TIDMHSBA
RNS Number : 1460X
HSBC Holdings PLC
26 August 2020
HSBC Holdings plc
Interim Report 2020
Contents
Overview
1 At a glance
2 Highlights
4 Group Chief Executive's review
8 How we do business
10 Financial overview
14 Global businesses
21 Risk overview
Interim management report
25 Financial summary
32 Global businesses
40 Geographical regions
50 Risk
50 - Key developments in the first half of 2020
50 - Areas of special interest
54 - Credit risk
77 - Capital and liquidity risk
84 - Market risk
87 - Insurance manufacturing operations risk
Interim condensed financial statements
90 Directors' responsibility statement
91 Report of the independent auditors
92 Interim condensed financial statements
98 Notes on the interim condensed financial statements
Additional information
121 Shareholder information
126 Forward-looking statements
127 Certain defined terms
128 Abbreviations
A reminder
The currency we report in is US dollars.
Adjusted measures
We supplement our IFRS figures with alternative performance
measures used by management internally. These measures are
highlighted with the following symbol:
Further explanation may be found on page 12.
In this document we use the following abbreviations to refer to
reporting periods:
1H20 First half of 2020 2Q20 Second quarter of 2020
2H19 Second half of 2019 1Q20 First quarter of 2020
1H19 First half of 2019 2Q19 Second quarter of 2019
1Q19 First quarter of 2019
For a full list of abbreviations see page 128.
Cover image: Connecting our customers through blockchain
For centuries, international trade has been reliant on paper
documents - from letters of credit to bills of lading. Today, HSBC
is leading the way towards paperless trade finance. We are working
with our clients, financial institutions and fintech partners to
pioneer digitisation of trade, which has made doing business
simpler and faster, improving the working capital efficiency for
our customers. Paperless trade is becoming a reality. We have used
a blockchain-based letter of credit platform, built on R3 Corda
blockchain technology, to complete digital trade transactions for
shipments of iron ore from Australia to mainland China, and
soybeans from Argentina to Malaysia. By investing in digital
solutions such as blockchain technology, we can help to increase
the velocity of trade globally.
Our global businesses
We serve customers through three global businesses. On pages 14
to 20 we provide an overview of our performance in the first half
of 2020 for each of the global businesses, as well as our Corporate
Centre.
In the second quarter, we simplified our organisational
structure by combining Global Private Banking and Retail Banking
and Wealth Management to form Wealth and Personal Banking. This
followed realignments within our internal reporting and includes
the reallocation of Balance Sheet Management, hyperinflation
accounting in Argentina and HSBC Holdings net interest expense from
Corporate Centre to the global businesses.
Wealth and Personal Banking ('WPB')
We help millions of our customers look after their day-to-day
finances and manage, protect and grow their wealth.
Commercial Banking ('CMB')
Our global reach and expertise help domestic and international
businesses around the world unlock their potential.
Global Banking and Markets ('GBM')
We provide a comprehensive range of financial services and
products to corporates, governments and institutions.
At a glance
Covid-19: The nature, scale and pervasiveness of the coronavirus
pandemic dramatically impacted the global macroeconomic
environment. The economic disruption caused by Covid-19, together
with the worsened economic outlook, resulted in a material increase
in expected credit losses and other credit impairment charges
('ECL'), as well as a reduction in revenue due to lower transaction
volumes and reduced client activity.
Read more on page 22.
Geopolitical risk: Levels of geopolitical risk increased in
particular markets and are expected to have economic impacts for
the Group. US-China relations continue to be under pressure,
heightened by the passing of the Hong Kong national security law
and the US Hong Kong Autonomy Act. The future relationship between
the UK and the EU remains uncertain, while there are also emerging
challenges in UK-China relations.
Read more on pages 22 and 23.
Market factors: Interest rates fell in the majority of our key
markets and are expected to remain at lower levels for the
foreseeable future, which will adversely impact our net interest
income. In addition, heightened levels of uncertainty have led to a
significant increase in market volatility globally. While this
benefited some Global Markets businesses, it also led to large
adverse mark-to-market movements in the first quarter of 2020,
which reversed to some extent in the second quarter, notably in
life insurance manufacturing.
Read more on pages 84 to 89.
Financial performance in 1H20:
Reported profit after tax
$3.1bn
(1H19: $9.9bn)
Return on average tangible equity (annualised)
3.8%
(1H19: 11.2%)
Basic earnings per share
$0.10
(1H19: $0.42)
Read more on page 10.
Supporting customers: We have remained operationally resilient
throughout the Covid-19 outbreak and continued to keep our
customers at the forefront of our operations. During 1H20, we
introduced several measures and initiatives to support our
customers and are also working with governments supporting national
schemes, granting more than $27bn in payment holidays on loans,
credit cards and mortgages for our personal lending customers
around the world. For our wholesale lending customers, we have
provided more than $52bn in lending to more than 172,000
customers.
Read more on page 9.
Business highlights: We helped our clients raise over $1.15tn in
capital markets financing in 1H20, and we remained number one
globally in sustainable finance bonds, according to Dealogic's 1H20
rankings. In Hong Kong, we launched a fully remote, digital account
opening solution for business customers, while in the UK, we
launched HSBC Kinetic, our new app-only digital banking offering
for small and medium-sized business customers. In WPB, we launched
Pinnacle in mainland China, our new digital platform for wealth
planning and insurance services.
Read more on pages 14 to 20.
Business update: We have restarted most areas of the
transformation programme we announced in February 2020, having
temporarily paused elements, and we have already made progress in
other areas. In the US, we completed the consolidation of our
branch network, impacting 80 branches, and we closed a further 31
branches in other locations as we seek to optimise our global
footprint. In GBM, we have formed a risk-weighted assets ('RWAs')
optimisation unit and delivered a gross reduction in RWAs of $21bn
in 1H20.
Read more on page 4.
Highlights
Performance in the first half of 2020 was heavily impacted by
the Covid-19 outbreak, geopolitical risk and market factors. The
outlook is highly uncertain and dependent on the path and speed of
economic recovery.
