits. Transfers out of Level 3 available-for-sale assets demonstrates increased confidence in pricing and price coverage,
and transfers in reflect limited availability of third-party prices. Increase in Level 3 held for trading assets is driven by an
increase in recently-issued syndicated loans. The decline in Level 3 held for trading liabilities reflects a decline in the
outstanding balance of Level 3 equity-linked notes, both as a result of market movement and reduced issuance. The decline in
Level 3 derivative assets and liabilities reflects market movement.
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
HSBC HOLDINGS PLC
385
Notes on the Financial Statements (continued)
13 – Fair values of financial instruments carried at fair value
Effect of changes in significant unobservable assumptions to reasonably possible alternatives
Sensitivity of Level 3 fair values to reasonably possible alternative assumptions
Reflected in
profit or loss
Reflected in
other comprehensive income
Favourable
changes
$m
Unfavourable
changes
$m
Favourable
changes
$m
Unfavourable
changes
$m
Derivatives, trading assets and trading liabilities1
Financial assets and liabilities designated at fair value
Financial investments: available for sale
At 31 December 2015
Derivatives, trading assets and trading liabilities1
Financial assets and liabilities designated at fair value
Financial investments: available for sale
At 31 December 2014
335
24
35
394
296
37
51
384
(215)
(24)
(30)
(269)
(276)
(47)
(67)
(390)
–
–
230
230
–
–
270
270
–
–
(243)
(243)
–
–
(350)
(350)
1 Derivatives, trading assets and trading liabilities are presented as one category to reflect the manner in which these financial instruments are
risk managed.
The effect of favourable changes is broadly unchanged over the period. The decrease in the effect of unfavourable changes
reflects increased price certainty in respect of private equity and certain legacy funding structures, offset by greater syndicated
loan uncertainty as a result of the increased Level 3 balance.
Sensitivity of fair values to reasonably possible alternative assumptions by Level 3 instrument type
Reflected in profit or loss
Favourable
changes
$m
Unfavourable
changes
$m
Reflected in other
comprehensive income
Favourable
changes
$m
Unfavourable
changes
$m
Private equity including strategic investments
Asset-backed securities
Loans held for securitisation
Structured notes
Derivatives with monolines
Other derivatives
Other portfolios
At 31 December 2015
Private equity including strategic investments
Asset-backed securities
Loans held for securitisation
Structured notes
Derivatives with monolines
Other derivatives
Other portfolios
At 31 December 2014
54
18
1
15
11
179
116
394
77
49
1
14
11
129
103
384
(53)
(12)
(1)
(11)
(11)
(87)
(94)
(269)
(110)
(22)
(1)
(9)
(11)
(155)
(82)
(390)
152
57
–
–
–
–
21
230
172
60
–
–
–
–
38
270
(171)
(51)
–
–
–
–
(21)
(243)
(255)
(55)
–
–
–
–
(40)
(350)
Favourable and unfavourable changes are determined on the basis of sensitivity analysis. 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 available data is not amenable to statistical analysis, the quantification of uncertainty is judgemental, but remains
guided by the 95% confidence interval.
When the fair value of a financial instrument is affected by more than one unobservable assumption, the above table reflects
the most favourable or the most unfavourable change from varying the assumptions individually.
Key unobservable inputs to Level 3 financial instruments
The table below lists key unobservable inputs to Level 3 financial instruments, and provides the range of those inputs as at
31 December 2015. The core range of inputs is the estimated range within which 90% of the inputs fall. A further description
of the categories of key unobservable inputs is given below.
HSBC HOLDINGS PLC
386
Quantitative information about significant unobservable inputs in Level 3 valuations
Fair value
Liabilities Valuation technique
$m
Key unobservable
inputs
Full range of inputs
Core range of inputs
Private equity including strategic investments
Asset-backed securities
– CLO/CDO1
Other ABSs
Loans held for securitisation
Structured notes
– equity-linked notes
– fund-linked notes
– FX-linked notes
– other
Derivatives with monolines
Other derivatives
Interest rate derivatives:
– securitisation swaps
– long-dated swaptions
– other
FX derivatives:
– FX options
– other
Equity derivatives:
– long-dated single stock options
– other
Credit derivatives:
– other
Other portfolios
– structured certificates
– EM corporate debt
– other2
At 31 December 2015
3
8
7
H
S
B
C
H
O
L
D
N
G
S
P
L
C
I
Assets
$m
3,951
1,584
511
1,073
30
4
–
–
–
4
196
2,066
250
1,237
176
180
10
135
39
39
6,488
4,434
210
1,844
14,319
35 See notes on page 389
See notes on page 389
–
– Model – Discounted cash flow
Market proxy
Prepayment rate
Bid quotes
–
–
4,250
3,719 Model – Option model
Model – Option model
13 Model – Option model
166 Model – Option model
352
Equity volatility
Equity correlation
Fund volatility
FX volatility
– Model – Discounted cash flow
Credit spread
1,210
455 Model – Discounted cash flow
119 Model – Option model
Prepayment rate
IR volatility
65
Lower
n/a
1%
3
12%
35%
6%
5%
4%
0%
3%
Higher
n/a
6%
147
72%
93%
8%
35%
4%
90%
66%
Lower
n/a
1%
54
19%
43%
6%
5%
4%
14%
20%
186 Model – Option model
FX volatility
0.5%
35%
5%
5
191 Model – Option model
170
Equity volatility
8%
104%
18%
19
3
– Model – Discounted cash flow
–
Credit volatility
Market proxy
Bid quotes
3
5,498
2%
70
4%
124
2%
100
Higher
n/a
6%
117
43%
79%
8%
20%
4%
71%
41%
14%
44%
4%
123
Shareholder Information
Financial Statements
Governance
Operating & Financial Review
Overview
Quantitative information about significant unobservable inputs in Level 3 valuations (continued)
Fair value
Liabilities Valuation technique
$m
Key unobservable
inputs
Full range of inputs
Core range of inputs
Private equity including strategic investments
Asset-backed securities
– CLO/CDO1
Other ABSs
Loans held for securitisation
Structured notes
– equity-linked notes
– fund-linked notes
– FX-linked notes
– other
Derivatives with monolines
Other derivatives
Interest rate derivatives:
– securitisation swaps
– long-dated swaptions
– other
FX derivatives:
– FX options
– other
Equity derivatives:
– long-dated single stock options
– other
Credit derivatives:
– other
Other portfolios
– structured certificates
– EM corporate debt
– other2
At 31 December 2014
3
8
8
H
S
B
C
H
O
L
D
N
G
S
P
L
C
I
Assets
$m
3,716
2,078
1,122
956
39
2
–
–
2
–
239
2,685
449
1,044
755
89
7
192
34
115
6,347
4,420
372
1,555
15,106
1 Collateralised loan obligation/collateralised debt obligation.
2 Includes a range of smaller asset holdings.
47 See notes on page 389
See notes on page 389
–
– Model – Discounted cash flow
Market proxy
Prepayment rate
Bid quotes
–
–
6,092
4,744 Model – Option model
Model – Option model
562 Model – Option model
477 Model – Option model
309
Equity volatility
Equity correlation
Fund volatility
FX volatility
1 Model – Discounted cash flow
Credit spread
1,906
1,023 Model – Discounted cash flow
152 Model – Option model
151
Prepayment rate
IR volatility
Lower
n/a
1%
0
0.2%
27%
6%
2%
3%
0%
2%
Higher
n/a
6%
100
65%
92%
8%
70%
5%
50%
59%
Lower
n/a
1%
54
18%
44%
6%
4%
4%
6%
16%
4%
95 Model – Option model
FX volatility
0.1%
70%
7
256 Model – Option model
162
60
Equity volatility
9%
65%
16%
–
– Model – Discounted cash flow
– Market proxy
Market proxy
Credit volatility
Credit spread
Bid quotes
0.8%
1%
58
3%
4%
131
0.8%
1%
106
–
8,046
Higher
n/a
6%
85
38%
79%
8%
16%
4%
18%
36%
14%
40%
3%
3%
130
1
3
–
F
a
l
i
r
v
a
u
e
s
o
f
f
i
n
a
n
c
i
a
l
i
n
s
t
r
u
m
e
n
t
s
c
a
r
r
i
e
d
a
t
f
a
i
r
v
a
u
e
l
N
o
t
e
s
o
n
t
h
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
(
c
o
n
t
i
n
u
e
d
)
Private equity including strategic investments
Given the bespoke nature of the analysis in respect of each holding, it is not practical to quote a range of key unobservable
inputs.
Prepayment rates
Prepayment rates are a measure of the anticipated future speed at which a loan portfolio will be repaid in advance of the due
date. They are an important input into modelled values of ABSs. A modelled price may be used where insufficient observable
market prices exist to enable a market price to be determined directly. Prepayment rates are also an important input into the
valuation of derivatives linked to securitisations. They vary according to the nature of the loan portfolio and expectations of
future market conditions, and may be estimated using a variety of evidence, such as prepayment rates implied from proxy
observable security prices, current or historical prepayment rates and macroeconomic modelling.
Market proxy
Market proxy pricing may be used for an instrument for which specific market pricing is not available, but evidence is available
in respect of instruments that have some characteristics in common. In some cases it might be possible to identify a specific
proxy, but more generally evidence across a wider range of instruments will be used to understand the factors that influence
current market pricing and the manner of that influence.
The range of prices used as inputs into a market proxy pricing methodology may therefore be wide. This range is not indicative
of the uncertainty associated with the price derived for an individual security.
Volatility
Volatility is a measure of the anticipated future variability of a market price, tending to increase in stressed market conditions
and decrease in calmer market conditions. It is an important input in the pricing of options. In general, the higher the volatility,
the more expensive the option will be. This reflects both the higher probability of an increased return from the option and the
potentially higher costs that HSBC may incur in hedging the risks associated with the option. If option prices become more
expensive, this increases the value of HSBC’s long option positions (i.e. the positions in which HSBC has purchased options),
while HSBC’s short option positions (i.e. the positions in which HSBC has sold options) suffer losses.
Volatility varies by underlying reference market price, and by strike and maturity of the option. Volatility also varies over time.
As a result, it is difficult to make general statements regarding volatility levels.
Certain volatilities, typically those of a longer-dated nature, are unobservable. The unobservable volatility is then estimated
from observable data. The range of unobservable volatilities quoted in the table on page 387 reflects the wide variation in
volatility inputs by reference market price. The core range is significantly narrower than the full range because these examples
with extreme volatilities occur relatively rarely within the HSBC portfolio. For any single unobservable volatility, the
uncertainty in the volatility determination is significantly less than the range quoted above.
Correlation
Correlation is a measure of the inter-relationship between two market prices and is expressed as a number between minus
one and one. A positive correlation implies that the two market prices tend to move in the same direction, with a correlation
of one implying that they always move in the same direction. A negative correlation implies that the two market prices tend
to move in opposite directions, with a correlation of minus one implying that the two market prices always move in opposite
directions. Correlation is used to value more complex instruments where the payout is dependent upon more than one market
price. There is a wide range of instruments for which correlation is an input, and consequently a wide range of both same-asset
correlations (e.g. equity-equity correlation) and cross-asset correlations (e.g. foreign exchange rate-interest rate correlation) is
used. In general, the range of same-asset correlations will be narrower than the range of cross-asset correlations.
Correlation may be unobservable. Unobservable correlations may be estimated based upon a range of evidence, including
consensus pricing services, HSBC trade prices, proxy correlations and examination of historical price relationships.
The range of unobservable correlations quoted in the table reflects the wide variation in correlation inputs by market price
pair. For any single unobservable correlation, the uncertainty in the correlation determination is likely to be less than the range
quoted above.
Credit spread
Credit spread is the premium over a benchmark interest rate required by the market to accept lower credit quality. In
a discounted cash flow model, the credit spread increases the discount factors applied to future cash flows, thereby reducing
the value of an asset. Credit spreads may be implied from market prices. Credit spreads may not be observable in more illiquid
markets.
HSBC HOLDINGS PLC
389
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
14 – Fair values of financial instruments not carried at fair value
Inter-relationships between key unobservable inputs
Key unobservable inputs to Level 3 financial instruments may not be independent of each other. As described above, market
variables may be correlated. This correlation typically reflects the manner in which different markets tend to react to
macroeconomic or other events. Furthermore, the effect of changing market variables upon the HSBC portfolio will depend on
HSBC’s net risk position in respect of each variable.
HSBC Holdings
The following table provides an analysis of the basis for valuing financial assets and financial liabilities measured at fair value in
the financial statements:
Basis of valuing HSBC Holdings’ financial assets and liabilities measured at fair value
Valuation technique using observable inputs: Level 2
Assets at 31 December
Derivatives
Available for sale
Liabilities at 31 December
Designated at fair value
Derivatives
14 Fair values of financial instruments not carried at fair value
Fair values of financial instruments not carried at fair value and bases of valuation
2015
$m
2,467
4,285
19,853
2,278
2014
$m
2,771
4,073
18,679
1,169
Fair value
Valuation techniques
Quoted
market
price
Level 1
$m
Using
observable
inputs
Level 2
$m
With
significant
unobservable
inputs
Level 3
$m
–
–
–
1,163
–
–
–
–
–
–
–
–
1,418
–
–
–
146
–
88,156
12,412
145,307
44,076
54,295
1,280,368
80,400
89,023
24,344
109,087
13,598
160,600
37,671
77,300
1,336,865
107,432
94,325
28,806
2,255
910,057
959
19
76
9,421
–
–
649
3,046
959,239
1,123
74
98
13,730
–
1,932
1,248
Total
$m
90,411
922,469
146,266
45,258
54,371
1,289,789
80,400
89,023
24,993
112,133
972,837
161,723
39,163
77,398
1,350,595
107,432
96,403
30,054
Carrying
amount
$m
90,401
924,454
146,255
44,102
54,371
1,289,586
80,400
88,949
22,702
112,149
974,660
161,713
37,751
77,426
1,350,642
107,432
95,947
26,664
Assets and liabilities not held for sale at 31 December 2015
Assets
Loans and advances to banks
Loans and advances to customers
Reverse repurchase agreements – non-trading
Financial investments: debt securities
Liabilities
Deposits by banks
Customer accounts
Repurchase agreements – non-trading
Debt securities in issue
Subordinated liabilities
Assets and liabilities not held for sale at 31 December 2014
Assets
Loans and advances to banks
Loans and advances to customers
Reverse repurchase agreements – non-trading
Financial investments: debt securities
Liabilities
Deposits by banks
Customer accounts
Repurchase agreements – non-trading
Debt securities in issue
Subordinated liabilities
Fair values are determined according to the hierarchy set out in Note 13.
Other financial instruments not carried at fair value are typically short-term in nature and re-price to current market rates
frequently. Accordingly, their carrying amount is a reasonable approximation of fair value. This includes cash and balances at
central banks, items in the course of collection from and transmission to other banks, Hong Kong Government certificates of
indebtedness and Hong Kong currency notes in circulation, all of which are measured at amortised cost.
HSBC HOLDINGS PLC
390
Carrying amount and fair value of loans and advances to customers by industry sector
2015
Loans and advances to customers
– personal
– corporate and commercial
– financial
2014
Loans and advances to customers
– personal
– corporate and commercial
– financial
2015
Loans and advances to customers
– personal
– corporate and commercial
– financial
2014
Loans and advances to customers
– personal
– corporate and commercial
– financial
Carrying amount at 31 December
Not impaired
$m
Impaired
$m
907,698
361,716
485,933
60,049
954,710
377,154
527,168
50,388
16,756
9,487
7,145
124
19,950
11,800
8,016
134
Fair value at 31 December
Not impaired
$m
Impaired
$m
906,696
359,559
487,196
59,941
954,347
375,615
528,361
50,371
15,773
9,024
6,592
157
18,490
10,721
7,642
127
Total
$m
924,454
371,203
493,078
60,173
974,660
388,954
535,184
50,522
Total
$m
922,469
368,583
493,788
60,098
972,837
386,336
536,003
50,498
Loans and advances to customers are classified as not impaired or impaired in accordance with the criteria described on
page 128.
Analysis of loans and advances to customers by geographical segment
Loans and advances to customers
Europe
Asia
Middle East and North Africa
North America
Latin America
At 31 December
Valuation
2015
2014
Carrying amount
$m
Fair value
$m
Carrying amount
$m
Fair value
$m
392,041
356,375
29,894
128,851
17,293
924,454
392,540
355,249
29,614
127,532
17,534
922,469
409,733
362,955
29,063
129,787
43,122
974,660
413,373
361,412
28,658
126,232
43,162
972,837
The fair value measurement is HSBC’s estimate of the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date. It does not reflect the economic benefits and
costs that HSBC expects to flow from the instruments’ cash flows over their expected future lives. Other reporting entities may
use different valuation methodologies and assumptions in determining fair values for which no observable market prices are
available.
Fair values of the following assets and liabilities are estimated for the purpose of disclosure as described below:
Loans and advances to banks and customers
The fair value of loans and advances is based on observable market transactions, where available. In the absence of observable
market transactions, fair value is estimated using valuation models that incorporate a range of input assumptions. These
assumptions may include value estimates from third-party brokers which reflect over-the-counter trading activity, forward
looking discounted cash flow models using assumptions which HSBC believes are consistent with those which would be used
by market participants in valuing such loans, and trading inputs from other market participants which include observed
primary and secondary trades.
HSBC HOLDINGS PLC
391
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
14 – Fair values of financial instruments not carried at fair value / 15 – Financial assets designated at fair value
Loans are grouped, as far as possible, into homogeneous groups and stratified by loans with similar characteristics to improve
the accuracy of estimated valuation outputs. The stratification of a loan book considers all material factors including vintage,
origination period, estimates of future interest rates, prepayment speeds, delinquency rates, loan-to-value ratios, the quality
of collateral, default probability, and internal credit risk ratings.
The fair value of a loan reflects both loan impairments at the balance sheet date and estimates of market participants’
expectations of credit losses over the life of the loans, and the fair value effect of re-pricing between origination and the
balance sheet date.
The fair value of loans and advances to customers in North America was lower than the carrying amount, primarily in the US,
reflecting the market conditions at the balance sheet date. This was due to the challenging economic conditions during the past
number of years, including house price depreciation, rising unemployment, changes in consumer behaviour, changes in
discount rates and the lack of financing options available to support the purchase of loans and advances. The relative fair
values increased during 2015, largely due to improved conditions in the housing industry driven by increased property values
and, to a lesser extent, lower required market yields and increased investor demand for these types of loans and advances.
The fair value of loans and advances to customers in Europe is now broadly in line with carrying value, as new business from
both new and existing customers reflects the current low interest rate environment.
Financial investments
The fair values of listed financial investments are determined using bid market prices. The fair values of unlisted financial
investments are determined using valuation techniques that take into consideration the prices and future earnings streams of
equivalent quoted securities.
Deposits by banks and customer accounts
Fair values are estimated using discounted cash flows, applying current rates offered for deposits of similar remaining
maturities. The fair value of a deposit repayable on demand is approximated by its carrying value.
Debt securities in issue and subordinated liabilities
Fair values are determined using quoted market prices at the balance sheet date where available, or by reference to quoted
market prices for similar instruments.
Repurchase and reverse repurchase agreements – non-trading
Fair values are estimated by using discounted cash flows, applying current rates. Fair values approximate carrying amounts as
their balances are generally short dated.
HSBC Holdings
The methods used by HSBC Holdings to determine fair values of financial instruments for the purpose of measurement and
disclosure are described above.
Fair values of HSBC Holdings’ financial instruments not carried at fair value on the balance sheet
Assets at 31 December
Loans and advances to HSBC undertakings
Liabilities at 31 December
Amounts owed to HSBC undertakings
Debt securities in issue
Subordinated liabilities
2015
Carrying
amount
$m
44,350
2,152
960
15,895
Fair
value1
$m
45,180
2,152
1,224
18,297
2014
Carrying
amount
$m
Fair
value1
$m
43,910
45,091
2,892
1,009
17,255
2,906
1,357
20,501
1 Fair values were determined using valuation techniques with observable inputs (Level 2).
HSBC HOLDINGS PLC
392
15 Financial assets designated at fair value
Accounting policy
Financial instruments, other than those held for trading, are classified in this category if they meet one or more of the criteria set out below,
and are so designated irrevocably at inception. HSBC may designate financial instruments at fair value when the designation:
• eliminates or significantly reduces measurement or recognition inconsistencies that would otherwise arise from measuring financial
instruments or recognising gains and losses on different bases from related positions. Under this criterion, the main class of financial
assets designated by HSBC are financial assets under unit-linked insurance and unit-linked investment contracts. Liabilities to customers
under linked contracts are determined based on the fair value of the assets held in the linked funds. If no fair value designation was made
for the related assets, the assets would be classified as available for sale, with changes in fair value recorded in other comprehensive
income. The related financial assets and liabilities are managed and reported to management on a fair value basis. Designation at fair
value of the financial assets and related liabilities allows the changes in fair values to be recorded in the income statement and presented
in the same line;
• applies to groups of financial instruments that are managed, and their performance evaluated, on a fair value basis in accordance with a
documented risk management or investment strategy, and where information about the groups of financial instruments is reported to
management on that basis. For example, certain financial assets are held to meet liabilities under non-linked insurance contracts. HSBC
has documented risk management and investment strategies designed to manage and monitor the market risk of those assets on a net
basis, after considering non-linked liabilities. Fair value measurement is also consistent with the regulatory reporting requirements under
the appropriate regulations for those insurance operations; and
• relates to financial instruments containing one or more non-closely related embedded derivatives.
Designated financial assets are recognised at fair value when HSBC enters into contracts with counterparties, which is generally on trade
date, and are normally derecognised when sold. Subsequent changes in fair values are recognised in the income statement in ‘Net income
from financial instruments designated at fair value’.
Financial assets designated at fair value
Financial assets designated at fair value:
– not subject to repledge or resale by counterparties
– which may be repledged or resold by counterparties
At 31 December
Treasury and other eligible bills
Debt securities
Equity securities
Securities designated at fair value
Loans and advances to banks and customers
At 31 December
Securities designated at fair value1
US Treasury and US Government agencies2
UK Government
Hong Kong Government
Other government
Asset-backed securities3
Corporate debt and other securities
Equities
At 31 December
2015
$m
23,852
–
23,852
396
4,341
18,995
23,732
120
23,852
2015
$m
145
103
33
1,020
25
3,411
18,995
23,732
1 Included within these figures are debt securities issued by banks and other financial institutions of $1,536m (2014: $1,388m), of which $35m
(2014: $24m) are guaranteed by various governments.
2 Includes securities that are supported by an explicit guarantee issued by the US Government.
3 Excludes asset-backed securities included under US Treasury and US Government agencies.
Securities listed on a recognised exchange and unlisted
Fair value
Listed1
Unlisted
At 31 December 2015
Treasury
and other
eligible bills
$m
–
396
396
Debt
securities
$m
2,458
1,883
4,341
Equity
securities
$m
11,690
7,305
18,995
HSBC HOLDINGS PLC
393
2014
$m
28,357
680
29,037
56
8,891
20,006
28,953
84
29,037
2014
$m
8
140
40
4,088
18
4,653
20,006
28,953
Total
$m
14,148
9,584
23,732
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
16 – Derivatives
Securities listed on a recognised exchange and unlisted (continued)
Fair value
Listed1
Unlisted
At 31 December 2014
Treasury
and other
eligible bills
$m
5
51
56
Debt
securities
$m
2,731
6,160
8,891
Equity
securities
$m
13,837
6,169
20,006
Total
$m
16,573
12,380
28,953
1 Included within listed investments are $1,181m of investments listed on a recognised exchange in Hong Kong (2014: $1,361m).
16 Derivatives
Accounting policy
Derivatives
Derivatives are financial instruments that derive their value from the price of underlying items such as equities, bonds, interest rates, foreign
exchange, credit spreads, commodities and equity or other indices. Derivatives are recognised initially, and are subsequently measured, at
fair value. Fair values of derivatives are obtained either from quoted market prices or by using valuation techniques. Derivatives are classified
as assets when their fair value is positive or as liabilities when their fair value is negative.
Embedded derivatives are bifurcated from the host contract when their economic characteristics and risks are not clearly and closely related
to those of the host non-derivative contract, their terms would otherwise meet the definition of a stand-alone derivative and the combined
contract is not held for trading or designated at fair value. The bifurcated embedded derivatives are measured at fair value with changes
therein recognised in the income statement.
Derivative assets and liabilities arising from different transactions are only offset for accounting purposes if the offsetting criteria presented
in Note 32 are met.
Gains and losses from changes in the fair value of derivatives, that do not qualify for hedge accounting are reported in ‘Net trading income’.
Gains and losses on derivatives managed in conjunction with financial instruments designated at fair value are reported in ‘Net income from
financial instruments designated at fair value’ together with the gains and losses on the economically hedged items. Where the derivatives
are managed with debt securities issued by HSBC that are designated at fair value, the contractual interest is shown in ‘Interest expense’
together with the interest payable on the issued debt.
Hedge accounting
When derivatives are designated in hedge relationships, HSBC classifies them as either: (i) hedges of the change in fair value of recognised
assets or liabilities or firm commitments (‘fair value hedges’); (ii) hedges of the variability in highly probable future cash flows attributable to
a recognised asset or liability, or a forecast transaction (‘cash flow hedges’); or (iii) a hedge of a net investment in a foreign operation (‘net
investment hedges’).
HSBC formally designates and documents each hedge relationship from inception, setting out the risk management objective and strategy
for undertaking the hedge along with the specifically identified hedging instrument, hedged item or transaction, the nature of the risk being
hedged and the method for assessing hedge effectiveness. The method selected to assess hedge effectiveness will depend on the risk
management strategy.
To qualify for hedge accounting, HSBC requires that a hedge must be expected to be highly effective at inception and on an ongoing basis for the
duration of the hedge relationship with each hedge relationship subject to an ongoing retrospective and prospective hedge effectiveness assessment.
Fair value hedge
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, along with
changes in the fair value of the hedged assets or liabilities attributable to the hedged risk.
If a hedge relationship no longer meets the criteria for hedge accounting, hedge accounting is discontinued; the cumulative adjustment
to the carrying amount of the hedged item is amortised to the income statement on a recalculated effective interest rate over the residual
period to maturity, unless the hedged item has been derecognised, in which case it is recognised in the income statement immediately.
Cash flow hedge
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other
comprehensive income; the ineffective portion of the change in fair value is recognised immediately in the income statement within ‘Net
trading income’.
The accumulated gains and losses recognised in other comprehensive income are reclassified to the income statement in the same periods in
which the hedged item affects profit or loss. In hedges of forecast transactions that result in recognition of a non-financial asset or liability,
previous gains and losses recognised in other comprehensive income are included in the initial measurement of the asset or liability.
When a hedge relationship is discontinued, any cumulative gain or loss recognised in other comprehensive income remains in equity until
the forecast transaction is recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative
gain or loss previously recognised in other comprehensive income is immediately reclassified to the income statement.
HSBC HOLDINGS PLC
394
Net investment hedge
Hedges of net investments in foreign operations are accounted for in a similar way to cash flow hedges. A gain or loss on the effective
portion of the hedging instrument is recognised in other comprehensive income; the residual change in fair value is recognised immediately
in the income statement. Gains and losses previously recognised in other comprehensive income are reclassified to the income statement on
the disposal, or part disposal, of the foreign operation.
Derivatives that do not qualify for hedge accounting
Non-qualifying hedges are derivatives entered into as economic hedges of assets and liabilities for which hedge accounting was not applied.
Fair values of derivatives by product contract type held by HSBC
Foreign exchange
Interest rate
Equities
Credit
Commodity and other
Gross total fair values
Offset (Note 32)
At 31 December 2015
Foreign exchange
Interest rate
Equities
Credit
Commodity and other
Gross total fair values
Offset (Note 32)
At 31 December 2014
Trading
$m
95,201
277,496
8,732
6,961
3,148
391,538
95,584
471,379
11,694
9,340
3,884
591,881
Assets
Hedging
$m
1,140
1,658
–
–
–
2,798
1,728
1,864
–
–
–
3,592
Total
$m
96,341
279,154
8,732
6,961
3,148
394,336
(105,860)
288,476
97,312
473,243
11,694
9,340
3,884
595,473
(250,465)
345,008
Trading
$m
94,843
267,609
10,383
6,884
2,699
382,418
95,187
463,456
13,654
10,061
3,508
585,866
Liabilities
Hedging
$m
755
3,758
–
–
–
4,513
572
4,696
–
–
–
5,268
Derivative assets and liabilities decreased during 2015, primarily driven by ‘portfolio compression’ exercises, with a
corresponding decrease in the offset amount.
Fair values of derivatives by product contract type held by HSBC Holdings with subsidiaries
Foreign exchange
Interest rate
At 31 December 2015
Foreign exchange
Interest rate
At 31 December 2014
Use of derivatives
Trading
$m
390
1,600
1,990
680
1,607
2,287
Assets
Hedging
$m
–
477
477
–
484
484
Total
$m
390
2,077
2,467
680
2,091
2,771
Trading
$m
2,065
–
2,065
1,066
–
1,066
Liabilities
Hedging
$m
213
–
213
103
–
103
Total
$m
95,598
271,367
10,383
6,884
2,699
386,931
(105,860)
281,071
95,759
468,152
13,654
10,061
3,508
591,134
(250,465)
340,669
Total
$m
2,278
–
2,278
1,169
–
1,169
For details regarding use of derivatives, see page 171 under Market Risk.
Trading derivatives
Most of HSBC’s derivative transactions relate to sales and trading activities. Sales activities include the structuring and
marketing of derivative products to customers to enable them to take, transfer, modify or reduce current or expected risks.
Trading activities include market-making and risk management. Market-making entails quoting bid and offer prices to other
market participants for the purpose of generating revenues based on spread and volume. Risk management activity is
undertaken to manage the risk arising from client transactions, with the principal purpose of retaining client margin. Other
derivatives classified as held for trading include non-qualifying hedging derivatives.
Substantially all of HSBC Holdings’ derivatives entered into with subsidiaries are managed in conjunction with financial
liabilities designated at fair value.
The notional contract amounts of derivatives held for trading purposes indicate the nominal value of transactions outstanding
at the balance sheet date; they do not represent amounts at risk.
HSBC HOLDINGS PLC
395
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
16 – Derivatives
Notional contract amounts of derivatives held for trading purposes by product type
Foreign exchange
Interest rate
Equities
Credit
Commodity and other
At 31 December
Credit derivatives
HSBC
2015
$m
5,658,030
14,462,113
501,834
463,344
51,683
21,137,004
2014
$m
5,548,075
22,047,278
568,932
550,197
77,565
28,792,047
HSBC Holdings
2015
$m
19,036
10,150
–
–
–
29,186
2014
$m
15,595
8,650
–
–
–
24,245
HSBC trades credit derivatives through its principal dealing operations and acts as a principal counterparty to a broad range of
users, structuring transactions to produce risk management products for its customers or making markets in certain products.
Risk is typically controlled through entering into offsetting credit derivative contracts with other counterparties.
HSBC manages the credit risk arising on buying and selling credit derivative protection by including the related credit exposures
within its overall credit limit structure for the relevant counterparty. Trading of credit derivatives is restricted to a small number
of offices within the major centres which have the control infrastructure and market skills to manage effectively the credit risk
inherent in the products.
Credit derivatives are also deployed to a limited extent for the risk management of the Group’s loan portfolios. The notional
contract amount of credit derivatives of $463bn (2014: $550bn) consisted of protection bought of $237bn (2014: $272bn) and
protection sold of $226bn (2014: $278bn). The credit derivative business operates within the market risk management
framework described on page 211.
Derivatives valued using models with unobservable inputs
The difference between the fair value at initial recognition (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, is as
follows:
Unamortised balance of derivatives valued using models with significant unobservable inputs
Unamortised balance at 1 January
Deferral on new transactions
Recognised in the income statement during the year:
– amortisation
– subsequent to unobservable inputs becoming observable
– maturity, termination or offsetting derivative
– risk hedged
Exchange differences
Unamortised balance at 31 December1
1 This amount is yet to be recognised in the consolidated income statement.
Hedge accounting derivatives
2015
$m
114
196
(207)
(121)
(2)
(84)
–
(6)
97
2014
$m
167
177
(234)
(114)
(13)
(107)
–
4
114
HSBC uses derivatives (principally interest rate swaps) for hedging purposes in the management of its asset and liability
portfolios and structural positions. This enables HSBC to optimise the overall cost to the Group of accessing debt capital
markets, and to mitigate the market risk which would otherwise arise from structural imbalances in the maturity and other
profiles of its assets and liabilities.
The notional contract amounts of derivatives designated in qualifying hedge accounting relationships indicate the nominal
value of transactions outstanding at the balance sheet date; they do not represent amounts at risk.
HSBC HOLDINGS PLC
396
Notional contract amounts of derivatives designated in qualifying hedge accounting relationships by product type
HSBC
2015
2014
Cash flow
hedge
$m
32,128
107,796
139,924
Fair value
hedge
$m
196
105,127
105,323
Cash flow
hedge
$m
25,340
190,902
216,242
Foreign exchange
Interest rate
At 31 December
Fair value hedges
HSBC Holdings
2015
Fair value
hedge
2014
Fair value
hedge
$m
$m
$m
Fair value
hedge
–
90,338
90,338
1,120
5,132
6,252
1,120
5,477
6,597
HSBC’s fair value hedges principally consist of interest rate swaps that are used to protect against changes in the fair value of
fixed-rate long-term financial instruments due to movements in market interest rates.
Fair values of derivatives designated as fair value hedges
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
2015
Assets
$m
Liabilities
$m
2014
Assets
$m
Liabilities
$m
i
w
e
v
e
R
HSBC
Foreign exchange
Interest rate
At 31 December
HSBC Holdings
Foreign exchange
Interest rate
At 31 December
Gains or losses arising from fair value hedges
HSBC
Gains/(losses):
– on hedging instruments
– on the hedged items attributable to the hedged risk
Year ended 31 December
HSBC Holdings
Gains/(losses):
– on hedging instruments
– on the hedged items attributable to the hedged risk
Year ended 31 December
Cash flow hedges
2
672
674
–
477
477
–
3,395
3,395
213
–
213
2015
$m
40
(51)
(11)
(4)
6
2
–
387
387
–
484
484
2014
$m
(2,542)
2,561
19
423
(422)
1
–
4,012
4,012
103
–
103
2013
$m
1,997
(1,932)
65
14
(21)
(7)
HSBC’s cash flow hedges consist principally of interest rate swaps, futures and cross-currency swaps that are used to protect
against exposures to variability in future interest cash flows on non-trading assets and liabilities which bear interest at variable
rates or which are expected to be re-funded or reinvested in the future. The amounts and timing of future cash flows,
representing both principal and interest flows, are projected for each portfolio of financial assets and liabilities on the basis of
their contractual terms and other relevant factors, including estimates of prepayments and defaults. The aggregate principal
balances and interest cash flows across all portfolios over time form the basis for identifying gains and losses on the effective
portions of derivatives designated as cash flow hedges of forecast transactions.
Fair values of derivatives designated as cash flow hedges
Foreign exchange
Interest rate
At 31 December
2015
2014
Assets
$m
1,027
986
2,013
Liabilities
$m
748
363
1,111
Assets
$m
1,673
1,477
3,150
Liabilities
$m
572
684
1,256
HSBC HOLDINGS PLC
397
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
16 – Derivatives / 17 – Financial investments
Forecast principal balances on which interest cash flows are expected to arise
Net cash inflows/(outflows) exposure
Assets
Liabilities
At 31 December 2015
Net cash inflows/(outflows) exposure
Assets
Liabilities
At 31 December 2014
3 months
or less
$m
More than 3
months but less
than 1 year
$m
5 years or less
but more than
1 year
$m
More than
5 years
$m
94,256
(16,241)
78,015
131,694
(60,814)
70,880
93,528
(17,179)
76,349
122,728
(46,582)
76,146
62,664
(11,681)
50,983
79,529
(36,371)
43,158
971
(3,326)
(2,355)
959
(8,169)
(7,210)
This table reflects the interest rate repricing profile of the underlying hedged items.
During the year to 31 December 2015 a gain of $15m (2014: gain of $34m; 2013: gain of $22m) was recognised due to hedge
ineffectiveness.
Hedges of net investments in foreign operations
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 31 December 2015, the fair values of outstanding financial instruments designated as hedges of net investments in foreign
operations were assets of $111m (2014: $55m), liabilities of $12m (2014: $1m) and notional contract values of $4,210m
(2014: $3,525m).
Ineffectiveness recognised in ‘Net trading income’ in the year ended 31 December 2015 was nil (2014 and 2013: nil).
17 Financial investments
Accounting policy
Treasury bills, debt securities and equity securities intended to be held on a continuing basis, other than those designated at fair value, are
classified as available for sale or held to maturity. They are recognised on the trade date when HSBC enters into contractual arrangements to
purchase those instruments, and are normally derecognised when either the securities are sold or redeemed.
(i) Available-for-sale financial assets are initially measured at fair value plus direct and incremental transaction costs. They are subsequently
remeasured at fair value, and changes therein are recognised in other comprehensive income until the assets are either sold or become
impaired. When available-for-sale financial assets are sold, cumulative gains or losses previously recognised in other comprehensive
income are recognised in the income statement as ‘Gains less losses from financial investments’.
Interest income is recognised over a debt security’s expected life. Premiums and/or discounts arising on the purchase of dated debt
securities are included in the interest recognised. Dividends from equity assets are recognised in the income statement when the right to
receive payment is established.
(ii) Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that HSBC
positively intends and is able to hold to maturity. Held-to-maturity investments are initially recorded at fair value plus any directly
attributable transaction costs, and are subsequently measured at amortised cost, less any impairment losses.
The accounting policy relating to impairments of available-for-sale securities is presented in Note 1.
Available-for-sale financial assets are reclassified to held to maturity if there is a change in intention or ability to hold those assets to
maturity due to a change in the way they are managed. The fair value on reclassification becomes the new amortised cost and the assets
are subsequently carried at amortised cost rather than fair value.
Financial investments
Financial investments:
– not subject to repledge or resale by counterparties
– which may be repledged or resold by counterparties
At 31 December
2015
$m
420,905
8,050
428,955
2014
$m
380,419
35,048
415,467
HSBC HOLDINGS PLC
398
Carrying amount and fair value of financial investments
2015
2014
Treasury and other eligible bills
– available for sale
Debt securities
– available for sale
– held to maturity
Equity securities
– available for sale
At 31 December
Financial investments at amortised cost and fair value
Carrying
amount
$m
104,551
104,551
318,569
274,467
44,102
5,835
5,835
428,955
Fair
value
$m
104,551
104,551
319,725
274,467
45,258
5,835
5,835
430,111
US Treasury
US Government agencies3
US Government sponsored entities3
UK Government
Hong Kong Government
Other government
Asset-backed securities4
Corporate debt and other securities
Equities
At 31 December 2015
US Treasury
US Government agencies3
US Government sponsored entities3
UK Government
Hong Kong Government
Other government
Asset-backed securities4
Corporate debt and other securities
Equities
At 31 December 2014
US Treasury
US Government agencies3
US Government sponsored entities3
UK Government
Hong Kong Government
Other government
Asset-backed securities4
Corporate debt and other securities
Equities
At 31 December 2013
Carrying
amount
$m
81,517
81,517
323,256
285,505
37,751
10,694
10,694
415,467
Amortised
cost1
$m
61,585
22,910
10,365
27,250
53,676
141,329
14,239
89,860
4,057
425,271
33,931
18,326
9,339
28,680
43,573
159,846
20,911
84,387
7,421
406,414
50,369
19,211
5,263
23,565
49,570
153,619
25,961
87,469
8,081
423,108
Fair
value
$m
81,517
81,517
324,668
285,505
39,163
10,694
10,694
416,879
Fair
value2
$m
61,779
22,843
10,627
27,316
53,674
143,370
13,375
91,292
5,835
430,111
34,745
18,516
9,761
29,758
43,574
163,402
19,177
87,252
10,694
416 8 9
416,879
50,421
18,771
5,445
23,580
49,579
156,208
24,115
88,999
9,140
426,258
1 Represents the amortised cost or cost basis of the financial investment.
2 Included within ‘Fair value’ figures are debt securities issued by banks and other financial institutions of $61bn (2014: $54bn; 2013: $55bn), of which
$18bn (2014: $9bn; 2013: $9bn) are guaranteed by various governments.
3 Includes securities that are supported by an explicit guarantee issued by the US Government.
4 Excludes asset-backed securities included under US Government agencies and sponsored entities.
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
HSBC HOLDINGS PLC
399
Notes on the Financial Statements (continued)
17 – Financial investments / 18 – Assets charged as security and collateral accepted
Financial investments listed and unlisted
Carrying amount
Listed1
Unlisted2
At 31 December 2015
Carrying amount
Listed1
Unlisted2
At 31 December 2014
Treasury and
other eligible
bills available
for sale
$m
6,151
98,400
104
1
104,551
4,101
77,416
81,517
Debt
securities
available
for sale
$m
170,271
104,196
274,467
168,879
116,626
285,505
Debt
securities
held to
maturity
$m
Equity
securities
available
for sale
$m
9,565
34,537
44,102
6,037
31,714
37,751
842
4,993
5,835
5,928
4,766
10,694
Total
$m
186,829
242,126
428,955
184,945
230,522
415,467
1 The fair value of listed held-to-maturity debt securities as at 31 December 2015 was $10bn (2014: $6bn). Included within listed investments were $5bn
(2014: $4bn) of investments listed on a recognised exchange in Hong Kong.
2 Unlisted treasury and other eligible bills available for sale primarily comprise treasury bills not listed on an exchange but for which there is a liquid
market.
Maturities of investments in debt securities at their carrying amount
Available for sale
Held to maturity
At 31 December 2015
Available for sale
Held to maturity
At 31 December 2014
1 year or less
$m
5 years or less
but over 1 year
$m
10 years or less
but over 5 years
$m
61,664
2,428
64,092
68,344
1,396
69,740
131,023
10,242
141,265
134,815
9,622
144,437
42,140
8,881
51,021
44,938
7,087
52,025
Over 10 years
$m
39,640
22,551
62,191
37,408
19,646
57,054
Total
$m
274,467
44,102
318,569
285,505
37,751
323,256
Contractual maturities and weighted average yields of investment debt securities
Available for sale
US Treasury
US Government agencies
US Government-sponsored agencies
UK Government
Hong Kong Government
Other governments
Asset-backed securities
Corporate debt and other securities
Total amortised cost at 31 December 2015
Total carrying value
Held to maturity
US Treasury
US Government agencies
US Government-sponsored agencies
Hong Kong Government
Other governments
Asset-backed securities
Corporate debt and other securities
Total amortised cost at 31 December 2015
Total carrying value
Within one year
Amount
$m
Yield
%
After one year but
within five years
Amount
$m
Yield
%
After five years but within
ten years
After ten years
Amount
$m
Yield Amount
$m
%
Yield
%
9,316
–
8
2,479
674
37,197
18
12,285
61,977
61,664
2
–
–
4
59
–
2,363
2,428
2,428
0.5
–
5.3
1.7
0.5
2.0
1.4
1.5
0.9
–
–
0.7
5.5
–
3.0
20,352
6
3,029
8,005
1,408
60,899
657
35,210
129,566
131,023
76
13
112
44
217
–
9,780
10,242
10,242
1.2
4.2
3.0
1.3
1.1
2.4
1.4
1.4
4.9
1.4
1.3
1.4
4.7
–
3.5
12,805
33
911
8,518
–
10,312
2,530
5,937
41,046
42,140
46
30
597
16
184
–
8,008
8,881
8,881
3.3
2.5
3.0
0.1
–
3.0
1.3
3.0
4.2
2.4
2.9
1.4
4.6
6.5
4.1
2.1
3.9
2.2
1.4
–
2.9
1.3
1.9
4.8
4.0
2.7
1.8
5.3
–
3.7
3,594
13,575
1,716
1,215
–
2,543
11,027
6,287
39,957
39,640
119
9,254
3,991
9
725
7
8,446
22,551
22,551
The maturity distributions of ABSs are presented in the above table on the basis of contractual maturity dates. The weighted
average yield for each range of maturities is calculated by dividing the annualised interest income for the year ended
31 December 2015 by the book amount of available-for-sale debt securities at that date. The yields do not include the effect
of related derivatives.
HSBC HOLDINGS PLC
400
18 Assets charged as security for liabilities, assets transferred and collateral accepted as
security for assets
Financial assets pledged to secure liabilities
Treasury bills and other eligible securities
Loans and advances to banks
Loans and advances to customers
Debt securities
Equity securities
Other
Assets pledged at 31 December
2015
$m
5,941
15,582
88,927
69,470
4,644
213
184,777
2014
$m
5,170
17,294
77,960
138,991
11,373
6,079
256,867
The above table shows assets over which a charge has been granted to secure liabilities on a legal and contractual basis. The
total amount may be greater than the book value of assets utilised as collateral for funding purposes or to cover liabilities, for
example, in the case of securitisations and covered bonds where the amount of liabilities issued plus any mandatory over-
collateralisation is less than the book value of financial assets available for funding or collateral purposes in the relevant pool
of assets. This is also the case where financial assets are placed with a custodian or a settlement agent which has a floating
charge over all the financial assets placed to secure any liabilities under settlement accounts.
These transactions are conducted under terms that are usual and customary to collateralised transactions including, where
relevant, standard securities lending, repurchase agreements and derivative margining. HSBC places both cash and non-cash
collateral in relation to derivative transactions.
Assets transferred
Accounting policy
Derecognition of financial assets
Financial assets are derecognised when the contractual rights to receive cash flows from the assets have expired; or when HSBC has
transferred its contractual right to receive the cash flows of the financial assets, and either:
• substantially all the risks and rewards of ownership have been transferred; or
• HSBC has neither retained nor transferred substantially all the risks and rewards, but has not retained control.
The financial assets shown above include amounts transferred to third parties that do not qualify for derecognition, notably
debt securities held by counterparties as collateral under repurchase agreements and equity securities lent under securities
lending agreements. As the substance of these transactions is secured borrowings, the asset collateral continues to be
recognised in full and the related liability reflecting the Group’s obligation to repurchase the transferred assets for a fixed price
at a future date is also recognised on the balance sheet. As a result of these transactions, the Group is unable to use, sell or
pledge the transferred assets for the duration of the transaction. The Group remains exposed to interest rate risk and credit
risk on these pledged instruments. The counterparty’s recourse is not limited to the transferred assets.
Transferred financial assets not qualifying for full derecognition and associated financial liabilities
At 31 December 2015
Repurchase agreements
Securities lending agreements
Other sales (recourse to transferred asset only)
Securitisations recognised to the extent of continuing
Carrying
amount of
assets before
transfer
$m
Carrying
amount of
transferred
assets
$m
36,153
5,275
2,717
Carrying
amount of
associated
liabilities
$m
Fair
value of
transferred
assets
$m
Fair
value of
associated
liabilities
$m
Net
position
$m
35,913
5,704
2,768
2,720
2,726
involvement
17,427
5
2
5
2
At 31 December 2014
Repurchase agreements
Securities lending agreements
Other sales (recourse to transferred asset only)
Securitisations recognised to the extent of continuing
78,541
13,177
3,775
79,141
10,643
4,049
4,007
4,018
involvement
17,427
11
5
11
5
HSBC HOLDINGS PLC
401
(6)
3
(11)
6
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
Notes on the Financial Statements (continued)
19 – Interests in associates and joint ventures
Collateral accepted as security for assets
The fair value of assets accepted as collateral in relation to reverse repo, securities borrowing and derivative margining that
HSBC is permitted to sell or repledge in the absence of default was $222,065m (2014: $269,019m). The fair value of any such
collateral sold or repledged was $139,532m (2014: $163,342m). HSBC is obliged to return equivalent securities.
These transactions are conducted under terms that are usual and customary to standard securities borrowing, reverse
repurchase agreements and derivative margining.
19 Interests in associates and joint ventures
Accounting policy
Investments in which HSBC, together with one or more parties, has joint control of an arrangement set up to undertake an economic activity
are classified as joint ventures. HSBC classifies investments in entities over which it has significant influence, and that are neither subsidiaries
(Note 21) nor joint ventures, as associates.
Investments in associates and interests in joint ventures are recognised using the equity method. Under this method, such investments are
initially stated at cost, including attributable goodwill, and are adjusted thereafter for the post-acquisition change in HSBC’s share of net
assets. Goodwill arises on the acquisition of interests in joint ventures and associates when the cost of investment exceeds HSBC’s share of
the net fair value of the associate’s or joint venture’s identifiable assets and liabilities.
Investments in associates and joint ventures are tested for impairment when there is an indication that the investment may be impaired.
Goodwill on acquisitions of interests in joint ventures and associates is not tested separately for impairment.
Profits on transactions between HSBC and its associates and joint ventures are eliminated to the extent of HSBC’s interest in the respective
associates or joint ventures. Losses are also eliminated to the extent of HSBC’s interest in the associates or joint ventures unless the
transaction provides evidence of an impairment of the asset transferred.
Critical accounting estimates and judgements
Impairment of interests in associates
Impairment testing involves significant judgement in determining the value in use, and in particular estimating the present values of
cash flows expected to arise from continuing to hold the investment.
The most significant judgements relate to the impairment testing of our investment in Bank of Communications (‘BoCom’). Key assumptions
used in estimating BoCom’s value in use, the sensitivity of the value in use calculation to different assumptions and a sensitivity analysis that
shows the changes in key assumptions that would reduce the excess of value in use over the carrying amount (the ‘headroom’) to nil are
described below.
Associates
At 31 December 2015, the carrying amount of HSBC’s interests in associates was $18,900m (2014: $17,940m).
Principal associates of HSBC
Listed
Bank of Communications Co., Limited
The Saudi British Bank
At 31 December
2015
Carrying
amount
$m
15,344
3,021
18,365
Fair
value1
$m
9,940
3,957
13,897
2014
Carrying
amount
$m
14,590
2,811
17,401
Fair
value1
$m
13,140
6,220
19,360
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 Saudi British Bank
1 People’s Republic of China.
At 31 December 2015
Country of
incorporation
and principal
place of business
Principal
activity
PRC1 Banking services
Saudi Arabia Banking services
HSBC’s
interest
in equity
capital
Issued
equity
capital
19.03%
40.00%
RMB74,263m
SR15,000m
Details of all HSBC associates and joint ventures, as required under Section 409 of the Companies Act 2006, are set out on
pages 468 to 469.
HSBC had $15,344m (2014: $14,590m) of interests in associates listed in Hong Kong.
HSBC HOLDINGS PLC
402
Bank of Communications Co., Limited
HSBC’s investment in BoCom was equity accounted with effect from August 2004. Its significant influence in BoCom was
established as a result of representation on the Board of Directors and, in accordance with the Technical Cooperation and
Exchange Programme, HSBC is assisting in the maintenance of financial and operating policies and a number of staff have been
seconded to assist in this process.
Impairment testing
At 31 December 2015, the fair value of HSBC’s investment in BoCom had been below the carrying amount for approximately
44 months, apart from a short period in 2013 and briefly during the first half of 2015. As a result, the Group performed an
impairment test on the carrying amount of the investment in BoCom. The test confirmed that there was no impairment at
31 December 2015.
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
Bank of Communications Co., Limited
Basis of recoverable amount
At 31 December 2015
At 31 December 2014
VIU
$bn
17.0
Carrying
value
$bn
15.3
Fair
value
$bn
9.9
VIU
$bn
15.7
Carrying
value
$bn
14.6
Fair
value
$bn
13.1
i
w
e
v
e
R
The impairment test was performed by comparing the recoverable amount of BoCom, determined by a value in use (‘VIU’)
calculation, with its carrying amount. The VIU calculation uses discounted cash flow projections based on management’s
estimates of earnings. Cash flows beyond the short- to medium-term are then extrapolated in perpetuity using a long-term
growth rate. An imputed capital maintenance charge (‘CMC’) is calculated to reflect the expected regulatory capital
requirements, and is calculated as a deduction from forecast cash flows. The principal inputs to the CMC calculation include
estimates of asset growth, the ratio of risk-weighted assets to total assets, and the expected regulatory capital requirements.
Management judgement is required in estimating the future cash flows of BoCom.
Key assumptions in VIU calculation
Long-term growth rate: the growth rate used was 5% (2014: 5%) for periods after 2018 and does not exceed forecast GDP
growth in mainland China.
Long-term asset growth rate: the growth rate used was 4% (2014: 4%) for periods after 2018 and this is the rate of growth
required for an assumed 5% long-term growth rate in profit.
Discount rate: the discount rate of 13% (2014: 13%) is derived from a range of values obtained by applying a Capital Asset
Pricing Model (‘CAPM’) calculation for BoCom, using market data. Management supplements this by comparing the rates
derived from the CAPM with discount rates available from external sources, and HSBC’s discount rate for evaluating
investments in mainland China. The discount rate used is within the range of 10.1% to 14.2% (2014: 11.4% to 14.2%) indicated
by the CAPM and external sources.
Loan impairment charge as a percentage of customer advances: the ratio used ranges from 0.71% to 0.78% (2014: 0.73% to
1%) in the short- to medium-term and is based on the forecasts disclosed by external analysts. It was assumed that the
long-term ratio will stabilise at a rate of 0.70% (2014: 0.65%) which is slightly higher than the historical rate of 0.65%.
Risk-weighted assets as a percentage of total assets: the ratio used was 67% for all forecast periods (2014: 70% to 72% in the
short- to medium-term and 70% in the long-term). This is consistent with the forecasts disclosed by external analysts.
Cost-income ratio: the ratio used was 41% (2014: ranged from 40.0% to 42.4%) in the short- to medium-term. The ratios were
consistent with the short- to medium-term range forecasts of 40.3% to 40.7% (2014: 37.2% to 44.5%) disclosed by external
analysts.
Sensitivity analyses were performed on each key assumption to ascertain the impact of reasonably possible changes in
assumptions. The following change to each key assumption used on its own in the VIU calculation would reduce the headroom
to nil.
Key assumption
Changes to key assumption to reduce headroom to nil
• Long-term growth rate
• Long-term asset growth rate
• Discount rate
• Loan impairment charge as a percentage of customer advances
• Risk-weighted assets as a percentage of total assets
• Cost-income ratio
• Decrease by 62 basis points
•
Increase by 62 basis points
•
Increase by 82 basis points
•
Increase by 13 basis points
•
Increase by 5.4%
•
Increase by 2.8%
HSBC HOLDINGS PLC
403
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
19 – Interests in associates and joint ventures
The following table illustrates the effect on VIU of reasonably possible changes to key assumptions. This reflects the sensitivity
of VIU to each key assumption on its own and it is possible that more than one favourable and/or unfavourable change will
occur at the same time.
Favourable change
$bn
$bn
Current model
$bn
Unfavourable change
$bn
$bn
At 31 December 2015
Carrying amount: $15.3bn
Long-term growth rate
VIU
Increase/(decrease) in VIU
Long-term asset growth rate
VIU
Increase/(decrease) in VIU
Discount rate
VIU
Increase/(decrease) in VIU
+100bps
20.3
3.2
-50bps
18.2
1.2
-150bps
21.2
4.2
Loan impairment charge as a percentage of customer advances
70bps throughout
5%
17.0
4%
17.0
13%
17.0
-210bps
12.3
(4.7)
+100bps
14.3
(2.8)
+110bps
14.9
(2.1)
2015-18: 0.71% - 0.78%
2019 onwards: 0.70%
17.0
67% throughout
17.0
41% throughout
17.0
2015-18: 0.85%
2019 onwards: 0.75%
16.4
(0.7)
+10bps
17.0
(0.0)
+120bps
16.35
(0.7)
17.2
0.1
-350bps
18.2
1.2
-250bps
18.5
1.5
+50bp
17.0
1.3
-50bp
16.8
1.1
+100bp
18.6
2.9
-100bp
18.1
2.4
0.65% throughout
16.2
0.5
-100bp
16.0
0.3
-50bp
16.0
0.3
-200bp
16.3
0.6
-100bp
16.3
0.6
5%
15.7
13%
15.7
2014-18: 0.73% – 1%
2019 onwards: 0.65%
15.7
2014-18: 70% – 72%
2019 onwards: 70.0%
15.7
2014-18: 40.0% – 42.4%
2019 onwards: 42.4%
15.7
-50bp
14.5
(1.2)
+50bp
14.7
(1.0)
-100bp
13.4
(2.3)
+100bp
13.9
(1.8)
1% from 2014-18
2019 onwards: 0.65%
14.9
(0.8)
+100bp
15.4
(0.3)
+200bp
15.1
(0.6)
+50bp
+100bp
15.4
(0.3)
15.1
(0.6)
VIU
Increase/(decrease) in VIU
Risk-weighted assets as a percentage of total assets
VIU
Increase/(decrease) in VIU
Cost income ratio
VIU
Increase/(decrease) in VIU
At 31 December 2014
Carrying amount: $14.6bn
Long-term growth rate
VIU
Increase/(decrease) in VIU
Discount rate
VIU
Increase/(decrease) in VIU
Loan impairment charge as a percentage of customer advances
VIU
Increase/(decrease) in VIU
Risk-weighted assets as a percentage of total assets
VIU
Increase/(decrease) in VIU
Cost income ratio
VIU
Increase/(decrease) in VIU
Based on the forecasts disclosed by external analysts, management estimates that the reasonably possible range of VIU is
$12.4bn to $22.7bn.
Selected financial information of BoCom
The statutory accounting reference date of BoCom is 31 December. For the year ended 31 December 2015, HSBC included
the associate’s results on the basis of financial statements made up for the 12 months ended 30 September 2015, taking into
account changes in the subsequent period from 1 October 2015 to 31 December 2015 that would have materially affected the
results.
HSBC HOLDINGS PLC
404
Selected balance sheet information of BoCom
Cash and balances at central banks
Loans and advances to banks and other financial institutions
Loans and advances to customers
Other financial assets
Other assets
Total assets
Deposits by banks and other financial institutions
Customer accounts
Other financial liabilities
Other liabilities
Total liabilities
Total equity
At 30 September
2015
$m
144,702
110,915
560,503
244,722
49,246
2014
$m
150,306
79,960
547,706
178,883
45,140
1,110,088
1,001,995
261,211
691,959
46,932
29,329
1,029,431
80,657
209,935
663,745
28,860
25,361
927,901
74,094
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
Reconciliation of BoCom’s total shareholders’ equity to the carrying amount in HSBC’s consolidated financial statements as at
31 December
i
w
e
v
e
R
HSBC’s share of total shareholders’ equity
Add: Goodwill and other intangible assets
Carrying amount
Selected income statement information of BoCom
Net interest income
Net fee and commission income
Loan impairment charges
Depreciation and amortisation
Tax expense
Profit for the year
Other comprehensive income
Total comprehensive income
Dividends received from BoCom
Summarised aggregate financial information in respect of all associates excluding BoCom
Carrying amount
HSBC’s share of:
– total assets
– total liabilities
– revenues
– profit or loss from continuing operations
– other comprehensive income
– total comprehensive income
Joint ventures
At 30 September
2015
$m
14,824
520
15,344
2014
$m
14,040
550
14,590
For the 12 months ended
30 September
2015
$m
2014
$m
22,397
5,432
(3,772)
(1,012)
(2,976)
10,634
377
11,011
624
2015
$m
3,556
21,645
18,166
821
508
–
508
22,030
4,792
(3,509)
(920)
(3,102)
10,626
217
10,843
597
2014
$m
3,350
20,099
16,837
801
519
2
521
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
At 31 December 2015, the carrying amount of HSBC’s interests in joint ventures was $239m (2014: $241m).
Associates and joint ventures
For the year ended 31 December 2015, HSBC’s share of associates and joint ventures’ tax on profit was $575m (2014: $600m).
This is included within ‘Share of profit in associates and joint ventures’ in the income statement.
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
HSBC HOLDINGS PLC
405
Notes on the Financial Statements (continued)
20 – Goodwill and intangible assets
Movements in interests in associates and joint ventures
At 1 January
Additions
Disposals
Share of results
Dividends
Exchange differences
Share of other comprehensive income of associates and joint ventures
Other movements
At 31 December1
1 Includes goodwill of $593m (2014: $621m).
20 Goodwill and intangible assets
Goodwill
Present value of in-force long-term insurance business
Other intangible assets
At 31 December
Goodwill
Accounting policy
2015
$m
18,181
3
(8)
2,556
(879)
(718)
(9)
13
19,139
2015
$m
16,294
5,685
2,626
24,605
2014
$m
16,640
30
(133)
2,532
(757)
(212)
78
3
18,181
2014
$m
19,169
5,307
3,101
27,577
Goodwill arises on the acquisition of subsidiaries, when the aggregate of the fair value of the consideration transferred, the amount of any
non-controlling interest and the fair value of any previously held equity interest in the acquiree exceed the amount of the identifiable assets
acquired and liabilities assumed. If the amount of the identifiable assets and liabilities acquired is greater, the difference is recognised
immediately in the income statement.
Goodwill is allocated to cash-generating units (‘CGU’s) for the purpose of impairment testing, which is undertaken at the lowest level at
which goodwill is monitored for internal management purposes. HSBC’s CGU’s are based on geographical regions subdivided by global
business. Impairment testing is performed at least annually, or whenever there is an indication of impairment, by comparing the recoverable
amount of a CGU with its carrying amount. The carrying amount of a CGU is based on its assets and liabilities, including attributable goodwill.
The recoverable amount of a CGU is the higher of its fair value less cost to sell and its value in use. VIU is the present value of the expected
future CGU cash flows. If the recoverable amount is less than the carrying value, an impairment loss is charged to the income statement.
Goodwill is carried on the balance sheet at cost less accumulated impairment losses.
Goodwill is included in a disposal group if the disposal group is a CGU to which goodwill has been allocated or it is an operation within such a
CGU. The amount of goodwill included in a disposal group is measured on the basis of the relative values of the operation disposed of and
the portion of the CGU retained.
At the date of disposal of a business, attributable goodwill is included in HSBC’s share of net assets in the calculation of the gain or loss on
disposal.
Critical accounting estimates and judgements
Goodwill impairment
The review of goodwill for impairment reflects management’s best estimate of the future cash flows of the CGUs and the rates used to
discount these cash flows, both of which are subject to uncertain factors as follows:
•
the future cash flows of the CGUs are sensitive to the cash flows projected for the periods for which detailed forecasts are available and
to assumptions regarding the long-term pattern of sustainable cash flows thereafter. Forecasts are compared with actual performance
and verifiable economic data, but they reflect management’s view of future business prospects at the time of the assessment; and
•
the rates used to discount future expected cash flows can have a significant effect on their valuation and are based on the costs of capital
assigned to individual CGUs. The cost of capital percentage is generally derived from a CAPM, which incorporates inputs reflecting a
number of financial and economic variables, including the risk-free interest rate in the country concerned and a premium for the risk of
the business being evaluated. These variables are subject to fluctuations in external market rates and economic conditions beyond
management’s control, are subject to uncertainty and require the exercise of significant judgement.
The accuracy of forecast cash flows is subject to a high degree of uncertainty in volatile market conditions. In such circumstances, management
retests goodwill for impairment more frequently than annually when indicators of impairment exist to ensure that the assumptions on which
the cash flow forecasts are based continue to reflect current market conditions and management’s best estimate of future business
prospects.
HSBC HOLDINGS PLC
406
Movement analysis of goodwill
Gross amount
At 1 January 2015
Exchange differences
Reclassified to held for sale1
Other
At 31 December 2015
Accumulated impairment losses
At 1 January 2015
Other
At 31 December 2015
Europe
$m
13,207
(1,237)
−
1
11,971
−
−
−
Net carrying amount at 31 December 2015
11,971
Gross amount
At 1 January 2014
Disposals
Exchange differences
Reclassified to held for sale
Other
At 31 December 2014
Accumulated impairment losses
At 1 January 2014
Exchange differences
Other
At 31 December 2014
14,977
(168)
(1,594)
(8)
−
13,207
−
−
−
−
Asia
$m
1,009
(73)
−
59
995
−
−
−
995
1,016
−
(30)
−
23
1,009
−
−
−
−
Net carrying amount at 31 December 2014
13,207
1,009
MENA
$m
North
America
$m
Latin
America
$m
54
(4)
−
(5)
45
−
−
−
45
55
−
(1)
−
−
54
−
−
−
−
54
7,815
4
−
(30)
7,789
(5,923)
30
(5,893)
1,896
7,861
−
1
−
(47)
7,815
(5,971)
1
47
(5,923)
1,892
3,007
(300)
(1,319)
(1)
1,387
−
−
−
1,387
3,241
−
(240)
24
(18)
3,007
−
−
−
−
3,007
Total
$m
25,092
(1,610)
(1,319)
24
22,187
(5,923)
30
(5,893)
16,294
27,150
(168)
(1,864)
16
(42)
25,092
(5,971)
1
47
(5,923)
19,169
1 During 2015, $1.3bn of goodwill was reclassified to held for sale following the decision to sell our Brazilian operations. Goodwill was allocated based
on the relative carrying value of the operations in Brazil to the cash generating units in Latin America. See Note 23 for further details.
Impairment testing
HSBC’s impairment test in respect of goodwill allocated to each CGU is performed as at 1 July each year. A review for indicators
of impairment is undertaken at each subsequent quarter end and, as at 31 December 2015, this review identified indicators of
impairment for two CGUs, recognised as sensitive in the annual test performed as at 1 July. As a result, an impairment test has
been performed for Global Private Banking – Europe and Global Banking and Markets – North America as at 31 December
2015 and the goodwill balances, key assumptions and results of this test are included in the disclosures below. For all other
CGUs the annual test performed as at 1 July remains the latest impairment test and the disclosures given are as at 1 July. The
testing at both 1 July and 31 December resulted in no impairment of goodwill.
Basis of the recoverable amount
The recoverable amount of all CGUs to which goodwill has been allocated was equal to its VIU at each respective testing date
for 2014 and 2015.
For each significant CGU, the VIU is calculated by discounting management’s cash flow projections for the CGU. The discount
rate used is based on the cost of capital HSBC allocates to investments in the countries within which the CGU operates. The
long-term growth rate is used to extrapolate the cash flows in perpetuity because of the long-term perspective within the
Group of the business units making up the CGUs. For the goodwill impairment test conducted at 1 July 2015, management’s
cash flow projections until the end of 2019 were used. For the goodwill impairment test conducted at 31 December 2015,
management’s cash flow projections until the end of 2020 were used.
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
HSBC HOLDINGS PLC
407
Notes on the Financial Statements (continued)
20 – Goodwill and intangible assets
Key assumptions in VIU calculation
Cash-generating unit
Retail Banking and Wealth Management – Europe
Global Private Banking – Europe
Global Banking and Markets – Europe
Commercial Banking – Europe
Global Banking and Markets – North America
Retail Banking and Wealth Management – Latin America
Cash-generating unit
Retail Banking and Wealth Management – Europe
Global Private Banking – Europe
Global Banking and Markets – Europe
Commercial Banking – Europe
Global Banking and Markets – North America
Retail Banking and Wealth Management – Latin America
Goodwill at:
1 Jul 2015
$m
31 Dec 2015
$m
Nominal
growth rate
Discount beyond initial cash
flow projections
%
rate
%
3,343
931
3,562
3,414
2,690
2,603
929
792
1 Jul 2014
$m
4,298
3,808
3,296
3,214
917
1,762
6.9
8.4
9.9
9.0
10.0
11.0
9.1
7.1
11.0
10.1
9.8
12.8
3.3
2.5
3.5
3.6
4.3
6.9
4.5
3.4
4.2
4.2
4.6
7.9
At 1 July 2015, aggregate goodwill of $2,787m (1 July 2014: $3,610m) had been allocated to CGUs that were not considered
individually significant. The Group’s CGUs do not carry on their balance sheets any significant intangible assets with indefinite
useful lives, other than goodwill.
Management’s judgement in estimating the cash flows of a CGU: the cash flow projections for each CGU are based on plans
approved by the GMB.
Nominal long-term growth rate: this growth rate reflects GDP and inflation for the countries within which the CGU operates or
derives revenue from. The rates are based on IMF forecast growth rates as they represent an objective estimate of likely future
trends. The rates used for 2014 and 2015 do not exceed the long-term growth rates for the countries within which the CGUs
operate or derive revenue from.
Discount rate: the discount rate used to discount the cash flows is based on the cost of capital assigned to each CGU, which is
derived using a CAPM. The CAPM depends on inputs reflecting a number of financial and economic variables including the risk-
free rate and a premium to reflect the inherent risk of the business being evaluated. These variables are based on the market’s
assessment of the economic variables and management’s judgement. The discount rates for each CGU are refined to reflect
the rates of inflation for the countries within which the CGU operates. In addition, for the purposes of testing goodwill for
impairment, management supplements this process by comparing the discount rates derived using the internally generated
CAPM with cost of capital rates produced by external sources for businesses operating in similar markets. For 2014 and 2015,
internal cost of capital rates were consistent with externally sourced rates. For the purpose of goodwill testing during 2015,
internal rates were adjusted to reflect the uncertainty of the cash flows used in the test.
Sensitivities of key assumptions in calculating VIU
At 1 July 2015 Global Banking and Markets – Europe, and as at 31 December Global Banking and Markets – North America and
Global Private Banking – Europe, were all sensitive to reasonably possible changes in the key assumptions supporting the
recoverable amount. In making an estimate of reasonably possible changes to assumptions management considers the
available evidence in respect of each input to the model such as: the external range of discount rates observable; historical
performance against forecast; and risks attaching to the key assumptions underlying cash flow projections.
For Global Banking and Markets – North America, a reasonably possible adverse change in any one of the discount rate,
growth rate or management’s projections of cash flows could cause an impairment to be recognised. For Global Private
Banking – Europe, a reasonably possible adverse change in management’s projections of cash flows, or changes in more than
one assumption, could cause an impairment to be recognised. Global Banking and Markets – Europe, would require reasonably
possible adverse changes in more than one assumption to cause an impairment.
The following table presents a summary of the key assumptions underlying the most sensitive inputs to the model for each
CGU; the key risks attaching to each; and details of a reasonably possible change to assumptions where, in the opinion of
management, these could result in an impairment.
HSBC HOLDINGS PLC
408
Reasonably possible changes in key assumptions
Input
Key assumptions
Associated risks
Reasonably possible change
Cash-generating unit
Cash flow
projections
Retail Banking and
Wealth Management
– Europe
and Commercial
Banking – Europe
• Level of interest rates;
• Competitors’ positions within
the market; and
• Level and change in
unemployment rates.
• Uncertain regulatory
environment; and
• Customer remediation and
regulatory actions.
• Management has determined
that a reasonably possible change
in any of the key assumptions
would not cause an impairment
to be recognised.
Global Private
Banking – Europe
Cash flow
projections
• Achievement of planned strategic
• Challenges achieving strategic
• Cash flow projections decrease
repositioning;
• Level of assets under
management;
• Return on assets;
• Central bank interest rate rises;
and
• Cost savings from recent
investment in new platforms.
repositioning;
• Deferral or non-occurrence of
forecast interest rate rises; and
• Slower than expected growth in
assets under management.
by 20%.
Discount
rate
• Discount rate used is a reasonable
estimate of a suitable market rate
for the profile of the business.
• External evidence arises to
suggest that the rate used is not
appropriate to the business.
Long-term
growth rates
• Business growth will reflect GDP
growth rates in the long term.
• Growth does not match GDP or
GDP forecasts fall.
Global Banking and
Markets – Europe
Cash flow
projections
• Level of interest rates; and
• Recovery of European markets
over the forecast period.
• Deferral or non-occurrence of
forecast interest rate rises;
• Lower than expected growth in
key markets; and
• The impact of regulatory changes,
including the ring fencing of the
UK retail bank.
Discount
rate
• Discount rate used is a reasonable
estimate of a suitable market rate
for the profile of the business.
• External evidence arises to
suggest that the rate used is not
appropriate to the business.
Long-term
growth rates
• Business growth will reflect GDP
growth rates in the long term.
• Growth does not match GDP or
GDP forecasts fall.
Global Banking and
Markets – North
America
Cash flow
projections
• Deferral or non-occurrence of
forecast interest rate rises; and
• Lower than expected growth in
key markets.
• Level of interest rates;
• Growth in NAFTA, China, and
other major trade corridors;
• Product and sales enhancements
to increase market share; and
• Increased collaboration with the
CMB business to capture further
opportunities from existing
clients.
Discount
rate
• Discount rate used is a reasonable
estimate of a suitable market rate
for the profile of the business.
• External evidence arises to
suggest that the rate used is not
appropriate to the business.
Long-term
growth rates
• Business growth will reflect GDP
growth rates in the long term.
• Growth does not match GDP or
GDP forecasts fall.
• Discount rate increases by 60bps
based on observable broker
estimates for private banking
focused institutions.
• Real GDP growth does not
occur or is not reflected in
performance.
• Cash flow projections decrease
by 20%.
• Discount rate increases by 110
basis points, based on the high
end of the range of broker
estimates for comparator
European banks with significant
investment banking operations.
• Real GDP growth does not
occur or is not reflected in
performance.
• Cash flow projections decrease
by 20%.
• Discount rate increases by 100
basis points, based on the high
end of the range of broker
estimates for comparator US
banks with significant investment
banking operations.
• Real GDP growth does not
occur or is not reflected in
performance.
Retail Banking and
Wealth Management
– Latin America
Cash flow
projections
• Growth in lending and deposit
• Unfavourable economic
• Management has determined
volumes; and
• Credit quality of loan portfolios.
conditions; and
• Competitive pricing constraining
margins.
that a reasonably possible change
in any of the key assumptions
would not cause an impairment
to be recognised.
HSBC HOLDINGS PLC
409
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
20 – Goodwill and intangible assets
The following table presents the sensitivities of the VIU for each sensitive CGU to the reasonably possible adverse changes in
the assumptions set out above:
Sensitivity of VIU to reasonably possible changes in key assumptions
Reasonably possible change in key assumptions and impact on VIU
Carrying
amount
$bn
Value
in use
$bn
Discount
rate
bps
Impact
on VIU
$bn
Cash
flows
%
Impact on
VIU
$bn
Long-term
growth
rate
bps
Impact
on VIU
$bn
Cumulative
impact of
all changes
$bn
4.6
20.9
13.8
5.2
27.1
14.8
60
110
100
(0.5)
(3.9)
(2.2)
(20)
(20)
(20)
(1.0)
(5.4)
(3.0)
(76)
(0.5)
(1.8)
(213)
(5.6)
(11.9)
(215)
(3.3)
(6.6)
Cash-generating unit
Global Private Banking
– Europe1
Global Banking and Markets
– Europe2
Global Banking and Markets
– North America1
1 As at 31 December 2015.
2 As at 1 July 2015.
The following table presents for each sensitive CGU, the change required to individual current assumptions to reduce
headroom to nil (breakeven).
Changes to current assumptions to achieve nil headroom
Cash-generating unit
Global Private Banking – Europe1
Global Banking and Markets – Europe2
Global Banking and Markets – North America1
1 As at 31 December 2015.
2 As at 1 July 2015.
Intangible assets
Accounting policy
Increase/(decrease)
Discount
rate
bps
69
193
41
Cash
flow
%
(11.2)
(23.0)
(6.7)
Long-term
growth rate
bps
(86)
(245)
(50)
Intangible assets are recognised, and those that are acquired in a business combination are distinguished from goodwill, when they are
separable or arise from contractual or other legal rights, and it is probable that future economic benefits will flow to HSBC, the cost of which
can be measured reliably.
Intangible assets include the present value of in-force long-term insurance business and long-term investment contracts with discretionary
participating features (‘PVIF’), computer software, trade names, mortgage servicing rights, customer lists, core deposit relationships, credit
card customer relationships and merchant or other loan relationships. Computer software includes both purchased and internally generated
software. The cost of internally generated software comprises all directly attributable costs necessary to create, produce and prepare the
software to be capable of operating in the manner intended by management. Costs incurred in the ongoing maintenance of software are
expensed immediately as incurred.
Intangible assets are subject to impairment review if there are events or changes in circumstances that indicate that the carrying amount
may not be recoverable. Where:
•
intangible assets have an indefinite useful life, or are not yet ready for use, they are tested for impairment annually. An intangible asset
recognised during the current period is tested before the end of the current year; and where
•
intangible assets have a finite useful life, except for PVIF, they are stated at cost less amortisation and accumulated impairment losses
and are amortised over their estimated useful lives. Estimated useful life is the lower of legal duration and expected useful life.
Intangible assets with finite useful lives are generally amortised, on a straight-line basis, over their useful lives as follows:
Trade names
Mortgage servicing rights
Internally generated software
Purchased software
Customer/merchant relationships
Other
10 years
between 5 and 12 years
between 3 and 5 years
between 3 and 5 years
between 3 and 10 years
10 years
HSBC HOLDINGS PLC
410
Present value of in-force long-term insurance business
The value placed on insurance contracts that are classified as long-term insurance business or long-term investment contracts with
discretionary participating features (‘DPF’) and are in force at the balance sheet date is recognised as an asset. The asset represents the
present value of the equity holders’ interest in the issuing insurance companies’ profits expected to emerge from these contracts written
at the balance sheet date. The PVIF is determined by discounting the equity holders’ interest in future profits expected to emerge from
business currently in force using appropriate assumptions in assessing factors such as future mortality, lapse rates and levels of expenses,
and a risk discount rate that reflects the risk premium attributable to the respective contracts. The PVIF incorporates allowances for both
non-market risk and the value of financial options and guarantees. The PVIF asset is presented gross of attributable tax in the balance sheet
and movements in the PVIF asset are included in ‘Other operating income’ on a gross of tax basis.
Present value of in-force long-term insurance business
Movements in PVIF
PVIF at 1 January
Change in PVIF of long-term insurance business
Value of new business written during the year1
Movements arising from in-force business:
– expected return
– experience variances2
– changes in operating assumptions
Investment return variances
Changes in investment assumptions
Other adjustments
Transfer of assets classified as held for sale3
Exchange differences and other
PVIF at 31 December
2015
$m
5,307
799
809
(552)
15
129
222
138
38
(219)
(202)
2014
$m
5,335
261
870
(545)
62
(69)
(34)
(75)
52
(122)
(167)
5,685
5,307
1 ‘Value of new business written during the year’ is the present value of the projected stream of profits from the business.
2 ‘Experience variances’ includes the effect of the difference between demographic, expense and persistency assumptions used in the previous PVIF
calculation and actual experience observed during the year to the extent this affects profits on future business.
3 Relates to the Brazilian insurance operations and the UK pensions business which were classified as held for sale in the first half of 2015 and 2014
respectively. See page 180 for further details.
In the PVIF calculation, expected cash flows are projected after adjusting for a variety of assumptions made by each insurance
operation to reflect local market conditions and management’s judgement of future trends, and after applying risk margins to
reflect any uncertainty in the underlying assumptions. Variations in actual experience and changes to assumptions can
contribute to volatility in the results of the insurance business.
The key drivers of the movement in the value of the PVIF asset are the expected cash flows from:
• new business adjusted for anticipated maturities and assumptions relating to policyholder behaviour (‘value of new
business written during the year’);
• unwind of the discount rate less the reversal of expected cash flows for the period (‘expected return’);
• changes in non-economic operating assumptions such as mortality or lapse rates (‘changes in operating assumptions’);
• the effects of changes in projected future cash flows associated with operating assumption experience variances compared
with those assumed at the start of the period (‘experience variances’);
• changes related to future investment returns (‘changes in investment assumptions’); and
• the effect of actual investment experience on existing assets compared with the assumptions at the start of the period
(‘investment return variances’).
The valuation of the PVIF asset includes explicit risk margins for non-economic risks in the projection assumptions and explicit
allowances for financial options and guarantees using stochastic methods. Risk discount rates are set on an active basis with
reference to market risk-free yields.
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
HSBC HOLDINGS PLC
411
Notes on the Financial Statements (continued)
20 – Goodwill and intangible assets
Key assumptions used in the computation of PVIF for main life insurance operations
Economic assumptions are either set in a way that is consistent with observable market values or, in certain markets (including
those where the risk free curve is not observable at tenors matching the duration of our insurance contract liabilities) use is
made of long-term economic assumptions. Setting such assumptions involves the projection of long-term interest rates and
the time horizon over which observable rates tend towards these long-term assumptions. The assumptions are informed by
relevant historical data and by research and analysis performed by the Group’s Economic Research team and external experts,
including regulatory bodies. The valuation of PVIF will be sensitive to any changes in these long-term assumptions in the same
way that it is sensitive to observed market movements, and the impact of such changes is included in the sensitivities
presented below.
Weighted average risk free rate
Weighted average risk discount rate
Expense inflation
UK
%
1.75
2.25
4.56
2015
Hong Kong
%
1.82
6.81
3.00
France1
%
1.57
2.55
1.70
UK
%
1.65
2.15
4.67
2014
Hong Kong
%
1.86
7.42
3.00
France1
%
1.21
1.73
2.00
1 For 2015, the calculation of France’s PVIF assumes a risk discount rate of 2.55% (2014: 1.73%) plus a risk margin of $51m (2014: $63m).
Sensitivity to changes in economic assumptions
The Group sets the risk discount rate applied to the PVIF calculation by starting from a risk-free rate curve and adding explicit
allowances for risks not reflected in the best estimate cash flow modelling. Where shareholders provide options and
guarantees to policyholders the cost of these options and guarantees is an explicit reduction to PVIF, unless it is already
allowed for as an explicit addition to the technical provisions required by regulators. See page 184 for further details of these
guarantees.
The following table shows the effect on the PVIF of reasonably possible changes in the main economic assumption, risk-free
rates, across all insurance manufacturing subsidiaries. Due to certain characteristics of the contracts, the relationships are non-
linear and the results of the sensitivity testing should not be extrapolated to higher levels of stress. For the same reason, the
impact of the stress is not symmetrical on the upside and downside. The sensitivities shown are before actions that could be
taken by management to mitigate effects and allow for adverse changes in policyholder behaviour. The sensitivities have
decreased from 2014 to 2015, driven mainly by rising yields and updates to interest rate parameters in France during 2015.
In a low yield environment the PVIF asset is particularly sensitive to yield curve movements driven by the projected cost of
options and guarantees described on page 184.
Effect on PVIF at 31 December of:
+100 basis point shift in risk-free rate
–100 basis point shift in risk-free rate1
2015
$m
(3)
(139)
2014
$m
320
(589)
1 Where a –100 basis point parallel shift in the risk-free rate would result in a negative rate, the effect on PVIF has been calculated using a minimum
rate of 0%.
Sensitivity to changes in non-economic assumptions
Policyholder liabilities and PVIF for life manufacturers are determined by reference to non-economic assumptions including
mortality and/or morbidity, lapse rates and expense rates. The table below shows the sensitivity of PVIF to reasonably possible
changes in these non-economic assumptions at 31 December across all our insurance manufacturing subsidiaries.
Effect on PVIF at 31 December of:
10% increase in mortality and/or morbidity rates
10% decrease in mortality and/or morbidity rates
10% increase in lapse rates
10% decrease in lapse rates
10% increase in expense rates
10% decrease in expense rates
2015
$m
(73)
77
(127)
144
(83)
83
2014
$m
(66)
70
(146)
165
(93)
94
HSBC HOLDINGS PLC
412
Other intangible assets
Movement of intangible assets excluding goodwill and the PVIF
Cost
At 1 January 2015
Additions
Disposals
Amount written off
Reclassified to held for sale
Other changes
At 31 December 2015
Accumulated amortisation
At 1 January 2015
Charge for the year1
Impairment
Disposals
Amount written off
Reclassified to held for sale
Other changes
At 31 December 2015
Net carrying amount at 31 December 2015
Cost
At 1 January 2014
Additions
Disposals
Amount written off
Other changes
At 31 December 2014
Accumulated amortisation
At 1 January 2014
Charge for the year1
Impairment
Disposals
Amount written off
Other changes
At 31 December 2014
Net carrying amount at 31 December 2014
Internally
generated
software
$m
6,413
857
(134)
(238)
(239)
(292)
6,367
(4,286)
(686)
(149)
128
238
141
181
(4,433)
1,934
5,999
732
(35)
(24)
(259)
6,413
(3,809)
(677)
(11)
32
24
155
(4,286)
2,127
Other
$m
2,863
114
(159)
(2)
(452)
(184)
2,180
(1,889)
(142)
15
147
2
250
120
(1,497)
683
2,975
177
(80)
(53)
(156)
163
2,863
(1,761)
(261)
(54)
77
53
57
(1,889)
974
Total
$m
9,276
971
(293)
(240)
(691)
(476)
8,547
(6,175)
(828)
(134)
275
240
391
301
(5,930)
2,617
8,974
909
(115)
(77)
(415)
9,276
(5,570)
(938)
(65)
109
77
212
(6,175)
3,101
1 The amortisation charge for the year is recognised within the income statement under ‘Amortisation and impairment of intangible assets’, with the
exception of the amortisation of mortgage servicing rights which is recognised in ‘Net fee income’. The revaluation net of amortisation charge for
mortgage servicing rights was $25m in 2015 (2014: charge of $67m).
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
HSBC HOLDINGS PLC
413
Notes on the Financial Statements (continued)
21 – Investments in subsidiaries
21 Investments in subsidiaries
Accounting policy
HSBC classifies investments in entities which it controls as subsidiaries. HSBC’s consolidation policy is described in Note 1(g). Subsidiaries
which are structured entities are covered in Note 39.
HSBC Holdings’ investments in subsidiaries are stated at cost less impairment losses. Impairment losses recognised in prior periods are
reversed through the income statement if there has been a change in the estimates used to determine the investment’s recoverable amount
since the last impairment loss was recognised.
Principal subsidiaries of HSBC Holdings
Europe
HSBC Bank plc
At 31 December 2015
Country of
incorporation
or registration
HSBC’s
interest in
equity capital
%
Issued
equity
capital
England
100
£797m
HSBC France
HSBC Private Banking Holdings (Suisse) SA
HSBC Trinkaus & Burkhardt AG
Asia
Hang Seng Bank Limited1
HSBC Bank Australia Limited
HSBC Bank (China) Company Limited
HSBC Bank Malaysia Berhad
HSBC Bank (Taiwan) Limited
HSBC Life (International) Limited
The Hongkong and Shanghai Banking Corporation Limited
Middle East and North Africa
HSBC Bank Middle East Limited
HSBC Bank Egypt S.A.E.
North America
HSBC Bank Canada
HSBC Bank USA, N.A.
HSBC Finance Corporation
HSBC Securities (USA) Inc.
France
Switzerland
Germany
Hong Kong
Australia
PRC5
Malaysia
Taiwan
Bermuda
Hong Kong
Jersey
Egypt
Canada
USA
USA
USA
Share
class
Ordinary £1
Preferred Ordinary £1
Series 2 Third Dollar
Preference $0.01
Third Dollar
Preference $0.01
Shares €5.00
Ordinary CHF1,000
Shares of no par value
Ordinary no par value
Ordinary no par value
Ordinary CNY1.00
Ordinary RM0.50
Ordinary TWD10.00
Ordinary HK$1.00
Ordinary no par value
CIP2 $1.00
CRP3 $1.00
NIP4 $1.00
99.99
100
80.65
62.14
100
100
100
100
100
100
€337m
CHF1,363m
€75.4m
HK$9, 658m
A$811m
RMB15,400m
RM115m
TWD34,800m
HK$4,178m
HK$96,052m
100
$931m
94.53
EGP2,796m
Ordinary $1.00
CRP3 $1.00
Ordinary EGP84.00
100
100
100
100
C$1,225m
C$500m
Common shares of no
par value
Preference shares of no
par value
Common $100
Common $0.01
Common $0.05
$2m
–6
–6
Latin America
HSBC Bank Brasil S.A. – Banco Múltiplo
HSBC Mexico, S.A., Institución de Banca Múltiple,
Grupo Financiero HSBC
Brazil
100
BRL6,402m
Shares of no par value
Mexico
99.99
MXN5,681m
Ordinary MXN2.00
1 Listed in Hong Kong.
2 Cumulative Irredeemable Preference shares.
3 Cumulative Redeemable Preference shares.
4 Non-cumulative Irredeemable Preference shares.
5 People’s Republic of China.
6 Issued equity capital is less than $1m.
Details of the debt, subordinated debt and preference shares issued by the principal subsidiaries to parties external to the Group are included in Notes 26
‘Debt securities in issue’, 30 ‘Subordinated liabilities’ and 34 ‘Non-controlling interests’, respectively.
All the above subsidiaries are included in the HSBC consolidated financial statements.
HSBC HOLDINGS PLC
414
Details of all HSBC subsidiaries, as required under Section 409 of the Companies Act 2006, are set out on pages 458 to 469.
The principal countries of operation are the same as the countries of incorporation except for HSBC Bank Middle East Limited,
which operates mainly in the Middle East and North Africa, and HSBC Life (International) Limited, which operates mainly in
Hong Kong.
HSBC is structured as a network of regional banks and locally incorporated regulated banking entities. Each bank is separately
capitalised in accordance with applicable prudential requirements and maintains a capital buffer consistent with the Group’s
risk appetite for the relevant country or region. HSBC’s capital management process culminates in the annual Group capital
plan, which is approved by the Board.
HSBC Holdings is the primary provider of equity capital to its subsidiaries and also provides them with non-equity capital
where necessary. These investments are substantially funded by HSBC Holdings’ issuance of equity and non-equity capital
and by profit retention. As part of its capital management process, HSBC Holdings seeks to maintain a balance between the
composition of its capital and its investment in subsidiaries. Subject to this, there is no current or foreseen impediment to
HSBC Holdings’ ability to provide funding for such investments. The ability of subsidiaries to pay dividends or advance monies
to HSBC Holdings depends on, among other things, their respective local regulatory capital and banking requirements,
exchange controls, statutory reserves, and financial and operating performance. During 2015, none of the Group’s subsidiaries
experienced significant restrictions on paying dividends or repaying loans and advances. Also, there are no foreseen
restrictions envisaged by our subsidiaries, with the exception of HSBC North America Holdings Inc., on paying dividends or
repaying loans and advances.
The amount of guarantees by HSBC Holdings in favour of other HSBC Group entities is set out in Note 37.
Structured entities consolidated by HSBC where HSBC owns less than 50% of the voting rights
Solitaire Funding Ltd
Mazarin Funding Limited
Barion Funding Limited
Malachite Funding Limited
HSBC Home Equity Loan Corporation I
HSBC Home Equity Loan Corporation II
Regency Assets Limited
Carrying value of total
consolidated assets
Nature of SPE
2015
$bn
7.3
1.9
1.1
0.4
–
1.6
15.2
2014
$bn
9.0 Securities investment conduit
3.9 Securities investment conduit
2.0 Securities investment conduit
1.4 Securities investment conduit
1.9 Securitisation
0.9 Securitisation
11.0 Conduit
In addition to the above, HSBC consolidates a number of individually insignificant structured entities with total assets of
$17.9bn (2014: $22.9bn). For further details, see Note 39.
In each of the above cases, HSBC controls and consolidates an entity when it is exposed, or has rights, to variable returns from
its involvement with the entity and has the ability to affect those returns through its power over the entity.
Subsidiaries with significant non-controlling interests
Hang Seng Bank Limited
Proportion of ownership interests and voting rights held by non-controlling interests
Place of business
Profit attributable to non-controlling interests
Accumulated non-controlling interests of the subsidiary
Dividends paid to non-controlling interests
Summarised financial information:
– total assets
– total liabilities
– net operating income before loan impairment
– profit for the year
– total comprehensive income for the year
2015
2014
37.86%
Hong Kong
37.86%
Hong Kong
$m
1,364
5,866
523
169,813
153,458
5,411
3,604
1,636
$m
760
5,765
513
160,769
144,642
3,687
2,007
4,460
HSBC HOLDINGS PLC
415
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
22 – Prepayments / 23 – Assets held for sale and disposal groups / 24 – Trading liabilities
22 Prepayments, accrued income and other assets
Prepayments and accrued income
Bullion
Endorsements and acceptances
Reinsurers’ share of liabilities under insurance contracts (Note 28)
Employee benefit assets (Note 6)
Other accounts
Property, plant and equipment
At 31 December
2015
$m
7,765
11,501
9,149
1,378
5,272
9,410
9,923
54,398
2014
$m
10,554
15,726
10,775
1,032
5,028
13,882
10,532
67,529
Prepayments, accrued income and other assets included $25,310m (2014: $33,889m) of financial assets, the majority of which
were measured at amortised cost.
23 Assets held for sale and liabilities of disposal groups held for sale
Accounting policy
Assets held for sale
Assets and liabilities of disposal groups and non-current assets are classified as held for sale when their carrying amounts will be recovered
principally through sale rather than through continuing use. Held-for-sale assets and liabilities are measured at the lower of their carrying
amount and fair value less cost to sell, except for those assets and liabilities that are not within the scope of the measurement requirements
of IFRS 5 ‘Non-current Assets Held for Sale and Discontinued Operations’.
Immediately before the initial classification as held for sale, the carrying amounts of the relevant assets and liabilities are measured in
accordance with applicable IFRSs. On subsequent remeasurement of a disposal group, the carrying amounts of any assets and liabilities that
are not within the scope of the measurement requirements of IFRS 5, but are included in a disposal group classified as held for sale, are
remeasured under applicable IFRSs before the fair value less costs to sell of the disposal group is determined.
Held for sale at 31 December
Disposal groups
Non-current assets held for sale
Total assets
Liabilities of disposal groups
Disposal groups
Brazil
2015
$m
41,715
2,185
43,900
36,840
2014
$m
6,883
764
7,647
6,934
In the first half of 2015, we announced the plan to sell our operations in Brazil. At 31 December 2015, the sale was considered
highly probable and therefore the assets and liabilities of the disposal group were classified as held for sale. The disposal group
includes the assets and liabilities expected to be sold plus allocated goodwill as set out in the table on page 417.
The disposal group is measured at its carrying amount at 31 December 2015, which is lower than its fair value less cost to sell.
The carrying amount includes a $1.3bn deferred tax asset and $1.3bn of allocated goodwill (see Note 20). The assets and
liabilities of the disposal group have been reclassified from their individual lines in the consolidated balance sheet and are
presented in separate ‘Held for sale’ lines at 31 December 2015. There is no change to the comparative balance sheet
presentation and there is no separate presentation in the income statement.
At 31 December 2015, there were no significant accounting implications in respect of the planned sale although this may evolve
as it progresses. The disposal group represents a foreign operation and when the disposal completes the cumulative amount
of associated exchange differences previously recognised in other comprehensive income will be reclassified to the income
statement. At 31 December 2015, there was a cumulative loss of $2.6bn in the Group’s foreign exchange reserve attributable
to the Brazilian operations.
HSBC HOLDINGS PLC
416
The major classes of assets and associated liabilities of disposal groups held for sale are as follows:
Assets of disposal groups held for sale
Trading assets
Fair value of financial assets designated at fair value
Loans and advances to banks
Loans and advances to customers
Reverse repurchase agreements
Financial investments
Goodwill and intangible assets
Deferred tax asset1
Prepayments, accrued income and other assets
Total assets at 31 December 2015
Liabilities of disposal groups held for sale
Deposits by banks
Customer accounts
Debt securities in issue
Liabilities under insurance contracts
Accruals, deferred income and other liabilities
Total liabilities at 31 December 2015
Expected date of completion
Operating segment
Fair value of selected financial instruments which are not carried
at fair value on the balance sheet at 31 December 2015
Loans and advances to banks and customers
Customer accounts
Brazil
$m
55
3,123
4,068
17,001
3,511
6,238
1,680
1,325
4,674
41,675
1,521
15,094
7,957
3,338
7,335
35,245
Other
$m
–
–
–
40
–
–
–
–
–
40
–
1,588
–
–
7
1,595
Total
$m
55
3,123
4,068
17,041
3,511
6,238
1,680
1,325
4,674
41,715
1,521
16,682
7,957
3,338
7,342
36,840
First Half of 2016
Latin America
First Half of 2016
North America
20,912
15,094
40
1,588
20,952
16,682
1 The recognition of deferred tax assets relies on an assessment of the probability and sufficiency of future taxable profits and future reversals of
existing taxable temporary differences. In recognising the deferred tax asset management has critically assessed all available information, including
sufficiency of future taxable profits using internal and external benchmarks, and historical performance.
24 Trading liabilities
Accounting policy
Financial liabilities are classified as held for trading if they have been acquired or incurred principally for the purpose of selling or
repurchasing in the near term, or form part of a portfolio of identified financial instruments that are managed together and for which there
is evidence of a recent pattern of short-term profit-taking. They are recognised on trade date, when HSBC enters into contractual
arrangements with counterparties, and are normally derecognised when extinguished. They are initially measured at fair value, with
transaction costs taken to the income statement. Subsequent changes in fair value and interest are recognised in the income statement in
‘Net trading income’.
Liabilities arising from the sale of borrowed securities are classified as held for trading.
Trading liabilities
Deposits by banks1
Customer accounts1,2
Other debt securities in issue (Note 26)3
Other liabilities – net short positions in securities
At 31 December
2015
$m
27,054
40,208
30,525
43,827
2014
$m
41,453
50,600
33,602
64,917
141,614
190,572
1 ‘Deposits by banks’ and ‘Customer accounts’ include repos, settlement accounts, stock lending and other amounts.
2 Structured deposits placed at HSBC Bank USA and HSBC Trust Company (Delaware) National Association are insured by the Federal Deposit Insurance
Corporation, a US government agency, up to $250,000 per depositor.
3 ‘Other debt securities in issue’ comprises structured notes issued by HSBC for which market risks are actively managed as part of trading portfolios.
At 31 December 2015, the cumulative amount of change in fair value attributable to changes in HSBC’s credit risk was a gain of
$122m (2014: loss of $79m).
HSBC HOLDINGS PLC
417
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
25 – Financial liabilities at FV / 26 – Debt securities / 27 – Accruals / 28 – Liabilities under insurance contracts
25 Financial liabilities designated at fair value
Accounting policy
The criteria for designating instruments at fair value and their measurement are described in Note 15. The fair value designation, once made,
is irrevocable. Designated financial liabilities are recognised when HSBC enters into contracts with counterparties and are normally
derecognised when extinguished. Examples of such designations include:
Long-term debt issues
The interest and/or foreign exchange exposure on certain fixed rate debt securities issued has been matched with the interest and/or foreign
exchange exposure on certain swaps as part of a documented risk management strategy. An accounting mismatch would arise if the debt
securities issued were accounted for at amortised cost, and this mismatch is eliminated through the fair value designation.
Financial liabilities under unit-linked and non-linked investment contracts
HSBC issues contracts to customers that contain insurance risk, financial risk or a combination thereof. A contract under which HSBC accepts
insignificant insurance risk from another party is not classified as an insurance contract, but is accounted for as a financial liability. See Note
28 for contracts where HSBC accepts significant insurance risk.
Customer liabilities under linked and certain non-linked investment contracts issued by insurance subsidiaries and the corresponding
financial assets are designated at fair value. Liabilities are at least equivalent to the surrender or transfer value which is calculated by
reference to the value of the relevant underlying funds or indices. Premiums receivable and amounts withdrawn are accounted for as
increases or decreases in the liability recorded in respect of investment contracts. The incremental costs directly related to the acquisition
of new investment contracts or renewing existing investment contracts are deferred and amortised over the period during which the
investment management services are provided.
Financial liabilities designated at fair value – HSBC
Deposits by banks and customer accounts
Liabilities to customers under investment contracts
Debt securities in issue (Note 26)
Subordinated liabilities (Note 30)
Preferred securities (Note 30)
At 31 December
2015
$m
193
6,027
37,678
21,168
1,342
66,408
2014
$m
160
6,312
46,364
21,822
1,495
76,153
The carrying amount at 31 December 2015 of financial liabilities designated at fair value was $4,147m more than the
contractual amount at maturity (2014: $5,813m more). The cumulative amount of the change in fair value attributable to
changes in credit risk was a gain of $158m (2014: loss of $870m).
Financial liabilities designated at fair value – HSBC Holdings
Debt securities in issue (Note 26):
– owed to third parties
Subordinated liabilities (Note 30):
– owed to third parties
– owed to HSBC undertakings
At 31 December
2015
$m
7,897
11,100
856
19,853
2014
$m
8,185
9,513
981
18,679
The carrying amount at 31 December 2015 of financial liabilities designated at fair value was $2,127m more than the
contractual amount at maturity (2014: $2,694m more). The cumulative amount of the change in fair value attributable to
changes in credit risk was a loss of $172m (2014: loss of $520m).
26 Debt securities in issue
Accounting policy
Financial liabilities for debt securities issued are recognised when HSBC enters into contractual arrangements with counterparties and are
initially measured at fair value, which is normally the consideration received, net of directly attributable transaction costs incurred. The
subsequent measurement of financial liabilities, other than those measured at fair value through profit or loss and financial guarantees, is
at amortised cost, using the effective interest method to amortise the difference between proceeds received, net of directly attributable
transaction costs incurred, and the redemption amount over their expected life.
HSBC HOLDINGS PLC
418
Debt securities in issue – HSBC
Bonds and medium-term notes
Other debt securities in issue
Of which debt securities in issue reported as:
– trading liabilities (Note 24)
– financial liabilities designated at fair value (Note 25)
At 31 December
Debt securities in issue – HSBC Holdings
Debt securities
Of which debt securities in issue reported as:
– financial liabilities designated at fair value (Note 25)
At 31 December
27 Accruals, deferred income and other liabilities
Accruals and deferred income
Amounts due to investors in funds consolidated by HSBC
Obligations under finance leases
Endorsements and acceptances
Employee benefit liabilities (Note 6)
Other liabilities
At 31 December
2015
$m
128,348
28,804
157,152
(30,525)
(37,678)
88,949
2015
$m
8,857
(7,897)
960
2015
$m
11,129
474
37
9,135
2,809
14,532
38,116
2014
$m
132,539
43,374
175,913
(33,602)
(46,364)
95,947
2014
$m
9,194
(8,185)
1,009
2014
$m
15,075
782
67
10,760
3,208
16,570
46,462
Accruals, deferred income and other liabilities include $29,358m (2014: $39,846m) of financial liabilities, the majority of which
are measured at amortised cost.
28 Liabilities under insurance contracts
Accounting policy
HSBC issues contracts to customers that contain insurance risk, financial risk or a combination thereof. A contract under which HSBC accepts
significant insurance risk from another party by agreeing to compensate that party on the occurrence of a specified uncertain future event, is
classified as an insurance contract. An insurance contract may also transfer financial risk, but is accounted for as an insurance contract if the
insurance risk is significant.
Liabilities under insurance contracts
Liabilities under non-linked life insurance contracts are calculated by each life insurance operation based on local actuarial principles.
Liabilities under unit-linked life insurance contracts are at least equivalent to the surrender or transfer value, which is calculated by reference
to the value of the relevant underlying funds or indices.
A liability adequacy test is carried out on insurance liabilities to ensure that the carrying amount of the liabilities is sufficient in the light of
current estimates of future cash flows. When performing the liability adequacy test, all contractual cash flows are discounted and compared
with the carrying value of the liability. When a shortfall is identified it is charged immediately to the income statement.
Future profit participation on insurance contracts with DPF
Where contracts provide discretionary profit participation benefits to policyholders, liabilities for these contracts include provisions for the
future discretionary benefits to policyholders. These provisions reflect the actual performance of the investment portfolio to date and
management’s expectation of the future performance of the assets backing the contracts, as well as other experience factors such as
mortality, lapses and operational efficiency, where appropriate. This benefit may arise from the contractual terms, regulation, or past
distribution policy.