Financial performance (vs 1H19)
-- Reported profit after tax down 69% to $3.1bn and reported
profit before tax down 65% to $4.3bn from higher ECL and lower
revenue. Reported profit in 1H20 also included a $1.2bn impairment
of software intangibles, mainly in Europe.
-- In Asia, we reported profit before tax of $7.4bn in 1H20,
despite higher ECL, demonstrating the strength and continued
resilience of our operations in the region and underlining the
importance of Asia to the Group. Higher ECL charges materially
impacted profitability in our markets across the rest of the world,
notably in our operations throughout Europe.
-- Reported revenue down 9% to $26.7bn, reflecting the impact of
interest rate reductions, as well as adverse market impacts in life
insurance manufacturing and adverse valuation adjustments in GBM,
notably in 1Q20. These factors more than offset higher revenue in
Global Markets.
-- Net interest margin ('NIM') of 1.43% in 1H20, down 18 basis
points ('bps') from 1H19. NIM in 2Q20 was 1.33%, down 21bps from
1Q20, primarily reflecting the initial impact of the reduction in
interest rates due to the Covid-19 outbreak.
-- Reported ECL increased by $5.7bn to $6.9bn due to the impact
of the Covid-19 outbreak and the forward economic outlook, and due
to an increase in charges related to specific wholesale customers.
ECL (annualised) as a percentage of average gross loans and
advances to customers was 1.33% in 1H20, while allowance for ECL
against loans and advances to customers increased from $8.7bn at 31
December 2019 to $13.2bn at 30 June 2020.
-- Reported operating expenses down 4%, despite a $1.2bn
impairment of software intangibles. Adjusted operating expenses
fell 5%, despite continued investment, due to lower
performance-related pay and reduced discretionary costs.
-- In 1H20, lending decreased by $18bn on a reported basis. On a
constant currency basis, lending increased by $12bn, reflecting
corporate customers drawing on existing and new credit lines and
re-depositing these to increase cash balances in 1Q20, which was
partly offset by paydowns in 2Q20. Deposits grew by $93bn on a
reported basis and $133bn on a constant currency basis, with growth
in all global businesses, including through the depositing of loans
from government-backed schemes.
-- Common equity tier 1 capital ('CET1') ratio of 15.0%, up
30bps from 4Q19, as higher CET1 capital, which included an increase
from the cancellation of the 4Q19 dividend and the current
suspension of dividends on ordinary shares, more than offset the
impact of RWA growth.
Financial performance (vs 2Q19)
-- Reported profit after tax down 88% to $0.6bn and reported
profit before tax down 82% to $1.1bn due to higher ECL and lower
revenue, which included the non-recurrence of a 2Q19 dilution gain
of $0.8bn. This was partly offset by a reduction in operating
expenses, despite a $1.2bn impairment of software intangibles.
Financial performance (vs 1Q20)
-- Reported profit after tax down 75% to $0.6bn and reported
profit before tax down 66% to $1.1bn, reflecting higher ECL,
primarily in CMB, which reported a loss before tax in 2Q20. Lower
revenue reflected the impact of interest rate reductions, with net
interest margin falling by 21bps to 1.33%. This was partly offset
by the partial reversal of the adverse market impacts in life
insurance manufacturing and valuation adjustments in GBM recorded
in 1Q20. Results in 2Q20 were also adversely impacted by a $1.2bn
impairment of software intangibles.
Outlook for 2020
-- We continue to face a wide range of potential economic
outcomes for the second half of 2020 and into 2021 , partly
dependent on the extent of any potential impacts from new waves of
Covid-19, the path to the development of a possible vaccine and
market and consumer confidence levels. Heightened geopolitical risk
could also impact a number of our markets, including Hong Kong and
the UK.
-- Applying a range of weightings to our ECL sensitivity
analysis, as disclosed on pages 56 to 62, could result in an ECL
charge in the range of $8bn to $13bn for 2020. This range, which
continues to be subject to a high degree of uncertainty due to
Covid-19 and geopolitical tensions, is higher than at 1Q20 given
the deterioration in consensus economic forecasts and actual loss
experience during 2Q20.
-- Lower global interest rates and reduced customer activity
have put increasing pressure on revenue, and are expected to
continue to do so.
-- We intend to accelerate our transformation programme and
execute additional cost actions to help mitigate pressures on
revenue and create capacity for further investments in
technology.
-- We expect mid-to-high single-digit percentage growth in RWAs
in 2020, primarily from credit rating migration movements, which is
expected to have an adverse impact on our CET1 ratio. We will
continue to aim to reduce RWAs in low-returning areas, and improve
efficiency to allow resources to be further and faster allocated to
areas of competitive advantage, higher returns and growth.
-- Given the current high degree of uncertainty, we are
continuing to monitor closely the implications on our business plan
and medium-term financial targets, while also undertaking a review
of our future dividend policy. We intend to provide an update on
our medium-term financial targets and dividend policy at our
year-end results for 2020.