Investment contracts with DPF
While investment contracts with DPF are financial instruments, they continue to be treated as insurance contracts as permitted by IFRS 4
‘Insurance Contracts’. The Group therefore recognises the premiums for those contracts as revenue and recognises as an expense the
resulting increase in the carrying amount of the liability.
In the case of net unrealised investment gains on these contracts, whose discretionary benefits principally reflect the actual performance of
the investment portfolio, the corresponding increase in the liabilities is recognised in either the income statement or other comprehensive
income, following the treatment of the unrealised gains on the relevant assets. In the case of net unrealised losses, a deferred participating
asset is recognised only to the extent that its recoverability is highly probable. Movements in the liabilities arising from realised gains and
losses on relevant assets are recognised in the income statement.
HSBC HOLDINGS PLC
419
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
28 – Liabilities under insurance contracts / 29 – Provisions
Liabilities under insurance contracts
Non-linked insurance contracts1
At 1 January 2015
Claims and benefits paid
Increase in liabilities to policyholders
Disposals/transfers to held-for-sale
Exchange differences and other movements
At 31 December 2015
Investment contracts with DPF
At 1 January 2015
Claims and benefits paid
Increase in liabilities to policyholders
Exchange differences and other movements2
At 31 December 2015
Linked life insurance contracts
At 1 January 2015
Claims and benefits paid
Increase in liabilities to policyholders
Disposals/transfers to held-for-sale
Exchange differences and other movements3
At 31 December 2015
Total liabilities to policyholders at 31 December 2015
Non-linked insurance contracts1
At 1 January 2014
Claims and benefits paid
Increase in liabilities to policyholders
Disposals/transfers to held-for-sale
Exchange differences and other movements
At 31 December 2014
Investment contracts with DPF
At 1 January 2014
Claims and benefits paid
Increase in liabilities to policyholders
Exchange differences and other movements2
At 31 December 2014
Linked life insurance contracts
At 1 January 2014
Claims and benefits paid
Increase in liabilities to policyholders
Disposals/transfers to held-for-sale
Exchange differences and other movements3
At 31 December 2014
Total liabilities to policyholders at 31 December 2014
Gross
$m
36,973
(3,200)
7,746
(443)
(538)
40,538
25,068
(2,101)
2,728
(3,086)
22,609
11,820
(1,869)
1,398
(4,594)
36
6 91
6,791
69,938
33,950
(3,575)
7,764
(589)
(577)
36,973
26,427
(2,175)
3,188
(2,372)
25,068
13,804
(1,499)
2,762
(2,547)
(700)
11,820
73,861
Reinsurers’
share
$m
(772)
153
(575)
6
73
(1,115)
–
–
–
–
–
(260)
64
(5)
–
(62)
(263)
(1,378)
(1,118)
175
(409)
527
53
(772)
–
–
–
–
–
(290)
88
33
74
(165)
(260)
(1,032)
Net
$m
36,201
(3,047)
7,171
(437)
(465)
39,423
25,068
(2,101)
2,728
(3,086)
22,609
11,560
(1,805)
1,393
(4,594)
(26)
6 28
6,528
68,560
32,832
(3,400)
7,355
(62)
(524)
36,201
26,427
(2,175)
3,188
(2,372)
25,068
13,514
(1,411)
2,795
(2,473)
(865)
11,560
72,829
1 ‘Non-linked insurance contracts’ includes liabilities under non-life insurance contracts.
2 ‘Exchange differences and other movements’ includes movement in liabilities relating to discretionary profit participation benefits due to policyholders
arising from net unrealised investment gains recognised in other comprehensive income.
3 ‘Exchange differences and other movements’ includes amounts arising under reinsurance agreements.
The increase in liabilities to policyholders represents the aggregate of all events giving rise to additional liabilities to
policyholders in the year. The key factors contributing to the movement in liabilities to policyholders included death claims,
surrenders, lapses, liabilities to policyholders created at the initial inception of the policies, the declaration of bonuses and
other amounts attributable to policyholders.
HSBC HOLDINGS PLC
420
29 Provisions
Accounting policy
Provisions are recognised when it is probable that an outflow of economic benefits will be required to settle a present legal or constructive
obligation which has arisen as a result of past events and for which a reliable estimate can be made.
Critical accounting estimates and judgements
Provisions
Judgement is involved in determining whether a present obligation exists and in estimating the probability, timing and amount of any
outflows. Professional expert advice is taken on the assessment of litigation, property (including onerous contracts) and similar obligations.
Provisions for legal proceedings and regulatory matters typically require a higher degree of judgement than other types of provisions. When
matters are at an early stage, accounting judgements can be difficult because of the high degree of uncertainty associated with determining
whether a present obligation exists, and estimating the probability and amount of any outflows that may arise. As matters progress,
management and legal advisers evaluate on an ongoing basis whether provisions should be recognised, revising previous judgements and
estimates as appropriate. At more advanced stages, it is typically easier to make judgements and estimates around a better defined set of
possible outcomes. However, the amount provisioned can remain very sensitive to the assumptions used. There could be a wide range of
possible outcomes for any pending legal proceedings, investigations or inquiries. As a result, it is often not practicable to quantify a range
of possible outcomes for individual matters. It is also not practicable to meaningfully quantify ranges of potential outcomes in aggregate for
these types of provisions because of the diverse nature and circumstances of such matters and the wide range of uncertainties involved.
Provisions for customer remediation also require significant levels of estimation and judgement. The amounts of provisions recognised
depend on a number of different assumptions, for example, the volume of inbound complaints, the projected period of inbound complaint
volumes, the decay rate of complaint volumes, the population identified as systemically mis-sold and the number of policies per customer
complaint.
Provisions
At 1 January 2015
Additional provisions/increase in provisions
Provisions utilised
Amounts reversed
Unwinding of discounts
Exchange differences and other movements
At 31 December 2015
At 1 January 2014
Additional provisions/increase in provisions
Provisions utilised
Amounts reversed
Unwinding of discounts
Exchange differences and other movements
At 31 December 2014
Restructuring
costs
$m
Contractual
commitments
$m
Legal
proceedings
and regulatory
matters
$m
Customer
remediation
$m
Other
provisions
$m
197
430
(95)
(29)
–
(40)
463
271
147
(143)
(43)
–
(35)
197
234
120
(2)
(15)
–
(97)
240
177
136
(2)
(46)
1
(32)
234
2,184
2,153
(619)
(95)
40
(489)
3,174
1,832
1,752
(1,109)
(281)
43
(53)
2,184
1,831
765
(856)
(170)
6
(236)
1,340
2,382
1,440
(1,769)
(184)
10
(48)
1,831
552
138
(159)
(133)
–
(63)
335
555
154
(112)
(66)
11
10
552
Total
$m
4,998
3,606
(1,731)
(442)
46
(925)
5,552
5,217
3,629
(3,135)
(620)
65
(158)
4,998
Further details of ‘Legal proceedings and regulatory matters’ are set out in Note 40. 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 refer 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.
Further details of ‘Customer remediation’ are set out in this note. ‘Customer remediation’ refers to activities (root cause
analysis, customer contact, case reviews, decision making and redress calculations) carried out by HSBC 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.
Payment protection insurance
At 31 December 2015, a provision of $1,039m (2014: $1,079m) was held relating to the estimated liability for redress in
respect of the possible mis-selling of payment protection insurance (‘PPI’) policies in previous years. An increase in provisions
of $549m was recognised during the year, primarily reflecting an increase in inbound complaints by claims management
HSBC HOLDINGS PLC
421
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
29 – Provisions / 30 – Subordinated liabilities
companies compared with previous forecasts and management’s current best estimate of the impact on provisions of the FCA
consultation on the introduction of a time bar and the 2014 decision of the UK Supreme Court (‘Plevin’). The current projected
trend of inbound complaint volumes implies that the redress programme will be completed by the first half of 2018 taking into
account the likely impact of a time bar. (2014 assumption: first quarter of 2018). Cumulative provisions made since the Judicial
Review ruling in the first half of 2011 amounted to $4.7bn of which $3.6bn had been paid as at 31 December 2015.
The estimated liability for redress is calculated on the basis of total premiums paid by the customer plus simple interest of 8%
per annum (or the rate inherent in the related loan product where higher). The basis for calculating the redress liability is the
same for single premium and regular premium policies. Future estimated redress levels are based on historically observed
redress per policy.
A total of 5.4m PPI policies have been sold by HSBC since 2000, generating estimated revenues of approximately $4.0bn at
2015 average exchange rates. The gross written premiums on these policies was approximately $5.2bn. At 31 December 2015,
the estimated total complaints expected to be received was 1.9m, representing 35% of total policies sold. It is estimated that
contact will be made with regard to 2.3m policies, representing 42% of total policies sold. This estimate includes inbound
complaints as well as HSBC’s proactive contact exercise on certain policies (‘outbound contact’).
The cumulative number of PPI complaints received to 31 December 2015 and the number of future claims expected
Inbound complaints1 (000s of policies)
Outbound contact (000s of policies)
Response rate to outbound contact
Average uphold rate per claim2
Average redress per claim ($)
Complaints to FOS (000s of policies)
Average uphold rate per FOS claim
Cumulative to
31 December
2015
1,215
624
44%
74%
3,058
121
36%
Future
expected
336
101
52%
81%
2,844
51
53%
1 Excludes invalid claims where the complainant has not held a PPI policy.
2 Claims include inbound and responses to outbound contact.
The main assumptions involved in calculating the redress liability are the volume of inbound complaints, the projected period
of inbound complaints, the decay rate of complaint volumes, the population identified as systemically mis-sold and the
number of policies per customer complaint. The main assumptions are likely to evolve over time as root cause analysis
continues, more experience is available regarding customer-initiated complaint volumes received, and we handle responses
to our ongoing outbound contact.
A 100,000 increase/decrease in the total inbound complaints would increase/decrease the redress provision by approximately
$221m at 2015 average exchange rates. Each 1% increase/decrease in the response rate to our outbound contact exercise
would increase/decrease the redress provision by approximately $15m.
The decision under Plevin held that, judged on its own facts, non-disclosure of the amount of commissions payable in
connection with the sale of PPI to a customer created an unfair relationship under the provisions of the UK Consumer Credit
Act (‘CCA’). The FCA has issued a consultation on proposed rules and guidelines in relation to the application of this ruling,
together with a proposal for the introduction of a time bar. HSBC has reflected its current best estimate of the impact of these
matters in the provision held as at 31 December 2015. There remains uncertainty as to what the eventual outcome of the
consultation will be: HSBC will continue to review provisioning levels as further facts become known.
In addition to these factors and assumptions, the extent of the required redress will also depend on the facts and
circumstances of each individual customer’s case. For these reasons, there is currently a high degree of uncertainty as
to the eventual costs of redress.
Interest rate derivatives
At 31 December 2015, a provision of $87m (2014: $312m) was held relating to the estimated liability for redress in respect
of the possible mis-selling of interest rate derivatives in the UK. The provision relates to the estimated redress payable to
customers in respect of historical payments under derivative contracts. A release to the provision of $38m (2014: $288m
increase) was recorded during the year.
UK Consumer Credit Act
HSBC has undertaken a review of compliance with the fixed-sum unsecured loan agreement requirements of the CCA. $167m
was recognised at 31 December 2015 within ‘Accruals, deferred income and other liabilities’ for the repayment of interest to
customers (2014: $379m), primarily where annual statements did not remind them of their right to partially prepay the loan,
notwithstanding that the customer loan documentation did refer to this right. The cumulative liability to date was $569m
(2014: $591m), of which payments of $414m (2014: $212m) have been made to customers. There is uncertainty as to whether
other technical requirements of the CCA have been met.
HSBC HOLDINGS PLC
422
Brazilian labour, civil and fiscal claims
Brazilian labour, civil and fiscal litigation provisions were $363m (2014: $501m) as at 31 December 2015. Of these provisions,
$168m (2014: $246m) was in respect of labour and overtime litigation claims brought by past employees against HSBC
operations in Brazil following their departure from the bank. The main assumptions involved in estimating the liability are the
expected number of departing employees, individual salary levels and the facts and circumstances of each individual case.
These provisions form part of the Brazilian disposal group and were classified as ‘held for sale’ at 31 December 2015 (see
Note 23).
30 Subordinated liabilities
HSBC
Subordinated liabilities
At amortised cost
– subordinated liabilities
– preferred securities
Designated at fair value (Note 25)
– subordinated liabilities
– preferred securities
At 31 December
HSBC Holdings
Other HSBC
At 31 December
HSBC’s subordinated liabilities
2015
$m
22,702
20,773
1,929
22,510
21,168
1,342
45,212
26,062
19,150
45,212
2014
$m
26,664
22,355
4,309
23,317
21,822
1,495
49,981
25,277
24,704
49,981
Subordinated liabilities rank behind senior obligations and generally count towards the capital base of HSBC. Where applicable,
capital securities may be called and redeemed by HSBC subject to prior notification to the PRA and, where relevant, the consent of
the local banking regulator. If not redeemed at the first call date, coupons payable may step-up or become floating rate based
on interbank rates.
Interest rates on the floating rate capital securities are generally related to interbank offered rates. On the remaining capital
securities, interest is payable at fixed rates of up to 10.176%.
The balance sheet amounts disclosed below are presented on an IFRSs basis and do not reflect the amount that the
instruments contribute to regulatory capital due to the inclusion of issuance costs, regulatory amortisation and regulatory
eligibility limits prescribed in the grandfathering provisions under CRD IV.
HSBC’s subordinated liabilities in issue
Additional tier 1 capital securities guaranteed by HSBC Holdings plc1
£500m
€750m
$900m
8.208% non-cumulative step-up perpetual preferred securities2
5.13% non-cumulative step-up perpetual preferred securities3
10.176% non-cumulative step-up perpetual preferred securities, series 2
Jun 2015
Mar 2016
Jun 2030
First call
date
Maturity
date
Additional tier 1 capital securities guaranteed by HSBC Bank plc1
£300m
£700m
5.862% non-cumulative step-up perpetual preferred securities
5.844% non-cumulative step-up perpetual preferred securities
Tier 2 securities issued by HSBC Bank plc
£500m
£350m
£300m
£350m
£500m
£225m
£600m
€500m
$300m
$750m
$500m
$300m
4.75% callable subordinated notes4
5.00% callable subordinated notes5
6.50% subordinated notes
5.375% callable subordinated step-up notes6
5.375% subordinated notes
6.25% subordinated notes
4.75% subordinated notes
Callable subordinated floating rate notes4
7.65% subordinated notes
Undated floating rate primary capital notes
Undated floating rate primary capital notes
Undated floating rate primary capital notes, series 3
Apr 2020
Nov 2031
Sep 2015
Mar 2018
–
Nov 2025
–
–
–
Sep 2015
–
Jun 1990
Sep 1990
Jun 1992
Sep 2020
Mar 2023
Jul 2023
Nov 2030
Aug 2033
Jan 2041
Mar 2046
Sep 2020
May 2025
2015
$m
–
856
891
1,747
488
1,038
1,526
–
562
444
569
846
332
879
–
386
750
500
300
2014
$m
779
979
891
2,649
515
1,091
1,606
802
605
466
620
905
349
924
588
400
750
500
300
5,568
7,209
HSBC HOLDINGS PLC
423
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
30 – Subordinated liabilities
Tier 2 securities issued by The Hongkong and Shanghai Banking Corporation Ltd
$400m
$400m
$400m
Primary capital undated floating rate notes7
Primary capital undated floating rate notes (second series)8
Primary capital undated floating rate notes (third series)
Aug 1990
Dec 1990
Jul 1991
First call
date
Maturity
date
Tier 2 securities issued by HSBC Bank Australia Limited
AUD200m
Callable subordinated floating rate notes9
Tier 2 securities issued by HSBC Bank Malaysia Berhad
MYR500m
MYR500m
4.35% subordinated bonds
5.05% subordinated bonds
Tier 2 securities issued by HSBC USA Inc.
$200m
$200m
$150m
$750m
$250m
7.808% capital securities10
8.38% capital securities10
7.75% Capital Trust pass through securities10
5.00% subordinated notes
7.20% subordinated debentures
Other subordinated liabilities each less than $150m11
Tier 2 securities issued by HSBC Bank USA, N.A.
$500m
$1,250m
$1,000m
$750m
$700m
6.00% subordinated notes
4.875% subordinated notes
5.875% subordinated notes
5.625% subordinated notes
7.00% subordinated notes
Tier 2 securities issued by HSBC Finance Corporation
$1,000m
$2,939m
5.911% trust preferred securities9
6.676% senior subordinated notes12
Tier 2 securities issued by HSBC Bank Brazil S.A.13
BRL383m
BRL500m
Subordinated certificates of deposit
Subordinated floating rate certificates of deposit
Other subordinated liabilities each less than $150m11
Tier 2 securities issued by HSBC Bank Canada
CAD400m
CAD200m
CAD39m
4.80% subordinated debentures
4.94% subordinated debentures7
Floating rate debentures
Securities issued by HSBC Mexico, S.A.
MXN1,818m
MXN2,273m
$300m
Non-convertible subordinated obligations14
Non-convertible subordinated obligations14
Non-convertible subordinated obligations14,15
Securities issued by other HSBC subsidiaries
Other subordinated liabilities each less than $200m11
Nov 2015
Nov 2020
Jun 2017
Nov 2022
Jun 2022
Nov 2027
Dec 2006
May 2007
Nov 2006
–
–
Dec 2026
May 2027
Nov 2026
Sep 2020
Jul 2097
–
–
–
–
–
Aug 2017
Aug 2020
Nov 2034
Aug 2035
Jan 2039
Nov 2015
–
Nov 2035
Jan 2021
–
–
Feb 2015
Dec 2016
Apr 2017
Mar 2016
Oct 1996
Apr 2022
Mar 2021
Nov 2083
Sep 2013
Dec 2013
Jun 2014
Sep 2018
Dec 2018
Jun 2019
2015
$m
401
–
400
801
–
–
116
116
232
–
–
–
747
220
299
2014
$m
403
401
400
1,204
164
164
143
144
287
200
200
150
738
216
297
1,266
1,801
502
1,258
1,142
850
691
4,443
–
2,188
2,188
–
–
–
–
298
144
29
471
105
131
240
476
432
508
1,210
1,245
934
676
4,573
998
2,185
3,183
144
188
81
413
367
172
34
573
124
154
240
518
524
Subordinated liabilities issued by HSBC subsidiaries at 31 December
19,150
24,704
1 See paragraph below, ‘Guaranteed by HSBC Holdings or HSBC Bank plc’.
2 In June 2015, HSBC called and redeemed £500m 8.208% non-cumulative step-up perpetual preferred securities at par.
3 In February 2016, HSBC gave notice that it will call and redeem the €750m 5.13% non-cumulative step-up perpetual preferred securities.
4 In September 2015, HSBC called and redeemed £500m 4.75% callable subordinated notes and €500m callable subordinated floating rate notes at par.
5 The interest rate payable after March 2018 is the sum of the gross redemption yield of the then prevailing five-year UK gilt plus 1.80%.
6 The interest rate payable after November 2025 is the sum of the three-month sterling Libor plus 1.50%.
7 In January 2016, HSBC gave notice that it will call and redeem the $400m Primary capital undated floating rate notes and CAD200m 4.94%
subordinated debentures.
8 In December 2015, HSBC called and redeemed $400m Primary capital undated floating rate notes at par.
9 In November 2015, HSBC called and redeemed $1,000m 5.911% trust preferred securities and AUD 200m callable subordinated floating rate notes at par.
10 In June 2015, HSBC called and redeemed $200m 7.808% capital securities, $200m 8.38% capital securities, and $150m 7.75% Capital Trust pass
through securities at par.
11 Some securities included here are ineligible for inclusion in the capital base of HSBC in accordance with CRD IV rules.
12 Approximately $731m of the senior subordinated notes are held by HSBC Holdings.
13 Included in Note 23, Assets held for sale and liabilities of disposal groups held for sale.
HSBC HOLDINGS PLC
424
14 These securities are ineligible for inclusion in the capital base of HSBC in accordance with CRD IV rules.
15 Approximately $60m of the subordinated obligations are held by HSBC Holdings.
HSBC Holdings
Subordinated liabilities:
– at amortised cost
– designated at fair value (Note 25)
At 31 December
HSBC Holdings’ subordinated liabilities
Tier 2 securities issued by HSBC Holdings plc
Amounts owed to third parties
$488m
$222m
$2,000m
$2,500m
$1,500m
$2,000m
$1,500m
$1,500m
£900m
£650m
£650m
£750m
£900m
€1,600m
€1,750m
€700m
€1,500m
€1,500m
7.625% subordinated notes1
7.35% subordinated notes1
6.5% subordinated notes1
6.5% subordinated notes1
6.8% subordinated notes1
4.25% subordinated notes2,5
5.25% subordinated notes2,5
4.25% subordinated notes2
6.375% callable subordinated notes1,3
5.75% subordinated notes2
6.75% subordinated notes2
7.0% subordinated notes2
6.0% subordinated notes2
6.25% subordinated notes2
6.0% subordinated notes2
3.625% callable subordinated notes1,4
3.375% callable subordinated notes2,5
3.0% subordinated notes2
Amounts owed to HSBC undertakings
£500m
€750m
$900m
8.208% subordinated step-up cumulative notes4
5.13% fixed/floating subordinated notes
10.176% subordinated step-up cumulative notes
At 31 December
2015
$m
15,895
11,956
27,851
2014
$m
17,255
10,494
27,749
First call
date
Maturity
date
2015
$m
2014
$m
–
–
–
–
–
–
–
–
Oct 2017
–
–
–
–
–
–
Jun 2015
Jan 2019
–
May 2032
Nov 2032
May 2036
Sep 2037
Jun 2038
Mar 2024
Mar 2044
Aug 2025
Oct 2022
Dec 2027
Sep 2028
Apr 2038
Mar 2040
Mar 2018
Jun 2019
Jun 2020
Jan 2024
Jun 2025
Jun 2015
Mar 2016
Jun 2030
Jun 2040
Dec 2044
Jun 2040
531
278
2,029
3,085
1,487
2,078
1,735
1,529
1,432
1,079
955
1,159
1,310
1,748
2,284
–
1,694
1,691
538
278
2,029
3,278
1,487
2,069
1,735
–
1,558
1,176
1,005
1,217
1,379
1,950
2,623
878
1,898
–
26,104
25,098
–
856
891
1,747
27,851
779
981
891
2,651
27,749
1 Amounts owed to third parties represent securities included in the capital base of HSBC as tier 2 securities in accordance with the grandfathering
provisions under CRD IV rules.
2 These securities are included in the capital base of HSBC as fully CRD IV compliant tier 2 securities on an end point basis.
3 The interest rate payable after October 2017 is the sum of the three-month sterling Libor plus 1.3%.
4 In June 2015, HSBC Holdings called and redeemed the €700m 3.625% callable subordinated notes and £500m 8.208% non-cumulative step-up
perpetual preferred securities at par.
5 These subordinated notes are measured at amortised cost in HSBC Holdings, where the interest rate risk is hedged using a fair value hedge, while they
are measured at fair value in the Group.
Additional tier 1 capital securities
HSBC has included three types of additional tier 1 capital securities in its tier 1 capital. Additional tier 1 capital securities are
perpetual subordinated securities on which coupon payments may be deferred or cancelled at the discretion of HSBC Holdings.
The securities presented in this Note are accounted for as liabilities because HSBC has an obligation to pay dividends in
perpetuity. See Note 35 for the other two types of additional tier 1 capital securities accounted for as equity.
The additional tier 1 securities presented in this section do not meet the identifying criteria in full for recognition as tier 1
capital under CRD IV but are eligible as regulatory capital subject to grandfathering limits and progressive phase-out.
Guaranteed by HSBC Holdings or HSBC Bank plc
The five capital securities above that are guaranteed on a subordinated basis by HSBC Holdings or HSBC Bank plc (‘HSBC Bank’)
and are non-cumulative step-up perpetual preferred securities issued by Jersey limited partnerships. The proceeds of the
issues were on-lent to the respective guarantors by the limited partnerships in the form of subordinated notes. These
preferred securities qualify as additional tier 1 capital for HSBC under CRD IV by virtue of the application of grandfathering
provisions, and the two capital securities guaranteed by HSBC Bank also qualify as additional tier 1 capital for HSBC Bank (on a
solo and a consolidated basis) under CRD IV by virtue of the same grandfathering process.
HSBC HOLDINGS PLC
425
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
30 – Subordinated liabilities / 31 – Maturity analysis
These preferred securities, together with the guarantee, are intended to provide investors with economic rights equivalent to
the rights that they would have had if they had purchased non-cumulative perpetual preference shares of the relevant issuer.
There are limitations on the payment of distributions if such payments are prohibited under UK banking regulations or other
requirements, if a payment would cause a breach of HSBC’s capital adequacy requirements or if HSBC Holdings or HSBC Bank
have insufficient distributable reserves (as defined).
HSBC Holdings and HSBC Bank have individually covenanted that if prevented under certain circumstances from paying
distributions on the preferred securities in full, they will not pay dividends or other distributions in respect of their ordinary
shares, or effect repurchases or redemptions of their ordinary shares, until the distribution on the preferred securities has
been paid in full.
With respect to preferred securities guaranteed by HSBC Holdings, if (i) HSBC’s total capital ratio falls below the regulatory
minimum ratio required or (ii) the Directors expect, in view of the deteriorating financial condition of HSBC Holdings, that
(i) will occur in the near term, then the preferred securities will be substituted by preference shares of HSBC Holdings which
have economic terms which are in all material respects equivalent to those of the preferred securities and the guarantee taken
together.
With respect to preferred securities guaranteed by HSBC Bank, if (i) any of the two issues of preferred securities are
outstanding in April 2049 or November 2048, respectively, or (ii) the total capital ratio of HSBC Bank on a solo and consolidated
basis falls below the regulatory minimum ratio required or (iii) in view of the deteriorating financial condition of HSBC Bank,
the Directors expect (ii) to occur in the near term, then the preferred securities will be substituted by preference shares of
HSBC Bank having economic terms which are in all material respects equivalent to those of the preferred securities and the
guarantee taken together.
Tier 2 capital securities
These capital securities are included within HSBC’s regulatory capital base as tier 2 capital under CRD IV by virtue of the
application of grandfathering provisions (with the exception of identified HSBC Holding securities which are compliant with
CRD IV end point rules). Tier 2 capital securities are either perpetual subordinated securities or dated securities on which there
is an obligation to pay coupons. In accordance with CRD IV, the capital contribution of all tier 2 securities is amortised for
regulatory purposes in their final five years before maturity.
31 Maturity analysis of assets, liabilities and off-balance sheet commitments
The table on page 427 provides an analysis of consolidated total assets, liabilities and off-balance sheet commitments by
residual contractual maturity at the balance sheet date. Asset and liability balances are included in the maturity analysis as
follows:
• except for reverse repos, repos and debt securities in issue, trading assets and liabilities (including trading derivatives) are
included in the ‘Due not more than 1 month’ time bucket, and not by contractual maturity because trading balances are
typically held for short periods of time;
• financial assets and liabilities with no contractual maturity (such as equity securities) are included in the ‘Due over 5 years’
time bucket. Undated or perpetual instruments are classified based on the contractual notice period which the
counterparty of the instrument is entitled to give. Where there is no contractual notice period, undated or perpetual
contracts are included in the ‘Due over 5 years’ time bucket;
• non-financial assets and liabilities with no contractual maturity (such as property, plant and equipment, goodwill and
intangible assets, current and deferred tax assets and liabilities and retirement benefit liabilities) are included in the ‘Due
over 5 years’ time bucket;
• financial instruments included within assets and liabilities of disposal groups held for sale are classified on the basis of the
contractual maturity of the underlying instruments and not on the basis of the disposal transaction; and
• liabilities under insurance contracts are included in the ‘Due over 5 years’ time bucket. Liabilities under investment
contracts are classified in accordance with their contractual maturity. Undated investment contracts are classified based on
the contractual notice period investors are entitled to give. Where there is no contractual notice period, undated contracts
are included in the ‘Due over 5 years’ time bucket.
Loan and other credit-related commitments are classified on the basis of the earliest date they can be drawn down.
HSBC HOLDINGS PLC
426
HSBC
Maturity analysis of assets and liabilities
4
2
7
H
S
B
C
H
O
L
D
N
G
S
P
L
C
I
Financial assets
Cash and balances at central banks
Items in the course of collection from other banks
Hong Kong Government certificates of indebtedness
Trading assets
– reverse repos
– other trading assets
Financial assets designated at fair value
Derivatives
– trading
– non-trading
Loans and advances to banks
Loans and advances to customers
– personal
– corporate and commercial
– financial
Reverse repurchase agreements – non-trading
Financial investments
Assets held for sale
Accrued income and other financial assets
Financial assets at 31 December 2015
Non-financial assets
Total assets at 31 December 2015
Due over
1 month
but not
more than
3 months
$m
Due over
3 months
but not
more than
6 months
$m
Due over
6 months
but not
more than
9 months
$m
Due over
9 months
but not
more than
1 year
$m
Due over
1 year
but not
more than
2 years
$m
Due over
2 years
but not
more than
5 years
$m
Due not
more than
1 month
$m
98,934
5,768
28,410
224,691
292
224,399
429
285,797
285,678
119
57,296
176,862
39,191
123,901
13,770
110,478
35,104
15,816
12,732
−
−
−
34
34
−
194
215
−
215
14,530
69,638
8,328
54,711
6,599
21,978
59,098
2,628
6,682
−
−
−
−
−
−
222
223
−
223
4,063
54,730
8,510
40,489
5,731
7,220
36,897
2,544
1,995
1,052,317
174,997
107,894
−
−
−
−
−
−
−
−
−
83
198
−
198
1,964
33,095
7,457
21,081
4,557
2,786
19,102
1,218
483
58,929
−
−
−
−
−
−
−
390
33
−
33
2,499
34,774
9,350
21,811
3,613
580
17,293
2,611
395
58,575
−
−
−
−
112
112
−
896
499
−
499
5,134
81,560
22,438
50,355
8,767
2,985
48,634
4,675
463
−
−
−
−
−
−
2,603
841
−
841
3,274
201,253
57,283
131,166
12,804
228
94,549
6,365
445
144,958
309,558
−
−
Due over
5 years
$m
−
−
−
−
−
−
19,035
670
−
670
1,641
272,542
218,646
49,564
4,332
−
118,278
4,422
2,115
418,703
83,725
Total
$m
98,934
5,768
28,410
224,837
438
224,399
23,852
288,476
285,678
2,798
90,401
924,454
371,203
493,078
60,173
146,255
428,955
40,279
25,310
2,325,931
83,725
1,052,317
174,997
107,894
58,929
58,575
144,958
309,558
502,428
2,409,656
Shareholder Information
Financial Statements
Corporate Governance
Financial Review
Strategic Report
Maturity analysis of assets and liabilities (continued)
Financial liabilities
Hong Kong currency notes in circulation
Deposits by banks
Customer accounts1
– personal
– corporate and commercial
– financial
Repurchase agreements – non-trading
Items in the course of transmission to other banks
Trading liabilities
– repos
– debt securities in issue
– other trading liabilities
4
2
8
H
S
B
C
H
O
L
D
N
G
S
P
L
C
I
Financial liabilities designated at fair value
– debt securities in issue: covered bonds
– debt securities in issue: otherwise secured
– debt securities in issue: unsecured
– subordinated liabilities and preferred securities
– other
Derivatives
– trading
– non-trading
Debt securities in issue
– covered bonds
– otherwise secured
– unsecured
Liabilities of disposal groups held for sale
Accruals and other financial liabilities
Subordinated liabilities
Total financial liabilities at 31 December 2015
Non-financial liabilities
Total liabilities at 31 December 2015
Due over
1 month
but not
more than
3 months
$m
Due over
3 months
but not
more than
6 months
$m
Due over
6 months
but not
more than
9 months
$m
Due over
9 months
but not
more than
1 year
$m
Due over
1 year
but not
more than
2 years
$m
Due over
2 years
but not
more than
5 years
$m
Due not
more than
1 month
$m
28,410
46,693
1,185,091
574,468
459,813
150,810
73,478
5,638
111,691
77
967
110,647
2,036
−
−
1,972
−
64
276,765
276,558
207
16,536
−
8,436
8,100
20,350
14,802
−
−
2,225
50,831
27,646
18,802
4,383
3,788
−
1,471
365
1,106
−
1,822
−
−
973
848
1
34
−
34
9,326
−
173
9,153
1,416
7,965
401
1,781,490
79,279
−
−
−
1,049
21,397
13,032
7,314
1,051
1,816
−
1,529
−
1,529
−
2,943
−
−
2,926
−
17
251
−
251
16,295
1
195
16,099
1,548
2,467
−
49,295
−
−
325
10,421
7,371
2,479
571
164
−
882
−
882
−
342
−
−
342
−
−
213
−
213
5,542
−
206
5,336
1,344
659
−
−
116
10,869
7,990
2,495
384
154
−
2,184
−
2,184
−
1,900
−
−
1,786
−
114
52
−
52
1,365
1
173
1,191
1,246
421
34
19,892
18,341
−
−
−
712
6,596
3,566
2,926
104
−
−
4,344
−
4,344
−
4,930
2,012
−
2,918
−
−
524
−
524
10,754
83
2,082
8,589
5,050
925
650
34,485
−
−
3,182
3,852
2,920
828
104
500
−
10,105
−
10,105
−
14,316
1,608
−
9,819
2,773
116
1,063
−
1,063
22,866
17
4,354
18,495
1,484
1,454
4,579
63,401
−
Due
over
5 years
$m
−
69
529
354
156
19
500
−
9,408
−
9,408
−
38,119
2,577
−
10,745
18,889
5,908
2,169
−
2,169
6,265
33
1,118
5,114
115
665
17,038
74,877
91,078
Total
$m
28,410
54,371
1,289,586
637,347
494,813
157,426
80,400
5,638
141,614
442
30,525
110,647
66,408
6,197
−
31,481
22,510
6,220
281,071
276,558
4,513
88,949
135
16,737
72,077
32,553
29,358
22,702
2,121,060
91,078
1,781,490
79,279
49,295
19,892
18,341
34,485
63,401
165,955
2,212,138
3
1
–
M
a
t
u
r
i
t
y
a
n
a
l
y
s
i
s
N
o
t
e
s
o
n
t
h
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
(
c
o
n
t
i
n
u
e
d
)
4
2
9
H
S
B
C
H
O
L
D
N
G
S
P
L
C
I
Financial assets
Cash and balances at central banks
Items in the course of collection from other banks
Hong Kong Government certificates of indebtedness
Trading assets
– reverse repos
– other trading assets
Financial assets designated at fair value
Derivatives
– trading
– non-trading
Loans and advances to banks
Loans and advances to customers
– personal
– corporate and commercial
– financial
Reverse repurchase agreements – non-trading
Financial investments
Assets held for sale
Accrued income and other financial assets
Financial assets at 31 December 2014
Non-financial assets
Total assets at 31 December 2014
Due over
1 month
but not
more than
3 months
$m
Due over
3 months
but not
more than
6 months
$m
Due over
6 months
but not
more than
9 months
$m
Due over
9 months
but not
more than
1 year
$m
Due over
1 year
but not
more than
2 years
$m
Due over
2 years
but not
more than
5 years
$m
Due not
more than
1 month
$m
129,957
4,927
27,674
303,463
567
302,896
244
341,558
341,416
142
73,758
203,130
42,170
146,250
14,710
116,002
28,237
114
17,756
−
−
−
−
−
−
399
56
−
56
17,649
76,236
9,673
61,809
4,754
30,490
50,445
186
7,386
−
−
−
−
−
−
417
463
−
463
5,682
55,018
8,911
41,924
4,183
9,076
41,503
13
2,402
1,246,820
182,847
114,574
−
−
−
−
−
−
−
−
−
346
220
−
220
1,934
35,347
7,486
23,720
4,141
2,230
14,577
18
587
55,259
−
−
−
−
−
−
−
208
32
−
32
1,850
37,674
8,672
23,697
5,305
582
17,011
10
317
57,684
−
−
−
−
−
−
−
1,825
1,003
−
1,003
7,371
91,300
27,305
56,398
7,597
868
48,392
41
707
−
−
−
730
730
−
4,634
1,033
−
1,033
1,981
187,728
54,439
124,796
8,493
2,465
96,891
126
1,156
151,507
296,744
−
−
Due over
5 years
$m
−
−
−
−
−
−
20,964
643
−
643
1,924
288,227
230,298
56,590
1,339
−
118,411
6,224
3,579
439,972
88,732
Total
$m
129,957
4,927
27,674
304,193
1,297
302,896
29,037
345,008
341,416
3,592
112,149
974,660
388,954
535,184
50,522
161,713
415,467
6,732
33,890
2,545,407
88,732
1,246,820
182,847
114,574
55,259
57,684
151,507
296,744
528,704
2,634,139
Shareholder Information
Financial Statements
Corporate Governance
Financial Review
Strategic Report
Maturity analysis of assets and liabilities (continued)
Financial liabilities
Hong Kong currency notes in circulation
Deposits by banks
Customer accounts1
– personal
– corporate and commercial
– financial
Repurchase agreements – non-trading
Items in the course of transmission to other banks
Trading liabilities
– repos
– debt securities in issue
– other trading liabilities
4
3
0
H
S
B
C
H
O
L
D
N
G
S
P
L
C
I
Financial liabilities designated at fair value
– debt securities in issue: covered bonds
– debt securities in issue: otherwise secured
– debt securities in issue: unsecured
– subordinated liabilities and preferred securities
– other
Derivatives
– trading
– non-trading
Debt securities in issue
– covered bonds
– otherwise secured
– unsecured
Liabilities of disposal groups held for sale
Accruals and other financial liabilities
Subordinated liabilities
Total financial liabilities at 31 December 2014
Non-financial liabilities
Total liabilities at 31 December 2014
Due over
1 month
but not
more than
3 months
$m
Due over
3 months
but not
more than
6 months
$m
Due over
6 months
but not
more than
9 months
$m
Due over
9 months
but not
more than
1 year
$m
Due over
1 year
but not
more than
2 years
$m
Due over
2 years
but not
more than
5 years
$m
Due not
more than
1 month
$m
27,674
66,829
1,216,574
572,459
465,990
178,125
95,243
5,990
155,604
746
1,686
153,172
981
−
−
942
−
39
335,802
335,400
402
14,741
–
8,807
5,934
191
20,893
−
1,940,522
–
−
2,890
57,127
28,580
21,841
6,706
5,029
−
2,041
909
1,132
−
912
−
−
868
36
8
23
−
23
15,424
–
1,063
14,361
28
9,170
150
92,794
–
−
2,539
32,925
16,728
10,688
5,509
4,054
−
2,636
224
2,412
−
4,264
−
−
4,242
−
22
86
−
86
13,027
−
60
12,967
56
3,013
−
62,600
–
−
511
15,023
10,609
3,716
698
1,392
−
1,439
264
1,175
−
972
205
−
742
−
25
223
−
223
7,854
−
283
7,571
55
1,166
3
−
810
13,586
9,625
2,894
1,067
714
−
2,918
1,249
1,669
−
1,557
−
−
1,409
18
130
54
−
54
6,050
−
272
5,778
63
1,757
167
28,638
27,676
–
–
−
621
9,278
7,220
1,615
443
−
−
5,744
406
5,338
−
8,500
−
−
8,500
−
−
621
−
621
14,209
−
912
13,297
213
1,355
113
40,654
–
−
2,963
5,819
3,967
1,316
536
−
−
9,603
−
9,603
−
15,037
2,705
−
9,576
2,623
133
1,121
−
1,121
19,481
81
1,562
17,838
551
1,674
3,607
59,856
–
Due
over
5 years
$m
−
263
310
125
150
35
1,000
−
10,587
−
10,587
−
43,930
2,942
−
14,233
20,640
6,115
2,739
−
2,739
5,161
−
1,008
4,153
2,837
818
22,624
90,269
91,152
Total
$m
27,674
77,426
1,350,642
649,313
508,210
193,119
107,432
5,990
190,572
3,798
33,602
153,172
76,153
5,852
−
40,512
23,317
6,472
340,669
335,400
5,269
95,947
81
13,967
81,899
3,994
39,846
26,664
2,343,009
91,152
1,940,522
92,794
62,600
28,638
27,676
40,654
59,856
181,421
2,434,161
1 ‘Customer accounts’ includes $342,908m (2014: $342,927m) insured by guarantee schemes.
3
1
–
M
a
t
u
r
i
t
y
a
n
a
l
y
s
i
s
N
o
t
e
s
o
n
t
h
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
(
c
o
n
t
i
n
u
e
d
)
Maturity analysis of off-balance sheet commitments received
At 31 December 2015
Loan and other credit-related commitments
At 31 December 2014
Loan and other credit-related commitments
Maturity analysis of off-balance sheet commitments given
4
3
1
H
S
B
C
H
O
L
D
N
G
S
P
L
C
I
At 31 December 2015
Loan and other credit-related commitments
Of which:
– personal
– corporate and commercial
– financial
At 31 December 2014
Loan and other credit-related commitments
Of which:
– personal
– corporate and commercial
– financial
Due over
1 month
but not
more than
3 months
$m
Due over
3 months
but not
more than
6 months
$m
Due over
6 months
but not
more than
9 months
$m
Due over
9 months
but not
more than
1 year
$m
Due over
1 year
but not
more than
2 years
$m
Due over
2 years
but not
more than
5 years
$m
Due not
more than
1 month
$m
3,472
3,313
−
−
2,149
−
4,312
607
−
−
111
−
−
−
Due over
5 years
$m
−
−
Total
$m
5,732
8,232
Due over
1 month
but not
more than
3 months
$m
Due over
3 months
but not
more than
6 months
$m
Due over
6 months
but not
more than
9 months
$m
Due over
9 months
but not
more than
1 year
$m
Due over
1 year
but not
more than
2 years
$m
Due over
2 years
but not
more than
5 years
$m
Due not
more than
1 month
$m
Due over
5 years
$m
Total
$m
472,277
45,792
16,271
9,798
47,122
11,325
48,756
15,089
666,430
161,843
272,044
38,390
11,547
32,764
1,481
6,333
9,126
812
963
8,372
463
19,607
23,984
3,531
1,207
8,227
1,891
425
38,838
9,493
1,018
12,558
1,513
202,943
405,913
57,574
455,319
52,398
8,919
14,163
41,500
13,979
48,333
16,769
651,380
179,088
239,646
36,585
15,784
34,657
1,957
452
7,595
872
305
12,556
1,302
14,036
23,519
3,945
1,432
9,926
2,621
1,003
36,918
10,412
955
12,185
3,629
213,055
377,002
61,323
Shareholder Information
Financial Statements
Corporate Governance
Financial Review
Strategic Report
HSBC Holdings
Maturity analysis of assets, liabilities and off-balance sheet commitments
Due over
1 month
but not
more than
3 months
$m
Due over
3 months
but not
more than
6 months
$m
Due over
6 months
but not
more than
9 months
$m
Due over
9 months
but not
more than
1 year
$m
Due over
1 year
but not
more than
2 years
$m
Due over
2 years
but not
more than
5 years
$m
Due not
more than
1 month
$m
Financial assets
Cash at bank and in hand:
– balances with HSBC undertakings
Derivatives
– trading
– non-trading
Loans and advances to HSBC undertakings
Financial investments in HSBC undertakings
Accrued income and other financial assets
Total financial assets at 31 December 2015
Non-financial assets
Total assets at 31 December 2015
Financial liabilities
Amounts owed to HSBC undertakings
Financial liabilities designated at fair value
– debt securities in issue
– subordinated liabilities and preferred securities
Derivatives
– trading
– non-trading
Debt securities in issue
Accruals and other financial liabilities
Subordinated liabilities
Total financial liabilities at 31 December 2015
Non-financial liabilities
Total liabilities at 31 December 2015
4
3
2
H
S
B
C
H
O
L
D
N
G
S
P
L
C
I
242
1,990
1,990
–
7,805
40
7
10,084
–
10,084
1,629
–
–
–
2,065
2,065
–
–
1,231
–
4,925
–
4,925
–
–
–
–
2,629
6
–
2,635
–
2,635
–
960
960
–
–
–
–
–
195
–
1,155
–
1,155
Off-balance sheet commitments given
Undrawn formal standby facilities, credit lines and other commitments to lend
–
–
–
–
–
–
4,618
–
–
4,618
–
4,618
–
–
–
–
–
–
–
–
132
–
132
–
132
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
20
–
20
–
20
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
415
–
–
–
–
–
–
–
–
–
415
–
415
–
3
1
–
M
a
t
u
r
i
t
y
a
n
a
l
y
s
i
s
N
o
t
e
s
o
n
t
h
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
(
c
o
n
t
i
n
u
e
d
)
Due over
5 years
$m
–
368
–
368
29,298
4,239
109
34,014
98,734
Total
$m
242
2,467
1,990
477
44,350
4,285
116
51,460
98,734
132,748
150,194
108
16,608
6,937
9,671
–
–
–
960
–
14,146
31,822
64
31,886
2,152
19,853
7,897
11,956
2,278
2,065
213
960
1,578
15,895
42,716
64
42,780
–
109
–
109
–
–
–
109
–
109
–
2,285
–
2,285
213
–
213
–
–
1,749
4,247
–
4,247
–
–
–
Financial assets
Cash at bank and in hand:
– balances with HSBC undertakings
Derivatives
– trading
– non-trading
Loans and advances to HSBC undertakings
Financial investments in HSBC undertakings
Accrued income and other financial assets
Total financial assets at 31 December 2014
Non-financial assets
Total assets at 31 December 2014
Financial liabilities
Amounts owed to HSBC undertakings
Financial liabilities designated at fair value
– debt securities in issue
– subordinated liabilities and preferred securities
Derivatives
– trading
– non-trading
Debt securities in issue
Accruals and other financial liabilities
Subordinated liabilities
Total financial liabilities at 31 December 2014
Non-financial liabilities
Total liabilities at 31 December 2014
4
3
3
H
S
B
C
H
O
L
D
N
G
S
P
L
C
I
Due over
1 month
but not
more than
3 months
$m
Due over
3 months
but not
more than
6 months
$m
Due over
6 months
but not
more than
9 months
$m
Due over
9 months
but not
more than
1 year
$m
Due over
1 year
but not
more than
2 years
$m
Due over
2 years
but not
more than
5 years
$m
Due not
more than
1 month
$m
249
2,287
2,287
–
7,007
26
8
9,577
–
9,577
2,423
–
–
–
1,066
1,066
–
–
924
–
4,413
–
4,413
–
–
–
–
858
6
–
864
–
864
–
–
–
–
–
–
–
–
208
–
208
–
208
–
–
–
–
7,676
–
–
7,676
–
7,676
32
–
–
–
–
–
–
–
137
–
169
–
169
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
21
–
21
–
21
–
–
–
–
14
–
–
14
–
14
1
–
–
–
–
–
–
–
–
–
1
–
1
–
–
–
–
–
–
–
–
–
–
436
1,110
1,110
–
–
–
–
–
–
–
1,546
–
1,546
–
127
–
127
–
–
–
127
–
127
–
2,623
–
2,623
103
–
103
–
–
1,951
4,677
–
4,677
Due over
5 years
$m
–
357
–
357
28,355
4,041
–
32,753
96,853
Total
$m
249
2,771
2,287
484
43,910
4,073
8
51,011
96,853
129,606
147,864
–
14,946
7,075
7,871
–
–
–
1,009
–
15,304
31,259
125
31,384
2,892
18,679
8,185
10,494
1,169
1,066
103
1,009
1,290
17,255
42,294
125
42,419
Off-balance sheet commitments given
Undrawn formal standby facilities, credit lines and other commitments
to lend
16
–
–
–
–
–
–
–
16
Shareholder Information
Financial Statements
Corporate Governance
Financial Review
Strategic Report
Notes on the Financial Statements (continued)
32 – Offsetting of financial assets and financial liabilities
32 Offsetting of financial assets and financial liabilities
Accounting policy
Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet when there is a legally enforceable
right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability
simultaneously (‘the offset criteria’).
The disclosure below has been enhanced this year with the inclusion of ‘Amounts not subject to enforceable netting
arrangements’ resulting in a change in the basis of preparation from the prior period. Prior period data have been represented
accordingly.
The ‘Amounts not set off in the balance sheet’ in the following table for derivatives and reverse repurchase/repurchase, stock
borrowing/lending and similar agreements include transactions where:
• the counterparty has an offsetting exposure with HSBC and a master netting or similar arrangement is in place with a right
of set off only in the event of default, insolvency or bankruptcy, or the offset criteria are otherwise not satisfied; and
• cash and non-cash collateral has been received/pledged in respect of the transactions described above.
For loans and advances to customers and customer accounts at amortised cost the amounts included in the table below
typically relate to transactions entered into with corporate and commercial customers for working capital management
purposes. The ‘Amounts not set off in the balance sheet’ relate to transactions where the customer has an offsetting exposure
with HSBC and an agreement is in place with the right of offset but the offset criteria are otherwise not satisfied. For risk
management purposes, the net amounts of such exposures are subject to limits which are monitored and the relevant
customer agreements are subject to review and updated, as necessary, to ensure that the legal right of offset remains
appropriate.
Footnotes to the table on page 435 are set out below:
1 At 31 December 2015, the amount of cash margin received that has been offset against the gross derivatives assets is $4,135m (2014: $606m). The
amount of cash margin paid that has been offset against the gross derivatives liabilities is $4,224m (2014: $190m).
2 For the amount of reverse repos, stock borrowing and similar agreements recognised in the balance sheet, see the ‘Funding sources and uses; table
on page 160. In the analysis below, the $7,556m (2014: $9,266m) of trading assets presented in the balance sheet comprised $438m of reverse repos
(2014: $1,297m) and $7,118m of stock borrowing (2014: $7,969m).
3 At 31 December 2015, the total amount of loans and advances to customers at amortised cost was $924,454m (2014: $974,660m) of which $45,904m
(2014: $62,096m) was subject to offsetting. For the amount of loans and advances to customers at amortised cost recognised in the balance sheet,
see the ‘Funding sources and uses’ table on page 160.
4 For the amount of repos, stock lending and similar agreements recognised in the balance sheet, see the ‘Funding sources and uses’ table on page 160.
In the analysis below, the $9,301m (2014: $15,830m) of trading liabilities presented in the balance sheet comprised $442m of repos (2014: $3,798m)
and $8,859m of stock lending (2014: $12,032m).
5 At 31 December 2015, the total amount of customer accounts at amortised cost was $1,289,586m (2014: $1,350,642m) of which $51,442m
(2014: $69,082m) was subject to offsetting. For the amount of customer accounts at amortised cost recognised in the balance sheet, see the ‘Funding
sources and uses’ table on page 160.
6 These exposures continue to be secured by financial collateral, but we may not have sought or been able to obtain a legal opinion evidencing
enforceability of the right of offset.
HSBC HOLDINGS PLC
434
Financial assets subject to offsetting, enforceable master netting arrangements and similar agreements
Amounts subject to enforceable netting arrangements
Amounts not set off in the balance sheet
Gross
amounts
$m
Amounts
offset
$m
Net amounts
in the
balance sheet
$m
Financial
instruments
$m
Non-cash
collateral
$m
Cash
collateral
$m
Net
amount
$m
Amounts not
subject to
enforceable
netting
arrangements6
$m
Total
$m
385,682
(105,860)
279,822
(215,531)
(8,621)
(34,040)
21,630
8,654
288,476
4
3
5
H
S
B
C
H
O
L
D
N
G
S
P
L
C
I
Financial assets
Derivatives (Note 16)1
Reverse repos, stock borrowing and similar
agreements2
Classified as:
– trading assets
– non-trading assets
Loans and advances to customers at
amortised cost3
At 31 December 2015
Derivatives (Note 16)1
Reverse repos, stock borrowing and similar
agreements2
Classified as:
– trading assets
– non-trading assets
Loans and advances to customers at
amortised cost3
At 31 December 2014
Financial liabilities
Derivatives (Note 16)1
Repos, stock lending and similar agreements4
Classified as:
– trading liabilities
– non-trading liabilities
Customer accounts at amortised cost5
At 31 December 2015
Derivatives (Note 16)1
Repos, stock lending and similar agreements4
Classified as:
– trading liabilities
– non-trading liabilities
Customer accounts at amortised cost5
At 31 December 2014
For footnotes, see page 434.
7,496
200,921
77,547
671,646
584,359
208,893
9,341
199,552
99,623
892,875
377,930
136,040
9,300
126,740
83,085
597,055
580,644
165,514
16,206
149,308
106,609
852,767
208,417
(77,925)
130,492
–
(77,925)
(31,643)
(215,428)
(250,465)
7,496
122,996
45,904
456,218
333,894
(544)
–
(544)
(40,790)
(256,865)
(262,856)
(129,476)
(7,495)
(121,981)
–
(138,097)
(7,655)
(88,676)
120,217
(5,117)
(114,394)
(270)
–
(270)
–
(34,310)
(41,750)
(249)
–
(249)
–
(8,951)
(105,443)
–
(122,049)
(41,999)
(13,629)
(56,030)
(9,299)
(46,731)
–
(69,659)
(9,465)
(67,793)
(15,813)
(51,980)
–
(30,063)
(26)
–
(26)
(1)
(30,090)
(39,571)
(105)
–
(105)
–
(77,258)
(39,676)
202
1
201
5,114
26,946
21,633
457
–
457
6,107
28,197
12,870
25
1
24
10,651
23,546
18,279
6
3
3
13,093
31,378
23,319
60
23,259
1,487
33,460
11,114
50,762
315
50,447
1,597
63,473
9,001
31,586
1
31,585
729
41,316
10,490
46,424
14
46,410
479
57,393
153,811
7,556
146,255
47,391
489,678
345,008
170,979
9,266
161,713
63,693
579,680
281,071
89,701
9,301
80,400
52,171
422,943
340,669
123,262
15,830
107,432
69,561
533,492
(390)
(88,286)
(37,527)
(376,668)
(105,860)
(77,925)
–
(77,925)
(31,643)
(215,428)
(250,465)
(88,676)
(390)
(88,286)
(37,527)
(376,668)
8,951
111,266
62,096
516,207
272,070
58,115
9,300
48,815
51,442
381,627
330,179
76,838
15,816
61,022
69,082
476,099
–
(5,117)
(55,989)
(323,962)
(215,508)
(2,034)
–
(2,034)
(40,790)
(258,332)
(262,864)
(8,934)
–
(8,934)
(55,989)
(327,787)
Shareholder Information
Financial Statements
Corporate Governance
Financial Review
Strategic Report
Notes on the Financial Statements (continued)
33 – Foreign exchange exposures / 34 – Non-controlling interests / 35 – Share capital
33 Foreign exchange exposures
Structural foreign exchange exposures
HSBC’s structural foreign exchange exposures are represented by the net asset value of its foreign exchange equity and
subordinated debt investments in subsidiaries, branches, joint ventures and associates with non-US dollar functional
currencies. Gains or losses on structural foreign exchange exposures are recognised in other comprehensive income.
HSBC’s management of its structural foreign exchange exposures is discussed on page 171.
Net structural foreign exchange exposures
Currency of structural exposure
Pound sterling1
Hong Kong dollars
Chinese renminbi
Euros
Mexican pesos
Indian rupees
Canadian dollars
Saudi riyals
Brazilian real
Swiss francs
Malaysian ringgit
UAE dirhams
Taiwanese dollars
Singapore dollars
Australian dollars
Indonesian rupiah
Korean won
Turkish lira
Egyptian pounds
Argentine pesos
Others, each less than $700m
At 31 December
2015
$m
32,701
28,270
24,117
19,966
4,228
3,645
3,595
3,109
2,865
2,642
1,994
1,898
1,702
1,454
1,396
1,303
1,296
1,006
925
875
5,775
2014
$m
30,071
24,028
24,578
20,378
5,249
3,466
4,187
2,910
4,910
1,864
2,219
2,199
1,721
1,185
1,516
1,352
1,360
1,366
868
1,059
5,918
144,762
142,404
1 During 2015, we entered into new forward exchange contracts amounting to $2.6bn (2014: $1.6bn) in order to manage our sterling structural foreign
exchange exposure.
Shareholders’ equity would decrease by $2,633m (2014: $2,522m) if euro and sterling foreign currency exchange rates
weakened by 5% relative to the US dollar.
34 Non-controlling interests
Non-controlling interests attributable to holders of ordinary shares in subsidiaries
Preferred securities issued by subsidiaries
At 31 December
Preferred securities issued by subsidiaries
2015
$m
6,981
2,077
9,058
2014
$m
7,104
2,427
9,531
Preferred securities are securities for which there is no obligation to pay a dividend and, if the dividend is not paid, it may not
be cumulative. Such securities do not generally carry voting rights but rank higher than ordinary shares for dividend payments
and in the event of a winding-up. These securities have no stated maturity date but may be called and redeemed by the issuer,
subject to prior notification to the PRA and, where relevant, the consent of the local banking regulator. Dividends on floating
rate preferred securities are generally related to interbank offer rates.
Included in the capital base of HSBC are non-cumulative preferred securities classified as additional tier 1 capital and
cumulative preferred securities classified as tier 2 capital in accordance with CRD IV rules, by virtue of the application of
grandfathering provisions.
HSBC HOLDINGS PLC
436
Preferred securities issued by HSBC’s subsidiaries
HSBC USA Inc.
$150m1
$150m2
$518m
$374m
$374m
Depositary shares each representing 25% interest in a share of
adjustable-rate cumulative preferred stock, series D
Cumulative preferred stock
Floating rate non-cumulative preferred stock, series F
Floating rate non-cumulative preferred stock, series G
6.50% non-cumulative preferred stock, series H
HSBC Finance Corporation
$575m
6.36% non-cumulative preferred stock, series B
HSBC Bank Canada
CAD175m
CAD175m
Non-cumulative redeemable class 1 preferred shares, series C
Non-cumulative class 1 preferred shares, series D
At 31 December
First call
date
Jul 1999
Oct 2007
Apr 2010
Jan 2011
Jul 2011
Jun 2010
Jun 2010
Dec 2010
2015
$m
–
–
518
374
374
559
126
126
2,077
2014
$m
150
150
518
374
374
559
151
151
2,427
1 In May 2015, HSBC redeemed its depositary shares representing 25% interest in a share of adjustable-rate cumulative preferred stock, series D
for $152m.
2 In May 2015, HSBC redeemed its cumulative preferred stock for $152m.
35 Called up share capital and other equity instruments
Accounting policy
Financial instruments issued are classified as equity when there is no contractual obligation to transfer cash or other financial assets or issue
a variable number of own equity instruments. Incremental costs directly attributable to the issue of equity instruments are shown in equity
as a deduction from the proceeds, net of tax.
HSBC Holdings equity instruments held by HSBC are recognised in equity as a deduction from retained earnings until they are cancelled.
When such instruments are subsequently sold, reissued or otherwise disposed of, any consideration received is included in equity, net of any
directly attributable incremental transaction costs and related income tax effects.
Issued and fully paid
HSBC Holdings ordinary shares of $0.50 each
HSBC Holdings ordinary shares1 at 31 December
At 1 January 2015
Shares issued under HSBC employee share plans
Shares issued in lieu of dividends
At 31 December 2015
At 1 January 2014
Shares issued under HSBC employee share plans
Shares issued in lieu of dividends
At 31 December 2014
HSBC Holdings non-cumulative preference shares of $0.01 each
At 1 January 2015 and 31 December 20152
At 1 January 2014 and 31 December 2014
2015
$m
9,842
Number
19,217,874,260
91,265,909
375,956,765
19,685,096,934
18,830,007,039
119,391,238
268,475,983
19,217,874,260
Number
1,450,000
1,450,000
2014
$m
9,609
$m
9,609
45
188
9,842
9,415
60
134
9,609
$m
–
–
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
1 All HSBC Holdings ordinary shares in issue confer identical rights, including in respect of capital, dividends and voting.
2 Included in the capital base of HSBC as additional tier 1 capital in accordance with the CRD IV rules, by virtue of the application of grandfathering
provisions.
Dividends on the HSBC Holdings non-cumulative dollar preference shares in issue (‘dollar preference shares’) are paid quarterly
at the sole and absolute discretion of the Board of Directors. The Board of Directors will not declare a dividend on the dollar
preference shares if payment of the dividend would cause HSBC Holdings not to meet the applicable capital adequacy
requirements of the PRA or the profit of HSBC Holdings available for distribution as dividends is not sufficient to enable HSBC
Holdings to pay in full both dividends on the dollar preference shares and dividends on any other shares that are scheduled to
be paid on the same date and that have an equal right to dividends. HSBC Holdings may not declare or pay dividends on any
class of its shares ranking lower in the right to dividends than the dollar preference shares nor redeem nor purchase in any
manner any of its other shares ranking equal with or lower than the dollar preference shares unless it has paid in full, or set
aside an amount to provide for payment in full, the dividends on the dollar preference shares for the then current dividend
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
HSBC HOLDINGS PLC
437
Notes on the Financial Statements (continued)
35 – Share capital / 36 – Notes on the statement of cash flows
period. The dollar preference shares carry no rights to conversion into ordinary shares of HSBC Holdings. Holders of the dollar
preference shares will only be entitled to attend and vote at general meetings of shareholders of HSBC Holdings if the dividend
payable on the dollar preference shares has not been paid in full for four consecutive dividend payment dates. In such
circumstances, holders of the dollar preference shares will be entitled to vote on all matters put to general meetings until
such time as HSBC Holdings has paid a full dividend on the dollar preference shares. HSBC Holdings may redeem the dollar
preference shares in whole at any time on or after 16 December 2010, subject to prior notification to the PRA.
HSBC Holdings non-cumulative preference share of £0.01
The one non-cumulative sterling preference share of £0.01 in issue (‘sterling preference share’) has been in issue since
29 December 2010 and is held by a subsidiary of HSBC Holdings. Dividends on the sterling preference share are paid quarterly
at the sole and absolute discretion of the Board. The sterling preference share carries no rights of conversion into ordinary
shares of HSBC Holdings and no rights to attend and vote at general meetings of shareholders of HSBC Holdings. HSBC Holdings
may redeem it in whole at any time at the option of the Company.
Other equity instruments
HSBC has included three types of additional tier 1 capital securities in its tier 1 capital. The two types of additional tier 1
securities presented in this Note are accounted for as equity because HSBC does not have an obligation to transfer cash or a
variable number of its own ordinary shares to holders under any circumstances outside its control. See Note 30 for additional
tier 1 securities accounted for as liabilities.
Other equity instruments which have been included in the regulatory capital base of HSBC comprise additional tier 1 capital
securities and additional tier 1 contingent convertible securities.
Additional tier 1 capital securities
Additional tier 1 capital securities are perpetual subordinated securities on which coupon payments may be deferred at the
discretion of HSBC Holdings. While any coupon payments are unpaid or deferred, HSBC Holdings will not declare, pay dividends
or make distributions or similar periodic payments in respect of, or repurchase, redeem or otherwise acquire any securities of
lower or equal rank. Such securities do not generally carry voting rights but rank higher than ordinary shares for coupon
payments and in the event of a winding-up. These securities do not meet the identifying criteria in full for recognition as tier 1
capital under CRD IV but are eligible as regulatory capital subject to grandfathering limits and progressive phase-out.
At HSBC Holdings’ discretion, and subject to certain conditions being satisfied, the capital securities may be exchanged on any
coupon payment date for non-cumulative preference shares to be issued by HSBC Holdings and ranking pari passu with the
dollar and sterling preference shares in issue. The preference shares would be issued at a nominal value of $0.01 per share and
a premium of $24.99 per share, with both such amounts being subscribed and fully paid. These securities may be called and
redeemed by HSBC subject to prior notification to the PRA.
HSBC’s additional tier 1 capital securities in issue which are accounted for in equity
$2,200m
$3,800m
8.125% perpetual subordinated capital securities
8.00% perpetual subordinated capital securities, Series 2
At 31 December
Additional tier 1 capital – contingent convertible securities
First call
date
Apr 2013
Dec 2015
2015
$m
2,133
3,718
5,851
2014
$m
2,133
3,718
5,851
During 2015, HSBC continued to issue contingent convertible securities that are included in HSBC’s capital base as fully CRD IV
compliant additional tier 1 capital securities on an end point basis. The net proceeds of the issuances will be used for general
corporate purposes and to further strengthen the capital base pursuant to requirements under CRD IV. These securities bear a
fixed rate of interest until their initial call dates. After the initial call dates, in the event they are not redeemed, the securities
will bear interest at rates which are fixed periodically in advance for five-year periods based on prevailing market rates.
Interest on the contingent convertible securities will be due and payable only at the sole discretion of HSBC, and HSBC has
sole and absolute discretion at all times and for any reason to cancel (in whole or in part) any interest payment that would
otherwise be payable on any interest payment date. There are limitations on the payment of distributions if such payments
are prohibited under UK banking regulations, or other requirements, if HSBC Holdings has insufficient reserves available for
distribution or if HSBC fails to satisfy the solvency condition as defined in the securities’ terms.
The contingent convertible securities are undated and are repayable, at the option of HSBC, in whole at the initial call date, or
on any fifth anniversary after the initial call 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’s dollar and sterling preference shares and are therefore ahead of ordinary shares. The contingent convertible securities
will be converted into fully paid ordinary shares of HSBC at a pre-determined price should HSBC’s consolidated end point CET1
ratio fall below 7.0%. Therefore, in accordance with the terms of the securities, if the end point CET1 ratio breaches the 7.0%
trigger the securities will convert into ordinary shares at fixed contractual conversion prices in the issuance currencies of the
HSBC HOLDINGS PLC
438
relevant securities equivalent to £2.70 at the prevailing rate of exchange on the issuance date subject to certain anti-
dilution adjustments.
HSBC’s additional tier 1 capital – contingent convertible securities in issue which are accounted for in equity
$2,250m
$1,500m
€1,500m
$2,450m
€1,000m
6.375% perpetual subordinated contingent convertible securities
5.625% perpetual subordinated contingent convertible securities
5.25% perpetual subordinated contingent convertible securities
6.375% perpetual subordinated contingent convertible securities
6.000% perpetual subordinated contingent convertible securities
At 31 December
Shares under option
First call
date
Sep 2024
Jan 2020
Sep 2022
Mar 2025
Sep 2023
2015
$m
2,244
1,494
1,943
2,459
1,121
9,261
2014
$m
2,244
1,494
1,943
–
–
5,681
For details of the options outstanding to subscribe for HSBC Holdings ordinary shares under the HSBC Holdings savings-related
share option plans, see Note 6.
Aggregate options outstanding under these plans
31 December 2015
31 December 2014
31 December 2013
Number of
HSBC Holdings
ordinary shares
72,840,810
1,114,830
153,610
665,445
63,918,042
6,468,782
571,502
1,867,328
119,085,250
24,215,341
1,574,652
3,997,069
Period of exercise
Exercise price
2015 to 2021
2015 to 2018
2015 to 2018
2015 to 2018
2014 to 2020
2014 to 2018
2014 to 2018
2014 to 2018
2013 to 2019
2013 to 2018
2013 to 2018
2013 to 2018
£4.0472 – 5.4738
HK$55.4701 – 63.9864
€5.3532 – 6.0657
$7.1456 – 8.2094
£3.3116 – 7.9911
HK$37.8797 – 63.9864
€3.6361 – 6.0657
$4.8876 – 8.2094
£3.3116 – 7.9911
HK$37.8797 – 92.5881
€3.6361 – 7.5571
$4.8876 – 11.8824
Maximum obligation to deliver HSBC Holdings ordinary shares
At 31 December 2015, the maximum obligation to deliver HSBC Holdings ordinary shares under all of the above option
arrangements and the HSBC International Employee Share Purchase Plan, together with GPSP awards and restricted share
awards granted under the HSBC Share Plan and/or the HSBC Share Plan 2011, was 193,178,906 (2014: 193,154,512). The total
number of shares at 31 December 2015 held by employee benefit trusts that may be used to satisfy such obligations to deliver
HSBC Holdings ordinary shares was 4,753,747 (2014: 7,943,191).
36 Notes on the statement of cash flows
Other non-cash items included in profit before tax
Depreciation, amortisation and impairment
(Gains)/losses arising from dilution of interests in associates
Revaluations on investment property
Share-based payment expense
Loan impairment losses gross of recoveries and other credit
risk provisions
Provisions
Impairment/(release of impairment) of financial investments
Charge for defined benefit plans
Accretion of discounts and amortisation of premiums
2015
$m
2,181
–
(61)
757
4,546
3,210
94
262
(224)
HSBC
2014
$m
2,251
32
(120)
732
5,125
3,074
54
535
(421)
2013
$m
2,330
(1,051)
(113)
630
7,356
2,578
(36)
121
180
Year ended 31 December
10,765
11,262
11,995
114
HSBC HOLDINGS PLC
439
HSBC Holdings
2015
$m
2014
$m
30
–
–
86
–
–
–
–
(2)
39
–
–
74
–
–
–
–
(61)
52
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
36 – Notes on the statement of cash flows / 37 – Contingent liabilities
Change in operating assets
Change in loans to HSBC undertakings
Change in net trading securities and net derivatives
Change in loans and advances to banks
Change in loans and advances to customers
Change in reverse repurchase agreements – non-trading
Change in financial assets designated at fair value
Change in other assets
Year ended 31 December
Change in operating liabilities
Change in deposits by banks
Change in customer accounts
Change in repurchase agreements – non-trading
Change in debt securities in issue
Change in financial liabilities designated at fair value
Change in other liabilities
Year ended 31 December
Interest and dividends
Interest paid
Interest received
Dividends received
Cash and cash equivalents
Accounting policy
2015
$m
–
24,384
1,218
31,753
(3,011)
2,394
9,090
65,828
2015
$m
(21,534)
(44,373)
(26,481)
960
(10,785)
(4,549)
(106,762)
2015
$m
(14,559)
47,623
914
HSBC
2014
$m
–
(18,498)
5,147
12,666
18,900
3,269
4,393
25,877
HSBC
2014
$m
(9,081)
(8,362)
(56,788)
(8,133)
(10,734)
(716)
(93,814)
HSBC
2014
$m
(15,633)
51,522
1,199
2013
$m
–
(24,870)
(4,739)
(46,551)
(70,403)
(4,922)
2,586
(148,899)
2013
$m
(7,781)
57,365
123,653
(15,381)
994
5,907
164,757
2013
$m
(17,262)
50,823
1,133
HSBC Holdings
2015
$m
(729)
1,413
–
–
–
–
(141)
543
HSBC Holdings
2015
$m
–
–
–
(49)
(1,228)
(1,065)
(2,342)
HSBC Holdings
2015
$m
(2,309)
2,026
8,469
2014
$m
1,364
483
–
–
–
–
7
1,854
2014
$m
–
–
–
(149)
(694)
(9,071)
(9,914)
2014
$m
(2,463)
1,945
9,077
Cash and cash equivalents include highly liquid investments that are readily convertible to known amounts of cash and which are subject
to an insignificant risk of change in value. Such investments are normally those with less than three months’ maturity from the date of
acquisition.
Cash and cash equivalents
Cash at bank with HSBC undertakings
Cash and balances at central banks
Items in the course of collection from other banks
Loans and advances to banks of one month or less
Reverse repurchase agreements with banks of one month or less
Treasury bills, other bills and certificates of deposit less than
three months
Less: items in the course of transmission to other banks
At 31 December
2015
$m
–
98,934
5,768
70,985
53,971
19,843
(5,638)
243,863
HSBC
2014
$m
–
129,957
4,927
89,285
68,930
14,192
(5,990)
301,301
2013
$m
–
166,599
6,021
96,584
68,007
15,980
(6,910)
346,281
HSBC Holdings
2015
$m
2014
$m
242
–
–
–
–
–
–
242
249
–
–
–
–
–
–
249
The amount of cash and cash equivalents not available for use by HSBC at 31 December 2015 was $33,744m (2014: $43,738m),
of which $21,773m (2014: $29,883m) related to mandatory deposits at central banks.
Disposal of subsidiaries and businesses
During 2014, we completed the disposals of HSBC Bank Middle East Limited’s banking business in Jordan and operations in
Pakistan. This resulted in a net $303m outflow of cash and cash equivalents which is included under ‘Cash flow from investing
activities’ in the consolidated statement of cash flows on page 340.
In October 2013, we completed the disposal of HSBC Bank (Panama) S.A., receiving total cash consideration of $2,210m which
is included under ‘Cash flow from investing activities’ in the consolidated statement of cash flows on page 340.
HSBC HOLDINGS PLC
440
37 Contingent liabilities, contractual commitments and guarantees
Accounting policy
Contingent liabilities
Contingent liabilities, which include certain guarantees and letters of credit pledged as collateral security and contingent liabilities related to
legal proceedings or regulatory matters (see Note 40), are possible obligations that arise from past events whose existence will be confirmed
only by the occurrence, or non-occurrence, of one or more uncertain future events not wholly within the control of HSBC; or are present
obligations that have arisen from past events but are not recognised because it is not probable that settlement will require the outflow of
economic benefits, or because the amount of the obligations cannot be reliably measured. Contingent liabilities are not recognised in the
financial statements but are disclosed unless the probability of settlement is remote.
Financial guarantee contracts
Financial guarantee contracts are contracts that require HSBC to make specified payments to reimburse the holder for a loss incurred
because a specified debtor fails to make payment when due. Liabilities under financial guarantee contracts which are not classified as
insurance contracts are recorded initially at their fair value, which is generally the fee received or present value of the fee receivable.
Subsequently, financial guarantee liabilities are measured at the higher of the initial fair value, less cumulative amortisation, and the best
estimate of the expenditure required to settle the obligations.
HSBC Holdings has issued financial guarantees and similar contracts to other Group entities. HSBC elects to account for certain guarantees as
insurance contracts in HSBC Holdings’ financial statements, in which case they are measured and recognised as insurance liabilities. This
election is made on a contract by contract basis, and is irrevocable.
Contingent liabilities, contractual commitments and guarantees
Guarantees and contingent liabilities
Guarantees
Other contingent liabilities
At 31 December
Commitments
Documentary credits and short-term trade-related transactions
Forward asset purchases and forward forward deposits placed
Undrawn formal standby facilities, credit lines and other commitments to lend
At 31 December
HSBC
2015
$m
85,855
490
86,345
10,168
981
655,281
666,430
2014
$m
86,385
346
86,731
12,082
823
638,475
651,380
HSBC Holdings
2015
$m
68,333
–
68,333
–
–
–
–
2014
$m
52,023
–
52,023
–
–
16
16
The above table discloses the nominal principal amounts of commitments, guarantees and other contingent liabilities.
Contingent liabilities arising from legal proceedings, regulatory and other matters against Group companies are disclosed in
Notes 29 and 40. Nominal principal amounts represent the amounts at risk should the contracts be fully drawn upon and
clients default. As a significant portion of guarantees and commitments is expected to expire without being drawn upon, the
total of the nominal principal amounts is not indicative of future liquidity requirements.
Guarantees
Guarantee type
Financial guarantees
Credit-related guarantees1
Other guarantees
At 31 December
2015
2014
Guarantees
in favour of
third parties
$m
Guarantees by
HSBC Holdings
in favour of other
Group entities
$m
Guarantees
in favour of
third parties
$m
Guarantees by
HSBC Holdings
in favour of other
Group entities
$m
27,643
18,473
39,739
85,855
55,000
13,333
–
68,333
30,406
16,672
39,307
86,385
36,800
15,223
–
52,023
1 Credit-related guarantees are contracts that have similar features to financial guarantee contracts but fail to meet the definition of a financial
guarantee contract under IAS 39.
The amounts disclosed in the above table are nominal principal amounts and reflect HSBC’s maximum exposure under a large
number of individual guarantee undertakings. The risks and exposures arising from guarantees are captured and managed in
accordance with HSBC’s overall credit risk management policies and procedures. Approximately half the above guarantees
have a term of less than one year. Guarantees with terms of more than one year are subject to HSBC’s annual credit review
process.
HSBC HOLDINGS PLC
441
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
38 – Lease commitments / 39 – Structured entities
Financial Services Compensation Scheme
The Financial Services Compensation Scheme (‘FSCS’) has provided compensation to consumers following the collapse of
a number of deposit takers. The compensation paid out to consumers is currently funded through loans from HM Treasury
which at 31 December 2015 stood at approximately £16bn ($23.7bn).
The Group could be liable to pay a proportion of the outstanding amount that the FSCS has borrowed from HM Treasury. The
ultimate FSCS levy to the industry as a result of the collapses cannot currently be estimated reliably as it is dependent on
various uncertain factors including the potential recoveries of assets by the FSCS and changes in the level of protected deposits
and the population of FSCS members at the time.
Capital commitments
In addition to the commitments disclosed on page 441, at 31 December 2015 HSBC had $468m (2014: $656m) of capital
commitments contracted but not provided for and $100m (2014: $101m) of capital commitments authorised but not
contracted for.
Associates
HSBC’s share of associates’ contingent liabilities amounted to $39,222m at 31 December 2015 (2014: $47,593m). No matters
arose where HSBC was severally liable.
38 Lease commitments
Accounting policy
Agreements which transfer substantially all the risks and rewards incidental to the ownership of assets are classified as finance leases.
As a lessor under finance leases, HSBC presents the amounts due under the leases after deduction of unearned charges in ‘Loans and
advances to banks’ or ‘Loans and advances to customers’. As a lessee under finance leases, HSBC presents the leased assets in ‘Property,
plant and equipment’ with the corresponding liability included in ‘Other liabilities’. A finance lease asset and its corresponding liability are
recognised initially at the fair value of the asset or, if lower, the present value of the minimum lease payments.
All other leases are classified as operating leases. As lessor, HSBC presents assets subject to operating leases in ‘Property, plant and
equipment’. Impairment losses are recognised to the extent that carrying values are not fully recoverable. As a lessee, leased assets are not
recognised on the balance sheet.
Finance income or charges on finance leases are recognised in ‘Net interest income’ over the lease periods so as to give a constant rate of
return. Rentals payable or receivable under operating leases are spread on a straight-line basis over the lease periods and are recognised in
‘General and administrative expenses’ or in ‘Other operating income’.
Operating lease commitments
At 31 December 2015, future minimum lease payments under non-cancellable operating leases for land, buildings and
equipment were $5,333m (2014: $5,372m).
Finance lease receivables
HSBC leases a variety of assets to third parties under finance leases, including transport assets (such as aircraft), property and
general plant and machinery. At the end of lease terms, assets may be sold to third parties or leased for further terms. Rentals
are calculated to recover the cost of assets less their residual value, and earn finance income.
Total future
minimum
payments
$m
3,382
7,219
4,897
15,498
2015
Unearned
finance
income
$m
(332)
(837)
(702)
(1,871)
Total future
minimum
payments
2014
Unearned
finance
income
$m
$m
Present
value
$m
3,383
8,089
5,013
16,485
(374)
3,009
(980)
(744)
(2,098)
7,109
4,269
14,387
Present
value
$m
3,050
6,382
4,195
13,627
Lease receivables:
– no later than one year
– later than one year and no later than
five years
– later than five years
At 31 December
39 Structured entities
Accounting policy
A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls
the entity, for example when any voting rights relate to administrative tasks only, and key activities are directed by contractual
arrangements. Structured entities often have restricted activities and a narrow and well defined objective.
Structured entities are assessed for consolidation in accordance with the accounting policy set out in Note 1.
HSBC is mainly involved with structured entities through the securitisation of financial assets, conduits and investment funds.
HSBC HOLDINGS PLC
442
HSBC’s arrangements that involve structured entities are authorised centrally when they are established to ensure appropriate
purpose and governance. The activities of structured entities administered by HSBC are closely monitored by senior management.
The Group is involved with both consolidated and unconsolidated structured entities which are established either by HSBC or a
third party, as detailed below.
Consolidated structured entities
Total assets of HSBC’s consolidated structured entities, split by entity type
At 31 December 2015
At 31 December 2014
Conduits
Conduits
$bn
Securitisations
$bn
25.9
27.2
5.6
7.9
HSBC
managed
funds
$bn
8.2
11.2
Other
$bn
5.7
6.7
Total
$bn
45.4
53.0
HSBC has established and manages two types of conduits: securities investment conduits (‘SIC’s) and multi-seller conduits.
These entities have been designed so that voting or similar rights are not the dominant factor in deciding who has control: in
such cases, the relevant activities are directed by means of contractual arrangement. The conduits are consolidated as HSBC
is exposed to or has the right to variable returns from its involvement with the entity and has the ability to affect its returns
through its power over the entity.
Securities investment conduits
Solitaire, HSBC’s principal SIC, purchases highly rated ABSs to facilitate tailored investment opportunities. At 31 December
2015, Solitaire held $6.2bn of ABSs (2014: $8.0bn). These are included within the disclosures of ABSs ‘held through consolidated
structured entities’ on page 153. HSBC’s other SICs, Mazarin, Barion and Malachite, evolved from the restructuring of the
Group’s structured investment vehicles in 2008.
• Solitaire – Solitaire is currently funded entirely by commercial paper (‘CP’) issued to HSBC. Although HSBC continues to
provide a liquidity facility, Solitaire has no need to draw on it as long as HSBC purchases its issued CP, which HSBC intends
to do for the foreseeable future. At 31 December 2015, HSBC held $8bn of CP (2014: $9.5bn).
• Mazarin – HSBC is exposed to the par value of Mazarin’s assets through the provision of a liquidity facility equal to the
lesser of the amortised cost of issued senior debt and the amortised cost of non-defaulted assets. At 31 December 2015,
this amounted to $1.8bn (2014: $3.9bn). First loss protection is provided through the capital notes issued by Mazarin, which
are substantially all held by third parties.
At 31 December 2015, HSBC held 2.7% of Mazarin’s capital notes (2014: 1.2%) with a par value of $13m (2014: $10m) and a
carrying amount of $4m (2014: $1.4m).
• Barion and Malachite – HSBC’s primary exposure to these SICs is represented by the amortised cost of the debt required to
support the non-cash assets of the vehicles. At 31 December 2015, this amounted to $1.4bn (2014: $3.0bn). First loss
protection is provided through the capital notes issued by these vehicles, which are substantially all held by third parties.
At 31 December 2015, HSBC held 13.7% of the capital notes (2014: 9.9%) issued by these vehicles with a par value of
$42.2m (2014: $54.8m) and a carrying amount of $20.3m (2014: $10.1m).
Multi-seller conduits
Multi-seller conduits were established for the purpose of providing access to flexible market-based sources of finance for
HSBC’s clients. HSBC bears risk equal to the transaction-specific liquidity facilities offered to the multi-seller conduits
amounting to $19.8bn at 31 December 2015 (2014: $15.4bn). First loss protection is provided by the originator of the assets,
and not by HSBC, through transaction-specific credit enhancements. A layer of secondary loss protection is provided by HSBC
in the form of programme-wide enhancement facilities.
Securitisations
HSBC uses structured entities to securitise customer loans and advances that it has originated in order to diversify its sources
of funding for asset origination and capital efficiency purposes. The loans and advances are transferred by HSBC to the
structured entities for cash or synthetically through credit default swaps, and the structured entities issue debt securities to
investors.
HSBC managed funds
HSBC has established a number of money market and non-money market funds. Where it is deemed to be acting as principal
rather than agent in its role as investment manager, HSBC controls and hence consolidates these funds.
HSBC HOLDINGS PLC
443
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
39 – Structured entities / 40 – Legal proceedings and regulatory matters
Other
HSBC has also entered into a number of transactions in the normal course of business which include asset and structured
finance transactions where it has control of the structured entity. In addition, HSBC is deemed to control a number of
third-party managed funds through its involvement as a principal in the funds.
Unconsolidated structured entities
The term ‘unconsolidated structured entities’ refers to all structured entities that are not controlled by HSBC. The Group
enters into transactions with unconsolidated structured entities in the normal course of business to facilitate customer
transactions and for specific investment opportunities.
The table below shows the total assets of unconsolidated structured entities in which HSBC had an interest at the reporting
date and its maximum exposure to loss in relation to those interests.
Nature and risks associated with HSBC interests in unconsolidated structured entities
Securitisations
$bn
HSBC
managed
funds
$bn
Non-HSBC
managed
funds
$bn
Other
$bn
Total
$bn
Total assets of the entities
12.9
227.9
2,003.1
139.9
2,383.8
Total assets in relation to HSBC’s interests in the
unconsolidated structured entities
– trading assets
– financial assets designated at fair value
– derivatives
– loans and advances to banks
– loans and advances to customers
– financial investments
– other assets
Total liabilities in relation to HSBC’s interests in the
unconsolidated structured entities
Other liabilities
HSBC’s maximum exposure at 31 December 2015
1.4
–
–
–
–
1.1
0.3
–
–
–
3.5
5.6
0.1
5.3
–
–
–
0.2
–
–
–
5.6
8.0
0.2
6.6
–
–
0.1
1.1
–
–
–
8.0
9.8
2.6
–
3.8
0.1
2.9
0.2
0.2
(0.1)
(0.1)
14.6
24.8
2.9
11.9
3.8
0.1
4.1
1.8
0.2
(0.1)
(0.1)
31.7
Total assets of the entities
11.0
308.5
2,899.9
32.8
3,252.2
Total assets in relation to HSBC’s interests in the
unconsolidated structured entities
– trading assets
– financial assets designated at fair value
– derivatives
– loans and advances to banks
– loans and advances to customers
– financial investments
– other assets
Total liabilities in relation to HSBC’s interests in the
unconsolidated structured entities
Other liabilities
HSBC’s maximum exposure at 31 December 2014
0.8
–
–
–
–
0.8
–
–
–
–
0.8
7.8
0.1
5.2
–
–
–
2.5
–
–
–
7.8
8.3
0.1
2.3
–
–
–
5.9
–
–
–
8.3
7.7
4.6
–
1.3
0.1
1.5
0.1
0.1
0.1
0.1
11.1
24.6
4.8
7.5
1.3
0.1
2.3
8.5
0.1
0.1
0.1
28.0
The maximum exposure to loss from HSBC’s interests in unconsolidated structured entities represents the maximum loss that
HSBC could incur as a result of its involvement with unconsolidated structured entities regardless of the probability of the loss
being incurred.
• For commitments, guarantees and written credit default swaps, the maximum exposure to loss is the notional amount of
potential future losses.
• For retained and purchased investments in and loans to unconsolidated structured entities, the maximum exposure to loss
is the carrying value of these interests at the balance sheet reporting date.
The maximum exposure to loss is stated gross of the effects of hedging and collateral arrangements entered into to mitigate
HSBC’s exposure to loss.
Securitisations
HSBC has interests in unconsolidated securitisation vehicles through holding notes issued by these entities. In addition, HSBC
has investments in ABSs issued by third party structured entities as set out on page 153.
HSBC HOLDINGS PLC
444
HSBC managed funds
HSBC establishes and manages money market funds and non-money market investment funds to provide customers with
investment opportunities. Further information on funds under management is provided on page 96.
HSBC, as fund manager, may be entitled to receive management and performance fees based on the assets under
management. HSBC may also retain units in these funds.
Non-HSBC managed funds
HSBC purchases and holds units of third-party managed funds in order to facilitate both business and customer needs. In
addition, HSBC enters into derivative contracts to facilitate risk management solutions for non-HSBC managed funds. Note 16
provides information on derivatives entered into by HSBC.
Other
HSBC has established structured entities in the normal course of business, such as structured credit transactions for customers,
to provide finance to public and private sector infrastructure projects, and for asset and structured finance transactions.
HSBC sponsored structured entities
Accounting policy
HSBC is considered to sponsor another entity if, in addition to ongoing involvement with the entity, it had a key role in establishing that
entity or in bringing together the relevant counterparties so that the transaction which is the purpose of the entity could occur. HSBC is
generally not considered a sponsor if the only involvement with the entity is merely administrative in nature.
The amount of assets transferred to and income received from such sponsored entities during 2015 and 2014 was not
significant.
40 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 29. While the outcome of legal
proceedings and regulatory matters is inherently uncertain, management believes that, based on the information available to
it, appropriate provisions have been made in respect of these matters as at 31 December 2015 (see Note 29). Where an
individual provision is material, the fact that a provision has been made is stated and quantified, except to the extent doing so
would be seriously prejudicial. Any provision recognised does not constitute an admission of wrongdoing or legal liability. It is
not practicable to provide an aggregate estimate of potential liability for our legal proceedings and regulatory matters as a
class of contingent liabilities.
Securities litigation
As a result of an August 2002 restatement of previously reported consolidated financial statements and other corporate
events, including the 2002 settlement with 46 states and the District of Columbia relating to real estate lending practices,
Household International, Inc. (‘Household International’) and certain former officers were named as defendants in a class
action lawsuit, Jaffe v. Household International, Inc., et al., filed in August 2002 in the US District Court for the Northern District
of Illinois (the ‘Illinois District Court’). The complaint asserted claims under the US Securities Exchange Act and alleged that the
defendants knowingly or recklessly made false and misleading statements of material fact relating to Household International’s
Consumer Lending operations, including collections, sales and lending practices, some of which ultimately led to the 2002 state
settlement agreement, and facts relating to accounting practices evidenced by the financial restatement. Ultimately, a class
was certified on behalf of all persons who acquired and disposed of Household International common stock between July 1999
and October 2002.
A jury trial concluded in April 2009, which was decided partly in favour of the plaintiffs. Various legal challenges to the verdict
were raised in post-trial briefing.
In December 2011, following the submission of claim forms by class members, the court-appointed claims administrator
reported to the Illinois District Court that the total number of claims that generated an allowed loss was 45,921, and that the
aggregate amount of those claims was approximately $2.2bn. The Illinois District Court directed further proceedings before a
court-appointed Special Master to address certain issues and objections regarding the remaining claims.
In October 2013, the Illinois District Court entered a partial final judgement against the defendants in the amount of
approximately $2.5bn (including pre-judgement interest). The defendants appealed that partial final judgement.
In addition to the partial judgement that has been entered, there are also approximately $625m in remaining claims, prior to
the imposition of pre-judgement interest, that are still subject to objections that have not yet been ruled upon by the Illinois
District Court.
HSBC HOLDINGS PLC
445
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
40 – Legal proceedings and regulatory matters
In May 2015, the US Court of Appeals for the Seventh Circuit issued a decision reversing the partial final judgement of the
Illinois District Court and remanding the case for a new trial on loss causation, which may entail a reassessment of the
quantum of damages. On remand to the Illinois District Court, the case was reassigned to a different judge, who has issued
various rulings on certain preliminary issues and has entered a scheduling order that includes a trial date in June 2016.
The timing and ultimate resolution of this matter remains highly uncertain, and given the complexity and uncertainties
associated with a new trial on loss causation and a reassessment of the quantum of damages, there continues to be a wide
range of possible outcomes. Depending on whether and to what extent the plaintiffs are able to demonstrate loss causation,
the amount of damages, based upon the claims included in the reversed partial final judgement and the other remaining
claims, as well as the application of pre-judgement interest, may be up to or exceeding $3.6bn. A provision has been
recognised based on management’s best estimate of probable outflows, but the amount of such provision is not disclosed
as it would seriously prejudice the position of HSBC in the resolution of this matter.
Bernard L. Madoff Investment Securities LLC
Bernard L. Madoff (‘Madoff’) was arrested in December 2008 and later pleaded guilty to running a Ponzi scheme. He
has acknowledged, in essence, that while purporting to invest his customers’ money in securities, he in fact never invested in
securities and used other customers’ money to fulfil requests to return investments. 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, an amount that includes fictitious profits reported
by Madoff. Based on information available to HSBC, we have estimated that the funds’ actual transfers to Madoff Securities minus
their actual withdrawals from Madoff Securities during the time that HSBC serviced the funds totalled approximately $4bn.
Various HSBC companies have been named as defendants in lawsuits arising out of Madoff Securities’ fraud.
US/UK litigation: The Trustee has brought lawsuits against various HSBC companies in the US Bankruptcy Court and in the
English High Court. The Trustee’s ongoing US claims seek recovery of prepetition transfers pursuant to US bankruptcy law. The
amount of these claims has not been pleaded or determined as against HSBC. The Trustee’s English action seeks recovery of
unspecified transfers from Madoff Securities to or through HSBC. HSBC has not yet been served with the Trustee’s English
action. The Trustee’s deadline for serving the claim has been extended through the third quarter of 2016.
Alpha Prime Fund Ltd (‘Alpha Prime’) and Senator Fund SPC (‘Senator’), co-defendants in the Trustee’s US actions, have each
brought cross-claims against HSBC. These funds have also sued HSBC in Luxembourg (discussed below). In June 2015, the US
Bankruptcy Court heard HSBC’s motion to dismiss Alpha Prime and Senator’s cross-claims and a decision on that motion is
pending.
Fairfield Sentry Limited, Fairfield Sigma Limited and Fairfield Lambda Limited (together, ‘Fairfield’), funds whose assets were
invested with Madoff Securities, commenced multiple lawsuits in the US and the British Virgin Islands (‘BVI’) against fund
shareholders, including various HSBC companies that acted as nominees for HSBC clients, seeking restitution of payments
made in connection with share redemptions. Fairfield’s US actions are stayed pending the outcome of the cases in the BVI
(discussed below).
In September 2013, the US Court of Appeals for the Second Circuit affirmed the dismissal of purported class action claims
against HSBC and others brought by investors in three Madoff-invested funds on grounds of forum non conveniens. In May
2015, plaintiffs filed a motion asking the Court of Appeals to restore their class action claims on the basis of an alleged change
of law. Plaintiffs’ motion was denied by the Court of Appeals in June 2015.
In December 2014, three additional actions were filed in the US. The first is a purported class action brought in the United
States District Court for the Southern District of New York (the ‘New York District Court’) by direct investors in Madoff
Securities who were holding their investments as of December 2008, asserting various common law claims and seeking to
recover damages lost to Madoff Securities’ fraud on account of HSBC’s purported knowledge and alleged furtherance of the
fraud. HSBC moved to dismiss this action in November 2015 and a decision on that motion is pending. The other two actions
were both filed by SPV Optimal SUS Ltd (‘SPV OSUS’), the purported assignee of the Madoff-invested company, Optimal
Strategic US Equity Ltd. One of these actions was filed in New York state court and the other in New York District Court.
In January 2015, SPV OSUS dismissed its federal lawsuit against HSBC. The state court action against HSBC remains pending.
In May 2015, an action was filed in New York District Court by two investors in the Madoff-invested fund Hermes International
Fund Limited (‘Hermes’), asserting various common law claims against HSBC and seeking to recover damages lost to Madoff
Securities’ fraud. HSBC’s motion to dismiss the action was filed in January 2016 and a decision on that motion is pending.
BVI litigation: Beginning in October 2009, Fairfield commenced multiple lawsuits in the BVI against numerous fund
shareholders, including various HSBC companies that acted as nominees for clients of HSBC’s private banking business and
other clients who invested in Fairfield. Fairfield is seeking restitution of redemption payments made by the funds to
defendants on the grounds that they were mistakenly based on inflated net asset values. In April 2014, the UK Privy Council
issued a ruling in favour of other defendants in the BVI actions, and issued its order in October 2014. The Privy Council ruling
found in effect that Fairfield should not be entitled to recover share redemptions that were calculated on a net asset value per
HSBC HOLDINGS PLC
446
share based on fictitious profits, and were paid to shareholders prior to the collapse of Madoff Securities. Separately, a motion
was brought by defendants before the BVI court challenging the authorisation of the Fairfield liquidator (appointed in July
2009) to pursue its claims in the US. That motion was heard in March 2015 and a decision is pending.
Bermuda litigation: In January 2009, Kingate Global Fund Limited and Kingate Euro Fund Limited (together, ‘Kingate’), funds
whose assets were invested with Madoff Securities, commenced an action in Bermuda against HSBC Bank Bermuda Limited for
recovery of funds held in Kingate’s accounts, fees and dividends. This action is currently pending, but is not expected to move
forward until there is a resolution as to the Trustee’s separate US actions against Kingate and HSBC Bank Bermuda Limited.
Thema Fund Limited (‘Thema’) and Hermes, funds whose assets were invested with Madoff Securities, each also brought three
actions in Bermuda in 2009. The first set of actions was brought against HSBC Institutional Trust Services (Bermuda) Limited
and seeks recovery of funds in frozen accounts held at HSBC. The second set of actions asserts liability against HSBC
Institutional Trust Services (Bermuda) Limited in relation to claims for mistake, recovery of fees and damages for breach of
contract. The third set of actions seeks return of fees from HSBC Bank Bermuda Limited and HSBC Securities Services
(Bermuda). There has been little progress in these actions for several years, although in January 2015, Thema and Hermes
served notice of intent to proceed in respect of the second set of actions referred to above.
Cayman Islands litigation: In February 2013, Primeo Fund (in official liquidation since April 2009), a Cayman Islands-based fund
whose assets were invested with Madoff Securities, brought an action against the fund administrator, Bank of Bermuda
(Cayman), and the fund custodian, HSBC Securities Services (Luxembourg) (‘HSSL’), alleging breach of contract by the
defendants and breach of fiduciary duty by HSSL. Primeo Fund claims damages from defendants (and equitable compensation
from HSSL) to compensate it for alleged losses, including loss of profit. Trial is scheduled to begin in November 2016.
Luxembourg litigation: In April 2009, Herald Fund SPC (‘Herald’) (in official liquidation since July 2013) commenced action
against HSSL before the Luxembourg District Court seeking restitution of all cash and securities Herald purportedly lost
because of Madoff Securities’ fraud, or in the alternative, money damages in the same amount. In March 2013, the
Luxembourg District Court dismissed Herald’s restitution claim for the return of the securities, although Herald’s restitution
claim for return of the cash and its claim for money damages were reserved. Herald appealed this judgement in May 2013.
Written submissions on the merits are due to be filed by the parties in March 2016.
In October 2009, Alpha Prime commenced an action against HSSL before the Luxembourg District Court, alleging breach of
contract and negligence in the appointment of Madoff Securities as a sub-custodian of Alpha Prime’s assets. Alpha Prime
requested a stay of these proceedings pending its negotiations with the Trustee in the US proceedings. The matter has been
temporarily suspended at Alpha Prime’s request.
In March 2010, Herald (Lux) SICAV (‘Herald (Lux)’) (in official liquidation since April 2009) commenced an action against HSSL
before the Luxembourg District Court seeking restitution of securities, or the cash equivalent, or money damages in the
alternative. Herald (Lux) has also requested the restitution of fees paid to HSSL as custodian and service agent of the fund.
Written submissions on the merits are due to be filed by Herald (Lux) in March 2016.
In December 2014, Senator commenced a separate action against HSSL before the Luxembourg District Court, seeking the
restitution of securities held as of the latest net asset value statement from November 2008, or in the alternative, money
damages. The matter has been temporarily suspended at Senator’s request.
In April 2015, Senator commenced a separate action against the Luxembourg branch of HSBC Bank plc before the Luxembourg
District Court asserting identical claims to those asserted in Senator’s action against HSSL. This action remains ongoing.
HSSL has been sued in various actions by shareholders in the Primeo Select Fund, Herald, Herald (Lux), and Hermes. These
actions are in different stages, most of which have been dismissed, suspended or postponed.
Ireland litigation: In November 2013, Defender Limited, a fund whose assets were invested with Madoff Securities,
commenced an action against HSBC Institutional Trust Services (Ireland) Limited (‘HTIE’) and others, alleging breach of the
custodian agreement and claiming damages and indemnification for fund losses. A trial date has not yet been scheduled.
In May 2013 and November 2013, settlements were reached in respect of claims filed against HTIE in the Irish High Court by
Thema International Fund plc (‘Thema International’) and Alternative Advantage Plc (‘AA’), respectively. Only two actions by
individual Thema International shareholders against HTIE and Thema International remain active. An application to dismiss the
two remaining shareholder claims was heard in December 2015 and a decision is pending.
In December 2014, a new proceeding against HTIE and HSBC Securities Services (Ireland) Limited was brought by SPV OSUS,
alleging breach of the custodian agreement and claiming damages and indemnification for fund losses. In July 2015, HTIE
brought a preliminary application to challenge the standing of SPV OSUS to bring proceedings against its service providers.
Judgement was rendered in favour of HTIE in October 2015, resulting in the dismissal of the action. SPV OSUS filed an appeal,
which is scheduled for hearing in January 2017.
There are many factors that may affect the range of possible outcomes, and the 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 and the number of different plaintiffs and defendants in such proceedings. Based upon the information
currently available, management’s estimate of possible aggregate damages that might arise as a result of all claims in the
HSBC HOLDINGS PLC
447
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
40 – Legal proceedings and regulatory matters
various Madoff-related proceedings is up to or exceeding $800m. Due to uncertainties and limitations of this estimate, the
ultimate damages could differ significantly from this amount.
US mortgage-related investigations
In April 2011, following completion of a broad horizontal review of industry foreclosure practices, HSBC Bank USA N.A. (‘HSBC
Bank USA’) entered into a consent cease-and-desist order with the Office of the Comptroller of the Currency (‘OCC’), and HSBC
Finance Corporation (‘HSBC Finance’) and HSBC North America Holdings Inc. (‘HNAH’) entered into a similar consent order with
the Federal Reserve Board (‘FRB’) (together with the OCC order, the ‘Servicing Consent Orders’). The Servicing Consent Orders
require prescribed actions to address the foreclosure practice deficiencies noted in the joint examination and described in the
Servicing Consent Orders. HSBC Bank USA, HSBC Finance and HNAH continue to work with the OCC and the FRB to align their
processes with the requirements of the Servicing Consent Orders and to implement operational changes as required; however,
as set forth in a June 2015 amended consent order between HSBC Bank USA and the OCC (the ‘Amended Consent Order’),
HSBC Bank USA is not yet in compliance with all of the requirements of the OCC order. A failure to satisfy all requirements of
the OCC order may result in a variety of regulatory consequences for HSBC Bank USA, including the imposition of civil money
penalties. The Amended Consent Order includes business restrictions related to residential mortgage servicing that will remain
in place until the OCC order is terminated. The restrictions include a prohibition against the bulk acquisition of residential
mortgage servicing or residential mortgage servicing rights and a requirement to seek OCC supervisory non-objection to
outsource any residential mortgage servicing activities that are not already outsourced as of the date of the Amended Consent
Order.
The Servicing Consent Orders required an independent review of foreclosures pending or completed between January 2009
and December 2010 to determine if any borrower was financially injured as a result of an error in the foreclosure process (the
‘Independent Foreclosure Review’). As required by the Servicing Consent Orders, an independent consultant was retained to
conduct that review. In February 2013, HSBC Bank USA entered into an agreement with the OCC, and HSBC Finance and HNAH
entered into an agreement with the FRB (together, the ‘IFR Settlement Agreements’), pursuant to which the Independent
Foreclosure Review ceased and was replaced by a broader framework under which HSBC and 12 other participating servicers
agreed to provide, in the aggregate, over $9.3bn in cash payments and other assistance to help eligible borrowers. Pursuant to
the IFR Settlement Agreements, HNAH made a cash payment of $96m into a fund used to make payments to borrowers that
were in active foreclosure during 2009 and 2010 and is also providing other assistance, such as loan modifications, to help
eligible borrowers. Borrowers who receive compensation will not be required to execute a release or waiver of rights and will
not be precluded from pursuing litigation concerning foreclosure or other mortgage servicing practices. For participating
servicers, including HSBC Bank USA and HSBC Finance, fulfilment of the terms of the IFR Settlement Agreements will satisfy
the Independent Foreclosure Review requirements of the Servicing Consent Orders, including the wind-down of the
Independent Foreclosure Review.