Key financial metrics
Half-year to
Reported results 30 Jun 2020 30 Jun 2019 31 Dec 2019
-------------------------------------------------- ----------- ----------- -------------
Reported revenue ($m) 26,745 29,372 26,726
Reported profit before tax ($m) 4,318 12,407 940
Reported profit after tax ($m) 3,125 9,937 (1,229)
Profit attributable to the ordinary shareholders
of the parent company ($m) 1,977 8,507 (2,538)
Cost efficiency ratio (%) 61.8 58.4 94.3
-------------------------------------------------- ----------- ----------- ----------
Basic earnings per share ($) 0.10 0.42 (0.13)
Diluted earnings per share ($) 0.10 0.42 (0.13)
Return on average ordinary shareholders'
equity (annualised) (%) 2.4 10.4 (3.0)
Net interest margin (%)(1) 1.43 1.61 1.58
-------------------------------------------------- ----------- ----------- ----------
Alternative performance measures
-------------------------------------------------- ----------- ----------- -------------
Adjusted revenue ($m) 26,477 27,815 26,632
Adjusted profit before tax ($m) 5,635 12,273 9,660
Adjusted cost efficiency ratio (%) 56.4 56.6 61.8
----------- ----------- ----------
Annualised expected credit losses and other
credit impairment charges ('ECL') as a
% of average gross loans and advances to
customers (%) 1.33 0.22 0.30
-------------------------------------------------- ----------- ----------- ----------
Return on average tangible equity (annualised)
(%)(1,2) 3.8 11.2 8.4
-------------------------------------------------- ----------- ----------- ----------
At
----------- ----------- -------------
Balance sheet 30 Jun 2020 30 Jun 2019 31 Dec 2019
-------------------------------------------------- ----------- ----------- -------------
Total assets ($m) 2,922,798 2,751,273 2,715,152
Net loans and advances to customers ($m) 1,018,681 1,021,632 1,036,743
Customer accounts ($m) 1,532,380 1,380,124 1,439,115
Average interest-earning assets ($m)(1) 2,034,939 1,912,708 1,922,822
Loans and advances to customers as % of
customer accounts (%) 66.5 74.0 72.0
Total shareholders' equity ($m) 187,036 192,676 183,955
Tangible ordinary shareholders' equity
($m) 147,879 145,441 144,144
Net asset value per ordinary share at period
end ($)(3,4) 8.17 8.35 8.00
Tangible net asset value per ordinary share
at period end ($)(4) 7.34 7.19 7.13
Capital, leverage and liquidity
-------------------------------------------------- ----------- ----------- -------------
Common equity tier 1 capital ratio (%)(5) 15.0 14.3 14.7
Risk-weighted assets ($m)(5) 854,552 885,971 843,395
Total capital ratio (%)(5) 20.7 20.1 20.4
Leverage ratio (%)(5) 5.3 5.4 5.3
High-quality liquid assets (liquidity value)
($bn) 654 533 601
-----------
Liquidity coverage ratio (%) 148 136 150
-----------
Share count
-------------------------------------------------- ----------- ----------- -------------
Period end basic number of $0.50 ordinary
shares outstanding (millions) 20,162 20,221 20,206
Period end basic number of $0.50 ordinary
shares outstanding and dilutive potential
ordinary shares (millions) 20,198 20,286 20,280
Average basic number of $0.50 ordinary
shares outstanding (millions) 20,162 20,124 20,191
----------
Dividend per ordinary share (in respect
of the period) ($)(1) - 0.20 0.30
-------------------------------------------------- ----------- ----------- ----------
1 For these metrics, half-year to 31 December 2019 is calculated
on a full-year basis and not a 2H19 basis.
2 Annualised profit attributable to ordinary shareholders,
excluding impairment of goodwill and other intangible assets and
changes in present value of in-force insurance contracts ('PVIF')
(net of tax), divided by average ordinary shareholders' equity
excluding goodwill, PVIF and other intangible assets (net of
deferred tax).
3 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.
4 Excludes impact of $0.10 per share dividend in 1Q19, following
a June 2019 change in accounting practice on the recognition of
interim dividends, from the date of declaration to the date of
payment.
5 Unless otherwise stated, regulatory capital ratios and
requirements are calculated in accordance with the transitional
arrangements of the Capital Requirements Regulation in force in the
EU at the time, including the regulatory transitional arrangements
for IFRS 9 'Financial Instruments' in article 473a. The capital
ratios and requirements at 31 December 2019 and 30 June 2020 are
reported in accordance with the revised Capital Requirements
Regulation and Directive ('CRR II'), as implemented, whereas the
Capital Requirements Regulation and Directive ('CRD IV') applied at
30 June 2019. Leverage ratios are calculated using the end point
definition of capital.
Group Chief Executive's review
We are helping our customers navigate their own path through
uncertainty and acting with pace and decisiveness to adapt HSBC to
an environment in which no business can afford to stand still.
The first six months of 2020 have been some of the most
challenging in living memory. Due to the Covid-19 pandemic, much of
the global economy slowed significantly and some sectors drew to a
near total halt.
This meant two things for HSBC. First, that the financial
performance of the bank inevitably suffered in line with the rest
of the global economy. But second, that the real measure of our
performance became our success in supporting our customers,
colleagues and communities during the pandemic, and in laying the
groundwork for the recovery to come.
Covid-19
In difficult times, HSBC's job has always been to support our
communities, provide stability and help build economic growth. I
have been immensely proud of the way our people have delivered this
purpose as the Covid-19 outbreak has unfolded.
Our approach has hinged on three themes - securing a continuous
service for all who rely on us; providing a financial bridge for
our personal and business customers beyond the crisis; and ensuring
that HSBC retains the strength to help our customers thrive once
restrictions begin to ease.
We maintained a high level of business continuity with 85% of
colleagues equipped to work from home, all of our customer contact
centres fully operational, and between 70% and 90% of our branches
open for business in the first half. We enhanced our digital
capabilities to serve more customers remotely, with faster access
and improved security. We also engaged with our regulators to
better enable customers to access a broad range of banking products
and services from their homes, including through remote
consultations and sales.
This underpinned our ability to get our customers the support
they need. For our personal lending customers, we granted more than
700,000 payment holidays on loans, credit cards and mortgages,
providing more than $27bn in customer relief in the first half of
the year. For our wholesale lending customers, we provided more
than $52bn of facilities to more than 172,000 customers globally
over the same period, both through government schemes and our own
relief initiatives.
As a global bank, HSBC played a vital role in keeping capital
flowing for our clients, arranging more than $1.1tn of loan, debt
and equity financing for our wholesale customers in the first six
months of 2020. Global Banking and Markets made a direct
contribution to the Covid-19 relief effort, helping to arrange more
than $48bn of financing for our clients through social and Covid-19
relief bonds.
We also took an early decision not to apply for government
support packages for employees across the countries in which we
operate.
Throughout all of this, the well-being of our people has been
our paramount concern. We have taken steps to enable our front-line
colleagues to do their jobs safely and effectively. For all our
colleagues, we have maintained a regular flow of communication and
listened closely to their needs, providing the support and
flexibility to help them manage their lives during the
pandemic.
"The real measure of our performance became our success in
supporting our customers, colleagues and communities."
This has been one of the most demanding periods that I can
remember for all of our people across HSBC. Many have had to juggle
personal and professional priorities, while adapting to new and
unfamiliar ways of working. I have been humbled by the dedication
and commitment that they have shown in incredibly tough
circumstances, and thank them deeply for all they have done - and
are doing - for our customers, communities and each other.