The Servicing Consent Orders do not preclude additional enforcement actions against HSBC Bank USA, HSBC Finance or HNAH
by regulatory, governmental or law enforcement agencies, such as the DoJ or state Attorneys General, which could include the
imposition of civil money penalties and other sanctions relating to the activities that are the subject of the Servicing Consent
Orders. In addition, the IFR Settlement Agreements do not preclude future private litigation concerning these practices.
Separate from the Servicing Consent Orders and the settlement related to the Independent Foreclosure Review discussed
above, in February 2016, HSBC Bank USA, HSBC Finance, HSBC Mortgage Services Inc. and HNAH entered into an agreement
with the DoJ, the US Department of Housing and Urban Development, the Consumer Financial Protection Bureau, other
federal agencies (the ‘Federal Parties’) and the Attorneys General of 49 states and the District of Columbia (the ‘State Parties’)
to resolve civil claims related to past residential mortgage loan origination and servicing practices (the ‘National Mortgage
Settlement Agreement’). The National Mortgage Settlement Agreement is similar to prior settlements reached with other US
mortgage servicers and includes payment of $100m to be allocated among participating Federal and State Parties, and $370m
in consumer relief provided through HSBC’s loan modification programmes. The National Mortgage Settlement Agreement
also sets forth national mortgage servicing standards to which HSBC will adhere.
In addition, in February 2016, the FRB announced the imposition against HSBC Finance and HNAH of a $131m civil money
penalty in connection with the FRB’s Servicing Consent Order of April 2011. Pursuant to the terms of the FRB order, the
penalty will be satisfied by the cash payments made to the Federal Parties and the consumer relief provided pursuant to the
National Mortgage Settlement Agreement.
The National Mortgage Settlement Agreement and the FRB order do not completely preclude other enforcement actions by
regulatory, governmental or law enforcement agencies related to foreclosure and other mortgage servicing practices,
including, but not limited to, matters relating to the securitisation of mortgages for investors, which could include the
imposition of civil money penalties, criminal fines or other sanctions. In addition, these practices have in the past resulted in
private litigation, and the National Mortgage Settlement Agreement would not preclude further private litigation concerning
these practices.
US mortgage securitisation activity and litigation
HSBC Bank USA was a sponsor/seller of loans used to facilitate whole loan securitisations underwritten by HSBC Securities
(USA) Inc. (‘HSI’). From 2005 to 2007, HSBC Bank USA purchased and sold $24bn of such loans to HSI, which were subsequently
HSBC HOLDINGS PLC
448
securitised and sold by HSI to third parties. The outstanding principal balance on these loans was approximately $5.2bn as at
31 December 2015.
Participants in the US mortgage securitisation market that purchased and repackaged whole loans have been the subject of
lawsuits and governmental and regulatory inquiries, which have been directed at groups within the US mortgage market such
as servicers, originators, underwriters, trustees or sponsors of securitisations, and at particular participants within these
groups. As the industry’s residential mortgage foreclosure issues continue, HSBC Bank USA has taken title to an increasing
number of foreclosed homes as trustee on behalf of various mortgage securitisation trusts. As nominal record owner of these
properties, HSBC Bank USA has been sued by municipalities and tenants alleging various violations of law, including laws
regarding property upkeep and tenants’ rights. While HSBC believes and continues to maintain that the obligations at issue
and any related liabilities are properly those of the servicer of each trust, HSBC continues to receive significant adverse
publicity in connection with these and similar matters, including foreclosures that are serviced by others in the name of ‘HSBC,
as trustee’.
Between June and December 2014, a number of lawsuits were filed in state and federal court in New York and Ohio against
HSBC Bank USA as trustee of over 280 mortgage securitisation trusts. These lawsuits are brought on behalf of the trusts by a
putative class of investors including, amongst others, BlackRock and PIMCO funds. Similar lawsuits were filed simultaneously
against other non-HSBC financial institutions that served as mortgage securitisation pool trustees. The complaints against
HSBC Bank USA allege that the trusts have sustained losses in collateral value of approximately $38bn. The lawsuits seek
unspecified damages resulting from alleged breaches of the US Trust Indenture Act, breach of fiduciary duties, negligence,
breach of contract and breach of the common law duty of trust. HSBC filed motions to dismiss in several of these lawsuits,
which were, for the most part, denied. In December 2015, three new actions containing similar allegations were filed in state
and federal court in New York against HSBC Bank USA as trustee of over 40 mortgage securitisation trusts, many of which are
at issue in the previously filed trustee cases. The complaints in the new actions against HSBC Bank USA allege that the trusts
have sustained losses in collateral value of approximately $285m.
Various HSBC companies have also been named as defendants in a number of actions in connection with residential mortgage-
backed security (‘RMBS’) offerings, which generally allege that the offering documents for securities issued by mortgage
securitisation trusts contained material misstatements and omissions, including statements regarding the underwriting
standards governing the underlying mortgage loans.
HSBC Bank USA, HSBC Finance and Decision One Mortgage Company LLC (an indirect subsidiary of HSBC Finance) have been
named as defendants in various mortgage loan repurchase actions brought by trustees of mortgage securitisation trusts. In the
aggregate, these actions seek to have the HSBC defendants repurchase mortgage loans, or pay compensatory damages in lieu
of repurchase, totalling at least $1bn.
In addition to actions brought by trustees of securitisation trusts, HSBC Mortgage Corporation (USA) Inc. and Decision One
Mortgage Company LLC have been named as defendants in two separate actions filed by Residential Funding Company LLC
(‘RFC’), a mortgage loan purchase counterparty. These actions seek unspecified damages in relation to alleged losses suffered
by RFC as a result of approximately 25,000 mortgage loans purchased from HSBC between 1986 and 2007. Discovery is in
progress in both of these actions.
Since 2010, various HSBC entities have received subpoenas and requests for information from the DoJ and the Massachusetts
state Attorney General seeking the production of documents and information regarding HSBC’s involvement in specific private-
label RMBS transactions as an issuer, sponsor, underwriter, depositor, trustee, custodian or servicer. In November 2014,
HNAH, on behalf of itself and various subsidiaries including, but not limited to, HSBC Bank USA, HSI Asset Securitization Corp.,
HSI, HSBC Mortgage Corporation (USA), HSBC Finance and Decision One Mortgage Company LLC, received a subpoena from
the US Attorney’s Office for the District of Colorado, pursuant to the Financial Industry Reform, Recovery and Enforcement Act
(‘FIRREA’), concerning the origination, financing, purchase, securitisation and servicing of subprime and non-subprime
residential mortgages. Five non-HSBC banks have previously reported settlements with the DoJ of FIRREA and other mortgage-
backed securities-related matters. HSBC is cooperating with the US authorities and is continuing to produce documents and
information responsive to their requests.
HSBC expects the focus on mortgage securitisations to continue. As a result, HSBC companies may be subject to additional
claims, litigation and governmental or regulatory scrutiny relating to its participation in the US mortgage securitisation market.
There are many factors that may affect the range of possible outcomes, and the resulting financial impact of these matters.
Based upon the information currently available, it is possible that any liabilities that might arise as a result of these matters
could be significant.
Anti-money laundering and sanctions-related matters
In October 2010, HSBC Bank USA entered into a consent cease-and-desist order with the OCC, and HNAH entered into a
consent cease-and-desist order with the FRB (the ‘Orders’). These Orders required improvements to establish an effective
compliance risk management programme across HSBC’s US businesses, including risk management related to the Bank Secrecy
Act (‘BSA’) and AML compliance. Steps continue to be taken to address the requirements of the Orders.
HSBC HOLDINGS PLC
449
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
40 – Legal proceedings and regulatory matters
In December 2012, HSBC Holdings, HNAH and HSBC Bank USA entered into agreements with US and UK government agencies
regarding past inadequate compliance with the BSA, AML and sanctions laws. Among those agreements, HSBC Holdings and
HSBC Bank USA entered into a five-year deferred prosecution agreement with the DoJ, the US Attorney’s Office for the Eastern
District of New York, and the US Attorney’s Office for the Northern District of West Virginia (the ‘US DPA’); and HSBC Holdings
consented to a cease-and-desist order, and HSBC Holdings and HNAH consented to a civil money penalty order with the FRB.
HSBC Holdings also entered into an agreement with the Office of Foreign Assets Control (‘OFAC’) regarding historical
transactions involving parties subject to OFAC sanctions, as well as an undertaking with the UK FCA to comply with certain
forward-looking AML and sanctions-related obligations. In addition, HSBC Bank USA entered into a civil money penalty order
with the Financial Crimes Enforcement Network (‘FinCEN’) of the US Treasury Department and a separate civil money penalty
order with the OCC.
Under these agreements, HSBC Holdings and HSBC Bank USA made payments totalling $1.9bn to US authorities. In July 2013,
the US District Court for the Eastern District of New York approved the US DPA and retained authority to oversee
implementation of that agreement. An independent compliance monitor (the ‘Monitor’) was appointed in 2013 under the
agreements entered into with the DoJ and the FCA to produce annual assessments of the effectiveness of HSBC’s AML and
sanctions compliance programme. Additionally, the Monitor is serving as HSBC’s independent consultant under the consent
order of the FRB. In January 2016, the Monitor delivered his second annual follow-up review report as required by the US DPA.
The Monitor’s report is discussed on page 116.
Under the terms of the US DPA, upon notice and an opportunity to be heard, the DoJ has sole discretion to determine whether
HSBC has breached the US DPA. Potential consequences of breaching the US DPA could include the imposition of additional
terms and conditions on HSBC, an extension of the agreement, including its monitorship, or the criminal prosecution of HSBC,
which could, in turn, entail further financial penalties and collateral consequences.
HSBC Bank USA also entered into a separate consent order with the OCC, requiring it to correct the circumstances and
conditions as noted in the OCC’s then-most recent report of examination, and imposing certain restrictions on HSBC Bank USA
directly or indirectly acquiring control of, or holding an interest in, any new financial subsidiary, or commencing a new activity
in its existing financial subsidiary, unless it receives prior approval from the OCC. HSBC Bank USA also entered into a separate
consent order with the OCC requiring it to adopt an enterprise-wide compliance programme.
These settlements with US and UK authorities have led to private litigation, and do not preclude further private litigation
related to HSBC’s compliance with applicable BSA, AML and sanctions laws or other regulatory or law enforcement actions for
BSA, AML, sanctions or other matters not covered by the various agreements.
In May 2014, a shareholder derivative action was filed by a shareholder of HSBC Holdings purportedly on behalf of HSBC
Holdings, HSBC Bank USA, HNAH and HSBC USA Inc. (the ‘Nominal Corporate Defendants’) in New York state court against
certain current and former directors and officers of those HSBC companies (the ‘Individual Defendants’). The complaint alleges
that the Individual Defendants breached their fiduciary duties to the Nominal Corporate Defendants and caused a waste
of corporate assets by allegedly permitting and/or causing the conduct underlying the US DPA. In March 2015, the Nominal
Corporate Defendants moved to dismiss the action, and the Individual Defendants who had been served also responded to the
complaint. In November 2015, the New York state court granted the motion to dismiss. The plaintiff has appealed that
decision.
In July 2014, a claim was filed in the Ontario Superior Court of Justice against HSBC Holdings and a former employee purportedly
on behalf of a class of persons who purchased HSBC common shares and American Depositary Shares between July 2006 and
July 2012. The complaint, which seeks monetary damages of up to CA$20bn, alleges that the defendants made statutory and
common law misrepresentations in documents released by HSBC Holdings and its wholly owned subsidiary, HSBC Bank
Canada, relating to HSBC’s compliance with BSA, AML, sanctions and other laws.
In November 2014, a complaint was filed in the US District Court for the Eastern District of New York on behalf of
representatives of US persons alleged to have been killed or injured in Iraq between April 2004 and November 2011. The
complaint was filed against HSBC Holdings, HSBC Bank plc, HSBC Bank USA and HSBC Bank Middle East, as well as other non-
HSBC banks and the Islamic Republic of Iran. The plaintiffs allege that defendants violated the US Anti-Terrorism Act (‘US ATA’)
by altering or falsifying payment messages involving Iran, Iranian parties and Iranian banks for transactions processed through
the US. Defendants filed a motion to dismiss in May 2015, and a decision on that motion is pending.
In November 2015, a complaint was filed in the US District Court for the Northern District of Illinois on behalf of
representatives of four US persons alleged to have been killed or injured in terrorist attacks on three hotels in Amman, Jordan
in 2005. The complaint was filed against HSBC Holdings, HSBC Bank USA, HNAH, HSI, HSBC Finance, HSBC USA Inc. and HSBC
Bank Middle East, as well as a non-HSBC bank. The plaintiffs allege that the HSBC defendants violated the US ATA by failing to
enforce due diligence methods to prevent its financial services from being used to support the terrorist attacks.
In February 2016, a complaint was filed in the US District Court for the Southern District of Texas by representatives of US
persons alleged to have been killed or injured in Mexico by Mexican drug cartels. The complaint was filed against HSBC
Holdings, HSBC Bank USA, HSBC México SA, and Grupo Financiero HSBC. The plaintiffs allege that defendants violated the US
ATA by providing financial services to individuals and entities associated with the Mexican drug cartels. Defendants have not
yet been served with process.
HSBC HOLDINGS PLC
450
Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of these lawsuits,
including the timing or any possible impact on HSBC, which could be significant.
Tax-related investigations
HSBC continues to cooperate in ongoing investigations by the DoJ and the US Internal Revenue Service regarding whether
certain HSBC companies and employees, including those associated with HSBC Private Bank (Suisse) SA (‘HSBC Swiss Private
Bank’) and an HSBC company in India, acted appropriately in relation to certain customers who had US tax reporting
obligations. In connection with these investigations, HSBC Swiss Private Bank, with due regard for Swiss law, has produced
records and other documents to the DoJ. In August 2013, the DoJ informed HSBC Swiss Private Bank that it was not eligible for
the ‘Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks’ since a formal investigation had
previously been authorised.
In addition, various tax administration, regulatory and law enforcement authorities around the world, including in Belgium,
France, Argentina and India, are conducting investigations and reviews of HSBC Swiss Private Bank and other HSBC entities in
connection with allegations of tax evasion or tax fraud, money laundering and unlawful cross-border banking solicitation. HSBC
Swiss Private Bank has been placed under formal criminal examination by magistrates in both Belgium and France. In February
2015, HSBC was informed that the French magistrates are of the view that they have completed their investigation with
respect to HSBC Swiss Private Bank and have referred the matter to the public prosecutor for a recommendation on any
potential charges to be brought, whilst reserving the right to continue investigating other conduct at HSBC. In April 2015, HSBC
Holdings was informed that it has been placed under formal criminal investigation by the French magistrates in connection
with the conduct of HSBC Swiss Private Bank in 2006 and 2007 for alleged tax offences, and a €1bn bail was imposed. HSBC
Holdings appealed the magistrates’ decision and, in June 2015, bail was reduced to €100m. The ultimate financial impact of
this matter could differ significantly, however, from the bail amount of €100m.
In Argentina, in November 2014, the Argentine tax authority filed a complaint against various individuals, including current and
former HSBC employees, alleging tax evasion and an unlawful association amongst HSBC Swiss Private Bank, HSBC Bank
Argentina, HSBC Bank USA and certain HSBC employees, which allegedly enabled numerous HSBC customers to evade their
Argentine tax obligations. In addition, the Argentine Congress convened a special committee to investigate similar allegations,
as well as issues related to allegations of Argentine income tax evasion more broadly. The committee issued its final report in
December 2015.
In India, in February 2015, the Indian tax authority issued a summons and request for information to an HSBC company in
India. In August 2015 and November 2015, HSBC entities received notices issued by two offices of the Indian tax authority,
alleging that the Indian tax authority had sufficient evidence to initiate prosecution against HSBC Swiss Private Bank and its
Dubai entity for abetting tax evasion of four different Indian individuals and/or families and requesting that the HSBC entities
show why such prosecution should not be initiated.
With respect to each of these ongoing matters, HSBC is cooperating with the relevant authorities in a manner consistent with
relevant laws. There are many factors that may affect the range of outcomes, and the resulting financial impact, of these
investigations and reviews, which could be significant.
In light of the media attention regarding these matters, it is possible that other tax administration, regulatory or law
enforcement authorities will also initiate or enlarge similar investigations or regulatory proceedings.
London interbank offered rates, European interbank offered rates and other benchmark interest rate investigations
and litigation
Various regulators and competition and law enforcement authorities around the world, including in the UK, the US, the EU,
Switzerland, South Korea and elsewhere, are conducting investigations and reviews related to certain past submissions made
by panel banks and the processes for making submissions in connection with the setting of Libor, Euribor and other benchmark
interest rates. As certain HSBC companies are members of such panels, HSBC has been the subject of regulatory demands for
information and is cooperating with those investigations and reviews.
In May 2014, HSBC received a Statement of Objections from the European Commission (the ‘Commission’), alleging anti-
competitive practices in connection with the pricing of euro interest rate derivatives. The Statement of Objections sets
out the Commission’s preliminary views and does not prejudge the final outcome of its investigation. HSBC responded to
the Commission’s Statement of Objections in March 2015, and a hearing before the Commission took place in June 2015. A
decision by the Commission is pending.
In addition, HSBC and other US dollar Libor 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 (‘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 United
States District Court for the Southern District of New York (the ‘New York District Court’).
In March 2013, the New York District Court overseeing the consolidated proceedings related to US dollar Libor issued a
decision in the six oldest actions, dismissing the plaintiffs’ federal and state antitrust claims, racketeering claims, and unjust
enrichment claims in their entirety, but allowing certain of their CEA claims that were not barred by the applicable statute of
HSBC HOLDINGS PLC
451
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
40 – Legal proceedings and regulatory matters
limitations to proceed. Some of those plaintiffs appealed the New York District Court’s decision to the US Court of Appeals for
the Second Circuit, which later dismissed those appeals as premature. In January 2015, the US Supreme Court reversed the
Court of Appeals’ decision and remanded the case to the Court of Appeals for consideration on the merits of the plaintiffs’
appeal. Oral argument in the Court of Appeals was held in November 2015, and the parties are awaiting a decision.
Other plaintiffs sought to file amended complaints in the New York District Court to assert additional allegations. In June 2014,
the New York District Court issued a decision that, amongst other things, denied the plaintiffs’ request for leave to amend their
complaints to assert additional theories of Libor manipulation against HSBC and certain non-HSBC banks, but granted leave to
assert such manipulation claims against two other banks; and granted defendants’ motion to dismiss certain additional claims
under the CEA as barred by the applicable statute of limitations. Proceedings with respect to all other actions in the consolidated
proceedings were stayed pending this decision. The stay was lifted in September 2014, and amended complaints were filed in
certain other individual and class actions thereafter. The defendants filed motions to dismiss, and in August 2015 and
November 2015, the court issued decisions granting the motions in part, although it has not yet entered an order specifying
which particular claims are dismissed against which defendants.
Separately, HSBC and other panel banks have also been named as defendants in two putative class actions filed in the New
York District Court on behalf of persons who transacted in financial instruments allegedly related to the euroyen Tokyo
interbank offered rate (‘Tibor’) and/or Japanese yen Libor. The complaints allege, amongst other things, misconduct related to
euroyen Tibor, although HSBC is not a member of the Japanese Bankers Association’s euroyen Tibor panel, as well as Japanese
yen Libor, in violation of US antitrust laws, the CEA, and state law.
The first of the two actions was filed in April 2012, and HSBC responded by filing a motion to dismiss. In March 2014, the New
York District Court dismissed the plaintiffs’ claims under US antitrust law and state law, but sustained their claims under the
CEA. In June 2014, the plaintiffs then moved for leave to file an amended complaint adding new claims and parties. That
motion was denied in March 2015, except insofar as it granted leave to add certain defendants not affiliated with HSBC and
reserving on the question of whether the California State Teachers Retirement System (‘CALSTRS’) may intervene and be
added as a plaintiff. In October 2015, the New York District Court denied the motion of CALSTRS to intervene. In November
2015, CALSTRS filed an appeal of that ruling to the United States Court of Appeals for the Second Circuit, which remains
pending.
The second action was filed in July 2015. In February 2016, HSBC and the other banks named in the complaint filed a motion to
dismiss the action, and a decision on that motion is pending.
In November 2013, HSBC and other panel banks were also named as defendants in a putative class action filed in the New York
District Court on behalf of persons who transacted in euro futures contracts and other financial instruments allegedly related
to Euribor. The complaint alleges, amongst other things, misconduct related to Euribor in violation of US antitrust laws, the
CEA and state law. The court previously stayed proceedings until May 2015. After the stay expired, the plaintiffs filed an
amended complaint. In October 2015, HSBC filed a motion to dismiss the action, which remains pending.
In September and October 2014, HSBC Bank plc and other panel banks were named as defendants in a number of putative
class actions that were filed and consolidated in the New York District Court on behalf of persons who transacted in interest
rate derivatives or purchased or sold financial instruments that were either tied to US dollar International Swaps and
Derivatives Association fix (‘ISDAfix’) rates or were executed shortly before, during, or after the time of the daily ISDAfix setting
window. The complaint alleges, amongst other things, misconduct related to these activities in violation of US antitrust laws,
the CEA and state law. In February 2015, plaintiffs filed a second consolidated amended complaint replacing HSBC Bank plc
with HSBC Bank USA. A motion to dismiss that complaint was filed in April 2015, and a decision is pending.
There are many factors that may affect the range of possible outcomes, and the resulting financial impact, of these lawsuits.
Based upon the information currently available, it is possible that any liabilities that might arise as a result of the claims in
these actions could be significant.
Foreign exchange rate investigations and litigation
Various regulators and competition and law enforcement authorities around the world, including in the US, the EU, Brazil,
South Korea and elsewhere, are conducting investigations and reviews into trading by HSBC and others on the foreign
exchange markets. HSBC has been cooperating with these ongoing investigations and reviews.
In May 2015, the DoJ resolved its investigations with respect to five non-HSBC financial institutions, four of whom agreed to
plead guilty to criminal charges of conspiring to manipulate prices in the foreign exchange spot market, and resulting in the
imposition of criminal fines in the aggregate of more than $2.5bn. Additional penalties were imposed at the same time by the
FRB and other banking regulators. HSBC was not a party to these resolutions, and investigations into HSBC by the DoJ, FRB and
others around the world continue.
In addition, in late 2013 and early 2014, HSBC Holdings, HSBC Bank plc, HNAH and HSBC Bank USA were named as defendants,
amongst other banks, in various putative class actions filed in the New York District Court. In March 2014, the plaintiffs filed a
consolidated amended complaint alleging, amongst other things, that defendants conspired to manipulate the WM/Reuters
foreign exchange benchmark rates (the ‘Consolidated Action’). Separate putative class actions were also brought on behalf of
non-US plaintiffs (the ‘Foreign Actions’). Defendants moved to dismiss all actions. In January 2015, the court denied defendants’
HSBC HOLDINGS PLC
452
motion to dismiss the Consolidated Action, but granted defendants’ motion to dismiss the Foreign Actions. Five additional
putative class actions were subsequently filed in the New York District Court making similar allegations on behalf of persons
who engaged in foreign exchange futures transactions on a US exchange, and those additional actions were subsequently
consolidated with the Consolidated Action. In July 2015, the plaintiffs in the Consolidated Action filed a further amended
complaint that, amongst other things, added new claims and parties, including HSBC Securities (USA), Inc. In September 2015,
HSBC reached an agreement with plaintiffs to resolve the Consolidated Action, subject to court approval. In December 2015,
the court granted preliminary approval of the settlement, and HSBC made payment of the agreed settlement amount into an
escrow account. The court has not yet set a date for the final approval hearing.
In addition to the above actions, a putative class action was filed in the New York District Court in June 2015 making similar
allegations on behalf of Employee Retirement Income Security Act of 1974 (‘ERISA’) plan participants, and another complaint
was filed in the US District Court for the Northern District of California in May 2015. HSBC filed a motion to transfer the
California action to New York, which was granted in November 2015.
In September 2015, two additional putative class actions making similar allegations under Canadian law were issued in Canada
against various HSBC entities, including HSBC Bank Canada, and numerous other financial institutions.
As at 31 December 2015, HSBC has recognised a provision in the amount of $1.2bn. There are many factors that may affect the
range of outcomes, and the resulting financial impact, of these matters. Due to uncertainties and limitations of these
estimates, the ultimate penalties could differ significantly from the amount provided.
Precious metals fix-related litigation and investigations
Beginning in March 2014, numerous putative class actions were filed in the US District Courts for the Southern District of New
York, 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 allege that, from January 2004 to the present, defendants conspired to
manipulate the price of gold and gold derivatives during the afternoon London gold fix for their collective benefit in violation of
US antitrust laws, the CEA and New York state law. The actions were subsequently consolidated in the New York District Court.
An amended complaint was filed in March 2015, which defendants moved to dismiss. A hearing has been scheduled for March
2016.
Beginning in July 2014, numerous putative class actions were filed in the US District Courts for the Southern and Eastern
Districts of New York, naming HSBC and other members of The London Silver Market Fixing Ltd as defendants. The complaints
allege that, from January 1999 to the present, defendants conspired to manipulate the price of silver and silver derivatives for
their collective benefit in violation of US antitrust laws, the CEA and New York state law. The actions were subsequently
consolidated in the New York District Court. An amended complaint was filed in April 2015, which defendants moved to
dismiss. A hearing has been scheduled for March 2016.
Between late 2014 and early 2015, numerous putative class actions were filed in the US District Court for the Southern District
of New York, naming HSBC, and other members of The London Platinum and Palladium Fixing Company Limited as defendants.
The complaints allege that, from January 2008 to the present, 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 CEA. An
amended complaint was filed in August 2015, which defendants moved to dismiss.
Additionally, in December 2015, a putative class action under Canadian law was filed in the Ontario Superior Court of Justice
against various HSBC entities, including HSBC Bank Canada, and other financial institutions. Plaintiffs allege that, from January
2004 to March 2014, defendants conspired to manipulate the price of gold and gold-related investment instruments in
violation of the Canadian Competition Act and common law.
Various regulators and competition and law enforcement authorities, including in the US and the EU, are conducting
investigations and reviews relating to HSBC’s precious metals operations. HSBC has been cooperating with these ongoing
investigations. In November 2014, the Antitrust Division and Criminal Fraud Section of the DoJ issued a document request to
HSBC Holdings, seeking the voluntary production of certain documents in connection with a criminal investigation that the DoJ
is conducting of alleged anti-competitive and manipulative conduct in precious metals trading. In January 2016, the Antitrust
Division of the DoJ informed HSBC that it was closing its investigation; however, the Criminal Fraud Section’s investigation
remains ongoing.
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.
Credit default swap regulatory investigation and litigation
In July 2013, HSBC received a Statement of Objections from the Commission relating to its ongoing investigation of alleged
anti-competitive activity by a number of banks and other market participants in the credit derivatives market between 2006
and 2009. The Statement of Objections sets out the Commission’s preliminary views and does not prejudge the final outcome
of its investigation. HSBC submitted a response and attended a hearing in May 2014. Following the hearing, the Commission
decided in December 2015 to close the case against all 13 banks, including all of the HSBC entities; however, the Commission’s
investigation relating to Markit and ISDA is ongoing.
HSBC HOLDINGS PLC
453
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
40 – Legal proceedings and regulatory matters / 41 – Related party transactions
In addition, HSBC Holdings, HSBC Bank plc and HSBC Bank USA were named as defendants, amongst others, in numerous
putative class actions filed in the New York District Court and the Illinois District Court. These class actions allege that the
defendants, which include ISDA, Markit and several other financial institutions, conspired to restrain trade in violation of US
antitrust laws by, amongst other things, restricting access to credit default swap pricing exchanges and blocking new entrants
into the exchange market. The plaintiffs in these suits purport to represent a class of all persons who purchased credit default
swaps from or sold credit default swaps to defendants primarily in the US.
In October 2013, these cases were consolidated in the New York District Court (the ‘Consolidated Action’). In September 2015,
the HSBC defendants reached an agreement with plaintiffs to resolve the Consolidated Action, subject to court approval. In
October 2015, the court granted preliminary approval of the settlement. The final settlement approval hearing is scheduled for
April 2016.
Economic plans: HSBC Bank Brasil S.A.
In the mid-1980s and early 1990s, certain economic plans were introduced by the government of Brazil to reduce escalating
inflation. The implementation of these plans adversely impacted savings account holders, thousands of which consequently
commenced legal proceedings against financial institutions in Brazil, including HSBC Bank Brasil S.A. (‘HSBC Brazil’), alleging,
amongst other things, that savings account balances were adjusted by a different price index than that contractually agreed,
which caused them a loss of income. Certain of these cases have reached the Brazilian Supreme Court. The Supreme Court has
suspended all cases pending before lower courts until it delivers a final judgement on the constitutionality of the changes
resulting from the economic plans. It is anticipated that the outcome of the Supreme Court’s final judgement will set a
precedent for all cases pending before the lower courts. Separately, the Brazilian Superior Civil Court is considering matters
relating to, amongst other things, contractual and punitive interest rates to be applied to calculate any loss of income.
There is a high degree of uncertainty as to the terms on which the proceedings in the Supreme Court and Superior Civil Court
will be resolved and the timing of such resolutions, including the amount of losses that HSBC Brazil may be liable to pay in the
event of an unfavourable judgement. Such losses may lie in a range from a relatively insignificant amount to an amount up to
$564m (based on the exchange rate between the USD and the BRL as at 31 December 2015), although the upper end of this
range is considered unlikely.
Regulatory review of consumer ‘enhancement services products’
HSBC Finance, through its legacy Cards and Retail Services business, offered or participated in the marketing, distribution, or
servicing of products, such as identity theft protection and credit monitoring products, that were ancillary to the provision of
credit to the consumer. HSBC Finance ceased offering these products by May 2012. The offering and administration of these
and other enhancement services products, such as debt protection products, has been the subject of enforcement actions
against other institutions by regulators, including the Consumer Financial Protection Bureau, the OCC, and the Federal Deposit
Insurance Corporation. Such enforcement actions have resulted in orders to pay restitution to customers and the assessment
of penalties in substantial amounts. We have made restitution to certain customers in connection with certain enhancement
services products, and we continue to cooperate with our regulators in connection with their ongoing review. In light of the
actions that regulators have taken in relation to other non-HSBC credit card issuers regarding their enhancement services
products, one or more regulators may order us to pay additional restitution to customers and/or impose civil money penalties
or other relief arising from the prior offering and administration of such enhancement services products by HSBC Finance;
however, management no longer expects the resulting financial impact to be material.
Fédération Internationale de Football Association (‘FIFA’) related investigations
HSBC has received inquiries from the DoJ regarding its banking relationships with certain individuals and entities that are or
may be associated with FIFA. The DoJ is investigating whether multiple financial institutions, including HSBC, permitted the
processing of suspicious or otherwise improper transactions, or failed to observe applicable AML laws and regulations. HSBC is
cooperating with the DoJ’s investigation.
Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of this matter, including
the timing or any possible impact on HSBC, which could be significant.
Hiring practices investigation
The US Securities and Exchange Commission (the ‘SEC’) is investigating multiple financial institutions, including HSBC, in
relation to hiring practices of candidates referred by or related to government officials or employees of state-owned
enterprises in Asia-Pacific. HSBC has received various requests for information and is cooperating with the SEC’s investigation.
Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of this matter, including
the timing or any possible impact on HSBC, which could be significant.
41 Related party transactions
Related parties of the Group and HSBC Holdings include subsidiaries, associates, joint ventures, post-employment benefit plans
for HSBC employees, Key Management Personnel, close family members of Key Management Personnel and entities which are
controlled or jointly controlled by Key Management Personnel or their close family members.
HSBC HOLDINGS PLC
454
Particulars of transactions with related parties, disclosed pursuant to the requirements of IAS 24 ‘Related Party Disclosures’,
are tabulated below. The disclosure of the year-end balance and the highest amounts outstanding during the year is considered
to be the most meaningful information to represent the amount of the transactions and the amount of outstanding balances
during the year.
Key Management Personnel are defined as those persons having authority and responsibility for planning, directing and
controlling the activities of HSBC Holdings, being the Directors and Group Managing Directors of HSBC Holdings.
Key Management Personnel
Compensation of Key Management Personnel
Short-term employee benefits
Post-employment benefits
Other long-term employee benefits
Share-based payments
Year ended 31 December
2015
$m
40
1
9
51
101
2014
$m
41
1
7
54
103
2013
$m
38
2
10
35
85
Transactions, arrangements and agreements involving related parties
Particulars of advances (loans and quasi-loans), credits and guarantees entered into by subsidiaries of HSBC Holdings during
2015 with Directors, disclosed pursuant to section 413 of the Companies Act 2006, are shown below:
Advances and credits at 31 December
Transactions and balances during the year with Key Management Personnel
2015
$m
4
2014
$m
5
2015
2014
Balance at
31 December
$m
Highest amounts
outstanding
during year
$m
Balance
at 31 December
$m
Highest amounts
outstanding
during year
$m
Key Management Personnel1
Advances and credits2
Guarantees3
218
67
411
91
309
78
347
79
1 Includes Key Management Personnel, close family members of Key Management Personnel and entities which are controlled or jointly controlled
by Key Management Personnel or their close family members.
2 The 2014 year-end balance has been restated from $194m to $309m and the 2014 highest amount outstanding during the year has been restated
from $227m to $347m.
3 The 2014 year-end balance has been restated from nil to $78m and the 2014 highest amount outstanding during the year has been restated from nil
to $79m.
Some of the transactions were connected transactions as defined by the Rules Governing The Listing of Securities on The Stock
Exchange of Hong Kong Limited, but were exempt from any disclosure requirements under the provisions of those rules. The
above transactions were made in the ordinary course of business and on substantially the same terms, including interest rates
and security, as for comparable transactions with persons of a similar standing or, where applicable, with other employees.
The transactions did not involve more than the normal risk of repayment or present other unfavourable features.
HSBC HOLDINGS PLC
455
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
41 – Related party transactions / 42 – Events after the balance sheet date / 43 – HSBC’s subsidiaries
Shareholdings, options and other securities of Key Management Personnel
Number of options held over HSBC Holdings ordinary shares under employee share plans
Number of HSBC Holdings ordinary shares held beneficially and non-beneficially
Number of HSBC Bank 2.875% Notes 2015 due 30 April 2015 held beneficially and non-beneficially
At 31 December
Associates and joint ventures
2015
(000s)
29
18,961
–
18,990
2014
(000s)
28
17,533
5
17,566
The Group provides certain banking and financial services to associates and joint ventures including loans, overdrafts, interest
and non-interest bearing deposits and current accounts. Details of the interests in associates and joint ventures are given in
Note 19.
Transactions and balances during the year with associates and joint ventures
Amounts due from joint ventures:
– unsubordinated
Amounts due from associates:
– subordinated
– unsubordinated
Amounts due to associates
Guarantees
Commitments
2015
2014
Highest balance
during the year
$m
Balance at
31 December
$m
Highest balance
during the year
$m
Balance at
31 December
$m
195
–
4,209
4,404
1,047
905
–
151
–
2,035
2,186
92
904
–
205
58
5,451
5,714
650
952
17
205
–
4,273
4,478
162
952
–
The above outstanding balances arose in the ordinary course of business and on substantially the same terms, including
interest rates and security, as for comparable transactions with third-party counterparties.
Post-employment benefit plans
At 31 December 2015, $4.3bn (2014: $4.5bn) of HSBC post-employment benefit plan assets were under management by HSBC
companies, earning management fees of $8m in 2015 (2014: $12m). At 31 December 2015 HSBC’s post-employment benefit
plans had placed deposits of $811m (2014: $223m) with its banking subsidiaries, earning interest payable to the schemes of nil
(2014: $6m). The above outstanding balances arose from the ordinary course of business and on substantially the same terms,
including interest rates and security, as for comparable transactions with third-party counterparties.
HSBC Bank (UK) Pension Scheme enters into swap transactions with HSBC to help manage inflation and interest rate sensitivity
of its liabilities. At 31 December 2015 the gross notional value of these swaps was $13.3bn (2014: $24bn), the swaps had a
positive fair value to the scheme of $0.5bn (2014: $0.9bn positive); and HSBC had delivered collateral of $1.1bn (2014: $2.0bn)
to the scheme in respect of these arrangements. This earned HSBC interest of nil (2014: $5m). All swaps were executed at
prevailing market rates and within standard market bid/offer spreads. Over the year, the scheme reduced its level of swap
transactions with HSBC.
The International Staff Retirement Benefit Scheme enters into swap transactions with HSBC to manage the inflation and
interest rate sensitivity of its liabilities and selected assets. At 31 December 2015, the gross notional value of the swaps was
$1.7bn (2014: $1.9bn) and the swaps had a net negative fair value to the scheme of $96m (2014: $107m negative). All swaps
were executed at prevailing market rates and within standard market bid/offer spreads.
HSBC Holdings
Details of HSBC Holdings’ subsidiaries are shown in Note 43.
HSBC HOLDINGS PLC
456
Transactions and balances during the year with subsidiaries
Assets
Cash at bank
Derivatives
Loans and advances
Financial investments
Investments in subsidiaries
2015
2014
Highest balance
during the year
$m
Balance at
31 December
$m
Highest balance
during the year
$m
Balance at
31 December
$m
620
3,409
47,229
4,427
97,770
242
2,466
44,350
4,285
97,770
436
3,179
55,026
4,073
96,264
249
2,771
43,910
4,073
96,264
Total related party assets at 31 December
153,455
149,113
158,978
147,267
Liabilities
Amounts owed to HSBC undertakings
Derivatives
Subordinated liabilities:
– at amortised cost
– designated at fair value
Total related party liabilities at 31 December
Guarantees
Commitments
2,892
2,459
1,670
982
8,003
68,333
16
2,152
2,277
891
855
6,175
68,333
–
12,046
1,169
1,743
3,186
18,144
53,180
1,245
2,892
1,169
1,670
981
6,712
52,023
16
The above outstanding balances arose in the ordinary course of business and on substantially the same terms, including
interest rates and security, as for comparable transactions with third-party counterparties.
Some employees of HSBC Holdings are members of the HSBC Bank (UK) Pension Scheme, which is sponsored by a separate
Group company. HSBC Holdings incurs a charge for these employees equal to the contributions paid into the scheme on their
behalf. Disclosure in relation to the scheme is made in Note 6.
42 Events after the balance sheet date
A fourth interim dividend for 2015 of $0.21 per ordinary share (a distribution of approximately $4,134m) was declared by the
Directors after 31 December 2015.
These accounts were approved by the Board of Directors on 22 February 2016 and authorised for issue.
43 HSBC Holdings’ subsidiaries, joint ventures and associates
In accordance with Section 409 of the Companies Act 2006 a list of HSBC Holdings plc’s subsidiaries, joint ventures and
associates, the country of incorporation and the effective percentage of equity owned at 31 December 2015 is disclosed
below.
Subsidiaries
0866101 B.C. Ltd
0866102 B.C. Ltd
ACN 087 652 113 Pty Limited
Albouys Nominees Limited
Allblack Investments Limited
AMP Client HSBC Custody Nominee (UK) Limited
Assetfinance December (A) Limited
Assetfinance December (E) Limited
Assetfinance December (F) Limited
Assetfinance December (H) Limited
Assetfinance December (M) Limited
Assetfinance December (P) Limited
Assetfinance December (R) Limited
Assetfinance December (W) Limited
Assetfinance June (A) Limited
Assetfinance June (D) Limited
Assetfinance June (E) Limited
Assetfinance Limited
Assetfinance March (B) Limited
Assetfinance March (D) Limited
Assetfinance March (F) Limited
Assetfinance September (F) Limited
Assetfinance September (G) Limited
B&Q Financial Services Limited
Country
Security
Direct (%)
Total (%)
C$ Common shares
C$ Common shares
A$0.16667 Ordinary shares
£1.00 Ordinary shares
£0.0037 Ordinary and £0.0037
Preference shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
Canada
Canada
Australia
England and Wales
Jersey
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
Northern Ireland
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
HSBC HOLDINGS PLC
457
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Security
Direct (%)
Total (%)
Notes on the Financial Statements (continued)
43 – HSBC Holdings’ subsidiaries, joint ventures and associates
Subsidiaries (continued)
Banco Losango S.A Banco Multiplo
Banco Nominees (Guernsey) Limited
Banco Nominees 2 (Guernsey) Limited
Banco Nominees Limited
Bank of Bermuda (Cayman) Limited
Bank of Bermuda (Insurance Brokers) Limited
Beijing Miyun HSBC Rural Bank Company Limited
Beneficial Commercial Holding Corporation
Beneficial Company LLC
Beneficial Consumer Discount Company
Beneficial Direct, Inc.
Beneficial Financial I Inc.
Beneficial Florida Inc.
Beneficial Kentucky Inc.
Beneficial Loan & Thrift Co.
Beneficial Louisiana Inc.
Beneficial Maine Inc.
Beneficial Management Corporation of America
Beneficial Massachusetts Inc.
Beneficial Michigan Inc.
Beneficial Mortgage Corporation
Beneficial New Hampshire Inc.
Beneficial New York Inc.
Beneficial Oregon Inc.
Beneficial Rhode Island Inc.
Beneficial South Dakota Inc.
Beneficial Tennessee Inc.
Beneficial West Virginia, Inc.
Beneficial Wyoming Inc.
BerCay Holdings Limited
Bermuda Asia Pacific Holdings Limited
Bermuda International Securities Limited
Bermuda Trust (St Helier) Limited
Bermuda Trust Company Limited
Bermuda Trust Executors (Jersey) Limited
BFC Insurance Agency of Nevada
Billingsgate City Securities Public Limited Company
Billingsgate Nominees Limited
Cabot Park Holdings, Inc.
Cal-Pacific Services, Inc.
Canada Crescent Nominees (UK) Limited
Canada Square Nominees (UK) Limited
Canada Square Property Participations Limited
Canada Water Nominees (UK) Limited
Capco/Cove, Inc.
Capital Financial Services Inc.
Card-Flo #1, Inc.
Card-Flo #3, Inc.
Castlewood Limited
Cayman International Finance Limited
Cayman Nominees Limited
CBS/Holdings, Inc.
CC&H Holdings LLC
CCF & Partners Asset Management Limited
CCF Charterhouse GmbH
CCF Charterhouse GmbH & Co Asset Leasing KG
Country
Brazil
Guernsey
Guernsey
Bermuda
Cayman Islands
Bermuda
China
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
Cayman Islands
Cook Islands
Bermuda
Jersey
Bermuda
Jersey
United States
England and Wales
England and Wales
United States
United States
England and Wales
England and Wales
England and Wales
England and Wales
United States
United States
United States
United States
Cook Islands
Cayman Islands
Cayman Islands
United States
United States
England and Wales
Germany
Germany
BRL Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
BMD2.40 Ordinary shares
$1.00 Ordinary shares
BMD1.00 Common shares
CNY1.00 Registered Capital shares
$100.00 Common shares
Limited liability company
– no shares
$100.00 Common shares
$100.00 Ordinary shares
$1.00 Common shares
$100.00 Common shares
$100.00 Common shares
$25.00 Common shares
$100.00 Common shares
$100.00 Common shares
$10.00 Common shares
$100.00 Common shares
$ Common shares
$100.00 Common shares
$100.00 Common shares
$100.00 Common shares
$100.00 Common shares
$100.00 Common shares
$ Common shares
$100.00 Common shares
$1.00 Common shares
$100.00 Common shares
$20.00 Ordinary shares
$1.00 Ordinary shares
BMD1.00 Ordinary shares
$1.00 Ordinary shares
BMD1.00 Common shares
£1.00 Shares
$ Ordinary shares
£0.01 Ordinary shares
£1.00 Issued shares
$1.00 Common shares
$100.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
$1.00 Common shares
$1.00 Common shares
$1.00 Common shares
$0.01 Common shares
$ Ordinary shares
$1.20 Ordinary shares
KYD2.00 Ordinary shares
$1.00 Common shares
Limited liability company
– no shares
£1.00 Ordinary shares
€1.00 Actions shares
Limited partnership
– no shares
Charterhouse Administrators (D.T.) Limited
Charterhouse Development Limited
Charterhouse Finance Corporation Limited
Charterhouse Management Services Limited
Charterhouse Pensions Limited
Chemi and Cotex Industries Limited
Chongqing Dazu HSBC Rural Bank Company Limited
Chongqing Fengdu HSBC Rural Bank Company Limited
Chongqing Rongchang HSBC Rural Bank Company Limited
CL Residential Limited
Compass Nominees Limited
Compass Services Limited
Cordico Management AG
Corhold Limited
Credival Participacoes Administracao e Assessoria Ltda
Crewfleet Limited
Dalian Pulandian HSBC Rural Bank Company Limited
England and Wales
England and Wales
Scotland
England and Wales
England and Wales
Tanzania, United Rep. of
China
China
China
England and Wales
Bermuda
Bermuda
Switzerland
Virgin Islands, British
Brazil
England and Wales
China
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
TZS1.00 Ordinary shares
CNY1.00 Registered Capital shares
CNY1.00 Registered Capital shares
CNY1.00 Registered Capital shares
£1.00 Ordinary shares
BMD1.00 Common shares
$1.00 Ordinary shares
CHF1,000.00 Ordinary shares
$1.00 Bearer shares
BRL0.01 Quota shares
£1.00 Ordinary shares
CNY1.00 Registered Capital shares
HSBC HOLDINGS PLC
458
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Security
Direct (%)
Total (%)
Subsidiaries (continued)
Decision One Mortgage Company, LLC
Dem 25
Dem 5
Dem 9
Dempar 1
Dempar 4
Eagle Rock Holdings, Inc.
Ellenville Holdings, Inc.
Elysees GmbH
Elysées Immo Invest
Emerging Growth Real Estate II GP Limited
EMTT Limited
Endeavour Personal Finance Limited
Equator Holdings Limited
Eton Corporate Services Limited
Eton Management Ltd
Far East Leasing SA
Fdm 5 SAS
Fdm 6 SAS
FEPC Leasing Ltd.
Finanpar 2
Finanpar 7
First Corporate Director Inc.
First Direct Investments (UK) Limited
Flandres Contentieux S.A.
Foncière Elysées
Forward Trust Rail Services Limited
F-Street Holdings, Inc.
Fujian Yongan HSBC Rural Bank Company Limited
Fundo de Investimento Multimercado Credito Privado Investimento
no Exterior Orion1
Country
United States
France
France
France
France
France
United States
United States
Germany
France
Guernsey
England and Wales
England and Wales
England and Wales
Guernsey
Virgin Islands, British
Panama
France
France
Cayman Islands
France
France
Virgin Islands, British
England and Wales
France
France
England and Wales
United States
China
Brazil
Fundo de Investimento Multimercado Credito Privado Sirius1
Fundo de Investimento Multimercado Investimento no Exterior Tellus1
Brazil
Brazil
G.M. Gilt-Edged Nominees Limited
Gesellschaft fur Industrielle Beteiligungen und Finanzierung mbH
Giller Ltd.
GPIF-I Equity Co., Ltd.1
England and Wales
Germany
United States
Cayman Islands
Limited liability company
– no shares
€1.00 Actions shares
€16.00 Actions shares
€8.50 Actions shares
Actions shares no par value
Actions shares no par value
$1.00 Common shares
$1.00 Common shares
€ Ordinary shares
€16.00 Actions shares
£ Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
$1.00 Ordinary shares
$1.00 Ordinary shares
$1.00 Ordinary shares
$1,000.00 Ordinary shares
€10.00 Actions shares
€10.00 Actions shares
$0.001 Ordinary and $0.001
Preference shares
Actions shares no par value
Actions shares no par value
$1.00 Ordinary shares
£1.00 Ordinary shares
€0.16 Actions shares
€77.00 Actions shares
£0.1 Ordinary shares
$1.00 Common shares
CNY1.00 Registered Capital shares
BRL1.14267 Redeemable
Preference shares
BRL Ordinary shares
BRL1.07374 Redeemable
Preference shares
£1.00 Ordinary shares
€1.00 Common shares
$1.00 Common shares
KYD0.001 Liquidating Share Class
shares
GPIF-I Finance Co., Ltd.1
Cayman Islands
$0.001 Liquidating Share Class
Griffin International Limited
Grundstuecksgesellschaft Trinkausstrasse Kommanditgesellschaft
Grupo Financiero HSBC, S. A. de C. V.
Guangdong Enping HSBC Rural Bank Company Limited
GWML Holdings, Inc.
GZ Trust Corporation
HBL Nominees Limited
HDSAP GP Limited
Henderson Limited
HFC Bank Limited
HFC Commercial Realty, Inc.
HFC Company LLC
HFC Leasing Inc.
High Meadow Management, Inc.
Hilaga Investments Limited
HITG Administration GmbH
HITG, Inc.
Honey Green Enterprises Ltd.
Hongkong International Trade Finance (Holdings) Limited
Hongkong International Trade Finance (U.S.A.) Inc.
Household Capital Markets LLC
Household Commercial Financial Services, Inc.
Household Finance Consumer Discount Company
Household Finance Corporation II
Household Finance Corporation III
Household Finance Corporation of Alabama
Household Finance Corporation of California
Household Finance Corporation of Nevada
Household Finance Corporation of West Virginia
Household Finance Industrial Loan Company of Iowa
Household Finance Realty Corporation of Nevada
Household Finance Realty Corporation of New York
shares
£1.00 Ordinary shares
DEM1.00 Common shares
MXN2.00 Ordinary shares
CNY1.00 Registered Capital shares
$1.00 Common shares
$1.00 Ordinary shares
£1.00 Ordinary shares
£ Ordinary shares
$1.00 Ordinary shares
£1.00 Ordinary and £1.00
Ordinary-A shares
$100.00 Common shares
Limited liability company
– no shares
$100.00 Ordinary shares
$1.00 Common shares
£1.00 Issued shares
€25,000.00 Ordinary shares
$1.00 Common shares
$1.00 Ordinary shares
£1.00 Ordinary 'A' and £1.00
Ordinary 'B' shares
$1.00 Common shares
Limited liability company
– no shares
$100.00 Ordinary shares
$100.00 Common shares
$100.00 Common shares
$100.00 Common shares
$100.00 Common shares
$100.00 Common shares
$100.00 Common shares
$100.00 Common shares
$100.00 Common shares
$100.00 Common shares
$100.00 Ordinary shares
England and Wales
Germany
Mexico
China
United States
Virgin Islands, British
England and Wales
Guernsey
Cook Islands
England and Wales
United States
United States
United States
United States
England and Wales
Germany
United States
Virgin Islands, British
England and Wales
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
HSBC HOLDINGS PLC
459
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
43 – HSBC Holdings’ subsidiaries, joint ventures and associates
Subsidiaries (continued)
Household Financial Center Inc.
Household Industrial Finance Company
Household Industrial Loan Company of Kentucky
Household Insurance Group Holding Company
Household International Europe Limited
Household Pooling Corporation
Household Realty Corporation
HPUT A Limited
HPUT B Limited
HRMG Nominees Limited
HSBC (BGF) Investments Limited
HSBC (Brasil) Administradora de Consorcio Ltda.
HSBC (General Partner) Limited
HSBC (Kuala Lumpur) Nominees Sdn Bhd
HSBC (Malaysia) Trustee Berhad
HSBC (Singapore) Nominees Pte Ltd
HSBC Administracao de Servicos para Fundos de Pensao (Brasil) Ltda
HSBC Administradora de Inversiones S.A.
HSBC AFS (USA) LLC
HSBC Agency (India) Private Limited
HSBC Alpha Funding (UK) Holdings
HSBC Alternative Investments Limited
HSBC Amanah Malaysia Berhad
HSBC Americas Corporation (Delaware)
HSBC Argentina Holdings S.A.
HSBC Asia Holdings (UK) Limited
HSBC Asia Holdings B.V.