Transformation
On 18 February, we announced a substantial transformation
programme to ensure that HSBC is fit for the future. We published
plans to reshape underperforming businesses, simplify our complex
organisation and reduce our costs.
We are moving forward with these plans wherever we can. We have
already begun combining our wholesale back office operations, and
brought our retail, wealth and private banking businesses together
into a single global business - Wealth and Personal Banking. Our US
business has reduced its branch footprint, and Global Banking and
Markets has made good early progress in reducing its risk-weighted
assets. The lessons of the past six months are also being applied
more broadly, particularly from parts of the business that have
responded to a fast-moving situation with exceptional pace and
agility.
The operational risks posed by the Covid-19 outbreak meant that
we had to move more slowly in some areas than others. In March, I
paused the redundancy programme intended to deliver the reduction
in headcount we promised in February. It would have been wrong to
proceed with job losses at a time of significant stress for our
people and communities, and at a point when we needed to protect
our capacity to serve our customers. Now, many countries have
slowed the spread of the virus and are emerging from lockdown, and
we have adapted to new ways of working. I therefore decided in June
to lift the pause on redundancies, proceeding thoughtfully but
purposefully, while taking local considerations into account.
Now that many governments have become better accustomed to
managing the ebb and flow of the pandemic, we intend to accelerate
implementation of the plans we announced in February. At the same
time, our operating environment has changed significantly since the
start of the year. We will also therefore look at what additional
actions we need to take in light of the new economic environment to
make HSBC a stronger and more sustainable business.
Financial performance
A good start to the year in January and February was
overshadowed from March onwards by the Covid-19 outbreak and the
impact of falling interest rates.
The sharp increase in expected credit losses that followed
impacted all markets, but particularly those outside Asia. ECL grew
further from the first to the second quarter as the economic
outlook deteriorated, with increases in both stage 1 and 2
allowances. Stage 3 ECL were up overall but broadly stable during
the first half, although the first quarter included a charge in
Singapore unrelated to the Covid-19 crisis.
First half reported revenue was 9% lower than last year's first
half, due mainly to the effects of interest rate cuts made at the
start of the year across our deposit franchises. By contrast, our
Asia businesses showed good resilience and Global Markets grew
revenue on the back of higher client activity.
Response to Covid-19
Operational response
Our operations have stayed highly resilient:
Approximately
90%
of our branch network remained open for business globally, as at
30 June 2020.
Approximately
85%
of our employees are now equipped to work from home.
"We have taken steps to enable our front-line colleagues to do
their jobs safely and effectively."
We took further action on costs in response to the weaker
revenue environment, reducing both performance-related pay and
discretionary spending. Together with our ongoing cost-saving
initiatives, this helped reduce reported operating expenses by
4%.
While these cost measures mitigated some of the adverse effects
of the radically changed economic environment, reported first half
profit before tax was 65% lower than the same period last year, and
adjusted profit before tax fell by 54%.
Lending decreased by $18bn in the first half. Customers
initially drew on new and existing credit lines in the first
quarter in response to the Covid-19 outbreak, but began to pay
these down in the second quarter as circumstances changed. Deposits
rose by $93bn in the first half, as customers increased their cash
reserves and reduced their spending during lockdown.
We continued to invest in the future of the business while
managing costs down, spending $2.8bn on technology in the first six
months of the year.
Our balance sheet remains robust with a CET1 ratio of 15.0% and
strong liquidity and funding.
Facing the future
Our performance in the second half of the year will continue to
be influenced by the path and economic impact of the Covid-19
outbreak. Geopolitical uncertainty could also weigh heavily on our
clients, particularly those impacted by heightened US-China and
UK-China tensions, and the future of UK-EU trade relations.
Amid the current uncertainty, we remain focused on the things we
can control - helping our customers navigate their own path to a
complex future, and acting with pace and decisiveness to adapt HSBC
to an environment in which no business can afford to stand
still.
HSBC has always helped our clients manage complexity. There have
been many times in the last 155 years when geopolitics has altered
the nature of trade, or disruptive forces have changed entire
industries. On each occasion, HSBC has adapted and innovated to
help our customers when they need us most, and we will do so
again.
We start from a strong position. As the world's leading trade
bank(1) , we have the knowledge and network to help customers
reorder their supply chains securely and sustainably. As the
world's number one bank for green, social and sustainable bonds(2)
, we have the experience and expertise to help customers finance
their transition to a cleaner, more resilient future. These are
important strengths, but we have to keep investing to maintain them
and to provide the agile, responsive and entrepreneurial service
that our clients require.
Like our clients, HSBC has to operate in a difficult
geopolitical environment. Current tensions between China and the US
inevitably create challenging situations for an organisation with
HSBC's footprint. However, the need for a bank capable of bridging
the economies of east and west is acute, and we are well placed to
fulfil this role. We will face any political challenges that arise
with a focus on the long-term needs of our customers and the best
interests of our investors.
Response to Covid-19
Customer response
We are participating in several Covid-19 relief programmes to
deploy a range of support measures for our customers at pace.
We arranged more than
$48bn
of financing through social and Covid-19 relief bonds in
1H20.
We granted more than
700,000
payment holidays for personal lending customers in 1H20.
We provided more than
$52bn
of lending facilities for our wholesale customers in 1H20.
"HSBC has always helped our clients manage complexity."
As we seek to accelerate our transformation in the second half
of the year, I am mindful of the impact it will have for some of
our people, particularly those leaving us. As necessary as these
changes are, the human impact is a matter of deep personal regret
to me. We will make sure that all those leaving HSBC as part of our
transformation will be treated with fairness and consideration, and
will receive support in finding new employment.
Finally, HSBC is a global bank serving customers from many
different backgrounds. We therefore need to resemble the
communities we serve. In May, we launched a new global ethnicity
inclusion programme to better enable careers and career progression
for colleagues from ethnic minorities, and in July, we made a
series of commitments to address feedback from Black colleagues in
particular. However, I want us to be judged by our actions, not our
words. We will therefore provide more information about the
ethnicity of our workforce in our annual reporting in February, so
that our stakeholders can hold us accountable.
Noel Quinn
Group Chief Executive
3 August 2020
1 Euromoney, Trade Finance Survey, January 2020
2 Dealogic, Sustainable Finance Bond league table, 1H20
How we do business
We conduct our business intent on supporting the sustained
success of our customers, people and other stakeholders.
Our approach
Our purpose is to connect customers to opportunities. To achieve
our purpose, we need to build strong relationships with all of our
stakeholders, including customers, employees and the communities in
which we operate. This will help us deliver our strategy and
operate our business in a way that is sustainable.
Our Covid-19 actions
Our ability to help our stakeholders is more important than ever
during these challenging and unprecedented times. In the first half
of 2020, we continued to promote and encourage good conduct through
our people's behaviour and decision making to deliver fair outcomes
for customers and preserve market integrity. This included our
continuing focus on the needs of vulnerable customers in our
product and process design.
We developed a number of digital enhancements to support the
ongoing delivery of fair outcomes for our customers in different
markets. This included the development of video conferencing
guidance to ensure we continue to provide services and products to
our customers securely when there is limited access to
branches.
We have also played a lead role in issuing social and Covid-19
relief bonds to help raise funds for communities affected by
Covid-19, and provided innovative supply chain solutions to help
our business customers, as set out in the examples on this
page.
On the following page, we have set out further ways that we have
supported our stakeholders, including our communities, customers,
employees, investors, regulators and governments, and
suppliers.
Our approach to diversity
Our actions are focused on ensuring our people are valued,
respected and supported to fulfil their potential and thrive. Our
global ethnicity inclusion programme, which launched in May, is
designed to improve the data and reporting of our people's ethnic
backgrounds. It will help us take specific actions to enable the
careers and career progression of all our colleagues in a
supportive and inclusive way.
We are listening to what our colleagues are telling us in
response to the Black Lives Matter movement. We are implementing
further plans to develop senior Black talent and help diversify the
ethnicity profile of HSBC's senior leadership through targeted
development interventions. We aim to build a pipeline of future
Black talent by strengthening our recruitment processes and
partnering with a specialist search firm.
Further details on our plans and progress will be included in
our Annual Report and Accounts 2020.
Social bonds fund Covid-19 response
We played a lead role in the issuance of the Bank of China Macau
branch's HK$4bn social bond, with proceeds earmarked to help small
firms hit by the Covid-19 crisis. The funds will be used to provide
loans to micro, small and medium-sized enterprises in Macau to help
generate employment in industries that have struggled due to the
sharp drop in tourism.
We helped to arrange $66bn-worth of social and Covid-19 relief
bonds in the first half of 2020, with proceeds supporting responses
to the pandemic and projects that aim to deliver a positive
societal impact.
Easing supply chain strains with trade finance solutions
We are working closely with our customers and governments to
help ensure that the flow of critical goods and documents continues
during Covid-19 lockdown restrictions. We are helping governments
secure personal protective equipment and other critical medical
goods, for example, by using our automated utility for sanctions
and anti-money laundering controls to navigate risk. We are also
supporting clients to deliver critical medical items through
fast-track credit approvals. We provided more than 50,000 repayment
extensions to our trade finance customers in the first half of
2020, and are helping them to manage liquidity in their end-to-end
supply chains.
Supporting our
stakeholders How we have engaged
through Covid-19
The Covid-19
outbreak has
created a great
deal of uncertainty
and disruption
for the people,
businesses and
communities we
serve around
the world. It
is affecting
everyone in different
ways, with markets
at different
stages of the
crisis. We are
tailoring our
response to the
different circumstances
and situations
in which our
stakeholders
find themselves.
Our stakeholders
The Covid-19 outbreak has posed significant challenges
for our customers worldwide. Our immediate priority is
to do what we can to provide them with support and flexibility.
This has included offering payment holidays and restructuring
mortgage payments, as well as extending relief loans
or temporary credit limit increases for borrowers.
We are working across many markets to offer relief through
market-wide and HSBC-led schemes. In the UK, we granted
relief to our personal lending customers on 65,000 mortgage
accounts and 153,000 personal loan and credit card accounts
during the first half of the year. In Hong Kong, we initiated
a simple digital and branch registration process to help
customers gain access to government funds, following
the launch of a government cash payout scheme. On the
first day of the scheme, we received one million registrations.
For our wholesale lending customers, we provided approximately
$33bn of facilities through market-wide schemes and $19bn
via HSBC-led schemes in the first half of the year, and
helped them to navigate the current environment. For
further details on our customer relief programmes, see
page 66.
We have taken steps to keep many of our branches open
while protecting customers and employees. However, with
customers doing more of their banking online, we have
also deployed new technology to help enable them to engage
with us in new ways, including video calls with personal
and business relationship managers, and, in some markets,
Customers online capabilities for payment relief programmes.
Employees We moved quickly to protect our people. More than 230,000,
or 85%, of our total workforce are now enabled to work
from their homes if needed.
We provided new and enhanced well-being support to employees
during this challenging time. Our dedicated Covid-19
resources are accessible to everyone and include expert
medical guidance, education on mental health awareness,
training on how to lead remote teams, and advice on managing
stress and working remotely. Our employee assistance
programmes, which provide confidential counselling to
employees, continue to provide clinical support.
We have encouraged a culture of looking out for each
other, and our employee networks have held regular support
calls for those experiencing mental health challenges,
and for those with caring responsibilities.
Listening to employees is vital to ensure we provide
the right support. More than 118,000 employees responded
to our employee survey, helping us understand how Covid-19
is impacting them and their thoughts about the future.
Overall, 89% of people said they were getting the information
they needed and 86% reported they were getting the support
they needed from their line manager. We continue to use
this data and insight to shape our work.
Communities In the first half of the year, we committed more than
$20m of donations for programmes and partners that support
the medical response, relieve food insecurity and provide
access to help for vulnerable people.
Regulators and We have engaged proactively with regulators and governments
governments globally regarding the policy changes issued in response
to Covid-19 to help our customers, to contribute to normalisation
and recovery, and to manage the operational capacity
at both banks and regulators.