HSBC Asia Pacific Holdings (UK) Limited
HSBC Asset Finance (UK) Limited
HSBC Asset Finance Holdings Limited
HSBC Asset Finance M.O.G. Holdings (UK) Limited
HSBC Asset Management (India) Private Limited
HSBC Assistencia Previdenciaria
HSBC Assurances Vie (France)
HSBC Australia Holdings Pty Limited
HSBC Bank (Chile)
HSBC Bank (China) Company Limited
HSBC Bank (General Partner) Limited
HSBC Bank (RR) (Limited Liability Company)
HSBC Bank (Singapore) Limited
HSBC Bank (Taiwan) Limited
HSBC Bank (Uruguay) S.A.
HSBC Bank (Vietnam) Ltd.
HSBC Bank A.S.
HSBC Bank Australia Limited
HSBC Bank Bermuda Limited
HSBC Bank Brasil S.A. - Banco Multiplo
HSBC Bank Canada
HSBC Bank Capital Funding (Sterling 1) LP1
HSBC Bank Capital Funding (Sterling 2) LP1
HSBC Bank International Limited
HSBC Bank Malaysia Berhad
HSBC Bank Middle East Limited
HSBC Bank Nominee (Jersey) Limited
HSBC Bank Pension Trust (UK) Limited
HSBC Bank plc
HSBC Bank Polska S.A.
HSBC Bank USA, National Association
HSBC Branch Nominee (UK) Limited
HSBC Brasil Holding S.A.
HSBC Brasil S.A. Banco de Investmento
Country
Security
Direct (%)
Total (%)
$100.00 Common shares
$25.00 Common shares
$100.00 Common shares
$1.00 Ordinary shares
£1 Ordinary, £1 Red Vot
Preference & £1 Red Vot shares
$1.00 Common shares
$100.00 Common shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
BRL Ordinary shares
£1.00 Ordinary shares
RM10.00 Ordinary shares
RM10.00 Ordinary shares
SGD Ordinary shares
BRL0.01 and BRL1.00 Quota shares
ARS Ordinary shares
Limited liability company
– no shares
INR1,000,000.00 Ordinary shares
$0.001 Limited and Unlimited.
Liability shares
£1.00 Ordinary shares
RM0.50 Ordinary shares
$1.00 Common shares
ARS1.00 Ordinary shares
$1.00 Ordinary shares
€1,000 A, B, C, D, E, F. G & H
Preference shares
€50.00 Ordinary shares
£1.00 Ordinary and $100.00 Red
Preference shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
INR10.00 Equity shares
BRL0.01 Quota shares
€287.50 Actions shares
A$ Ordinary and A$ Preference
shares
CLP Ordinary shares
CNY1.00 Registered Capital shares
£1.00 Ordinary shares
Russian limited liability company
shares NPV
SGD Ordinary shares
TWD10.00 Ordinary shares
UYU1.00 Ordinary shares
VND1.00 Ordinary shares
TRL1.00 A and TRL1.00B Common
shares
A$ Ordinary shares
BMD1.00 Common shares
BRL Ordinary shares
C$ Common and Class 1 Preferred
Shares
Limited partnership
– no shares
Limited partnership
– no shares
£1.00 Ordinary shares
RM0.50 Ordinary shares
$1 Ordinary and $1 Cum Red
Preference shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary and Preference
Ordinary shares
$0.01 Third Dollar and Series 2
Preference shares
PLN1.00 Ordinary and PLN1.00
Preference shares
$100 Common and $0.01
Preference shares
£1.00 Ordinary shares
BRL Ordinary shares
BRL Ordinary shares
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
United States
United States
United States
United States
England and Wales
United States
United States
England and Wales
England and Wales
Guernsey
England and Wales
Brazil
Jersey
Malaysia
Malaysia
Singapore
Brazil
Argentina
United States
India
Cayman Islands
England and Wales
Malaysia
United States
Argentina
England and Wales
Netherlands
England and Wales
England and Wales
England and Wales
England and Wales
India
Brazil
France
Australia
Chile
China
Jersey
Russian Federation
Singapore
Taiwan
Uruguay
Vietnam
Turkey
Australia
Bermuda
Brazil
Canada
Jersey
Jersey
Jersey
Malaysia
Jersey
Jersey
England and Wales
England and Wales
Poland
United States
England and Wales
Brazil
Brazil
HSBC HOLDINGS PLC
460
Subsidiaries (continued)
HSBC Broking Forex (Asia) Limited
HSBC Broking Futures (Asia) Limited
HSBC Broking Futures (Hong Kong) Limited
HSBC Broking Nominees (Asia) Limited
HSBC Broking Securities (Asia) Limited
HSBC Broking Securities (Hong Kong) Limited
HSBC Broking Services (Asia) Limited
HSBC Canada Holdings (UK) Limited
HSBC Capital (Canada) Inc.
HSBC Capital (USA), Inc.
HSBC Capital Funding (Dollar 1) L.P.
HSBC Capital Funding (Euro 3) L.P.
HSBC Capital Funding (Sterling 1) L.P.
HSBC Capital Limited
HSBC Capital Services Inc.
HSBC Card Services Inc.
HSBC Casa de Bolsa, S.A. de C.V., Grupo Financiero HSBC
HSBC Cayman Services Limited
HSBC City Funding Holdings
HSBC Client Holdings Nominee (UK) Limited
HSBC Client Share Offer Nominee (UK) Limited
HSBC Columbia Funding, LLC
HSBC Consumer Lending (USA) Inc.
HSBC Corporate Advisory (Malaysia) Sdn Bhd
HSBC Corporate Finance (Hong Kong) Limited
HSBC Corporate Trustee Company (UK) Limited
HSBC Credit Center, Inc.
HSBC Custody Nominees (Australia) Limited
HSBC Custody Services (Guernsey) Limited
HSBC Daisy Investments (Mauritius) Limited
HSBC Diamond (USA) LP
HSBC Electronic Data Processing (Guangdong) Limited
HSBC Electronic Data Processing (Malaysia) Sdn Bhd
HSBC Electronic Data Processing (Philippines), Inc.
HSBC Electronic Data Processing India Private Limited
HSBC Electronic Data Processing Lanka (Private) Limited
HSBC Electronic Data Service Delivery (Egypt) S.A.E.
HSBC Enterprise Investment Company (UK) Limited
HSBC Epargne Entreprise (France)
HSBC Equator (UK) Limited
HSBC Equipment Finance (UK) Limited
HSBC Equities (Luxembourg) S.a r.l.
HSBC Equity (UK) Limited
HSBC Europe B.V.
HSBC European Clients Depositary Receipts Nominee (UK) Limited
HSBC Executor & Trustee Company (UK) Limited
HSBC Factoring (France)
HSBC Finance (Brunei) Berhad
HSBC Finance (Netherlands)
Country
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
England and Wales
Canada
United States
Jersey
Jersey
Jersey
Hong Kong
Canada
United States
Mexico
Cayman Islands
England and Wales
England and Wales
England and Wales
United States
United States
Malaysia
Hong Kong
England and Wales
United States
Australia
Guernsey
Mauritius
United States
China
Malaysia
Philippines
India
Sri Lanka
Egypt
England and Wales
France
England and Wales
England and Wales
Luxembourg
England and Wales
Netherlands
England and Wales
England and Wales
France
Brunei Darussalam
England and Wales
United States
Australia
England and Wales
Canada
HSBC Finance Corporation
HSBC Finance Holdings (Australia) Pty Limited
HSBC Finance Limited
HSBC Finance Mortgages Inc.
HSBC Finance Transformation (UK) Limited
United Arab Emirates
HSBC Financial Services (Middle East) Limited
HSBC Fondo 1, S.A. de C.V., Sociedad de Inversion de Renta Variable1
Mexico
HSBC Fondo 3, S.A. de C.V., Sociedad de Inversion de Renta Variable1
Mexico
HSBC Fondo 4, S.A. de C.V., Sociedad de Inversion de Renta Variable1
Mexico
HSBC Fondo 5, S.A. de C.V., Sociedad de Inversion de Renta Variable1
Mexico
HSBC Fondo 6, S.A. de C.V., Sociedad de Inversion de Renta Variable1
Mexico
HSBC Fondo Global 1, S.A. de C.V., Sociedad de Inversion de Renta Variable1 Mexico
Jersey
HSBC Fund Administration (Jersey) Limited
England and Wales
HSBC Funding (UK) Holdings
Jersey
HSBC Funds Nominee (Jersey) Limited
Germany
HSBC Germany Holdings GmbH
Brazil
HSBC Gestao de Recursos Ltda
Bermuda
HSBC Global Asset Management (Bermuda) Limited
HSBC Global Asset Management (Canada) Limited
HSBC Global Asset Management (Deutschland) GmbH
HSBC Global Asset Management (France)
Canada
Germany
France
HSBC HOLDINGS PLC
461
Security
Direct (%)
Total (%)
HK$10.00 Ordinary shares
HK$10.00 Ordinary and $2.00
Deferred shares
HK$10.00 Ordinary shares
HK$10.00 Ordinary shares
HK$10.00 Ordinary shares
HK$10.00 Ordinary shares
HK$10.00 Ordinary shares
$1.00 Ordinary shares
C$ Common shares
$1.00 Common shares
Limited partnership – no shares
Limited partnership – no shares
Limited partnership – no shares
HK$10.00 Ordinary shares
C$ Common shares
$100.00 Common shares
MXN Share Class 1 and Class 2
shares
$1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
Limited liability company
– no shares
$1.00 Common shares
RM1.00 Ordinary shares
HK$10.00 Ordinary shares
£1.00 Ordinary shares
$1,000.00 Common shares
AUD1.00 Ordinary shares
£1.00 Ordinary shares
$10.00 Ordinary shares
Limited partnership
– no shares
HK$1.00 Registered Capital shares
RM1.00 Ordinary shares
PHP100.00 Ordinary and
Red Preference shares
INR100.00 Equity shares
LKR10.00 Ordinary shares
EGP1.00 Ordinary shares
£1.00 Ordinary shares
€16.00 Actions shares
$1.00 Ordinary and £1.00
Non-Vot Def shares
£1.00 Ordinary shares
€1.00 Ordinary shares
£1.00 Ordinary shares
€50.00 Ordinary and €50.00
Preference A & C shares
£1.00 Ordinary shares
£1.00 Ordinary (£0.40 paid) shares
€16.00 Actions shares
BND1,000.00 Ordinary shares
£1.00 Ordinary shares and £1.00
Ordinary Red shares
$0.01 Common shares
A$1.00 Ordinary shares
£1.00 Ordinary shares
C$ Common shares
£1.00 Ordinary shares
AED1,000.00 Ordinary shares
MXN1.00 Series A shares
MXN1.00 Series A shares
MXN1.00 Series A shares
MXN1.00 Series A shares
MXN1.00 Series A shares
MXN1.00 Series A shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
€1.00 Common shares
BRL1.00 Quota shares
BMD1.00 Common and BMD1.00
Preference shares
C$ Common shares
€1.00 Common shares
€16.00 Actions shares
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
43 – HSBC Holdings’ subsidiaries, joint ventures and associates
Subsidiaries (continued)
Country
Security
Direct (%)
Total (%)
Hong Kong
Jersey
Japan
HSBC Global Asset Management (Hong Kong) Limited
HSBC Global Asset Management (International) Limited
HSBC Global Asset Management (Japan) K. K.
HSBC Global Asset Management (Mexico), S.A. de C.V., Grupo Financiero HSBC Mexico
Austria
HSBC Global Asset Management (Oesterreich) GmbH
Singapore
HSBC Global Asset Management (Singapore) Limited
Switzerland
HSBC GLOBAL ASSET MANAGEMENT (Switzerland) AG
Taiwan
HSBC Global Asset Management (Taiwan) Limited
England and Wales
HSBC Global Asset Management (UK) Limited
United States
HSBC Global Asset Management (USA) Inc.
Bahamas
HSBC Global Asset Management Holdings (Bahamas) Limited
England and Wales
HSBC Global Asset Management Limited
England and Wales
HSBC Global Custody Nominee (UK) Limited
England and Wales
HSBC Global Custody Proprietary Nominee (UK) Limited
England and Wales
HSBC Global Services (UK) Limited
England and Wales
HSBC Global Services Limited
India
HSBC Global Shared Services (India) Private Limited
England and Wales
HSBC Group Management Services Limited
England and Wales
HSBC Group Nominees UK Limited
Cayman Islands
HSBC Guyerzeller Trust Company
Netherlands
HSBC Holdings B.V.
HSBC Home Equity Loan Corporation I
HSBC Home Equity Loan Corporation II
HSBC IM Pension Trust Limited
HSBC Infrastructure Limited
HSBC INKA Investment-AG TGV
HSBC Institutional Trust Services (Asia) Limited
HSBC Institutional Trust Services (Bermuda) Limited
HSBC Institutional Trust Services (Ireland) Limited
HSBC Institutional Trust Services (Mauritius) Limited
HSBC Institutional Trust Services (Singapore) Limited
HSBC Insurance (Asia) Limited
HSBC Insurance (Asia-Pacific) Holdings Limited
HSBC Insurance (Bermuda) Limited
HSBC Insurance (Singapore) Pte. Limited
HSBC Insurance Agency (USA) Inc.
HSBC Insurance Brokers (Philippines) Inc
HSBC Insurance Brokers (Taiwan) Limited
HSBC Insurance Holdings Limited
HSBC Insurance Services Holdings Limited
HSBC Intermediate Leasing (UK) Limited
HSBC International Finance Corporation (Delaware)
HSBC International Financial Services (UK) Limited
HSBC International Holdings (Jersey) Limited
HSBC International Nominees Limited
HSBC International Trade Finance Limited
HSBC International Trustee (BVI) Limited
HSBC International Trustee (Holdings) Pte. Limited1
HSBC International Trustee Limited
HSBC Inversiones S.A.
HSBC Inversiones y Servicios Financieros Limitada
HSBC InvestDirect Financial Services (India) Limited
HSBC InvestDirect Securities (India) Private Limited
HSBC Investment Asia Holdings Limited
HSBC Investment Bank Holdings B.V.
HSBC Investment Bank Holdings Limited
HSBC Investment Funds (Canada) Inc.
HSBC Investment Funds (Hong Kong) Limited
HSBC Investment Funds (Luxembourg) SA
HSBC Investment Holdings (Guernsey) Limited
HSBC Investment Services (Africa) (Pty) Limited
HSBC Investments (Bahamas) Limited
HSBC Investments (North America) Inc.
HSBC Invoice Finance (UK) Limited
HSBC Issuer Services Common Depositary Nominee (UK) Limited
HSBC Issuer Services Depositary Nominee (UK) Limited
HSBC Jade Limited Partnership
United States
United States
England and Wales
England and Wales
Germany
Hong Kong
Bermuda
Ireland
Mauritius
Singapore
Hong Kong
Hong Kong
Bermuda
Singapore
United States
Philippines
Taiwan
England and Wales
England and Wales
England and Wales
United States
England and Wales
Jersey
Virgin Islands, British
England and Wales
Virgin Islands, British
Singapore
Virgin Islands, British
Chile
Chile
India
India
Hong Kong
Netherlands
England and Wales
Canada
Hong Kong
Luxembourg
Guernsey
South Africa
Bahamas
United States
England and Wales
England and Wales
England and Wales
United States
HSBC HOLDINGS PLC
462
HK$100.00 Ordinary shares
£1.00 Ordinary shares
JPY Ordinary shares
MXN1,000.00 Ordinary shares
€1.00 GmbH Anteil shares
SGD Ordinary shares
CHF10.00 Actions shares
TWD10.00 Ordinary shares
£0.25 Ordinary shares
$1.00 Common shares
$1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
$1.00 Ordinary shares
INR10.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
$1.00 Ordinary shares
€453.78 Ordinary and Preference
C, D, E, H & I shares
$1.00 Common shares
$100.00 Common shares
£1.00 Ordinary shares
£1.00 Ordinary shares
€1.00 Stückaktien shares
HK$100.00 Ordinary shares
BMD1.00 Common shares
$1.00 Ordinary shares
$1.00 Ordinary shares
SGD Ordinary shares
HK$1,000.00 Ordinary shares
HK$10.00 Ordinary & Cum Red
Class A Preference shares
HK$10.00 Cum Red Class B and C
Preference shares
HK$10.00 Cum Red Class D and E
Preference shares
HK$10.00 Cum Red Class F and G
Preference shares
$1.96345 Ordinary shares
SGD Ordinary NPV shares
$1.00 Common shares
PHP1.00 Ordinary shares
TWD10.00 Ordinary shares
£1.00 Ordinary shares
£0.10 Ordinary shares
£1,000.00 Issued shares
$1.000.00 Common shares
£1.00 'A', 'B', 'C' and £1.00 Non-Vot
Red shares
£1.00 Ordinary shares
$1.00 Ordinary shares
£1.00 Ordinary shares
$0.01 Class A Non-Voting shares
$6,000.00 Non-Part Voting shares
SGD Ordinary shares
$1.00 Ordinary shares
CLP402.14 Ordinary shares
CLP Ordinary shares
INR10.00 Ordinary shares
INR10.00 Ordinary shares
HK$10.00 Ordinary shares
€50.00 Ordinary shares
£1.00 Ordinary shares
C$ Common and C$ Red
Preference shares
HK$10.00 Ordinary shares
£1.00 Ordinary shares
$1.00 Ordinary shares
ZAR1.00 Ordinary shares
BSD100.00 Ordinary shares
$1.00 Common shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
Limited partnership – no shares
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Security
Direct (%)
Total (%)
Subsidiaries (continued)
HSBC Latin America B.V.
HSBC Latin America Holdings (UK) Limited
HSBC Leasing (Asia) Limited
HSBC Leasing (France)
HSBC Life (International) Limited
HSBC Life (UK) Limited
HSBC Lodge Funding (UK) Holdings
HSBC Logan Holdings USA, LLC
HSBC London Holdings Limited
HSBC LU Nominees Limited
HSBC Management (Guernsey) Limited
HSBC Markets (NY) Inc.
HSBC Markets (USA) Inc.
HSBC Marking Name Nominee (UK) Limited
HSBC Middle East Holdings B.V.
HSBC Middle East Leasing Partnership
HSBC Mortgage Corporation (Canada)
HSBC Mortgage Corporation (USA)
HSBC Mortgage Services Inc.
HSBC Nominees (Asing) Sdn Bhd
HSBC Nominees (Hong Kong) Limited
HSBC Nominees (New Zealand) Limited
HSBC Nominees (Tempatan) Sdn Bhd
HSBC North America Holdings Inc.
HSBC North America Inc.
HSBC Odeme Sistemleri Bilgisayar Teknolojileri Basin Yayin Ve
Musteri Hizmetleri
HSBC Overseas Holdings (UK) Limited
HSBC Overseas Investments (UK) Limited
HSBC Overseas Investments Corporation (New York)
HSBC Overseas Nominee (UK) Limited
HSBC Participaciones (Argentina) S.A.
HSBC Participacoes e Investimentos Ltda
HSBC PB Corporate Services 1 Limited
HSBC PB Corporate Services 2 Limited
HSBC PB Services (Suisse) SA
HSBC Pension Trust (Ireland) Limited
HSBC Pensiones, S.A.
HSBC Pensions (Jersey) Limited
HSBC PH Investments (UK) Limited
HSBC PI Holdings (Mauritius) Limited
HSBC Portfoy Yonetimi A.S.
HSBC Preferential LP (UK)
HSBC Private Bank (C.I.) Limited
HSBC Private Bank (Luxembourg) S.A.
HSBC Private Bank (Monaco) SA
HSBC Private Bank (Suisse) SA
HSBC Private Bank (UK) Limited
HSBC Private Bank International
HSBC Private Banking Holdings (Suisse) SA
HSBC Private Banking Nominee 1 (Jersey) Limited
HSBC Private Banking Nominee 2 (Jersey) Limited
HSBC Private Banking Nominee 3 (Jersey) Limited
HSBC Private Equity Advisors LLC
HSBC Private Equity Investments (UK) Limited
HSBC Private Trustee (Hong Kong) Limited
HSBC Private Wealth Services (Canada) Inc.
Country
Netherlands
England and Wales
Hong Kong
France
Bermuda
England and Wales
England and Wales
United States
England and Wales
England and Wales
Guernsey
United States
United States
England and Wales
Netherlands
United Arab Emirates
Canada
United States
United States
Malaysia
Hong Kong
New Zealand
Malaysia
United States
United States
Turkey
England and Wales
England and Wales
United States
England and Wales
Argentina
Brazil
Jersey
Jersey
Switzerland
Ireland
Mexico
Jersey
England and Wales
Mauritius
Turkey
England and Wales
Guernsey
Luxembourg
Monaco
Switzerland
England and Wales
United States
Switzerland
Jersey
Jersey
Jersey
United States
England and Wales
Hong Kong
Canada
Ordinary €500 Cl-A €250
Cl-B €50 Cl-C shares
£1.00 Ordinary shares
HK$100.00 Ordinary shares
€9.57 Actions shares
HK$1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
Limited liability company
– no shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
$4.00 Common shares
$1.00 Common shares
£1.00 Ordinary shares
€500 Ordinary & €1,000
Preference – Class A shares
Partnership - no shares
C$ Common & Class A Preferred
Shares
$1.00 Common shares
$100.00 Common shares
RM1.00 Ordinary shares
HK$10.00 Ordinary shares
NZD1.00 Ordinary shares
RM1.00 Ordinary shares
$0.01 Common & Preferred Series
B shares
$1.00 Common shares
TRL1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
$0.01 Common shares
£1.00 Ordinary shares
ARS1.00 Ordinary shares
BRL0.01 Quota shares
£1.00 Ordinary shares
£1.00 Ordinary shares
CHF1,000.00 Ordinary shares
€1.26974 Ordinary shares
MXN Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
$1.00 Ordinary shares
TRL1.00 A Common shares
£1.00 Ordinary shares
$1.00 Ordinary shares
€1,000.00 Ordinary shares
€155.00 Actions shares
CHF1,000.00 Ordinary shares
£10.00 Issued shares
$1,000.00 Common shares
CHF1,000.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
Limited liability company
– no shares
£1.00 Issued shares
HK$10.00 Ordinary shares
C$ Common and C$ Preference
shares
HSBC Procyon Fund Ltd
Cayman Islands
BRL2,618.38127 Red Preference
HSBC Professional Services (India) Private Limited
HSBC Property (UK) Limited
HSBC Property Funds (Holding) Limited
HSBC Property Funds Investment Limited
HSBC Property Investments Limited
HSBC Provident Fund Trustee (Hong Kong) Limited
HSBC QUEST Trustee (UK) Limited
HSBC Rail (UK) Limited
HSBC Real Estate Leasing (France)
HSBC Realty Credit Corporation (USA)
HSBC REIM (France)
shares
INR10.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
HK$10.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
€15.24 Actions shares
$1.00 Common & $500 Preferred
shares
€92.00 Actions shares
India
England and Wales
England and Wales
England and Wales
England and Wales
Hong Kong
England and Wales
England and Wales
France
United States
France
HSBC HOLDINGS PLC
463
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
43 – HSBC Holdings’ subsidiaries, joint ventures and associates
Subsidiaries (continued)
Country
Security
Direct (%)
Total (%)
HSBC Representative Office (Nigeria) Limited
HSBC Republic Management Services (Guernsey) Limited
HSBC Retail Services Inc.
HSBC Retirement Benefits Trustee (UK) Limited
HSBC Savings Bank (Philippines) Inc.
HSBC Securities (Asia) Limited
HSBC Securities (B) Berhad
HSBC Securities (Canada) Inc.
HSBC Securities (Japan) Limited
HSBC Securities (Philippines) Inc.
HSBC Securities (Singapore) Pte Limited
HSBC Securities (South Africa) (Pty) Limited
HSBC Securities (Taiwan) Corporation Limited
HSBC Securities (USA) Inc.
HSBC Securities and Capital Markets (India) Private Limited
HSBC Securities Asia International Nominees Limited
HSBC Securities Asia Nominees Limited
HSBC Securities Brokers (Asia) Limited
HSBC Securities Investments (Asia) Limited
HSBC Securities Services (Bermuda) Limited
HSBC Securities Services (Guernsey) Limited
HSBC Securities Services (Ireland) Limited
HSBC Securities Services (Luxembourg) S.A.
HSBC Securities Services (USA) Inc.
HSBC Securities Services Holding Limited
HSBC Securities Services Holdings (Ireland) Limited
HSBC Seguros de Retiro (Argentina) S.A.
HSBC Seguros de Vida (Argentina) S.A.
HSBC Seguros, S.A de C.V., Grupo Financiero HSBC
HSBC Service Delivery (Polska) Sp. z o.o.
HSBC Services (France)
HSBC Services Japan Limited
HSBC Servicios Financieros, S.A. de C.V
HSBC Servicios, S.A. DE C.V., Grupo Financiero HSBC
Nigeria
Guernsey
United States
England and Wales
Philippines
Hong Kong
Brunei Darussalam
Canada
England and Wales
Philippines
Singapore
South Africa
Taiwan
United States
India
Virgin Islands, British
Hong Kong
Hong Kong
Hong Kong
Bermuda
Guernsey
Ireland
Luxembourg
United States
Virgin Islands, British
Ireland
Argentina
Argentina
Mexico
Poland
France
Bahamas
Mexico
Mexico
HSBC Servicos e Participacoes Ltda
HSBC SFH (France)
HSBC Software Development (Brasil) - Prestacao de Servicos Tecnologicos Ltda Brazil
HSBC Software Development (Canada) Inc
HSBC Software Development (Guangdong) Limited
HSBC Software Development (India) Private Limited
HSBC Software Development (Malaysia) Sdn Bhd
HSBC South Point Investments (Barbados) LLP
Brazil
France
Canada
China
India
Malaysia
England and Wales
HSBC Specialist Investments Limited
HSBC Stockbroker Services (Client Assets) Nominees Limited
HSBC Stockbrokers Nominee (UK) Limited
HSBC Structured Funds (Asia) Limited
HSBC Taxpayer Financial Services Inc.
HSBC Technology & Services (China) Limited
HSBC Technology & Services (USA) Inc.
HSBC TFS I 2005 LLC
HSBC TKM Limited
HSBC Trust Company (BVI) Limited
HSBC Trust Company (Canada)
HSBC Trust Company (Delaware), National Association
HSBC Trust Company (UK) Limited
HSBC Trust Company AG
HSBC Trustee (C.I.) Limited
HSBC Trustee (Cayman) Limited
HSBC Trustee (Cook Islands) Limited
HSBC Trustee (Guernsey) Limited
HSBC Trustee (Hong Kong) Limited
HSBC Trustee (Mauritius) Limited
HSBC Trustee (Singapore) Limited
HSBC Tulip Funding (UK)
HSBC UK RFB Limited1
HSBC USA Inc.
HSBC Valores S.A. Sociedad de Bolsa
HSBC Vida e Previdencia (Brasil) SA
England and Wales
England and Wales
England and Wales
Hong Kong
United States
China
United States
United States
England and Wales
Virgin Islands, British
Canada
United States
England and Wales
Switzerland
Jersey
Cayman Islands
Cook Islands
Guernsey
Hong Kong
Mauritius
Singapore
England and Wales
England and Wales
United States
Argentina
Brazil
HSBC HOLDINGS PLC
464
Ordinary shares no par value
$0.10 Ordinary shares
$100.00 Common shares
£1.00 Issued shares
PHP10.00 Ordinary shares
HK$10.00 Ordinary and HK$10.00
Deferred shares
BND1.00 Ordinary shares
Common – C$ Class A &
$ Class B shares
£1.00 Ordinary shares
PHP10.00 Nominal shares
SGD Ordinary shares
ZAR1.00 Ordinary shares
TWD10.00 Ordinary shares
$0.05 Common shares
INR100.00 Ordinary and INR100.00
Red Preference shares
$1.00 Ordinary shares
HK$1.00 Ordinary shares
HK$10.00 Ordinary shares
HK$10.00 Ordinary shares
BMD1.00 Common shares
£1.00 Ordinary Shares
€1.25 and $1.00 Ordinary shares
$100.00 Ordinary shares
$0.001 Common shares
$1.00 Ordinary shares
€1.25 and $1.00 Ordinary shares
ARS1.00 Ordinary A and Ordinary B
shares
ARS1.00 Ordinary shares
MXN Class I and Class II shares
PLN500.00 Ordinary shares
€18.50 Actions shares
$1.00 Ordinary shares
MXN1.00 Share Class 1 and 2
shares
MXN500 Series 'A' and MXN
Ordinary B shares
BRL0.01 Ordinary shares
€15.00 Actions shares
BRL1.00 Quota shares
CAD1.00 Common shares
$1.00 Registered Capital shares
INR10.00 Equity shares
RM1.00 Ordinary shares
Limited liability partnership – no
shares
£1.00 Ordinary and £1.00 Red
Preference shares
£1.00 Ordinary shares
£1.00 Ordinary shares
HK$10.00 Ordinary shares
$100.00 Common shares
$1.00 Registered Capital shares
$1.00 Common shares
Limited liability company
– no shares
£0.01 Ordinary shares
$1.00 Ordinary-A shares
C$ Common shares
$100.00 Ordinary shares
£5.00 Ordinary shares
CHF1,000.00 Ordinary shares
£1.00 Ordinary shares
$1,000.00 Ordinary shares
NZD Ordinary shares
$1.00 Ordinary shares
HK$10.00 Ordinary
(HK$5.00 pt pd) shares
$1.00 Ordinary shares
SGD Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
$5.00 Common shares
ARS1.00 Ordinary shares
BRL Ordinary shares
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Subsidiaries (continued)
Country
Security
Direct (%)
Total (%)
HSBC Violet Investments (Mauritius) Limited
HSBC Wealth Advisory Israel Ltd
HSBC Wealth Client Nominee Limited
HSBC Workplace Retirement Services Fund Platform
Nominee Company Limited
HSBC Yatirim Menkul Degerler A.S.
HSBC-D1, S.A. de C.V., Sociedad de Inversion en Instrumentos de Deuda1
HSBC-D10, S.A. de C.V., Sociedad de Inversion en Instrumentos de Deuda1
HSBC-D2, S.A. de C.V., Sociedad de Inversion en Instrumentos de Deuda1
HSBC-D7, S.A. de C.V., Sociedad de Inversion en Instrumentos de Deuda1
HSBC-D9, S.A. de C.V., Sociedad de Inversion en Instrumentos de Deuda1
HSBC-DE, S.A. de C.V., Sociedad de Inversion en Instrumentos de Deuda1
HSBC-DG, S.A. de C.V., Sociedad de Inversion en Instrumentos de Deuda1
HSBC-DH, S.A. de C.V., Sociedad de Inversion en Instrumentos de Deuda1
HSBC-DL, S.A. de C.V., Sociedad de Inversion en Instrumentos de Deuda1
HSBC-E2, S.A. de C.V., Sociedad de Inversion de Renta Variable1
HSBC-E3, S.A. de C.V., Sociedad de Inversion en Instrumentos de Deuda1
HSBC-FF, S.A. de C.V., Sociedad de Inversion de Renta Variable1
HSBC-V2, S.A. de C.V., Sociedad de Inversion de Renta Variable1
HSBC-V3, S.A. de C.V., Sociedad de Inversion de Renta Variable1
HSI Asset Securitization Corporation
HSIL Investments Limited
Hubei Macheng HSBC Rural Bank Company Limited
Hubei Suizhou Cengdu HSBC Rural Bank Company Limited
Hubei Tianmen HSBC Rural Bank Company Limited
Hunan Pingjiang HSBC Rural Bank Company Limited
Inmobiliaria Bisa, S.A. de C.V.
Inmobiliaria Grufin, S.A. de C.V.
Inmobiliaria Guatusi, S.A. de C.V.
IRERE French Offices 1
IRERE French Offices 2
IRERE French Offices 4
IRERE French Offices Holdings
IRERE French Offices Holdings 3
IRERE Property Investments (French Offices) Sarl
James Capel & Co. Limited
James Capel (Channel Islands) Nominees Limited
James Capel (Custodian) Nominees Limited
James Capel (Nominees) Limited
James Capel (Second Nominees) Limited
James Capel (Taiwan) Nominees Limited
James Capel (Third Nominees) Limited
John Lewis Financial Services Limited
Katonah Close Corp.
Keyser Ullmann Limited
Kings Meadow Nominees Limited
Legend Estates Limited
Lemasco Nominees Limited
Lion Corporate Services Limited
Lion International Corporate Services Limited
Lion International Management Limited
Lion Management (Hong Kong) Limited
Lyndholme Limited
MAGIM Client HSBC GIS Nominee (UK) Limited
Marks and Spencer Financial Services plc
Marks and Spencer Retail Financial Services Holdings Limited
Marks and Spencer Savings and Investments Limited
Marks and Spencer Unit Trust Management Limited
Maxima S.A. AFJP
Mercantile Company Limited
Midcorp Limited
Midland Australia Pty Limited
Midland Bank (Branch Nominees) Limited
Midland Nominees Limited
MIL (Cayman) Limited
MIL (Jersey) Limited
MIL Properties (Cook Islands) Limited
MM Mooring #2 Corp.
Mortgage One Corporation
Mortgage Two Corporation
MW Gestion SA
Neil Corporation
Neuilly Valeurs
Oakwood Holdings, Inc.
One Main Street, Inc.
Mauritius
Israel
England and Wales
England and Wales
Turkey
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
United States
England and Wales
China
China
China
China
Mexico
Mexico
Mexico
France
France
France
France
France
Luxembourg
England and Wales
Jersey
United Kingdom
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
United States
England and Wales
England and Wales
England and Wales
Jersey
Hong Kong
Virgin Islands, British
Virgin Islands, British
Hong Kong
Hong Kong
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
Argentina
England and Wales
England and Wales
Australia
England and Wales
England and Wales
Cayman Islands
Jersey
Cook Islands
United States
United States
United States
Argentina
United States
France
United States
United States
HSBC HOLDINGS PLC
465
$10.00 Ordinary shares
ILS1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
TRL1.00 Ordinary-A shares
MXN2.00 Ordinary shares
MXN1.00 Ordinary-A shares
MXN1.00 Ordinary shares
MXN10.00 Ordinary shares
MXN1.40 Ordinary shares
MXN1.098 Ordinary shares
MXN10.00 Ordinary shares
MXN1.00 Ordinary A shares
MXN1.00 Ordinary A shares
MXN1.00 Ordinary A shares
MXN1.00 Ordinary A shares
MXN1.00 Ordinary shares
MXN1.00 Ordinary shares
MXN1.66 Ordinary shares
$0.01 Common shares
£1.00 Ordinary shares
CNY1.00 Registered Capital shares
CNY1.00 Registered Capital shares
CNY1.00 Registered Capital shares
CNY1.00 Registered Capital shares
MXN1.00 Serie ‘A’ and ‘B’ shares
MXN1.00 Serie ‘A’ and ‘B’ shares
MXN10.00 Class I and II shares
€0.10 Ordinary shares
€0.10 Ordinary shares
€0.10 Ordinary shares
€1.00 Ordinary shares
€1.00 Ordinary shares
€25.00 Ordinary shares
£1.00 Issued shares
£1.00 Ordinary shares
£1.00 Issued shares
£1.00 Ordinary shares
£1.00 Issued shares
£1.00 Issued shares
£1.00 Issued shares
£1.00 Ordinary shares
$1.00 Common shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
HK$10.00 Ordinary shares
$1.00 Ordinary shares
$1.00 Ordinary shares
HK$10.00 Ordinary shares
HK$10.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
ARS0.25 Ordinary shares
£1.00 Ordinary and £1.00 Deferred
shares
£1.00 Ordinary and £1.00 Non-
Cum Red Preference shares
AUD1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
$1.00 Ordinary shares
£1.00 Ordinary shares
NZD1.00 Ordinary shares
$1.00 Common shares
$100.00 Common shares
$100.00 Common shares
ARS12,000.00 Ordinary shares
$1.00 Common shares
€15.24 Parts shares
$1.00 Common shares
$1.00 Common shares
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
43 – HSBC Holdings’ subsidiaries, joint ventures and associates
Subsidiaries (continued)
Promocion en Bienes Raices, S.A. de C.V.
Prudential Client HSBC GIS Nominee (UK) Limited
PTC New LLC
R/CLIP Corp.
Real Estate Collateral Management Company
Republic Nominees Limited
Republic Overseas Capital Corporation
S.A.P.C. – Ufipro Recouvrement
Saf Baiyun
Saf Chang Jiang
Saf Chang Jiang Ba
Saf Chang Jiang Er
Saf Chang Jiang Jiu
Saf Chang Jiang Liu
Saf Chang Jiang Qi
Saf Chang Jiang San
Saf Chang Jiang Shi
Saf Chang Jiang Shi Liu
Saf Chang Jiang Shi Wu
Saf Chang Jiang Shi’Er
Saf Chang Jiang Shiyi
Saf Chang Jiang Wu
Saf Chang Jiang Yi
Saf Guangzhou
Saf Palissandre
Saf Zhu Jiang
Saf Zhu Jiang Ba
Saf Zhu Jiang Er
Saf Zhu Jiang Jiu
Saf Zhu Jiang Liu
Saf Zhu Jiang Qi
Saf Zhu Jiang San
Saf Zhu Jiang Shi
Saf Zhu Jiang Shi Ba
Saf Zhu Jiang Shi Er
Saf Zhu Jiang Shi Jiu
Saf Zhu Jiang Shi Liu
Saf Zhu Jiang Shi Qi
Saf Zhu Jiang Shi Wu
Saf Zhu Jiang Shiyi
Saf Zhu Jiang Wu
Saf Zhu Jiang Yi
Samada Limited
Samuel Montagu & Co. Limited
SCI Hervet Mathurins
SCI HSBC Assurances Immo
Second Corporate Director Inc.
Secondary Club Deal I GP Limited
Secondary Club Deal II GP Limited
SFSS Nominees (Pty) Limited
Shandong Rongcheng HSBC Rural Bank Company Limited
Shenfield Nominees Limited
Shuttle Developments Limited
Sico Limited
Silliman Associates Limited Partnership
Silliman Corporation
SNC Dorique
SNC Kerouan
SNC Les Mercuriales
SNC Makala
SNC Nuku-Hiva Bail
SNCB/M6-2008 A
SNCB/M6-2007 A
SNCB/M6-2007 B
Société Financière et Mobilière
Société Française et Suisse
Societe Immobiliere Atlas S.A.
Société Immobilière Malesherbes-Anjou
Solandra 3
Somers & Co
Somers (U.K.) Limited
Somers Dublin Limited
Somers Nominees (Far East) Limited
Sopingest
South Yorkshire Light Rail Limited
SPE 1 2005 Manager Inc.
Security
Direct (%)
Total (%)
MXN1 Class ‘I’ and ‘II’ and
Preference shares
£1.00 Ordinary shares
Limited liability company
– no shares
$100.00 Common shares
$10.00 Ordinary shares
£1.00 Ordinary shares
$10.00 Common shares
€46.00 Parts shares
€10.00 Actions shares
€10.00 Actions shares
€10.00 Actions shares
€10.00 Actions shares
€10.00 Actions shares
€10.00 Actions shares
€10.00 Actions shares
€10.00 Actions shares
€10.00 Actions shares
€1.00 Actions shares
€1.00 Actions shares
€10.00 Actions shares
€10.00 Actions shares
€10.00 Actions shares
€10.00 Actions shares
€10.00 Actions shares
€10.00 Actions shares
€10.00 Actions shares
€10.00 Actions shares
€10.00 Actions shares
€10.00 Actions shares
€10.00 Actions shares
€10.00 Actions shares
€10.00 Actions shares
€10.00 Actions shares
€1.00 Actions shares
€1.00 Actions shares
€1.00 Actions shares
€1.00 Actions shares
€1.00 Actions shares
€1.00 Actions shares
€10.00 Actions shares
€10.00 Actions shares
€10.00 Actions shares
£1.00 Ordinary shares
£1.00 Ordinary shares
€15.24 Parts shares
€152.44 Parts shares
$1.00 Ordinary shares
£ Ordinary shares
$ Ordinary shares
ZAR1.00 Ordinary shares
CNY1.00 Registered Capital shares
£1.00 Ordinary shares
£1.00 Ordinary shares
$1.00 Ordinary shares
Limited partnership – no shares
$1.00 Common shares
€1.00 Parts shares
€1.00 Parts shares
€1.00 Parts shares
€1.00 Parts shares
€0.01 Parts shares
€1.00 Actions shares
€10.00 Actions shares
€10.00 Actions shares
€16.00 Actions shares
€1.00 Actions shares
CHF1,000.00 Ordinary shares
€70.00 Actions shares
€100.00 Actions shares
Partnership – no shares
£1.00 Ordinary shares
€1.25 Ordinary shares
$1.00 Common shares
Ordinary shares no par value
£0.10 Ordinary shares
$1.00 Common shares
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Country
Mexico
England and Wales
United States
United States
United States
Guernsey
United States
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
Jersey
England and Wales
France
France
Virgin Islands, British
Guernsey
Guernsey
South Africa
China
England and Wales
England and Wales
Virgin Islands, British
United States
United States
Reunion
France
France
France
France
France
France
France
France
France
Switzerland
France
France
United States
England and Wales
Ireland
Bermuda
France
England and Wales
United States
HSBC HOLDINGS PLC
466
Subsidiaries (continued)
Country
Security
Direct (%)
Total (%)
St Cross Trustees Limited
Sterling Credit Limited
Sun Hung Kai Development (Lujiazui III) Limited
Swan National Leasing (Commercials) Limited
Swan National Limited
Tayside Holdings Limited
Tempus Management AG
Thasosfin
The Hongkong and Shanghai Banking Corporation Limited
The Venture Catalysts Limited
Third Corporate Director Inc.
Timberlink Settlement Services (USA) Inc.
TKM International Limited
Tooley Street View Limited
Tower Investment Management
TPBC Acquisition Corp.
Trinkaus Canada 1 GP LTD
Tropical Nominees Limited
Trumball Management, Inc.
Turnsonic (Nominees) Limited
Vadep Holding AG
Valeurs Mobilières Elysées
Vintage I Secondary GP Limited
Vintage III Special Situations GP Limited
Wardley Limited
Wayfoong Credit Limited
Wayfoong Finance Limited
Wayfoong Nominees Limited
Westminster House, LLC
Woodex Limited
XDP, Inc.
HSBC Bank Argentina S.A.
HSBC France
HSBC Mexico, S.A., Institucion de Banca Multiple, Grupo Financiero HSBC
HSBC Empresa de Capitalizacao (Brasil) S.A.
HSBC Corretora de Titulos e Valores Mobiliarios S.A.
HSBC Inmobiliaria (Mexico), S.A. de C.V.
HSBC Seguros (Brasil) S.A.
HSBC Corretora de Seguros (Brasil) S.A.
HSBC Financial Services (Lebanon) s.a.l.
HSBC InvestDirect (India) Limited
PT Bank Ekonomi Raharja
SAS Orona
HSBC Bank Egypt S.A.E.
SAS Bosquet -Audrain
HSBC Securities (Egypt) S.A.E.
SAS Cyatheas Pasteur
HSBC Fund Services (Korea) Limited
HSBC Transaction Services GmbH
HSBC Gestion (Monaco) S.A.
Beau Soleil Limited Partnership
PT HSBC Securities Indonesia
HSBC Trinkaus & Burkhardt (International) S.A.
HSBC Trinkaus & Burkhardt AG
HSBC Trinkaus & Burkhardt Gesellschaft fur Bankbeteiligungen mbH
HSBC Trinkaus Consult GmbH
HSBC Trinkaus Europa Immobilien-Fonds Nr. 5 GmbH
HSBC Trinkaus Family Office GmbH
HSBC Trinkaus Immobilien Beteiligungs KG
HSBC Trinkaus Real Estate GmbH
Trinkaus Australien Immobilien Fonds Nr. 1 Brisbane GmbH & Co. KG
Trinkaus Australien Immobilien Fonds Nr. 1 Treuhand-GmbH
Trinkaus Canada Immobilien-Fonds Nr. 1 Verwaltungs-GmbH
Trinkaus Europa Immobilien-Fonds Nr.3 Objekt Utrecht
Verwaltungs-GmbH
Trinkaus Immobilien-Fonds Geschaeftsfuehrungs-GmbH
Trinkaus Immobilien-Fonds Verwaltungs-GmbH
Trinkaus Private Equity Management GmbH
Trinkaus Private Equity Verwaltungs GmbH
England and Wales
England and Wales
China
England and Wales
England and Wales
Bahamas
Switzerland
France
Hong Kong
England and Wales
Virgin Islands, British
United States
England and Wales
United Kingdom
Cayman Islands
United States
Canada
Cayman Islands
United States
England and Wales
Switzerland
France
Guernsey
Guernsey
Hong Kong
Hong Kong
Hong Kong
Hong Kong
United States
Bermuda
United States
Argentina
France
Mexico
Brazil
Brazil
Mexico
Brazil
Brazil
Lebanon
India
Indonesia
New Caledonia
Egypt
New Caledonia
Egypt
France
Korea, Republic of
Germany
Monaco
Hong Kong
Indonesia
Luxembourg
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
HSBC HOLDINGS PLC
467
£1.00 Ordinary shares
£1.00 Ordinary shares
$1.00 Registered Capital shares
£1 Ordinary
£1 Ordinary
$1.00 Ordinary shares
CHF100.00 Ordinary shares
€15.00 Actions shares
HK$2.50 Ordinary and $1
Cumulative Redeemable
Preference shares,
$1 Cumulative and $1 Non-
cumulative Irredeemable
Preference shares
£1.00 Ordinary shares
$1.00 Ordinary shares
$1.00 Common shares
£1.00 Ordinary shares
£1.00 Ordinary shares
$1,000 Ordinary shares
$1.00 Common shares
C$100 Common shares
KYD1.00 Ordinary shares
$1.00 Common shares
£1.00 Ordinary shares
CHF1,000.00 Ordinary shares
€16.00 Actions shares
£ Ordinary shares
$ Ordinary shares
HK$200.00 Ordinary shares
HK$100.00 Ordinary shares
HK$1,000.00 Ordinary shares
HK$1.00 Ordinary shares
Limited liability company
– no shares
BMD1.00 Common shares
$1.00 Common shares
ARS1.00 Ordinary A and Ordinary
B shares
€5.00 Actions shares
MXN2.00 Ordinary shares
BRL Ordinary shares
BRL Ordinary shares
MXN1,000.00 Series A and Series
B shares
BRL Ordinary and BRL Preference
shares
BRL Ordinary shares
LBP1,000,000.00 Ordinary B shares
INR10.00 Ordinary shares
IRD100.00 and IRD1,000.00
Ordinary shares
Franc Pacific 10,000 Actions
EGP84.00 Ordinary shares
Franc Pacific 10,000 Actions
EGP100.00 Ordinary shares
€10.00 Action shares
KRW5,000.00 Ordinary shares
€1.00 GmbH Anteil shares
Ordinary shares
Limited partnership – no shares
IDR1,000,000.00 Common shares
€1.00 Common shares
Stückaktien shares no par value
DEM1.00 Common shares
DEM1.00 Common shares
Ordinary shares no par value
€1.00 GmbH Anteil shares
€1.00 Ordinary shares
DEM1.00 Common shares
€1.00 Ordinary shares
€1.00 GmbH Anteil shares
€1.00 Ordinary shares
DEM1.00 Ordinary shares
€1.00 GmbH Anteil shares
€1.00 GmbH-Anteil shares
€1.00 Ordinary shares
€1.00 GmbH Anteil shares
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
99.99
99.99
99.99
99.97
99.96
99.96
99.77
99.75
99.65
99.54
98.81
94.93
94.53
94.90
94.64
94.00
92.96
90.20
86.59
85.00
85.00
80.65
80.65
80.65
80.65
80.65
80.65
80.65
80.65
80.65
80.65
80.65
80.65
80.65
80.65
80.65
80.65
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Notes on the Financial Statements (continued)
43 – HSBC Holdings’ subsidiaries, joint ventures and associates
Subsidiaries (continued)
INKA Internationale Kapitalanlagegesellschaft mbH
GPIF Co-Investment, LLC
HSBC Middle East Finance Company Limited
HSBC Bank (Mauritius) Limited
HSBC Bank Malta p.l.c.
HSBC Global Asset Management (Malta) Limited
HSBC Insurance Management Services (Europe) Limited
Country
Germany
United States
United Arab Emirates
Mauritius
Malta
Malta
Malta
HSBC Life Assurance (Malta) Limited
HSBC Bank Armenia cjsc
Mexanicana de Fomento S.A. de C.V.
HSBC Saudi Arabia Limited
Fulcher Enterprises Company Limited
Hang Seng (Nominee) Limited
Hang Seng Bank (China) Limited
Hang Seng Bank (Trustee) Limited
Hang Seng Bank Limited
Hang Seng Bullion Company Limited
Hang Seng Credit Limited
Hang Seng Data Services Limited
Hang Seng Finance Limited
Hang Seng Financial Information Limited
Hang Seng Futures Limited
Hang Seng Indexes Company Limited
Hang Seng Insurance Company Limited
Hang Seng Investment Management Limited
Hang Seng Investment Services Limited
Hang Seng Life Limited
Hang Seng Real Estate Management Limited
Hang Seng Securities Limited
Hang Seng Security Management Limited
Haseba Investment Company Limited
High Time Investments Limited
HSI International Limited
Imenson Limited
Yan Nin Development Company Limited
Fundacion HSBC, A.C.1
SNC Les Oliviers D'Antibes
HSBC Land Title Agency (USA) LLC
The Malta Development Fund Limited
HSBC Bank Oman S.A.O.G.