Suppliers We made early payments to thousands of our suppliers
during the first half of the year to support them through
the pandemic.
Investors At this year's Annual General Meeting ('AGM'), it was
unfortunately not possible for shareholders to attend
due to the introduction of social distancing measures.
Shareholders were instead encouraged to vote by proxy
and submit questions in advance. After the AGM, responses
to the most frequent questions across key themes were
published on our website.
HSBC, in line with all other large UK-based banks and
at the direct request of the Group's lead regulator (the
UK Prudential Regulation Authority), cancelled the fourth
interim dividend of 2019. We have also suspended dividend
payments until the end of 2020. We profoundly regret
the impact this will have on shareholders, their families
and their businesses. The Board will review the position
at the 2020 year-end results.
Financial overview
In assessing the Group's financial performance, management uses
a range of financial measures that focus on the delivery of
sustainable returns for our shareholders and maintaining our
financial strength.
Executive summary
Performance in the first half of 2020 was heavily impacted by
the Covid-19 outbreak, geopolitical risk and market factors.
Reported profit before tax of $4.3bn fell by 65% compared with
1H19, while adjusted profit before tax of $5.6bn decreased by 54%,
mainly from higher ECL and lower revenue. The annualised return on
average tangible equity ('RoTE') for 1H20 was 3.8%, compared with
11.2% in 1H19.
Revenue declined compared with 1H19, reflecting the impact of
interest rate reductions, as well as adverse market impacts in life
insurance manufacturing in WPB and adverse valuation adjustments in
GBM, notably in 1Q20. Notwithstanding these factors, certain parts
of the Group have remained resilient, notably our Asian franchises
including Hong Kong, while our Global Markets business delivered
growth compared with 1H19. The increase in ECL and lower revenue
were in part mitigated by lower operating expenses due to
reductions in the performance-related pay accrual and lower
discretionary expenditure. The 1H20 period also included a $1.2bn
impairment of capitalised software related principally to
businesses within HSBC Bank plc, our non-ring-fenced bank in
Europe. This reflected underperformance and a deterioration in the
future forecasts of these businesses, substantially relating to
prior periods.
The outlook remains highly uncertain. We will continue to
monitor closely the implications on our business plan, while also
undertaking a review of our future dividend policy. We intend to
provide an update on our medium-term financial targets and dividend
policy at our year-end results for 2020.
Reported results
Half-year to Quarter ended
30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Mar
2020 2019 2019 2020 2019 2020
Reported results $m $m $m $m $m $m
--------------------------------- -------- -------- -------- ------- ------- ---------
Net operating income before
change in expected credit
losses and other credit
impairment charges ('revenue') 26,745 29,372 26,726 13,059 14,944 13,686
ECL (6,858) (1,140) (1,616) (3,832) (555) (3,026)
Net operating income 19,887 28,232 25,110 9,227 14,389 10,660
Total operating expenses (16,527) (17,149) (25,200) (8,675) (8,927) (7,852)
------- ------- -------
Operating profit/(loss) 3,360 11,083 (90) 552 5,462 2,808
Share of profit in associates
and joint ventures 958 1,324 1,030 537 732 421
Profit before tax 4,318 12,407 940 1,089 6,194 3,229
Tax expense (1,193) (2,470) (2,169) (472) (1,167) (721)
Profit/(loss) after tax 3,125 9,937 (1,229) 617 5,027 2,508
--------------------------------- ------- ------- ------- ------ ------ ------
Reported performance 1H20 vs 1H19
Reported profit
Reported profit after tax of $3.1bn in 1H20 was $6.8bn or 69%
lower than in 1H19.
Reported profit before tax of $4.3bn was $8.1bn or 65% lower
than in 1H19, primarily due to a rise in reported ECL, reflecting
the impact of the Covid-19 outbreak on the economic outlook. The
reduction also reflected lower reported revenue, reflecting the
impact of interest rate reductions, as well as adverse market
impacts in life insurance manufacturing in WPB and adverse
valuation adjustments in GBM, notably in 1Q20. Lower revenue also
reflected the non-recurrence of an $828m dilution gain in 1H19
recognised on the completion of the merger of our associate The
Saudi British Bank ('SABB') with Alawwal bank in Saudi Arabia.
These reductions were in part mitigated by lower reported operating
expenses as we reduced the performance-related pay accrual and
lowered discretionary expenditure. The 1H20 period also included a
$1.2bn impairment of capitalised software related principally to
businesses within HSBC Bank plc. This reflected underperformance
and a deterioration in the future forecasts of these businesses,
substantially relating to prior periods. This impairment has been
recognised as a significant item, with $1.0bn included within
'impairment of goodwill and other intangibles' and $0.2bn included
within 'restructuring and other related costs'.
Results in 1H20 included certain volatile items, which impacted
revenue. These included adverse market impacts in life insurance
manufacturing in WPB of $334m (1H19: $152m favourable), while GBM
included an adverse movement in credit and funding valuation
adjustments of $355m (1H19: $14m favourable) and losses in
Principal Investments of $12m (1H19: $122m favourable). Results
also included favourable movements on our long-term debt and
associated swaps in Corporate Centre of $195m (1H19: $143m
favourable). In 1H19, results included disposal gains in WPB and
CMB of $157m.
Our operations across Asia delivered resilient performances
during 1H20, despite interest rate headwinds, adverse market
impacts in life insurance manufacturing and a rise in ECL. In 1H20,
reported profit before tax in Asia represented more than 170% of
Group profits, underlining the importance of the region to the
Group. Outside of Asia, the increase in ECL and interest rate
reductions adversely affected the profitability of our operations,
most notably across Europe, including HSBC UK plc, our ring-fenced
bank in Europe, while HSBC Bank plc was also impacted by an
impairment of software intangibles.
Reported revenue
Reported revenue of $26.7bn was $2.6bn or 9% lower than in 1H19,
reflecting the impact of interest rate reductions across our global
businesses, most notably in Retail Banking and Global Liquidity and
Cash Management ('GLCM'). In addition, the reduction reflected
adverse market impacts in life insurance manufacturing in WPB and
adverse valuation adjustments in GBM, both notably in the first
quarter. These factors more than offset higher revenue in Global
Markets as increased volatility resulted in higher client
activity.
The reduction in reported revenue included net adverse movements
in significant items of $0.6bn, primarily from the non-recurrence
of a $0.8bn dilution gain in 1H19, as mentioned above.
Reported ECL
Reported ECL of $6.9bn were $5.7bn higher than in 1H19, with
increases across all global businesses, mainly from charges
relating to the global impact of the Covid-19 outbreak on the
forward economic outlook. The increase also reflected higher
charges related to specific wholesale exposures, including a
significant charge related to a corporate exposure in Singapore in
CMB.
The estimated impact of the Covid-19 outbreak was incorporated
in the ECL through additional scenario analysis, which considered
differing severity and duration assumptions relating to the global
pandemic. These included probability-weighted shocks to annual GDP
and consequential impacts on unemployment and other economic
variables, with differing economic recovery assumptions.Given the
severity of the macroeconomic projections, and the complexities of
the government measures, which have never been modelled, additional
judgemental adjustments have been made to our provisions.
For further details on the calculation of ECL, including the
measurement uncertainties and significant judgements applied to
such calculations, the impact of alternative/additional scenarios
and post model-adjustments, see pages 56 to 62.
Reported operating expenses
Reported operating expenses of $16.5bn were $0.6bn or 4% lower
than in 1H19 and included favourable foreign currency translation
differences of $0.5bn and net adverse movements in significant
items of $0.6bn, which included:
-- a $1.0bn impairment of capitalised software related
principally to businesses within HSBC Bank plc. This reflected
underperformance and a deterioration in the future forecasts of
these businesses, substantially relating to prior periods (for more
information, see Note 11 on the interim condensed financial
statements); and
-- higher restructuring and other related costs of $0.5bn, of
which $116m related to severance and $0.2bn related to an
impairment of software intangibles, compared with $0.3bn in
1H19.
This was partly offset by:
-- customer redress programme costs in respect of payment
protection insurance ('PPI') of $0.1bn in 1H20, compared with
$0.6bn in 1H19.
The remaining reduction reflected lower performance-related pay
and discretionary expenditure, while we continued to invest in
technology.
Reported share of profit in associates and joint ventures
Reported share of profit in associates of $1.0bn fell $366m or
28%, primarily reflecting the impact of the Covid-19 outbreak and
the lower interest rate environment on the share of profit we
recognise from our associates.
Tax expense
The effective tax rate for 1H20 of 27.6% was higher than the
19.9% for 1H19, primarily reflecting the non-recognition of
deferred tax on losses in the UK in 1H20. The effective tax rate
for 1H19 was reduced by the non-taxable dilution gain arising on
the merger of SABB with Alawwal bank in Saudi Arabia.
Reported 1H20 profit after tax ($bn)
$3.1bn
Basic earnings per share for 1H20 ($)
$0.10
Reported performance 2Q20 vs 2Q19
Reported profit
Reported profit after tax of $0.6bn in 2Q20 was $4.4bn or 88%
lower than in 2Q19.
Reported profit before tax of $1.1bn was $5.1bn or 82% lower.
This decrease reflected a significant rise in reported ECL and
lower reported revenue, primarily in our CMB business, which
reported a loss before tax in 2Q20, as well as in WPB. These
factors were partly offset by reported revenue growth in GBM, as
well as a reduction in reported operating expenses.
The reduction in profit before tax included the impact of the
non-recurrence of a 2Q19 dilution gain of $0.8bn in Saudi Arabia,
and a $1.2bn impairment of software intangibles in Europe. However,
results were favourably affected by lower charges in respect of
PPI.
Reported revenue of $13.1bn was $1.9bn or 13% lower, which
included the non-recurrence of the dilution gain mentioned above.
The impact of interest rate reductions adversely affected deposit
revenue in Retail Banking and GLCM, which resulted in lower revenue
in both WPB and CMB. Wealth management revenue in WPB was broadly
unchanged. This reflected the partial reversal in 2Q20 of the
significant adverse movement in market impacts in life insurance
manufacturing recorded in 1Q20, offset by the lower demand for
investment products due to market uncertainty. The reductions in
WPB and CMB were partly offset by higher revenue in our Global
Markets business in GBM as increased market volatility resulted in
higher client activity.
ECL increased by $3.3bn to $3.8bn, largely from charges relating
to the ongoing global impact of the Covid-19 outbreak and the
forward economic outlook, and from charges relating to a small
number of wholesale exposures in 2Q20.
Reported operating expenses of $8.7bn were $0.3bn or 3% lower,
reflecting a reduction in discretionary expenditure and lower
performance-related pay, partly offset by the impact of a $1.2bn
impairment of software intangibles.
Reported share of profit in associates and joint ventures fell
by $0.2bn, primarily reflecting the impact of the Covid-19 outbreak
and the lower interest rate environment on the share of profit we
recognise from our associates.
Reported 2Q20 profit after tax ($bn)
$0.6bn
(2Q19: $5.0bn)
Adjusted results
Our reported results are prepared in accordance with
International Financial Reporting Standards ('IFRSs') as detailed
in the financial statements on page 240 of the Annual Report and
Accounts 2019.
We also present alternative performance measures. Adjusted
performance is an alternative performance measure used to align
internal and external reporting, identify and quantify items
management believes to be significant, and provide insight into how
management assesses period-on-period performance. Alternative
performance measures are highlighted with the following symbol:
<>
To derive adjusted performance, we adjust for:
- the period-on-period effects of foreign currency translation
differences; and
- the effect of significant items that distort period-on-period
comparisons, which are excluded in order to improve understanding
of the underlying trends in the business.
The results of our global businesses are presented on an
adjusted basis, which is consistent with how we manage and assess
global business performance.
For reconciliations of our reported results to an adjusted
basis, including lists of significant items, see page 33.