Beneficial Homeowner Service Corporation
Electronic Payment Services Company (Hong Kong) Limited
ProServe Bermuda Limited
REDUS Halifax Landing, LLC
Urban Solutions (Cardiff) Limited
Vaultex Isle of Man Insurance Limited
Joint ventures
HCM Holdings Limited
GSI Retail Property Holdings Limited
HSBC Life Insurance Company Limited
HSBC Kingdom Africa Investments (Cayman) Limited
Urban Solutions Cardiff Holdings Limited
Urban Solutions Greenwich Holdings Limited
Urban Solutions (Greenwich) Limited
Vaultex UK Limited
HSBC Jintrust Fund Management Company Limited
Canara HSBC Oriental Bank of Commerce Life Insurance Company Limited
Associates
HSBC Amanah Takaful (Malaysia) Berhad
HSBC Middle East Securities L.L.C
Spire Topco Hotels Limited
SABB Takaful
AREIT Management Ltd
Rewards Management Middle East FZ LLC
The Saudi British Bank
EPS Company (Hong Kong) Limited
Jeppe Star Limited
Novo Star Limited
Chemi & Cotex (Rwanda) Limited
Chemi & Cotex Kenya Limited
MENA Infrastructure Fund (GP) Ltd
SCI Karuvefa
Malta
Armenia
Mexico
Saudi Arabia
Hong Kong
Hong Kong
China
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Mexico
France
United States
Malta
Oman
United States
Hong Kong
Bermuda
United States
England and Wales
Isle of Man
England and Wales
Guernsey
China
Cayman Islands
England and Wales
England and Wales
England and Wales
England and Wales
China
India
Malaysia
United Arab Emirates
England and Wales
Saudi Arabia
Cayman Islands
United Arab Emirates
Saudi Arabia
Hong Kong
Virgin Islands, British
Virgin Islands, British
Rwanda
Kenya
United Arab Emirates
Guadeloupe
HSBC HOLDINGS PLC
468
Security
Direct (%)
Total (%)
€1.00 Common shares
Limited liability company
– no shares
AED1.00 Ordinary shares
$ Ordinary No Par Value shares
€0.30 Ordinary shares
€2.32937 Ordinary shares
€1.00 Ordinary A and Ordinary B
shares
€1.16469 Ordinary shares
AMD30,250.00 Ordinary shares
MXN1.00 Series A and B shares
SAR50,000.00 Ordinary shares
HK$10.00 Ordinary shares
HK$100.00 Ordinary shares
CNY1.00 Registered Capital shares
HK$10.00 Ordinary shares
HK$5.00 Ordinary shares
HK$100.00 Ordinary shares
HK$100.00 Ordinary shares
HK$10.00 Ordinary shares
HK$100.00 Ordinary shares
HK$10.00 Ordinary shares
HK$100.00 Ordinary shares
HK$10.00 Ordinary shares
HK$10.00 Ordinary shares
HK$100.00 Ordinary shares
HK$100.00 Ordinary shares
HK$1,000.00 Ordinary shares
HK$100.00 Ordinary shares
HK$100.00 Ordinary shares
HK$1.00 Ordinary shares
HK$100.00 Ordinary shares
HK$1.00 Ordinary shares
HK$1.00 Ordinary shares
HK$10.00 Ordinary shares
HK$100.00 Ordinary shares
Parts shares
€15.00 Parts shares
Limited liability company
– no shares
€2.32937 Ordinary shares
OMR0.10 Ordinary shares
$100.00 Common shares
HK$1.00 Ordinary shares
BMD1.00 Common shares
Limited liability company
– no shares
£1 Ordinary shares
£1 Ordinary shares
£0.01 Ordinary shares
€1.00 Ordinary shares
CNY1.00 Ordinary shares
$1.00 Ordinary shares
£1.00 Ordinary B shares
£1.00 Ordinary B shares
£1.00 Ordinary shares
£1.00 Ordinary shares
CNY1.00 Registered Capital shares
INR10.00 Ordinary shares
RM50.00 Ordinary shares
AED1,000.00 Ordinary shares
£0.01 A and £0.01 B shares
SAR10.00 Ordinary shares
$1.00 Ordinary A shares
AED1,000.00 Ordinary shares
SAR10.00 Ordinary shares
HK$250,000 Ordinary shares
£1.00 Ordinary shares
$100.00 Ordinary shares
RWF1,000 Ordinary shares
KES100 Ordinary shares
$1.00 Ordinary shares
€1.00 Parts shares
80.65
80.00
80.00
72.96
70.03
70.03
70.03
70.03
70.00
69.80
69.40
62.14
62.14
62.14
62.14
62.14
62.14
62.14
62.14
62.14
62.14
62.14
62.14
62.14
62.14
62.14
62.14
62.14
62.14
62.14
62.14
62.14
62.14
62.14
62.14
60.00
60.00
55.00
53.07
51.00
50.00
50.00
50.00
50.00
50.00
50.00
51.00
50.00
50.00
50.00
50.00
50.00
50.00
50.00
49.00
26.00
49.00
49.00
46.79
45.50
41.90
40.00
40.00
38.66
34.00
34.00
34.00
33.33
33.33
33.33
Associates (continued)
Country
Security
Direct (%)
Total (%)
CFAC Payment Scheme Limited
Trinkaus Europa Immobilien-Fonds Nr. 7 Frankfurt Mertonviertel KG
GZHS Research Co Ltd
Hampton Owners LLC
Trinkaus Europa Immobilien-Fonds Nr. 4 Objekte Basel Nauenstrasse KG
Ashwood Energy Limited
House Network Sdn Bhd
Rosimian Limited
The London Gold Market Fixing Limited
GIE GNIFI
sino AG
Icon Brickell LLC
Business Growth Fund plc
NAS Holding Limited
NAS United Healthcare Services LLC
Bank of Communications Co., Ltd
England and Wales
Germany
China
United States
Germany
Virgin Islands, British
Malaysia
England and Wales
England and Wales
New Caledonia
Germany
United States
England and Wales
Virgin Islands, British
Virgin Islands, British
China
£1.00 Preference shares
Limited partnership with no shares
RMB Common stock
Limited liability company
– no shares
Limited partnership with no shares
US$1.00 Ordinary shares
RM1.00 Ordinary shares
£0.01 B shares
Limited by guarantee
– no share capital
No shares
€1.00 Common stock
Limited liability company
– no shares
£1.00 Ordinary shares
Ordinary share of no par value
Ordinary share of no par value
CNY1.00 H shares
33.33
33.10
33.00
25.82
25.11
25.00
25.00
25.00
25.00
25.00
25.00
24.90
23.98
22.13
22.13
19.03
1 Management has determined that these subsidiaries are excluded from consolidation in the Group accounts as these entities do not meet the definition of
subsidiaries in accordance with IFRSs. HSBC’s consolidation policy is described in Note 1(g).
HSBC HOLDINGS PLC
469
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
i
w
e
v
e
R
l
a
i
c
n
a
n
i
F
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Shareholder information
Interim dividends / Shareholder profile / 2015 AGM
Shareholder information
Fourth interim dividend for 2015
Interim dividends for 2016
Shareholder profile
2015 Annual General Meeting
Earnings Releases and Interim Results
Shareholder enquiries and communications
Stock symbols
Investor relations
470
470
470
471
472
472
473
473
Where more information about HSBC is available
Simplified structure chart
Taxation of shares and dividends
Cautionary statement regarding forward-looking
statements
Certain defined terms
Abbreviations
Glossary
Index
473
474
475
478
478
479
483
491
Fourth interim dividend for 2015
The Directors have declared a fourth interim dividend for 2015 of $0.21 per ordinary share. Information on the scrip dividend
scheme and currencies in which shareholders may elect to have the cash dividend paid will be sent to shareholders on or
about 18 March 2016. The timetable for the dividend is:
Announcement
ADSs quoted ex-dividend in New York
Shares quoted ex-dividend in London, Hong Kong, Paris and Bermuda
Record date – London, Hong Kong, New York, Paris, Bermuda1
Mailing of Annual Report and Accounts 2015 and/or Strategic Report 2015, Notice of Annual General Meeting and dividend
documentation
Final date for receipt by registrars of forms of election, Investor Centre electronic instructions and revocations of standing
instructions for scrip dividends
Exchange rate determined for payment of dividends in sterling and Hong Kong dollars
Payment date: dividend warrants, new share certificates or transaction advices and notional tax vouchers mailed and shares
credited to stock accounts in CREST
1 Removals to and from the Overseas Branch register of shareholders in Hong Kong will not be permitted on this date.
22 February 2016
2 March 2016
3 March 2016
4 March 2016
18 March 2016
7 April 2016
11 April 2016
20 April 2016
Interim dividends for 2016
The Board has adopted a policy of paying quarterly interim dividends on the ordinary shares. Under this policy it is intended to
have a pattern of three equal interim dividends with a variable fourth interim dividend. It is envisaged that the first interim
dividend in respect of 2016 will be $0.10 per ordinary share.
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, sterling and Hong Kong dollars, or, subject to the Board’s determination that a scrip dividend is to be offered in respect
of that dividend, may be satisfied in whole or in part by the issue of new shares in lieu of a cash dividend.
Shareholder profile
At 31 December 2015 the share register recorded the following details:
1 - 100
101 - 400
401 - 500
501 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 20,000
20,001 - 50,000
50,001 - 200,000
200,001 - 500,000
500,001 and above
Total
Number of
shareholders
Total ordinary
shares held
37,523
28,065
6,920
29,735
69,484
18,535
11,071
6,682
3,298
704
1,085,635
6,881,465
3,123,382
21,946,539
165,002,520
131,138,146
154,448,067
205,478,608
302,670,569
222,265,765
1,037 18,471,056,238
213,054 19,685,096,934
HSBC HOLDINGS PLC
470
2015 Annual General Meeting
All resolutions considered at the 2015 Annual General Meeting held at 11.00am on 24 April 2015 at the Queen Elizabeth II
Conference Centre, London SW1P 3EE were passed on a poll as follows:
Resolution
1
To receive the Annual Report
For1
%
Against
%
Total
%2
Withheld3
Votes
and Accounts 2014
9,340,160,307
98.80
113,682,546
1.20
9,453,842,853
49.04
41,294,402
2
3
To approve the Directors’
Remuneration Report
To elect or re-elect the
following as Directors:
6,720,428,674
76.29
2,088,530,798
23.71
8,808,959,472
45.70
677,821,869
(g) Joachim Faber
(h) Rona Fairhead
(a) Phillip Ameen
(b) Heidi Miller
(c) Kathleen Casey
(d) Safra Catz
(e) Laura Cha
9,459,023,817
9,443,905,977
9,458,891,803
9,455,583,709
9,303,056,308
(f) Lord Evans of Weardale 9,455,524,737
9,452,953,492
9,144,120,186
9,067,875,368
9,438,909,453
8,317,803,050
8,335,050,210
9,458,328,102
9,436,045,734
9,442,355,344
8,191,676,916
9,451,337,959
(j) Stuart Gulliver
(k) Sam Laidlaw
(l) John Lipsky
(m) Rachel Lomax
(n) Iain Mackay
(o) Marc Moses
(p) Sir Simon Robertson
(q) Jonathan Symonds
(i) Douglas Flint
99.90
99.75
99.91
99.88
99.10
99.87
99.85
96.59
95.90
99.69
87.86
88.04
99.90
99.67
99.73
87.13
99.83
9,012,480
23,496,531
8,547,866
11,671,079
84,065,631
11,874,993
14,364,873
322,607,648
387,864,445
29,360,384
1,149,583,204
1,132,173,688
9,132,745
31,438,641
25,127,084
1,209,918,157
16,111,584
0.10
0.25
0.09
0.12
0.90
0.13
0.15
3.41
4.10
0.31
12.14
11.96
0.10
0.33
0.27
12.87
0.17
9,468,036,297
9,467,402,508
9,467,439,669
9,467,254,788
9,387,121,939
9,467,399,730
9,467,318,365
9,466,727,834
9,455,739,813
9,468,269,837
9,467,386,254
9,467,223,898
9,467,460,847
9,467,484,375
9,467,482,428
9,401,595,073
9,467,449,543
49.12
49.11
49.11
49.11
48.70
49.11
49.11
49.11
49.05
49.12
49.11
49.11
49.11
49.11
49.11
48.77
49.11
32,680,294
32,543,484
32,438,260
32,567,538
111,291,419
32,622,299
32,561,965
33,199,339
36,832,078
31,483,615
32,573,081
32,614,861
32,443,782
32,469,588
32,464,337
97,700,820
32,484,172
4 To appoint
PricewaterhouseCoopers
LLP as auditor to the
Company
5
6
To authorise the Group Audit
Committee to determine
the auditor’s remuneration
To authorise the Directors to
9,443,723,129
99.73
25,734,330
0.27
9,469,457,459
49.12
30,213,375
9,454,699,721
99.85
14,212,868
0.15
9,468,912,589
49.12
30,815,356
allot shares
8,747,667,960
92.46
713,487,303
7.54
9,461,155,263
49.08
38,420,820
7 To disapply pre-emption
rights
8,729,514,669
92.32
726,423,494
7.68
9,455,938,163
49.05
43,771,078
8
9
10
11
12
13
To authorise the Directors to
allot repurchased shares
To authorise the Company to
purchase its own ordinary
shares
To authorise the Directors to
allot equity securities in
relation to Contingent
Convertible Securities
To disapply pre-emption
rights in relation to the
issue of Contingent
Convertible Securities
To extend the final date on
which options may be
granted under UK
Sharesave
To approve general meetings
other than annual general
meetings being called on a
minimum of 14 clear days’
notice
9,154,217,028
96.74
308,482,870
3.26
9,462,699,898
49.09
34,698,581
9,348,078,869
99.49
47,795,315
0.51
9,395,874,184
48.74
102,258,468
9,149,392,011
96.80
302,391,205
3.20
9,451,783,216
49.03
45,584,992
8,570,088,097
90.69
879,490,094
9.31
9,449,578,191
49.02
45,737,225
9,373,459,127
99.02
92,544,476
0.98
9,466,003,603
49.11
33,019,920
8,386,696,695
88.59
1,080,639,157
11.41
9,467,335,852
49.11
31,742,417
1 Includes discretionary votes.
2 Percentage of Issued Share Capital voted.
3 A ‘vote withheld’ is not a vote in law and is not counted in the calculation of the votes ‘For’ and ‘Against’ the resolution.
HSBC HOLDINGS PLC
471
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Shareholder information (continued)
Earnings Releases and Interim Results / Shareholder enquiries and communications / Stock symbols / Investor relations / Information
Earnings Releases and Interim Results
Earnings Releases are expected to be issued on or around 3 May 2016 and 7 November 2016. The Interim Results for the six
months to 30 June 2016 are expected to be issued on 5 August 2016.
Shareholder enquiries and communications
Enquiries
Any enquiries relating to 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 Registrars at the address given below. The Registrars offer an
online facility, Investor Centre, which enables shareholders to manage their shareholding electronically.
Principal Register:
Hong Kong Overseas Branch Register:
Bermuda Overseas Branch Register:
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS99 6ZZ
United Kingdom
Telephone: 44 (0) 370 702 0137
Email via website:
www.investorcentre.co.uk/contactus
Computershare Hong Kong Investor
Services Limited
Rooms 1712-1716, 17th Floor
Hopewell Centre
183 Queen’s Road East
Hong Kong
Telephone: 852 2862 8555
Email: hsbc.ecom@computershare.com.hk
Investors Relations Team
HSBC Bank Bermuda Limited
6 Front Street
Hamilton HM 11
Bermuda
Telephone: 1 441 299 6737
Email: hbbm.shareholder.services@hsbc.bm
Investor Centre:
www.investorcentre.co.uk
Investor Centre:
www.investorcentre.com/hk
Investor Centre:
www.investorcentre.com/bm
Any enquiries relating to ADSs should be sent to the depositary:
The Bank of New York Mellon
Depositary Receipts
PO Box 30170
College Station, TX 77842-3170
USA
Telephone (US): 1 877 283 5786
Telephone (International): 1 201 680 6825
Email: shrrelations@bnymellon.com
Website: www.computershare.com/us/contact/Pages/default.aspx
Any enquiries relating to shares held through Euroclear France, the settlement and central depositary system for NYSE
Euronext Paris, should be sent to the paying agent:
HSBC France
103, avenue des Champs Elysées
75419 Paris Cedex 08
France
Telephone: 33 1 40 70 22 56
Email: ost-agence-des-titres-hsbc-reims.hbfr-do@hsbc.fr
Website: www.hsbc.fr
If you have elected to receive general shareholder communications directly from HSBC Holdings, it is important to remember
that your main contact for all matters relating to your investment remains the registered shareholder, or perhaps custodian or
broker, who administers the investment on your behalf. Therefore any changes or queries relating to your personal details and
holding (including any administration thereof) must continue to be directed to your existing contact at your investment
manager or custodian. HSBC Holdings cannot guarantee dealing with matters directed to it in error.
Further copies of this Annual Report and Accounts 2015 may be obtained by writing to the following departments:
For those in Europe, the Middle East
and Africa:
For those in Asia-Pacific:
For those in the Americas:
Public Affairs
HSBC Holdings plc
8 Canada Square
London E14 5HQ
United Kingdom
Communications (Asia)
The Hongkong and Shanghai Banking
Corporation Limited
1 Queen’s Road Central
Hong Kong
Global Publishing Services
HSBC – North America
SC1 Level, 452 Fifth Avenue
New York, NY 10018
USA
HSBC HOLDINGS PLC
472
Electronic communications
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 future notifications of the availability of a corporate communication on HSBC’s
website by email, or 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 your 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 Registrars at the address given above. Printed copies
will be provided without charge.
Chinese translation
A Chinese translation of this Annual Report and Accounts 2015 is available upon request after 18 March 2016 from the
Registrars:
Computershare Hong Kong Investor Services Limited
Rooms 1712-1716, 17th Floor
Hopewell Centre
183 Queen’s Road East
Hong Kong
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS99 6ZZ
United Kingdom
Please also contact the Registrars if you wish to receive Chinese translations of future documents or if you have received a
Chinese translation of this document and do not wish to receive such translations in future.
Stock symbols
HSBC Holdings ordinary shares trade under the following stock symbols:
London Stock Exchange
Hong Kong Stock Exchange
New York Stock Exchange (ADS)
HSBA
5
HSBC
Euronext Paris
Bermuda Stock Exchange
HSB
HSBC.BH
Investor relations
Enquiries relating to HSBC’s strategy or operations may be directed to:
Senior Manager Investor Relations
HSBC Holdings plc
8 Canada Square
London E14 5HQ
United Kingdom
Telephone: 44 (0) 20 7991 3643
Email: investorrelations@hsbc.com
Head of Investor Relations Asia-Pacific
The Hongkong and Shanghai Banking
Corporation Limited
1 Queen’s Road Central
Hong Kong
852 2822 4908
investorrelations@hsbc.com.hk
Where more information about HSBC is available
This Annual Report and Accounts 2015, and other information on HSBC, may be viewed on HSBC’s website: www.hsbc.com.
Reports, statements and information that HSBC Holdings files with the Securities and Exchange Commission are available at
www.sec.gov. Investors can also request hard copies of these documents upon payment of a duplicating fee by writing to the
SEC at the Office of Investor Education and Advocacy, 100 F Street N.E., Washington, DC 20549-0213 or by emailing
PublicInfo@sec.gov. Investors should call the Commission at (202) 551 8090 if they require further assistance. Investors may
also obtain the reports and other information that HSBC Holdings files at www.nyse.com (telephone number (1) 212 656
3000).
HM Treasury has transposed the requirements set out under CRD IV and issued the Capital Requirements Country-by-Country
Reporting Regulations 2013. The legislation requires HSBC Holdings to publish additional information in respect of the year
ended 31 December 2015 by 31 December 2016. This information will be available at the time on HSBC’s website:
www.hsbc.com.
HSBC HOLDINGS PLC
473
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Shareholder information (continued)
Organisation chart / Taxation of shares and dividends
.
5
1
0
2
r
e
b
m
e
c
e
D
1
3
t
a
s
i
i
s
e
i
r
a
d
i
s
b
u
s
l
a
p
i
c
n
i
r
p
f
o
e
r
u
t
c
u
r
t
s
p
u
o
r
G
d
e
i
f
i
l
p
m
i
s
s
i
h
T
HSBC HOLDINGS PLC
474
.
9
6
4
o
t
7
5
4
s
e
g
a
p
n
o
d
e
n
a
t
n
o
c
i
.
d
e
n
w
o
y
l
l
o
h
w
e
r
a
s
e
i
r
a
d
i
s
b
u
s
i
l
l
a
,
e
s
i
w
r
e
h
t
o
n
w
o
h
s
s
s
e
n
U
l
s
i
s
g
n
i
k
a
t
r
e
d
n
u
d
e
t
a
e
r
l
s
’
p
u
o
r
G
e
h
t
f
o
l
l
a
f
o
t
s
i
l
l
e
t
e
p
m
o
c
A
.
i
n
w
o
h
s
e
r
a
s
e
n
a
p
m
o
c
g
n
d
o
h
e
t
a
d
e
m
r
e
t
n
i
l
i
i
l
l
a
t
o
N
Taxation of shares and
dividends
Taxation – UK residents
The following is a summary, under current law, of certain UK
tax considerations that are likely to be material to the
ownership and disposition of HSBC Holdings ordinary
shares. The summary does not purport to be a
comprehensive description of all the tax considerations that
may be relevant to a holder of shares. In particular, the
summary deals with shareholders who are resident solely in
the UK for UK tax purposes and only with holders who hold
the shares as investments and who are the beneficial owners
of the shares, and does not address the tax treatment of
certain classes of holders such as dealers in securities.
Holders and prospective purchasers should consult their own
advisers regarding the tax consequences of an investment
in shares in light of their particular circumstances, including
the effect of any national, state or local laws.
Taxation of dividends
Currently no tax is withheld from dividends paid by
HSBC Holdings.
UK resident individuals: periods to 5 April 2016
For periods up to 5 April 2016 dividends are paid with an
associated tax credit which is available for set-off by certain
individual shareholders against any liability they may have
to UK income tax. Currently, the associated tax credit is
equivalent to 10% of the combined cash dividend and tax
credit, i.e. one-ninth of the cash dividend.
For individual shareholders who are resident in the UK for
taxation purposes and liable to UK income tax at the basic
rate, no further UK income tax liability arises on the receipt
of a dividend from HSBC Holdings. Individual shareholders
who are liable to UK income tax at the higher rate or
additional rate are taxed on the combined amount of the
dividend and the tax credit at the dividend upper rate
(currently 32.5%) and the dividend additional rate
(currently 37.5%), respectively. The tax credit is available
for set-off against the dividend upper rate and the dividend
additional rate liability. Individual UK resident shareholders
are not entitled to any tax credit repayment.
UK resident individuals: periods from 6 April 2016
If draft legislation for the Finance Bill 2016 is enacted in its
current form, the dividend tax credit will be abolished from
6 April 2016, to be replaced by a £5,000 annual exemption
for dividend income received by individual shareholders. In
addition, the income tax rates on dividend income outside
the £5,000 annual allowance would change to 7.5% for
basic rate taxpayers, 32.5% for higher rate taxpayers and
38.1% for additional rate taxpayers.
UK resident companies
Shareholders that are within the charge to UK corporation
tax should generally be entitled to an exemption from UK
corporation tax on any dividends received from HSBC
Holdings. However, the exemptions are not comprehensive
and are subject to anti-avoidance rules. Shareholders
within the charge to UK corporation tax are also not
entitled to tax credits on any dividends received (even if
received before 6 April 2016).
If the conditions for exemption are not met or cease to be
satisfied, or a shareholder within the charge to UK
corporation tax elects for an otherwise exempt dividend to
be taxable, the shareholder will be subject to UK
corporation tax on dividends received from HSBC Holdings
at the rate of corporation tax applicable to that
shareholder.
Scrip dividends
Information on the taxation consequences of the HSBC
Holdings scrip dividends offered in lieu of the 2014 fourth
interim dividend and the first, second and third interim
dividends for 2015 was set out in the Secretary’s letters to
shareholders of 20 March, 5 June, 26 August and
4 November 2015. In no case was the difference between
the cash dividend foregone and the market value of the
scrip dividend in excess of 15% of the market value.
Accordingly, for individual shareholders, the amount of the
dividend income chargeable to tax, and, the acquisition
price of the HSBC Holdings ordinary shares for UK capital
gains tax purposes, was the cash dividend foregone.
Taxation of capital gains
The computation of the capital gains tax liability arising on
disposals of shares in HSBC Holdings by shareholders subject
to UK tax on capital gains can be complex, partly depending
on whether, for example, the shares were purchased since
April 1991, acquired in 1991 in exchange for shares in The
Hongkong and Shanghai Banking Corporation Limited, or
acquired subsequent to 1991 in exchange for shares in other
companies.
For capital gains tax purposes, the acquisition cost for
ordinary shares is adjusted to take account of subsequent
rights and capitalisation issues. Any capital gain arising on a
disposal by a UK company may also be adjusted to take
account of indexation allowance. If in doubt, shareholders
are recommended to consult their professional advisers.
Stamp duty and stamp duty reserve tax
Transfers of shares by a written instrument of transfer
generally will be subject to UK stamp duty at the rate of 0.5%
of the consideration paid for the transfer, and such stamp
duty is generally payable by the transferee.
An agreement to transfer shares, or any interest therein,
normally will give rise to a charge to stamp duty reserve tax
at the rate of 0.5% of the consideration. However, provided
an instrument of transfer of the shares is executed pursuant
to the agreement and duly stamped before the date on
which the stamp duty reserve tax becomes payable, under
the current practice of UK HM Revenue and Customs
(‘HMRC’) it will not be necessary to pay the stamp duty
reserve tax, nor to apply for such tax to be cancelled. Stamp
duty reserve tax is generally payable by the transferee.
Paperless transfers of shares within CREST, the UK’s paperless
share transfer system, are liable to stamp duty reserve tax at
the rate of 0.5% of the consideration. In CREST transactions,
the tax is calculated and payment made automatically.
HSBC HOLDINGS PLC
475
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
w
e
i
v
e
R
l
a
i
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Shareholder information (continued)
Taxation of shares and dividends
Deposits of shares into CREST generally will not be subject to
stamp duty reserve tax, unless the transfer into CREST is itself
for consideration. Following the case HSBC pursued before
the European Court of Justice (Case C-569/07 HSBC Holdings
plc and Vidacos Nominees Ltd v The Commissioners for HM
Revenue & Customs) and a subsequent case in relation to
depositary receipts, HMRC now accepts that the charge to
stamp duty reserve tax at 1.5% on the issue of shares to a
depositary receipt issuer or a clearance service is prohibited.
Taxation – US residents
The following is a summary, under current law, of the
principal UK tax and US federal income tax considerations
that are likely to be material to the ownership and
disposition of shares or American Depositary Shares (‘ADS’s)
by a holder that is a resident of the US for US federal income
tax purposes (a ‘US holder’) and who is not resident in the
UK for UK tax purposes.
The summary does not purport to be a comprehensive
description of all of the tax considerations that may be
relevant to a holder of shares or ADSs. In particular, the
summary deals only with US holders that hold shares or ADSs
as capital assets, and does not address the tax treatment of
holders that are subject to special tax rules, such as banks,
tax-exempt entities, insurance companies, dealers in
securities or currencies, persons that hold shares or ADSs as
part of an integrated investment (including a ‘straddle’)
comprised of a share or ADS and one or more other
positions, and persons that own, directly or indirectly, 10% or
more of the voting stock of HSBC Holdings. This discussion
is based on laws, treaties, judicial decisions and regulatory
interpretations in effect on the date hereof, all of which are
subject to change.
Holders and prospective purchasers should consult their own
advisers regarding the tax consequences of an investment in
shares or ADSs in light of their particular circumstances,
including the effect of any national, state or local laws.
Any US federal tax advice included in this Annual Report and
Accounts 2015 is for informational purposes only; it was not
intended or written to be used, and cannot be used, for the
purpose of avoiding US federal tax penalties.
Taxation of dividends
Currently no tax is withheld from dividends paid by HSBC
Holdings. For US tax purposes, a US holder must include cash
dividends paid on the shares or ADSs in ordinary income on
the date that such holder or the ADS depositary receives
them, translating dividends paid in UK pounds sterling into
US dollars using the exchange rate in effect on the date of
receipt. A US holder that elects to receive shares in lieu of
a cash dividend must include in ordinary income the fair
market value of such shares on the dividend payment date,
and the tax basis of those shares will equal such fair market
value.
Subject to certain exceptions for positions that are held for
less than 61 days or are hedged, and subject to a foreign
corporation being considered a ‘qualified foreign corporation’
(which includes not being classified for US federal income tax
purposes as a passive foreign investment company), certain
dividends (‘qualified dividends’) received by an individual US
holder generally will be subject to US taxation at preferential
rates. Based on the company’s audited financial statements
and relevant market and shareholder data, HSBC Holdings
does not anticipate being classified as a passive foreign
investment company. Accordingly, dividends paid on the
shares or ADSs generally should be treated as qualified
dividends.
Taxation of capital gains
Gains realised by a US holder on the sale or other disposition
of shares or ADSs normally will not be subject to UK taxation
unless at the time of the sale or other disposition the holder
carries on a trade, profession or vocation in the UK through a
branch or agency or permanent establishment and the
shares or ADSs are or have been used, held or acquired for
the purposes of such trade, profession, vocation, branch or
agency or permanent establishment. Such gains will be
included in income for US tax purposes, and will be long-
term capital gains if the shares or ADSs were held for more
than one year. A long-term capital gain realised by an
individual US holder generally will be subject to US tax at
preferential rates.
Inheritance tax
Shares or ADSs held by an individual whose domicile is
determined to be the US for the purposes of the United
States-United Kingdom Double Taxation Convention relating
to estate and gift taxes (the ‘Estate Tax Treaty’) and who is
not for such purposes a national of the UK will not, provided
any US federal estate or gift tax chargeable has been paid, be
subject to UK inheritance tax on the individual’s death or on
a lifetime transfer of shares or ADSs except in certain cases
where the shares or ADSs (i) are comprised in a settlement
(unless, at the time of the settlement, the settlor was
domiciled in the US and was not a national of the UK),
(ii) are part of the business property of a UK permanent
establishment of an enterprise, or (iii) pertain to a UK
fixed base of an individual used for the performance of
independent personal services. In such cases, the Estate Tax
Treaty generally provides a credit against US federal tax
liability for the amount of any tax paid in the UK in a case
where the shares or ADSs are subject to both UK inheritance
tax and to US federal estate or gift tax.
Stamp duty and stamp duty reserve tax – ADSs
If shares are transferred to a clearance service or American
Depositary Receipt (‘ADR’) issuer (which will include a
transfer of shares to the Depositary) under the current
HMRC practice UK stamp duty and/or stamp duty reserve tax
will be payable. The stamp duty or stamp duty reserve tax
is generally payable on the consideration for the transfer and
is payable at the aggregate rate of 1.5%.
The amount of stamp duty reserve tax payable on such
a transfer will be reduced by any stamp duty paid in
connection with the same transfer.
No stamp duty will be payable on the transfer of, or
agreement to transfer, an ADS, provided that the ADR and
any separate instrument of transfer or written agreement to
transfer remain at all times outside the UK, and provided
further that any such transfer or written agreement to
transfer is not executed in the UK. No stamp duty reserve
HSBC HOLDINGS PLC
476
tax will be payable on a transfer of, or agreement to transfer,
an ADS effected by the transfer of an ADR.
US backup withholding tax and information reporting
Distributions made on shares or ADSs and proceeds from the
sale of shares or ADSs that are paid within the US, or through
certain financial intermediaries to US holders, are subject to
information reporting and may be subject to a US ‘backup’
withholding tax unless, in general, the US holder complies
with certain certification procedures or is a corporation or
other person exempt from such withholding. Holders that
are not US persons generally are not subject to information
reporting or backup withholding tax, but may be required to
comply with applicable certification procedures to establish
that they are not US persons in order to avoid the application
of such information reporting requirements or backup
withholding tax to payments received within the US
or through certain financial intermediaries.
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
w
e
i
v
e
R
l
a
i
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
HSBC HOLDINGS PLC
477
Shareholder information (continued)
Cautionary statement / Certain defined terms / Abbreviations
Cautionary statement
regarding forward-looking
statements
The Annual Report and Accounts 2015 contains certain
forward-looking statements with respect to HSBC’s
financial condition, results of operations, capital position
and business.
Statements that are not historical facts, including
statements about HSBC’s beliefs and expectations, are
forward-looking statements. Words such as ‘expects’,
‘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, 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 beyond
those factored into consensus forecasts; changes in
foreign exchange rates and interest rates; volatility in
equity markets; lack of liquidity in wholesale funding
markets; 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;
and consumer perception as to the continuing
availability of credit 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; 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; 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;
changes in bankruptcy legislation in the principal markets
in which we operate and the consequences thereof;
general changes in government policy that may
significantly influence investor decisions; extraordinary
government actions as a result of current market turmoil;
other unfavourable political or diplomatic developments
producing social instability or legal uncertainty which in
turn may affect demand for our products and services; the
costs, effects and outcomes of product 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,
including securities firms; and
• factors specific to HSBC, including discretionary RWA
growth and 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). 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; and our success in addressing
operational, legal and regulatory, and litigation
challenges, notably compliance with the DPA.
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’ and ‘$bn’ represent millions and
billions (thousands of millions) of US dollars, respectively.
HSBC HOLDINGS PLC
478
Abbreviations
Abbreviation
Brief description
A
A$
ABS1
ACF
ADR
ADS
AIEA
ALCM
ALCO
AML
ARM1
ARS
AUM
B
Barion
Basel Committee
Basel II1
Basel III1
BBA
BoCom
BoE
Bps1
BRL
BSA
BSM
BVI
C
CA$
CAPM
CCA
CCB1
CCR1
CCyB1
CDS1
CEA
CET11
CGU
CMB
CML1
COSO
CP1
CRD1
CRR1
CRR/CRD IV
CVA1
D
DANY DPA
Decision One
Deferred Shares
Dodd-Frank
DoJ
DPA
DPF
DVA1
E
EAD1
EBA
EC
ECB
EGP
EL1
EMIR
Australian dollar
Asset-backed security
Advances to core funding
American Depositary Receipt
American Depositary Share
Average interest-earning assets
Asset, Liability and Capital Management
Asset and Liability Management Committee
Anti-money laundering
Adjustable-rate mortgage
Argentine peso
Assets under management
Barion Funding Limited, a term-funding vehicle
Basel Committee on Banking Supervision
2006 Basel Capital Accord
Basel Committee’s reforms to strengthen global capital and liquidity rules
British Bankers’ Association
Bank of Communications Co., Limited, one of China’s largest banks
Bank of England
Basis points. One basis point is equal to one-hundredth of a percentage point
Brazilian real
Bank Secrecy Act (US)
Balance Sheet Management
British Virgin Islands
Canadian dollar
Capital Asset Pricing Model
Consumer Credit Act (UK)
Capital conservation buffer
Counterparty credit risk
Countercyclical capital buffer
Credit default swap
Commodities Exchange Act (US)
Common equity tier 1
Cash-generating unit
Commercial Banking, a global business
Consumer and Mortgage Lending (US)
2013 Committee of the Sponsors of the Treadway Commission (US)
Commercial paper
Capital Requirements Directive
Customer risk rating
Capital Requirements Regulation and Directive
Credit valuation adjustment
Two-year deferred prosecution agreement with the New York County District Attorney (US)
Decision One Mortgage Company LLC
Awards of Deferred Shares define the number of HSBC Holdings ordinary shares to which the employee will become
entitled, generally between one and three years from the date of the award, and normally subject to the individual
remaining in employment
Dodd-Frank Wall Street Reform and Consumer Protection Act (US)
Department of Justice (US)
Deferred Prosecution Agreement (US)
Discretionary participation feature of insurance and investment contracts
Debit valuation adjustment
Exposure at default
European Banking Authority
European Commission
European Central Bank
Egyptian pound
Expected loss
European Market Infrastructure Regulation (EU)
HSBC HOLDINGS PLC
479
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Shareholder information (continued)
Abbreviations
Abbreviation
Brief description
EU
Euribor
F
Fannie Mae
FCA Direction
FFVA
First Direct
FPA
FPC
FRB
Freddie Mac
FSB
FSVC
FTE
FTSE
FuM
G
GAAP
GAC
GB&M
GDP
GMB
GPB
GPSP
GRC
Group
G-SIB1
G-SII
European Union
European Interbank Offered Rate
Federal National Mortgage Association (US)
Undertaking originally with the Financial Services Authority (subsequently with the Financial Conduct Authority) to
comply with certain forward-looking obligations with respect to AML and sanctions requirements
Funding fair value adjustment estimation methodology on derivative contracts
A division of HSBC Bank plc
Fixed pay allowance
Financial Policy Committee (UK)
Federal Reserve Board (US)
Federal Home Loan Mortgage Corporation (US)
Financial Stability Board
Financial System Vulnerabilities Committee
Full-time equivalent staff
Financial Times – Stock Exchange index
Funds under management
Generally accepted accounting principles
Group Audit Committee
Global Banking and Markets, a global business
Gross domestic product
Group Management Board
Global Private Banking, a global business
Group Performance Share Plan
Group Risk Committee
HSBC Holdings together with its subsidiary undertakings
Global systemically important bank
Global systemically important institution
H
Hang Seng Bank
HK$
HKMA
HNAH
Hong Kong
HSBC
HSBC Bank
HSBC Bank Middle East
HSBC Bank USA
HSBC Canada
HSBC Finance
HSBC France
HSBC Holdings
HSBC Premier
HSBC Private Bank (Suisse)
HSBC USA
HSI
HSSL
HTIE
I
IAS
IASB
IFRSs
Industrial Bank
Investor Update
IRB1
ISDA
K
KPMG
Hang Seng Bank Limited, one of Hong Kong’s largest banks
Hong Kong dollar
Hong Kong Monetary Authority
HSBC North America Holdings Inc.
Hong Kong Special Administrative Region of the People’s Republic of China
HSBC Holdings together with its subsidiary undertakings
HSBC Bank plc
HSBC Bank Middle East Limited
HSBC Bank USA, N.A., HSBC’s retail bank in the US
The sub-group, HSBC Bank Canada, HSBC Trust Company Canada, HSBC Mortgage Corporation Canada and HSBC
Securities Canada, consolidated for liquidity purposes
HSBC Finance Corporation, the US consumer finance company (formerly Household International, Inc.)
HSBC’s French banking subsidiary, formerly CCF S.A.
HSBC Holdings plc, the parent company of HSBC
HSBC’s premium personal global banking service
HSBC Private Bank (Suisse) SA, HSBC’s private bank in Switzerland
The sub-group, HSBC USA Inc (the holding company of HSBC Bank USA) and HSBC Bank USA, consolidated for
liquidity purposes
HSBC Securities (USA) Inc.
HSBC Securities Services (Luxembourg)
HSBC International Trust Services (Ireland) Limited
International Accounting Standards
International Accounting Standards Board
International Financial Reporting Standards
Industrial Bank Co. Limited, a national joint-stock bank in mainland China in which Hang Seng Bank Limited has a
shareholding
The Investor Update in June 2015
Internal ratings-based
International Swaps and Derivatives Association
KPMG Audit Plc and its affiliates
HSBC HOLDINGS PLC
480
Abbreviation
Brief description
L
LCR
LFRF
LGD1
Libor
LICs
LMU
LTV1
M
Madoff Securities
Mainland China
Malachite
Markets
Mazarin
MBS
MENA
Monoline
MREL
MXN
N
NII
NSFR
NYSE
O
OCC
ORMF
OTC1
P
PCM
PD1
Performance Shares1
Ping An
PPI
PRA
PRC
Premier
Principal plan
PVIF
PwC
R
RBWM
Repo1
Reverse repo
RMB
RMM
RNIV
RoRWA
RTS
RWA1
S
SE1
SEC
ServCo group
SIC
SME
Solitaire
SPE1
SRB1
T
The Hongkong and Shanghai
Banking Corporation
TLAC1
TRL
Liquidity coverage ratio
Liquidity and funding risk management framework
Loss given default
London Interbank Offered Rate
Loan impairment charge and other credit risk provisions
Loan Management Unit, part of Wholesale Credit and Market Risk
Loan-to-value ratio
Bernard L. Madoff Investment Securities LLC
People’s Republic of China excluding Hong Kong
Malachite Funding Limited, a term-funding vehicle
HSBC’s treasury and capital markets services in Global Banking and Markets
Mazarin Funding Limited, an asset-backed CP conduit
US mortgage-backed security
Middle East and North Africa
Monoline insurance company
EU minimum requirements for own funds and eligible liabilities
Mexican peso
Net interest income
Net stable funding ratio
New York Stock Exchange
Office of the Comptroller of the Currency (US)
Operational risk management framework
Over-the-counter
Payments and Cash Management
Probability of default
Awards of HSBC Holdings ordinary shares under employee share plans that are subject to corporate performance
conditions
Ping An Insurance (Group) Company of China, Ltd, the second-largest life insurer in the PRC
Payment protection insurance product
Prudential Regulation Authority (UK)
People’s Republic of China
HSBC Premier, HSBC’s premium personal global banking service
HSBC Bank (UK) Pension Scheme
Present value of in-force long-term insurance business and long-term investment contracts with DPF
PricewaterhouseCoopers LLP and its network of firms
Retail Banking and Wealth Management, a global business
Sale and repurchase transaction
Security purchased under commitments to sell
Renminbi
Risk Management Meeting of the Group Management Board
Risk not in VaR
Return on average risk-weighted assets
Regulatory Technical Standards
Risk-weighted assets
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
Structured entity
Securities and Exchange Commission (US)
Separately incorporated group of service companies planned in response to UK ring-fencing proposals
Securities investment conduit
Small and medium-sized enterprise
Solitaire Funding Limited, a special purpose entity managed by HSBC
Special purpose entity
Systemic Risk Buffer
The Hongkong and Shanghai Banking Corporation Limited, the founding member of HSBC
Total loss absorbing capacity
Turkish lira
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
HSBC HOLDINGS PLC
481
Shareholder information (continued)
Abbreviations / Glossary
Abbreviation
Brief description
TSR
Total shareholder return
U
UAE
UK
$
US
US DPA
US run-off portfolio
V
VaR1
VIU
United Arab Emirates
United Kingdom
United States dollar
United States of America
Five-year deferred prosecution agreement with the Department of Justice and others (US)
Includes our CML, vehicle finance and Taxpayer Financial Services businesses and insurance, commercial, corporate
and treasury activities in HSBC Finance on an IFRSs management basis
Value at risk
Value in use
1 Full definition included in Glossary on page 483.
HSBC HOLDINGS PLC
482
Glossary
Term
A
Adjustable-rate mortgages
(‘ARM’s)
Definition
Mortgage loans in the US on which the interest rate is periodically changed based on a reference price. These are
included within ‘affordability mortgages’.
Affordability mortgages
Mortgage loans where the customer’s monthly payments are set out at a low initial rate, either variable or fixed,
before resetting to a higher rate once the introductory period is over.
Agency exposures
Alt-A
Arrears
Asset-backed securities (‘ABS’s)
Exposures to near or quasi-government agencies including public sector entities fully owned by government carrying
out non-commercial activities, provincial and local government authorities, development banks and funds set up
by government.
A US description for loans regarded as lower risk than sub-prime, but with higher risk characteristics than lending
under normal criteria.
Customers are said to be in arrears (or in a state of delinquency) when they are behind in fulfilling their obligations,
with the result that an outstanding loan is unpaid or overdue. When a customer is in arrears, the total outstanding
loans on which payments are overdue are described as delinquent.
Securities that represent an interest in an underlying pool of referenced assets. The referenced pool can comprise
any assets which attract a set of associated cash flows but are commonly pools of residential or commercial
mortgages.
B
Back-testing
Bail-inable debt
Bank levy
Bank Recovery and Resolution
Directive (‘BRRD’)
Basel II
Basel III
A statistical technique used to monitor and assess the accuracy of a model, and how that model would have
performed had it been applied in the past.
Bail-in refers to imposition of losses at the point of non-viability (but before insolvency) on bank liabilities (bail-inable
debt) that are not exposed to losses while the institution remains a viable, going concern. Whether by way of
write-down or conversion into equity, this has the effect of recapitalising the bank (although it does not provide
any new funding).
A levy that applies to UK banks, building societies and the UK operations of foreign banks from 1 January 2011. The
amount payable is based on a percentage of the group’s consolidated liabilities and equity as at 31 December
after deducting certain items the most material of which are those related to insured deposit balances, tier 1
capital, insurance liabilities, high quality liquid assets and items subject to a legally enforceable net settlement
agreement.
A European legislative package issued by the European Commission and adopted by EU Member States. This
directive was finalised in July 2014 and the majority of provisions came into effect on 1 January 2015. This
introduces a common EU framework for how authorities should intervene to address banks which are failing or
are likely to fail. The framework includes early intervention and measures designed to prevent failure and in the
event of bank failure for authorities to ensure an orderly resolution.
The capital adequacy framework issued by the Basel Committee on Banking Supervision in June 2006 in the form of
the ‘International Convergence of Capital Measurement and Capital Standards’, amended by subsequent changes
to the capital requirements for market risk and re-securitisations, commonly known as Basel 2.5, which took
effect from 31 December 2011.
In December 2010, the Basel Committee issued ‘Basel III rules: a global regulatory framework for more resilient
banks and banking systems’ and ‘International framework for liquidity risk measurement, standards and
monitoring’. Together these documents present the Basel Committee’s reforms to strengthen global capital and
liquidity rules with the goal of promoting a more resilient banking sector. In June 2011, the Basel Committee
issued a revision to the former document setting out the finalised capital treatment for counterparty credit risk in
bilateral trades.
Basis point (‘bps’)
One hundredth of a per cent (0.01%), so 100 basis points is 1%. For example, this is used in quoting movements in
interest rates or yields on securities.
Business model
A term describing how we organise our business activities to create value. HSBC has four global businesses serving
five geographical regions, supported by eleven global functions. Together these operations provide a
comprehensive range of banking and related financial services designed to meet the needs of customers ranging
from individuals to the largest of companies. HSBC operates in many countries, and its services are primarily
delivered by domestic banks, typically with local deposit bases.
C
Capital conservation buffer
(‘CCB’)
Capital requirements directive
(‘CRD’)
A capital buffer prescribed by regulators under Basel III and designed to ensure banks build up capital buffers outside
periods of stress which can be drawn down as losses are incurred. Should a bank’s capital levels fall within the
capital conservation buffer range, capital distributions will be constrained by the regulators.
A capital adequacy legislative package adopted by EU member states. The CRD IV package comprises a recast Capital
Requirements Directive and a new Capital Requirements Regulation. The package implements the Basel III capital
proposals together with transitional arrangements for some of its requirements. CRD IV came into force on 1
January 2014.
Capital securities
Capital securities include perpetual subordinated capital securities and contingent convertible capital securities.
Central counterparty (‘CCP’)
An intermediary between a buyer and a seller (generally a clearing house).
Clawback
Remuneration already paid to an individual, which has to be returned to an organisation under certain
circumstances.
HSBC HOLDINGS PLC
483
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Shareholder information (continued)
Glossary
Term
Definition
Collateralised debt obligation
A security issued by a third-party which references ABSs and/or certain other related assets purchased by the issuer.
(‘CDO’)
Collectively assessed
impairment
CDOs may feature exposure to sub-prime mortgage assets through the underlying assets.
Impairment assessment on a collective basis for homogeneous groups of loans that are not considered individually
significant and to cover losses which have been incurred but have not yet been identified on loans subject to
individual assessment.
Commercial paper (‘CP’)
An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts
receivable, inventories and meeting short-term liabilities. The debt is usually issued at a discount, reflecting
prevailing market interest rates.
Commercial real estate
Any real estate, comprising buildings or land, intended to generate a profit, either from capital gain or rental income.
Common equity tier 1 capital
(‘CET1’)
The highest quality form of regulatory capital under Basel III that comprises common shares issued and related share
premium, retained earnings and other reserves excluding the cash flow hedging reserve, less specified regulatory
adjustments.
CET 1 ratio
Compliance risk
A Basel III measure of CET 1 capital expressed as percentage of total risk exposure amount.
The risk that the Group fails to observe the letter and spirit of all relevant laws, codes, rules, regulations and
standards of good market practice, and incurs fines and penalties and suffers damage to its business as a
consequence.
Comprehensive Capital
CCAR is an annual exercise by the FRB to ensure that institutions have robust, forward-looking capital planning
Analysis and Review (‘CCAR’)
processes that account for their unique risks and sufficient capital to continue operations throughout times of
economic and financial stress.
Conduits
HSBC sponsors and manages multi-seller conduits and ‘SIC’s. The multi-seller conduits hold interests in diversified
Constant currency
pools of third-party assets such as vehicle loans, trade receivables and credit card receivables funded through the
issuance of short-dated commercial paper and supported by a liquidity facility. The SICs hold predominantly asset-
backed securities referencing such items as commercial and residential mortgages, vehicle loans and credit card
receivables funded through the issuance of both long-term and short-term debt.
A non-GAAP financial measure that adjusts for the year-on-year effects of foreign currency translation differences by
comparing reported results for the reported period with reported results for comparative period retranslated at
exchange rates for the reported period. The foreign currency translation differences reflect the movements of the
US dollar against most major currencies during the reported period.
Constant net asset value fund
A fund that prices its assets on an amortised cost basis, subject to the amortised book value of the portfolio
(‘CNAV’)
remaining within 50 basis points of its market value.
Consumer and Mortgage Lending
In the US, the CML portfolio consists of our Consumer Lending and Mortgage Services businesses, which are in run-
(‘CML’)
off.
The Consumer Lending business offered secured and unsecured loan products, such as first and second lien
mortgage loans, open-ended home equity loans and personal non-credit card loans through branch locations and
direct mail. The majority of the mortgage lending products were for refinancing and debt consolidation rather
than home purchases. In the first quarter of 2009, we discontinued all originations by our Consumer Lending
business.
Prior to the first quarter of 2007, when we ceased loan purchase activity, the Mortgage Services business purchased
non-conforming first and second lien real estate secured loans from unaffiliated third parties. The business also
included the operations of Decision One Mortgage Company (‘Decision One’), which historically originated
mortgage loans sourced by independent mortgage brokers and sold these to secondary market purchasers.
Decision One ceased originations in September 2007.
Contractual maturities
The date on which the final payment (principal or interest) of any financial instrument is due to be paid, at which
point all the remaining outstanding principal and interest have been repaid.
Countercyclical capital buffer
(‘CCyB’)
A capital buffer prescribed by regulators under Basel III which aims to ensure that capital requirements take account
of the macro-financial environment in which banks operate. This will provide the banking sector with additional
capital to protect it against potential future losses, when excess credit growth in the financial system as a whole is
associated with an increase in system-wide risk.
Counterparty credit risk
Counterparty credit risk, in both the trading and non-trading books, is the risk that the counterparty to a transaction
(‘CCR’)
may default before completing the satisfactory settlement of the transaction.
Credit default swap
A derivative contract whereby a buyer pays a fee to a seller in return for receiving a payment in the event of a
(‘CDS’)
defined credit event (e.g. bankruptcy, payment default on a reference asset or assets, or downgrades by a rating
agency) on an underlying obligation (which may or may not be held by the buyer).
Credit enhancements
Facilities used to enhance the creditworthiness of financial obligations and cover losses due to asset default.
Credit risk
Risk of financial loss if a customer or counterparty fails to meet an obligation under a contract. It arises mainly from
direct lending, trade finance and leasing business, but also from products such as guarantees, derivatives and debt
securities.
Credit risk mitigation
A technique to reduce the credit risk associated with an exposure by application of credit risk mitigants such as
collateral, guarantee and credit derivatives.
Credit risk spread
The premium over the benchmark or risk-free rate required by the market to accept a lower credit quality. The yield
spread between securities with the same coupon rate and maturity structure but with different associated credit
risks. The yield spread rises as the credit rating worsens.
Credit spread risk
The risk that movements in credit spreads will affect the value of financial instruments.
Credit valuation adjustment
An adjustment to the valuation of OTC derivative contracts to reflect the creditworthiness of OTC derivative
(‘CVA’)
counterparties.
HSBC HOLDINGS PLC
484
Term
Definition
Cross-border revenue
Client revenue generated from serving the international subsidiaries of clients outside of the market where the
Customer deposits
Money deposited by account holders. Such funds are recorded as liabilities.
parent is based; tracked using HSBC internal client data.
Customer remediation
Activities carried out by HSBC to compensate customers for losses or damages associated with a failure to comply
with regulations. Customer remediation is initiated by HSBC in response to customer complaints, and not
specifically initiated by regulatory action.
Customer risk rating (‘CRR’)
A scale of 23 grades measuring obligor PD.
CVA risk capital charge
A capital charge under CRDIV to cover the risk of mark-to-market losses on expected counterparty risk to derivatives.
D
Debit valuation adjustment
(‘DVA’)
An adjustment made by an entity to the valuation of OTC derivative liabilities to reflect within fair value the entity’s
own credit risk.
Debt restructuring
A restructuring by which the terms and provisions of outstanding debt agreements are changed. This is often done in
order to improve cash flow and the ability of the borrower to repay the debt. It can involve altering the
repayment schedule as well as debt or interest charge reduction.
Debt securities
Financial assets on the Group’s balance sheet representing certificates of indebtedness of credit institutions, public
bodies or other undertakings, excluding those issued by central banks.
Debt securities in issue
Transferable certificates of indebtedness of the Group to the bearer of the certificates. These are liabilities of the
Group and include certificates of deposits.
Deed-in-lieu
An arrangement in which a borrower surrenders the deed for a property to the lender without going through
foreclosure proceedings and is subsequently released from any further obligations on the loan.
Defined benefit obligation
The present value of expected future payments required to settle the obligations of a defined benefit plan resulting
from employee service.
Deposits by banks
All deposits received from domestic and foreign banks, excluding deposits or liabilities in the form of debt securities
Down-shock
E
Economic capital
or for which transferable certificates have been issued.
Term given to the effect on our future net interest income of an incremental parallel fall in all yield curves worldwide
at the beginning of each quarter during the 12 months from 1 January 2015, assuming no management response.
An equivalent rise in yield curves is referred to as an up-shock.
The internally calculated capital requirement which is deemed necessary by HSBC to support the risks to which it is
exposed.
Economic profit
The difference between the return on financial capital invested by shareholders and the cost of that capital.
Economic profit may be expressed as a whole number or as a percentage.
Economic Value of Equity
Considers all re-pricing mismatches in the current balance sheet and calculates the change in market value that
(‘EVE’) sensitivity
Encumbered assets
would result from a set of defined interest rate shocks.
Assets on our balance sheet which have been pledged as collateral against an existing liability.
Enhanced Variable Net Asset
A fund that prices its assets on a fair value basis. Consequently, process may change from one day to the next.
Value Fund (‘ENAV’)
Equator Principles
The Equator Principles are used by financial institutions to reduce the potential impact of large projects, which they
Equity risk
Eurozone
Expected loss
(‘EL’)
finance, on people or on the environment.
The risk arising from positions, either long or short, in equities or equity-based instruments, which create exposure
to a change in the market price of the equities or equity instruments.
The 18 European Union countries using the euro as their common currency. The 18 countries are Austria, Belgium,
Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Luxembourg, Malta, Netherlands,
Portugal, Slovakia, Slovenia and Spain.
A regulatory calculation of the amount expected to be lost on an exposure using a 12-month time horizon and
downturn loss estimates. EL is calculated by multiplying the PD (a percentage) by the EAD (an amount) and LGD (a
percentage).
Exposure
A claim, contingent claim or position which carries a risk of financial loss.
Exposure at default
Under the standardised approach, the amount expected to be outstanding after any credit risk mitigation, if and
(‘EAD’)
F
Fair value adjustment
when the counterparty defaults. Under IRB, the amount outstanding if and when the counterparty defaults. EAD
reflects drawn balances as well as allowances for undrawn amounts of commitments and contingent exposures.
An adjustment to the fair value of a financial instrument which is determined using a valuation technique (level 2 and
level 3) to include additional factors that would be considered by a market participant that are not incorporated
within the valuation model.
Fiduciary risk
The risk to the Group of breaching its fiduciary duties where it acts in a fiduciary capacity as trustee, investment
manager or as mandated by law or regulation.
Financial Conduct Authority
The Financial Conduct Authority regulates the conduct of financial firms and, for certain firms, prudential standards
(‘FCA’)
in the UK. It has a strategic objective to ensure that the relevant markets function well.
Financial Policy Committee
The Financial Policy Committee at the BoE is charged with a primary objective of identifying, monitoring and taking
(‘FPC’)
action to remove or reduce systemic risks with a view to protecting and enhancing the resilience of the UK
financial system. The FPC has a secondary objective to support the economic policy of the UK Government.
HSBC HOLDINGS PLC
485
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Shareholder information (continued)
Glossary
Term
First lien
Forbearance strategies
Funded exposure
Funding risk
G
Gap risk
Definition
A security interest granted over an item of property to secure the repayment of a debt that places its holder first in
line to collect repayment from the sale of the underlying collateral in the event of a default on the debt.
Employed in order to improve the management of customer relationships, maximise collection opportunities and, if
possible, avoid default, foreclosure or repossession. Such arrangements include extended payment terms, a
reduction in interest or principal repayments, approved external debt management plans, debt consolidations,
the deferral of foreclosures, other modifications and re-ages.
A situation where the notional amount of a contract is or has been exchanged.
A form of liquidity risk arising when the liquidity needed to fund illiquid asset positions cannot be obtained at the
expected terms and when required.
The risk of financial loss arising from a significant change in market price with no accompanying trading opportunity.
Global functions
Global functions establish and manage all policies, processes and delivery platforms relevant to their activities. There
are 11: Global Communications; Global Company Secretary; Global Finance; Global HR; Global Internal Audit;
Global Legal; Global Marketing; Global Risk (including Compliance); Global Sustainability; HSBC Operations,
Services and Technology; and Strategy and Planning.
Global systemically important bank
The FSB established in November 2011 a methodology to identify G-SIBs based on 12 principal indicators.
(‘G-SIB’)
Government-sponsored
enterprises (‘GSE’s)
Designation will result in the application of a CET1 buffer between 1% and 3.5%, to be phased in by 1 January
2019.
The list of G-SIBs is re-assessed through annual re-scoring of banks and a triennial review of the methodology.
National regulators have discretion to introduce higher charges than the minima. In CRD IV this is implemented
via the Global Systemically Important Institutions (G-SII) Buffer.
The requirements, initially for those banks identified in November 2014 as G-SIBs, are being phased in from
1 January 2016, becoming fully effective on 1 January 2019. National regulators have discretion to introduce
higher thresholds than the minima.
A group of financial services enterprises created by the US Congress to reduce the cost of capital for certain
borrowing sectors of the economy, and to make them more efficient and transparent. Examples in the residential
mortgage borrowing segment are Freddie Mac and Fannie Mae. GSEs carry the implicit backing, but are not direct
obligations, of the US government.
GPSP Awards
Awards that define the number of HSBC Holdings ordinary shares to which the employee will become entitled,
Guarantee
H
Haircut
generally five years from the date of the award, and normally subject to individual remaining in employment. The
shares to which the employee becomes entitled are subject to a retention requirement until cessation of
employment.
An undertaking by a party to pay a creditor should a debtor fail to do so.
A discount applied by management when determining the amount at which an asset can be realised. The discount
takes into account the method of realisation including the extent to which an active market for the asset exists.
With respect to credit risk mitigation, a downward adjustment to collateral value to reflect any currency or
maturity mismatches between the credit risk mitigant and the underlying exposure to which it is being applied.
Also a valuation adjustment to reflect any fall in value between the date the collateral was called and the date of
liquidation or enforcement.
Historical rating transition
The probability of a counterparty with a particular rating moving to a different rating over a defined time horizon.
matrices
Home equity lines of credit
A form of revolving credit facility provided to US customers, which is supported in the majority of cases by a second
(‘HELoC’s)
I
Impaired loans
lien or lower ranking charge over residential property. Holdings of HELoCs are classified as sub-prime.
Loans where the Group does not expect to collect all the contractual cash flows or expects to collect them later than
they are contractually due.
Impairment allowances
Management’s best estimate of losses incurred in the loan portfolios at the balance sheet date.
Individually assessed
Exposure to loss is assessed on all individually significant accounts and all other accounts that do not qualify for
impairment
collective assessment.
Insurance manufacturing
Insurance risk
Internal Capital Adequacy
Assessment Process
The writing of contracts that fall within the scope of insurance regulation by a Group subsidiary authorised to write
such business. The risks and rewards of writing the insurance business are retained by HSBC (or reinsured in line
with our reinsurance strategy). The balance sheet analysis presented in the Risk Management of Insurance
Operations section shows the aggregated full balance sheets of these entities.
A risk, other than a financial risk, transferred from the holder of a contract to the insurance provider. The principal
insurance risk is that, over time, the cost of the contract, including claims and benefits may exceed the total
amount of premiums and investment income received.
The Group’s own assessment of the levels of capital that it needs to hold through an examination of its risk profile
from regulatory and economic capital viewpoints.
Internal Model Method
One of three approaches defined in the Basel Framework to determine exposure values for counterparty credit risk.
Internal ratings-based approach
A method of calculating credit risk capital requirements using internal, rather than supervisory, estimates of risk
(‘IRB’)
parameters.
HSBC HOLDINGS PLC
486
Term
Definition
Invested capital
Equity capital invested in HSBC by its shareholders, adjusted for certain reserves and goodwill previously amortised
or written off.
Investment grade
Represents a risk profile similar to a rating of BBB- or better, as defined by an external rating agency.
IRB advanced approach
A method of calculating credit risk capital requirements using internal PD, LGD and EAD models.
(‘AIRB’)
IRB foundation approach
A method of calculating credit risk capital requirements using internal PD models but with supervisory estimates of
(‘FIRB’)
LGD and conversion factors for the calculation of EAD.
ISDA Master agreement
Standardised contract developed by ISDA used as an umbrella contract under which bilateral derivatives contracts
are entered into.
K
Key management personnel
L
Legacy credit in GB&M
Legal proceedings
Legal risk
Directors and Group Managing Directors of HSBC Holdings.
A separately identifiable, discretely managed business comprising Solitaire Funding Limited, the securities
investment conduits, the asset-backed securities trading portfolios and credit correlation portfolios, derivative
transactions entered into directly with monoline insurers, and certain other structured credit transactions.
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.
The risk of financial loss, sanction and/or reputational damage resulting from contractual risk (the risk that the rights
and/or obligations of a Group member within a contractual relationship are defective); dispute risk (the risk due
to an adverse dispute environment or the management of potential or actual disputes); legislative risk (the risk
that a Group member fails to adhere to laws of the jurisdiction in which it operates); and non-contractual rights
risk (the risk that a Group member’s assets are not properly owned or are infringed by others or the infringement
by a Group member of another party’s rights).
Level 1 – quoted market price
Financial instruments with quoted prices for identical instruments in active markets.
Level 2 – valuation technique
using observable inputs
Financial instruments with quoted prices for similar instruments in active markets or quoted prices for identical or
similar instruments in inactive markets and financial instruments valued using models where all significant
inputs are observable.
Level 3 – valuation technique with
significant unobservable inputs
Financial instruments valued using valuation techniques where one or more significant inputs are unobservable.
Leveraged finance
Funding provided for entities with higher than average indebtedness, which typically arises from sub-investment
grade acquisitions or event-driven financing.
Leverage ratio
A measure which is the ratio of tier 1 capital to total exposures. Total exposures include on-balance sheet items, off-
balance sheet items and derivatives, and should generally follow the accounting measure of exposure. This
supplementary measure to the risk-based capital requirements is intended to constrain the build-up of excess
leverage in the banking sector.
Liquidity coverage ratio
(‘LCR’)
The ratio of the stock of high quality liquid assets to expected net cash outflows over the following 30 days. High
quality liquid assets should be unencumbered, liquid in markets during a time of stress and, ideally, be central
bank eligible.
Liquidity enhancement
Liquidity enhancement makes funds available if required for reasons other than asset default, e.g. to ensure timely
repayment of maturing commercial paper.
Liquidity risk
The risk that HSBC does not have sufficient financial resources to meet its obligations as they fall due, or will have to
do so at an excessive cost. This risk arises from mismatches in the timing of cash flows.
Loan modification
An account management action that results in a change to the original terms and conditions of a loan either
Loan re-age
temporarily or permanently without resetting its delinquency status, except in case of a ‘modification re-age’
where delinquency status is also reset to up-to-date. Account modifications may include revisions to one or more
terms of the loan including, but not limited to, a change in interest rate, extension of the amortisation period,
reduction in payment amount and partial forgiveness or deferment of principal.
An account management action that results in the resetting of the contractual delinquency status of an account to
up-to-date upon fulfilment of certain requirements which indicate that payments are expected to be made in
accordance with the contractual terms.
Loans past due
Loans on which repayments are overdue.
Loan-to-value ratio (‘LTV’)
A mathematical calculation that expresses the amount of the loan as a percentage of the value of security. A high
LTV indicates that there is less cushion to protect the lender against house price falls or increases in the loan if
repayments are not made and interest is added to the outstanding loan balance.
Loss given default (‘LGD’)
The estimated ratio (percentage) of the loss on an exposure to the amount outstanding at default (EAD) upon default
Loss severity
M
Malus
of a counterparty.
The realised amount of losses incurred (including ancillary amounts owed) when a loan is foreclosed or disposed of
through the arrangement with the borrower. The loss severity is represented as a percentage of the outstanding
loan balance.
An arrangement that permits an organisation to prevent vesting of all or part of the amount of a deferred
remuneration award in relation to risk outcomes or performance.
HSBC HOLDINGS PLC
487
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Shareholder information (continued)
Glossary
Term
Market risk
Definition
The risk that movements in market risk factors, including foreign exchange rates and commodity prices, interest
rates, credit spreads and equity prices will reduce income or portfolio values.
Medium term notes (‘MTN’s)
Issued by corporates across a range of maturities. Under MTN Programmes notes are offered on a regular and
continuous basis to investors.
Mortgage-backed securities
(‘MBS’s)
Securities that represent interests in groups of mortgages, which may be on residential or commercial properties.
Investors in these securities have the right to cash received from future mortgage payments (interest and/or
principal). When the MBS references mortgages with different risk profiles, the MBS is classified according to the
highest risk class.
Mortgage-related assets
Referenced to underlying mortgages.
Mortgage vintage
The year a mortgage was originated.
N
Negative equity mortgages
Equity is the value of the asset less the outstanding balance on the loan. Negative equity arises when the value of the
property purchased is below the balance outstanding on the loan.
Net asset value per share
Total shareholders’ equity, less non-cumulative preference shares and capital securities, divided by the number of
ordinary shares in issue.
Net interest income
The amount of interest received or receivable on assets net of interest paid or payable on liabilities.
Net interest income sensitivity
Net principal exposure
Net stable funding ratio
(‘NSFR’)
Considers all pricing mismatches in the current balance sheet, with suitable assumptions for balance sheet growth in
the future, and calculates the change in net interest income that would result from a set of defined interest rate
shocks.
The gross principal amount of a financial asset after taking account of credit protection purchased but excluding the
effect of any counterparty credit valuation adjustment to that protection. It includes assets that benefit from
monoline protection, except where this protection is purchased with a CDS.
The ratio of available stable funding to required stable funding over a one year time horizon, assuming a stressed
scenario. Available stable funding would include items such as equity capital, preferred stock with a maturity of
over one year and liabilities with an assessed maturity of over one year. The Basel III rules require this ratio to be
over 100% with effect from 2018. The NSFR is still subject to an observation period and review to address any
unintended consequences.
Non-conforming mortgages
US mortgages that do not meet normal lending criteria. Examples include mortgages where the expected level of
documentation is not provided (such as with income self-certification), or where poor credit history increases the
risk and results in pricing at a higher than normal lending rate.
Non-trading portfolios
Portfolios that comprise positions that primarily arise from the interest rate management of our retail and
commercial banking assets and liabilities, financial investments designated as available for sale and held to
maturity, and exposures arising from our insurance operations.
Non-trading risk
O
Offset mortgages
The market risk arising from non-trading portfolios.
A flexible type of mortgage where a borrower’s savings balance(s) held at the same institution can be used to offset
the mortgage balance outstanding. The borrower pays interest on the net balance which is calculated by
subtracting the credit balance(s) from the debit balance. As part of the offset mortgage a total facility limit is
agreed and the borrower may redraw up to a pre-agreed limit.
Overnight Index Swap
A method of valuing collateralised interest rate derivatives which uses a discount curve that reflects the overnight
discounting
Operational risk
interest rate typically earned or paid in respect of collateral received.
The risk of loss resulting from inadequate or failed internal processes, people and systems or from external events,
including legal risk.
Over-the-counter (‘OTC’)
A bilateral transaction (e.g. derivatives) that is not exchange traded and that is valued using valuation models.
P
Pension risk
The risk that contributions from Group companies and members fail to generate sufficient funds to meet the cost of
accruing benefits for the future service of active members, and the risk that the performance of assets held in
pension funds is insufficient to cover existing pension liabilities.
Performance shares
Awards of HSBC Holdings ordinary shares under employee share plans that are subject to the achievement of
Personal lending
PRA standard rules
corporate performance conditions.
See ‘Retail loans’.
The method prescribed by the PRA for calculating market risk capital requirements in the absence of VaR model
approval.
Prime
A US description for mortgages granted to the most creditworthy category of borrowers.
Private equity investments
Equity securities in operating companies not quoted on a public exchange, often involving the investment of capital
in private companies or the acquisition of a public company that results in its delisting.
Probability of default (‘PD’)
The probability that an obligor will default within one year.
Profit participation contribution
A federal tax which is imposed monthly on gross revenue earned by legal entities in Brazil. It is a mandatory
(‘PIS’)
employer contribution to an employee savings initiative.
Prudential Regulation Authority
The Prudential Regulation Authority in the UK is responsible for prudential regulation and supervision of banks,
(‘PRA’)
building societies, credit unions, insurers and major investment firms.
HSBC HOLDINGS PLC
488
Term
R
Refi rate
Definition
The refi (or refinancing) rate is set by the European Central Bank (‘ECB’) and is the price banks pay to borrow from
ECB.
Regulatory capital
The capital which HSBC holds, determined in accordance with CRDIV as implemented by the PRA for the
consolidated Group and by local regulators for individual Group companies.
Regulatory matters
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.
Renegotiated loans
Loans for which the contractual payment terms have been changed because of significant concerns about the
borrower’s ability to meet the contractual payments when due.
Repo/reverse repo
(or sale and repurchase
agreement)
A short-term funding agreement that allows a borrower to create a collateralised loan by selling a financial asset to a
lender. As part of the agreement the borrower commits to repurchase the security at a date in the future repaying
the proceeds of the loan. For the party on the other end of the transaction (buying the security and agreeing to
sell in the future) it is reverse repurchase agreement or a reverse repo.
Reputational risk
The risk that illegal, unethical or inappropriate behaviour by the Group itself, members of staff or clients or
Restricted Shares
representatives of the Group will damage HSBC’s reputation, leading, potentially, to a loss of business, fines or
penalties.
Awards that define the number of HSBC Holdings ordinary shares to which the employee will become entitled,
generally between one and three years from the date of the award, and normally subject to the individual
remaining in employment. The shares to which the employee becomes entitled may be subject to retention
requirement.
Retail loans
Money lent to individuals rather than institutions. This includes both secured and unsecured loans such as mortgages
and credit card balances.
Return on equity
Profit attributable to ordinary shareholders of the parent company divided by average ordinary shareholders’ equity.
Return on tangible equity
(‘ROTE’)
Profit attributable to ordinary shareholders of the parent company, adjusted for movements in PVIF and
impairments of goodwill divided by average ordinary shareholders’ equity, adjusted for PVIF, goodwill and other
intangibles (net of deferred tax).
Risk appetite
The aggregate level and types of risk a firm is willing to assume within its risk capacity to achieve its strategic
objectives and business plan.
Risk capacity
The maximum level of risk the firm can assume before breaching constraints determined by regulatory capital and
liquidity needs and its obligations, also from a conduct perspective, to depositors, policyholders, other customers
and shareholders.
Risk-weighted assets (‘RWAs’)
Calculated by assigning a degree of risk expressed as a percentage (risk weight) to an exposure value.
Run-off portfolios
Legacy credit in GB&M, the US CML portfolio and other US run-off portfolios, including the treasury services related
to the US CML businesses and commercial operations in run-off. Origination of new business in the run-off
portfolios has been discontinued and balances are being managed down through attrition and sale.
S
Sale and repurchase agreement
See repo above.
Second lien
A security interest granted over an item of property to secure the repayment of a debt that is issued against the
Securitisation
same collateral as a first lien but that is subordinate to it. In the case of default, repayment for this debt will only
be received after the first lien has been repaid.
A transaction or scheme whereby the credit risk associated with an exposure, or pool of exposures, is tranched and
where payments to investors in the transaction or scheme are dependent upon the performance of the exposure
or pool of exposures. A traditional securitisation involves the transfer of the exposures being securitised to a SPE
which issues securities. In a synthetic securitisation, the tranching is achieved by the use of credit derivatives and
the exposures are not removed from the balance sheet of the originator.
Securitisation swap
An interest rate or cross currency swap with notional linked to the size of the outstanding asset portfolio in a
Short sale
securitisation. Securitisation swaps are typically executed by securitisation vehicles to hedge interest rate risk
arising from mismatches between the interest rate risk profile of the asset portfolio and that of the securities
issued by the vehicle.
In relation to credit risk management, a ‘short sale’ is an arrangement in which a bank permits the borrower to sell
the property for less than the amount outstanding under a loan agreement. The proceeds are used to reduce the
outstanding loan balance and the borrower is subsequently released from any further obligations on the loan.
Single-issuer liquidity facility
A liquidity or stand-by line provided to a corporate customer which is different from a similar line provided to a
conduit funding vehicle.
Social security financing
contribution (‘COFINS’)
A federal tax imposed monthly on gross revenue earned by legal entities in Brazil. It is a contribution to finance the
social security system.
Sovereign exposures
Exposures to governments, ministries, departments of governments, embassies, consulates and exposures on
account of cash balances and deposits with central banks.
Special Purpose Entity (‘SPE’)
A corporation, trust or other non-bank entity, established for a narrowly defined purpose, including for carrying on
securitisation activities. The structure of the SPE and its activities are intended to isolate its obligations from those
of the originator and the holders of the beneficial interests in the securitisation.
HSBC HOLDINGS PLC
489
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Shareholder information (continued)
Glossary
Term
Definition
Standardised approach
(‘STD’)
In relation to credit risk, a method for calculating credit risk capital requirements using ratings agencies and
supervisory risk weights. In relation to operational risk, a method of calculating the operational capital
requirement by the application of a supervisory defined percentage charge to the gross income of eight specified
business lines.
Stressed VaR
A market risk measure based on potential market movements for a continuous one-year period of stress for a
trading portfolio
Structured entities
(‘SE’s)
An entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls
the entity, such as when voting rights relate to administrative tasks only and the relevant activities are directed by
means of contractual arrangements.
Structured finance/notes
An instrument whose return is linked to the level of a specified index or the level of a specified asset. The return on a
structured note can be linked to equities, interest rates, foreign exchange, commodities or credit. Structured
notes may or may not offer full or partial capital protection in the event of a decline in the underlying index or
asset.
Student loan-related assets
Securities with collateral relating to student loans.
Subordinated liabilities
Liabilities which rank after the claims of other creditors of the issuer in the event of insolvency or liquidation.
Sub-prime
A US description for customers with high credit risk, for example those who have limited credit histories, modest
incomes, high debt-to-income ratios, high loan-to-value ratios (for real estate secured products) or have
experienced credit problems caused by occasional delinquencies, prior charge-offs, bankruptcy or other credit-
related problems.
Sustainability risk
The risk that the environmental and social effects of providing financial services outweigh the economic benefits.
Systemic Risk Buffer (‘SRB’)
A capital buffer prescribed in the EU under CRD IV, to address risks in the financial sector as a whole, or one or more
sub-sectors, to be deployed as necessary by each EU member state with a view to mitigate structural macro-
prudential risk. In the UK this was transposed in January 2015 and is intended to apply to ring-fenced banks and
building societies over a certain threshold.
Systems risk
The risk of failure or other deficiency in the automated platforms that support the Group’s daily execution and the
systems infrastructure on which they reside, including data centres, networks and distributed computers.
T
Tier 1 capital
Tier 2 capital
A component of regulatory capital, as defined in CRDIV, comprising common equity tier 1 and additional tier 1.
Additional tier 1 capital includes eligible non-common equity capital securities and any related share premium.
A component of regulatory capital, as defined in CRDIV, comprising eligible capital securities and any related share
premium.
Total Loss Absorbing Capacity
(‘TLAC’)
Requirements set out by the FSB for global systemically important banks to have a sufficient amount of specific types
of liabilities which can be used to absorb losses and recapitalise a bank in resolution. These requirements were
finalised in November 2015 and are intended to facilitate an orderly resolution that minimises any impact on
financial stability, ensures the continuity of critical functions, and avoids exposing taxpayers to loss.
Trading portfolios
Trading risk
Positions arising from market-making and warehousing of customer-derived positions.
Market risk arising from trading portfolios.
Troubled debt restructuring
A US description for restructuring a debt whereby the creditor for economic or legal reasons related to a debtor’s
financial difficulties grants a concession to the debtor that it would not otherwise consider.
U
Unencumbered assets
Unfunded exposures
Up-shock
Assets on our balance sheet which have not been pledged as collateral against an existing liability.
An exposure where the notional amount of a contract has not been exchanged.
See down-shock.
US government agency and
Securities that are guaranteed by US government agencies such as Ginnie Mae, or by US government sponsored
US government sponsored
enterprises mortgage-related
assets
V
Value at risk
(‘VaR’)
W
Wholesale loans
Write-down/write-off
entities including Fannie Mae and Freddie Mac.
A measure of the loss that could occur on risk positions as a result of adverse movements in market risk factors (e.g.
rates, prices, volatilities) over a specified time horizon and to a given level of confidence.
Money lent to sovereign borrowers, banks, non-bank financial institutions and corporate entities.
When a financial asset is written down or written off, a customer balance is partially or fully removed, respectively, from
the balance sheet. Loans (and related impairment allowance accounts) are normally written off, either partially or in
full, when there is no realistic prospect of recovery. Where loans are secured, this is generally after receipt of any
proceeds from the realisation of security. In circumstances where the net realisable value of any collateral has been
determined and there is no reasonable expectation of further recovery, write-off may be earlier.
Wrong-way risk
An adverse correlation between the counterparty’s PD and the mark-to-market value of the underlying transaction.
HSBC HOLDINGS PLC
490
Index
A
Abbreviations 479
Accounting
developments (future) 347
estimates and judgements 64, 353, 354, 378, 402, 406, 421
policies 354, 357, 358, 359, 360, 362, 364, 369, 373, 377, 378, 393, 394,
398, 401, 402, 406, 410, 414, 416, 417, 418, 419, 421, 434, 437, 440, 441,
442, 445
Accounts
approval 457
basis of preparation 65, 347
consolidation and related disclosures 353
presentation of information 352
Accruals, deferred income and other liabilities 419
Acquisitions and disposals 231, 247
Actuarial assumptions 367
Adapting HSBC 11
Adjusted performance 23, 48
Advances to core funding ratio 156, 205
Ageing analysis 127
Annual General Meeting 280
resolutions 471
Anniversary (150th) 9
Anti-money laundering and sanctions 449
Areas of special interest 116
Asia 21, 82
adjusted performance 3
adjusted/reported reconciliation 77
balance sheet data 84, 376
collateral 139
country/business highlights 32
customer accounts 63
financial overview 32
goodwill 407
impaired loans 128
lending 123, 124, 127, 137, 139, 147, 391
loan impairment charges/allowances 32, 132, 134
mortgage loans 147
operating expenses 82
personal lending 143
principal operations 82
profit 32, 76, 82, 84
profit/(loss) by country 82, 83
renegotiated loans 130
reverse repos 143
risk-weighted assets 3
staff numbers 60, 82
total assets 76
wholesale lending 136
Asset-backed securities 203, 383
Assets
average balance sheet 51
by country 376
by geographical region 76, 80, 84, 87, 90, 94, 376
by global business 65, 80, 84, 87, 90, 94
charged as security 401
customer accounts 63
deferred tax 371
encumbered/unencumbered 162, 209
financial accounting/regulatory reconciliation 236
five years 61
held for sale 121, 122, 416
held in custody and under administration 96
intangible 410, 413
liquid assets of principal operating entities 157, 206
maturity analysis 426
movement in 2015 62
other 416
risk-weighted 2, 26, 63, 64, 228, 229, 247
total 26, 61, 65, 80, 339, 376
trading 124, 377
transferred (accounting policy) 401
Associates and joint ventures 402
accounting policy 402
Bank of Communications 333, 403
contingent liabilities 442
critical accounting estimates and judgements 402
interests in 402
reported/adjusted 22, 25
reconciliation 49, 66, 77
share of profit in 60
transactions with other related parties 456
Auditor
arrangements 264
remuneration 368
report 323
B
Back-testing 168, 214
Balance sheet
average 51
consolidated 61, 339
data 74, 80, 84, 87, 90, 94
HSBC Holdings 343
insurance manufacturing subsidiaries 181
linkages 170, 171
movement in 2015 62
regulatory 236
Balance Sheet Management 172, 216
Bancassurance 180
Basel Committee 112, 115, 241
Behaviouralisation 207, 215
Board of Directors 256
balance and independence 258
changes 8
committees 193, 262
information and support 259
meetings 257, 258
performance evaluation 260
powers 257
Brand 36, 114
Brazil
economic plans 454
labour claims 423
Buffers (capital) 240
Business synergies 16, 28, 29, 30, 31
C
Capital 227
buffers 240
five years 61
generation 228, 244
management 243
measurement and allocation 244
movements by major drivers 228
overview 228
ratios 26, 228
regulatory 228, 233, 239
resources 61
risks to capital 243
sensitivity 173
strength 26
Carbon dioxide emissions 98
Cash and cash equivalents 440
accounting policy 440
Cash flow
consolidated statement 340
hedges 397
HSBC Holdings 344
notes 439
payable by contractual maturities 164
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
Cautionary statement regarding forward-looking statements 478
Chairman’s Committee 274
China (mainland) 83, 117
Chinese translation 473
Client assets 72
Climate business 37
Collateral and credit enhancements 138, 147, 162
management 202, 209
Commercial Banking 70
adjusted performance 2, 24
adjusted/reported reconciliation 66
areas of focus 28
business synergies 28
customers 28
products and services 28
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
HSBC HOLDINGS PLC
491
Shareholder information (continued)
Index
risk-weighted assets 2
Commercial real estate 137
Committees (Board) 262, 276
Communication with shareholders 284, 472
Communities (investing in) 39
Compliance risk 106, 178, 217
Concentration of exposure 123, 196
Conduct 40, 97, 332
Conduct & Values committee 193, 272
Conduits 443
Consent orders 113, 448
Constant currency 48
Consumer Credit Act 422
Contents 1
Contingent convertible securities 438
Contingent liabilities, contractual commitments and guarantees 441
accounting policy 441
Contractual maturity of financial liabilities 164
Corporate governance 249
codes report 256
Cost efficiency ratio 60, 79, 82, 86, 89, 92
Cost savings 21
Counterparty credit risk 232
Credit default swap regulatory investigation 453
Credit exposure 122
Credit quality 125
classifications 196, 198
Credit risk 118
description 105
in 2015 120
insurance 185, 222
management thereof 195
policies and practices 193
risk-weighted assets 229
Credit valuation adjustment 382
Critical accounting estimates and judgements 64, 353, 354, 378, 402, 406,
421
Customer accounts 51, 61, 62, 63, 74, 80, 84, 87, 90, 94, 160, 339, 376, 390,
405, 417, 428, 435
Customers 28, 29, 30, 31
Customer lending and deposit (combined) 62
D
Dealings in HSBC Holdings plc securities 284
Debit valuation adjustment 382
Debt securities in issue 418
accounting policy 418
Defined terms 478
Deposits 51, 61, 62, 164
combined view 62
core 205
average balances and average rates 51
Derivatives
accounting policy 394
assets 124
credit 141, 142, 396
interest rate 422
market risk linkages 171
trading 395
Directors
appointments and re-election 257
benefits 311
biographies 249
conflicts of interest 261
emoluments 368
executive 256
exit payments 312
fees 311
induction 259
interests 282, 314
loss of office 312
non-executive 256
other directorships 296
payments to past Directors 311
pensions 312
performance evaluation 260, 307
relations with shareholders 261
remuneration (executive) 44, 289
remuneration (non-executive) 299, 317
responsibilities (statement of) 322
service contracts 297
training and development 259
variable pay 45, 290, 303, 305
Disclosure philosophy 96
Disposal gains/groups 416
Disposals 440
Dispute risk 113
Diversity and inclusion 38, 278
Dividends 283, 371, 470
income 50, 74, 337, 358
payout ratio 50
per share 27
E
Earnings per share 50, 372
Earnings releases 472
Employees 278
compensation and benefits 318, 361
development 278
disabled 278
diversity and inclusion 38, 278
engagement 273
gender balance 38
health, welfare and safety 278
highest paid 319
material risk takers 300, 321
numbers 60, 79, 82, 86, 89, 92, 361
relations 278
remuneration policy 279, 300
reward 38
risk 104
share plans 279, 364
sign-on and severance 321
volunteering 5
whistleblowing 179
Encumbered assets 162, 209
Enhanced Disclosure Task Force 96
Enquiries (from shareholders) 472
Equity
five year 61
movement in 2015 63
Equity securities 169, 215
Europe 79
adjusted performance 3
adjusted/reported reconciliation 77
balance sheet data 80, 376
collateral 139
country/business highlights 32
customer accounts 63
financial overview 32
goodwill 407
impaired loans 128
lending 123, 124, 127, 137, 139, 147, 391
loan impairment charges/allowances 32, 132, 134
mortgage loans 147
operating expenses 79
personal lending 143
principal operations 79
profit 32, 76, 79
profit/(loss) by country 79
renegotiated loans 130
reverse repos 143
risk-weighted assets 3
staff numbers 60, 79
total assets 76
wholesale lending 136
Events after the balance sheet date 457
F
Fair value
accounting policy 378
adjustments 380
control framework 378
derivatives 395
reconciliation 384
valuation bases 382
Fee income (net) 53
Fiduciary risk 106, 189, 224
FIFA investigation 454
Financial assets
HSBC HOLDINGS PLC
492
accounting policy 357
designated at fair value 393
offsetting 434
Financial crime compliance and regulatory compliance 116
Financial guarantee contracts 441
accounting policy 441
Financial instruments 359
accounting policy (fair value) 359
accounting policy (valuation) 378
at fair value 378
control framework 378
credit quality 125, 196
critical accounting estimates and judgements (valuation) 378
net income from 54
not at fair value 390
past due but not impaired 127
Financial investments 398
accounting policy 398
gains less losses from 55
Financial liabilities
accounting policy 418
contractual maturities 164
designated at fair value 379, 418
offsetting 434
Financial overview 22
Financial risks (insurance) 183, 220
Financial Services Compensation Scheme 442
Financial System Vulnerabilities Committee 193, 268
Financial statements 336
Five-year comparisons 50, 61, 121, 148, 150
Fixed pay 44, 287, 289, 305, 310, 315
Footnotes 99, 191, 243, 346
Forbearance 129, 197
Foreign currencies/exchange 436
exposures 436
investigations and litigation 452
rates 50, 61
translation differences 48
Funding sources 160
Funds transfer pricing 207
Funds under management 96
G
Geographical regions 3, 76
adjusted/reported reconciliation 77
Global businesses 2, 65
adjusted/reported reconciliation 66
market risk 211
Global Banking and Markets 71
adjusted performance 2, 24
adjusted/reported reconciliation 66
areas of focus 29
business synergies 29
customers 29
fair value adjustments 381
products and services 29
risk-weighted assets 2
Global Private Banking 72
adjusted performance 2, 24
adjusted/reported reconciliation 66
areas of focus 31
business synergies 31
customers 31
products and services 31
risk-weighted assets 2
Global Standards 21
Glossary 483
Going concern 277, 353
Goodwill 406
accounting policy 406
carrying value 329
critical accounting estimates and judgements 406
impairment 407
Group Audit Committee 262
Group Chief Executive
annual assessment 307
biography 249
interests in shares 314
remuneration 313
remuneration history 313
responsibilities 256
review 10
scorecard 316
Group Chairman
biography 249
interest in shares 314
responsibilities 256
statement 6
Group Chief Risk Officer
annual assessment 307
biography 253
interests in shares 314
remuneration 309
scorecard 316
Group Company Secretary
biography 254
role 259
Group Finance Director
annual assessment 307
biography 252
interests in shares 314
remuneration 308
scorecard 316
Group Management Board 262
Group Managing Directors 254
Group Remuneration Committee 270, 285, 302
Group Risk Committee 193, 266
Guarantees 441
H
Headquarters 8
Health and safety 278
Hedge accounting 330
Held for sale assets 121, 122, 416
accounting policy 416
Highlights 2
Hiring practices investigation 455
HSBC at a glance 2
HSBC Finance 145
foreclosures 197
loan modifications 146
HSBC Holdings plc
balance sheet 343
cash flow 344
credit risk 152
dealing in securities 284
Directors’ emoluments 368
dividends 371
employee compensation 368
financial assets and liabilities 390
financial instruments not at fair value 392
foreign exchange VaR 174
Interest rate repricing gap 175
liquidity and funding 165, 210
market risk 174, 216
maturity analysis of assets and liabilities 432
net income from financial instruments 359
repricing gap maturities 175
share capital 281
statement of changes in equity 345
structural foreign exchange exposures 436
subordinated liabilities 425
subsidiaries, joint ventures, associates and other substantial holdings 457
transactions and balances with subsidiaries 457
Human rights 39
I
IFRSs compliance 347
Impairment
accounting policy 354
allowances 121, 134
assessment 201
available-for-sale financial assets 357
by industry and geographical region 132, 134
charges 22, 25, 49, 57, 121, 122
constant currency/reported reconciliation 149
critical accounting estimates and judgements 354
five years 150
goodwill 407
impaired loans 128, 331
HSBC HOLDINGS PLC
493
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Shareholder information (continued)
Index
methodologies 202
reported/adjusted reconciliation 49
Income statement (consolidated) 50, 337
Information on HSBC (availability thereof) 473
Insurance
accounting policy 359, 360
asset and liability matching 181
balance sheet of manufacturing subsidiaries 181
bancassurance model 180
claims incurred (net) and movements in liabilities to policyholders 57,
360
in 2015 181
net earned premium income 56, 359
products 219
PVIF business 411
reinsurers’ share of liabilities 187
risk 107, 180, 188, 219, 223
sensitivities to non-economic assumptions 188
Intangible assets 410
accounting policy 410
movements 413
Interest income/expense (net) 51
accounting policy 358
average balance sheet 51
sensitivities 12, 216
Interest rate derivatives 422
Interim results 472
Internal control 275
effectiveness 277
Internet crime 43
IFRSs and Hong Kong Financial Reporting Standards comparison 347
Investor relations 473
J
Jaws 27
Joint ventures 405
K
Key management personnel 455
Key performance indicators 19
L
Latin America
adjusted performance 3
adjusted/reported reconciliation 77
balance sheet data 94, 376
collateral 139
country/business highlights 33
customer accounts 63
financial overview 33
goodwill 407
impaired loans 128
lending 123, 124, 127, 137, 139, 147, 391
loan impairment charges/allowances 33, 132, 134
mortgage loans 147
operating expenses 92
personal lending 143
principal operations 92
profit 33, 76
profit/(loss) by country 93
renegotiated loans 130
reverse repos 143
risk-weighted assets 3
staff numbers 60, 92
total assets 76
wholesale lending 136
Lease commitments 442
accounting policy 442
Legal
litigation and conduct 332
proceedings and regulatory matters 445
risk 218
Lending – combined view 62
Leverage ratio 239, 246
Liabilities
average balance sheet 51
by geographical region 376
deferred tax 371
financial accounting/regulatory reconciliations 236
five years 61
maturity analysis 426
movement in 2015 62
offsetting 434
subordinated 423
total 61, 339
trading 417
under insurance contracts 419
Libor, Euribor and other rates investigations 451
LICs 22, 25, 49, 57
by geographical regions 33, 77
by global business 28, 29, 30
reported/adjusted reconciliation 49, 66, 77
Liquidity and funding 154, 204
assets 157, 206
behaviouralisation 207
contingent liquidity risk 159
description 105
funds transfer pricing 207
in 2015 155
insurance 187, 222
management of risk 156, 204
net contractual cash flows 158
policies and procedures 204
regulation 155
sources of funding 159, 204
Loans and advances
accounting policy 354
by country 151
by geographical region 123, 124
by industry over five years 148
collateral 138, 147, 202
commercial real estate 137
concentration of exposure 123
credit quality of 125
impairment 121
in held for sale 122
past due but not impaired 127
renegotiated 129
to banks 354, 391
to customers 26, 121, 354, 391
write-off 201
Loan Management Unit 202
M
Madoff 446
Market risk 166, 210
balance sheet linkages 170
description 105
governance 211
in 2015 167
insurance 184
measures 212
risk-weighting assets 232
sensitivity analysis 172, 173
capital and reserves 173
net interest income 172
Material risk takers 321
Maturity analysis of assets and liabilities 426
Maximum exposure to credit risk 122
Metals and mining 117
Middle East and North Africa
adjusted performance 3
adjusted/reported reconciliation 77
balance sheet data 87, 376
collateral 139
country/business highlights 33
customer accounts 63
financial overview 33
goodwill 407
impaired loans 128
lending 123, 124, 127, 137, 139, 147, 391
loan impairment charges/allowances 132, 134
mortgage loans 147
operating expenses 86
personal lending 143
principal operations 86
profit 33, 76, 86
profit/(loss) by country 86
renegotiated loans 130
reverse repos 143
HSBC HOLDINGS PLC
494
risk-weighted assets 3
staff numbers 60, 86
total assets 76
wholesale lending 136
Model risk 115
Monitor 116
Mortgages
lending 144
mortgage-backed securities 203
US mortgage-related investigations 448
N
Network
delivery 14
value 16
Nomination Committee 270
Non-controlling interests 436
Non-GAAP measures 48
Non-interest income 358
Non-trading portfolios 169, 214
North America
adjusted performance 3
adjusted/reported reconciliation 77
balance sheet data 90, 376
collateral 139
country/business highlights 33
customer accounts 63
financial overview 33
goodwill 407
impaired loans 128
lending 123, 124, 127, 137, 139, 147, 391
loan impairment charges/allowances 33, 132, 134
mortgage loans 147
operating expenses 89
personal lending 143
principal operations 89
profit 33, 76, 89, 90
profit/(loss) by country 89
renegotiated loans 130
reverse repos 143
risk-weighted assets 3
staff numbers 60, 89
total assets 76
wholesale lending 136
O
Offsetting 434
accounting policy 434
Oil and gas prices 117
Operating expenses 58
by geographical region 77, 82, 86, 89, 92
by global business 28, 29, 30, 31
reported/adjusted 22, 25
reconciliation 49, 66, 77
Operating income 56, 358, 376
Operating profit 361
Operational risk 176, 217
description 106
in 2015 177
losses/incidents 177
management framework 176
Ordinary shares 281
Organisational structure chart 474
Other 73
Outlook 9, 11
P
Payment protection insurance 421
Pension plans
accounting policy 364
defined benefit plans 174, 216, 366
for directors 312
risk 107, 189, 225
People
empowering 38
risk 43, 114
Performance 285
adjusted 23, 48
reported 22
Perpetual subordinated capital securities 372
Personal lending 143
Philanthropic & Community Investment Oversight Committee 274
Pillar I, II and III 240, 246
Post-employment benefit plans 364, 456
accounting policy 364
Precious metals fix-related litigation and investigations 453
Preference shares 437
Preferred securities 61
Prepayments, accrued income and other assets 416
Products and services 28, 29. 30, 31, 373
Profit before tax
adjusted 3, 23, 285
by country 79, 83, 86, 89, 93
by geographical region 3, 76, 82, 86, 89, 92
by global business 2, 28, 29, 30, 31, 65, 74, 80, 84, 87, 90, 94
consolidated 50, 337
five years 50
reported 3, 22
reported/adjusted reconciliation 49, 66, 77
Profit for the year 50
Property 98
Provisions 421
accounting policy 421
critical accounting estimates and judgements 421
PVIF 57, 411
R
Ratios
advances to core funding 156, 205
capital 26, 228
capital strength 26
common equity tier 1 26, 42, 228
core tier 1 (CET 1) 26
cost efficiency 60, 79, 82, 86, 89, 92
dividend payout 50
dividends per share 50, 371
earnings per share 50, 372
leverage 239, 246
liquidity coverage 155
net asset value per ordinary share 61
return on average ordinary shareholders’ equity 27, 50, 285
return on average total assets 50
return on risk-weighted assets 64, 79, 82, 86, 89, 92
stressed coverage 157, 205
Reconciliation of reported and adjusted items 49, 66, 77
Reconciliation of RoRWA 64
Recovery and resolution 242
Registered office 497
Registrars 497
Regulatory
balance sheet 236
capital 233, 234, 244
capital buffers 239
developments 239
landscape 7
reconciliation to financial accounting 236
review of consumer enhancement services products 454
source and application 233
stress tests 116, 241
Related party transactions 455
Remuneration
adjustment, malus and clawback 301
benefits 305
bonus scorecards 315
business context 286
committee 270
committee members 270
Directors 44, 289, 299, 317
fixed pay 44, 289, 295, 305, 310
GPSP 310
in 2015 286
in 2016/17 287, 295
incentive scorecards 316, 317
letter 285
Pillar 3 remuneration 319
policy 45, 288, 315
principles 44
recruitment 296
release profile 294
report 302
HSBC HOLDINGS PLC
495
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Shareholder information (continued)
Index
reward strategy 279
scenarios 296
single figure 44, 305
variable pay 286, 303
Renegotiated loans 129, 197
Renewable energy 37
Repricing gap 175
Repurchase and reverse repurchase agreements 208
accounting policy 358
Reputational risk 106, 189, 225
Resolution strategy 242
Retail Banking and Wealth Management 68
adjusted performance 2, 24
adjusted/reported reconciliation 66
areas of focus 30
business synergies 30
customers 30
principal RBWM business 68
products and services 30
risk-weighted assets 2
Revenue
by country 79, 82, 86, 89, 92
by geographical region 77, 79, 82, 86, 89, 92
by global business 28, 29, 30, 31, 66
reported/adjusted 22, 24
reconciliation 49, 66, 77
Ring-fencing (UK) 111, 242
Risk
appetite 102, 194
assessment 278
banking risks 105
committee 266
compliance 106, 178, 217
conduct of business 112
contingent liquidity 159
counterparty 232
credit 105, 120, 195
credit cycle 111
credit spread 173, 214
cross-currency 210
cyber 114
data management 115
de-peg 214
dispute 113
economic outlook 110
eurozone 110
execution 114
factors 108
fiduciary 106, 189, 224
financial (insurance) 107, 183, 220
foreign exchange 174
gap 214
geopolitical 110
governance 102, 193
in 2015 42
information security 218, 269
insurance operations 107, 108, 180, 188, 219, 223
interest rate 208, 220
internet crime 267
legal 218
liquidity and funding 105, 154, 204
management of 42, 101
market 105, 166, 210
model 115
non-trading interest rate 215
oil and gas prices 117
operational 106, 176, 217
overview 42
people 43, 104, 114
pension 107, 189, 224
policies and practices 193
refinance 203
regulatory 111
reputational 106, 189, 225
security and fraud 218
stress testing 42, 103, 243
sustainability 107, 190, 226
systems 219
third party 115
top and emerging 43, 103, 110
US deferred prosecution agreement 113
vendor 219
Risk Management Meeting 194
Risk-weighted assets 26, 229
basis of preparation 247
by geographical region 3, 76, 229
by global businesses 2, 65, 229
counterparty 232
developments 241
five years 61
market risk 232
movement in 2015 20, 63
run-off portfolios 64, 229
targets 20
Role in society 4
RoRWA (reconciliation of measures) 64
S
Securities litigation 445
Securitisation 443
exposures 152, 203
litigation 449
Security and fraud risk 218
Segmental analysis 373
accounting policy 373
Senior management
biographies 254
emoluments 318
Sensitivities to non-economic assumptions (insurance) 188
Share-based payments 362
accounting policy 362
Share capital 281, 437
accounting policy 437
five years 61
in 2015 281
notifiable interests 284
rights and obligations 281
treasury shares 282
Share options 364, 439
Share plans
for directors 282, 314
for employees 279, 282, 363
Shareholder (communications with) 284, 472
numbers 470
profile 470
votes 315
Significant items 49, 52, 53, 54, 55, 56, 57, 59
Sources of funds 160
Standards (Global) 275
Statement of changes in equity 341, 345
Statement of comprehensive income (consolidated) 338
Stockbrokers 497
Stock symbols 473
Strategy 7, 12, 276
progress on strategic actions 18, 19, 20, 21
Stress testing 205, 213
Stressed coverage ratios 157, 205
Structural foreign exchange exposure 215
Structured entities 442
accounting policy 442, 445
HSBC sponsored 445
Subordinated loan capital 61, 340, 344
Subsidiaries 414
accounting policy 414
Sufficiency of float 284
Sustainability 39
risk 107, 190, 226
Systems risk 219
T
Targets 27
Tax
accounting policy 369
approach to 39
critical accounting estimates and judgements 370
deferred tax 335, 371
expense 60, 370
of shares and dividends 475
paid by region and country 97
HSBC HOLDINGS PLC
496
reconciliation 370
tax-related investigations 451
Technology systems access 328
Three lines of defence 104, 177
Tier 1 securities 438
Tier 2 securities 426
Total loss absorbing capacity 242
Total shareholder return 312
Trade corridors 14
Trading assets 124, 377
accounting policy 377
Trading income (net) 54
Trading liabilities 417
accounting policy 417
Trading portfolios 167, 213
U
UK leverage ratio framework 241
Unobservable inputs 386
US 20
US deferred prosecution agreement 241
V
Value at risk 167, 212
Value of the network 14, 46
Values (HSBC) 4, 34
Vendor risk management 219
Viability 277
Volunteering 5
W
Whistleblowing 179
Wholesale funding 155, 207
Wholesale lending 135
t
r
o
p
e
R
c
g
e
a
r
t
t
i
S
i
w
e
v
e
R
l
i
a
c
n
a
n
F
i
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
HSBC HOLDINGS PLC
497
HSBC HOLDINGS PLC
Incorporated in England on 1 January 1959 with limited
liability under the UK Companies Act
Registered in England: number 617987
REGISTERED OFFICE AND
GROUP HEAD OFFICE
8 Canada Square
London E14 5HQ
United Kingdom
Telephone: 44 020 7991 8888
Facsimile: 44 020 7992 4880
Web: www.hsbc.com
REGISTRARS
Principal Register
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS99 6ZZ
United Kingdom
Telephone: 44 0870 702 0137
Email: via website
Web: www.investorcentre.co.uk/contactus
Hong Kong Overseas Branch Register
Computershare Hong Kong Investor Services
Limited
Rooms 1712-1716, 17th floor
Hopewell Centre
183 Queen’s Road East
Hong Kong
Telephone: 852 2862 8555
Email: hsbc.ecom@computershare.com.hk
Web: www.computershare.com/hk/investors
Bermuda Overseas Branch Register
Investor Relations Team
HSBC Bank Bermuda Limited
6 Front Street
Hamilton HM11
Bermuda
Telephone: 1 441 299 6737
Email: hbbm.shareholder.services@hsbc.bm
Web: www.computershare.com/investor/bm
ADR Depositary
The Bank of New York Mellon
Depositary Receipts
PO Box 30170
College Station, TX 77842-3170
USA
Telephone (US): 1 877 283 5786
Telephone (International): 1 201 680 6825
Email: shrrelations@bnymellon.com
Web: www.computershare.com/us/contact/
Pages/default.aspx
Paying Agent (France)
HSBC France
103 avenue des Champs Elysées
75419 Paris Cedex 08
France
Telephone: 33 1 40 70 22 56
Email: ost-agence-des-titres-hsbc-reims.hbfr-
do@hsbc.fr
Web: www.hsbc.fr
STOCKBROKERS
Goldman Sachs International
Peterborough Court
133 Fleet Street
London EC4A 2BB
United Kingdom
Credit Suisse Securities (Europe) Limited
1 Cabot Square
London E14 4QT
United Kingdom
HSBC Bank plc
8 Canada Square
London E14 5HQ
United Kingdom
HSBC HOLDINGS PLC
498
© Copyright HSBC Holdings plc 2016
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 Group Finance, HSBC Holdings plc,
London
Designed by Addison Group, London (Strategic
Report) and by Group Finance, HSBC Holdings plc,
London (rest of Annual Report and Accounts)
Printed by Park Communications Limited, London, on
Revive 100 Offset board and paper using vegetable
oil-based inks. Made in Austria, the stocks comprise
100% de-inked post-consumer waste. Pulps used are
totally chlorine-free.
The FSC® logo identifies products which contain
wood from well-managed forests certified in
accordance with the rules of the Forest Stewardship
Council®.
Photography
Getty Images: cover, inside front cover-page 1, pages
12-13, 14-15, 28, 29, 31, 32-33, 35 (inset centre,
bottom), 43, 46-47
Charles Best: pages 4-5, 6 (Group Chairman), 10
(Group Chief Executive), 34-35
Jardine Matheson Group: page 17
Enel Group: page 37
HSBC ‘Human Ambition’ advertising campaign: pages
20-21, 30, 35 (inset top)
Pages 249-254: Directors and Secretary by Charles
Best, except Laura Cha and Paul Walsh by Patrick
Leung
HSBC Holdings plc
8 Canada Square
London E14 5HQ
United Kingdom
Telephone: 44 020 7991 8888
www.hsbc.com