Half-year to 1H20 vs 1H19
-------------------------------
30 Jun 30 Jun 31 Dec
2020 2019 2019
Adjusted results $m $m $m $m %
------------------------------- -------- -------- --------- --------
Revenue 26,477 27,815 26,632 (1,338) (5)
ECL (6,858) (1,088) (1,554) (5,770) >(100)
Total operating expenses (14,942) (15,739) (16,448) 797 5
Operating profit 4,677 10,988 8,630 (6,311) (57)
Share of profit in associates
and joint ventures 958 1,285 1,030 (327) (25)
Profit before tax 5,635 12,273 9,660 (6,638) (54)
------------------------------- ------- ------- ------- -------- -----
Adjusted performance - 1H20 vs 1H19
Adjusted profit before tax
Adjusted profit before tax of $5.6bn was $6.6bn or 54% lower
than in 1H19, primarily from higher adjusted ECL and lower adjusted
revenue. Adjusted ECL increased by $5.8bn, mainly from charges
relating to the global impact of the Covid-19 outbreak on the
forward economic outlook. Adjusted revenue decreased by $1.3bn,
primarily from interest rate reductions across our deposit
franchises, as well as the effects of a sharp fall in equity
markets and widening of credit spreads towards the end of the first
quarter of 2020, although there was a partial recovery in equity
markets and a tightening of credit spreads during the second
quarter. This was partly offset by higher revenue from Global
Markets. Adjusted operating expenses decreased by $0.8bn as we
lowered the performance-related pay accrual and reduced
discretionary expenditure while continuing to invest in our
businesses.
Reconciliation of reported to adjusted profit before tax
Half-year to
-----------------------------------
30 Jun 2020 30 Jun 2019 31 Dec 2019
$m $m $m
----------------------------------- ----------- -------------
Reported profit before tax 4,318 12,407 940
Currency translation (215) 9
----------- ---------- ----------
Significant items: 1,317 81 8,711
- costs of structural reform - 91 67
-----------------------------------
- customer redress programmes 24 610 834
- disposals, acquisitions
and investment in new businesses 8 (827) 59
- fair value movements on
financial instruments (299) (50) (34)
- impairment of goodwill
and other intangibles 1,025 - 7,349
- restructuring and other
related costs 554 287 540
- settlements and provisions
in connection with legal
and regulatory matters 5 (2) (59)
- currency translation on
significant items - (28) (45)
---------- ---------- ----------
Adjusted profit before tax 5,635 12,273 9,660
----------------------------------- ---------- ---------- ----------
Adjusted revenue
Adjusted revenue of $26.5bn was $1.3bn or 5% lower than in 1H19,
reflecting falls in WPB (down $1.6bn) and CMB (down $0.6bn), partly
offset by higher revenue in GBM (up $0.6bn) and Corporate Centre
(up $0.3bn).
The reduction in adjusted revenue reflected lower interest rates
in many of the key markets in which we operate. This had an adverse
impact on revenue from Retail Banking within WPB, and from GLCM
within CMB and GBM, although we continued to grow average balances
across these businesses. In addition, lower revenue included
adverse movements in market impacts of $482m in life insurance
manufacturing within WPB, following a weakening of global equity
prices and lower interest rates. It also included an adverse
movement in credit and funding valuation adjustments (down $0.4bn)
and losses in Principal Investments of $12m, compared with gains in
1H19 of $120m in GBM. In 1H19, adjusted revenue included disposal
gains in WPB and CMB of $157m.
These reductions were partly offset by higher revenue in Global
Markets as increased market volatility resulted in higher client
activity. Revenue also rose in Corporate Centre, which included
favourable fair value movements of $0.1bn relating to the economic
hedging of interest rate and exchange rate risk on our long-term
debt with associated swaps, notably in 1Q20.
Revenue relating to Balance Sheet Management ('BSM'), Holdings
net interest expense and Argentina hyperinflation was $0.4bn
higher, primarily due to disposal gains in BSM. This revenue is
allocated to our global businesses.
Adjusted ECL
Adjusted ECL, which removes the period-on-period effects of
foreign currency translation differences, were $6.9bn, an increase
of $5.8bn from 1H19. This increase occurred in WPB (up $1.7bn), CMB
(up $3.0bn) and GBM (up $1.0bn) and mainly reflected charges
related to the global impact of the Covid-19 outbreak and the
forward economic outlook in all of our global businesses. In
addition to these charges, ECL in 1H20 included a significant
charge related to a corporate exposure in Singapore in CMB, and
charges against a small number of corporate exposures in GBM.
Adjusted ECL (annualised) as a percentage of average gross loans
and advances to customers was 1.33%, compared with 0.22% in
1H19.
Adjusted operating expenses
Adjusted operating expenses of $14.9bn were $0.8bn or 5% lower
than in 1H19, as we continue to review and reprioritise costs and
investments to help mitigate revenue headwinds. The decrease
primarily reflected a $0.6bn reduction in the performance-related
pay accrual and lower discretionary expenditure, including
marketing (down $0.2bn) and travel costs (down $0.1bn). In
addition, our cost-saving initiatives resulted in a reduction of
$0.3bn. These decreases were partly offset by an increase of $0.2bn
on investments in technology to enhance our digital capabilities
and increase automation to improve how we serve our customers.
The number of employees expressed in full-time equivalent staff
('FTE') at 30 June 2020 was 232,764, a decrease of 2,587 compared
with 31 December 2019. The number of contractors at 30 June 2020
was 6,221, a decrease of 1,190 from 31 December 2019.
Adjusted share of profit in associates and joint
ventures<>
Adjusted share of profit from associates of $1.0bn was $0.3bn or
25% lower than in 1H19, primarily reflecting the impact of the
Covid-19 outbreak and the lower interest rate environment on the
share of profit we recognise from our associates.
Balance sheet and capital
$2,923bn
15.0%
Balance sheet strength
Total assets of $2.9tn were $208bn or 8% higher than at 31
December 2019 on a reported basis, and 11% higher on a constant
currency basis. The increase in total assets included growth in
cash balances and in financial investments, as well as from an
increase in derivative assets, mainly reflecting gains on interest
rate derivatives. The increase in derivative assets was consistent
with the increase in derivative liabilities as the underlying risk
is broadly matched. On a constant currency basis, loans and
advances to customers grew by $12bn during 1H20.
Customer accounts of $1.5tn increased by $93bn, or $133bn on a
constant currency basis, as corporate and personal customers
consolidated their funds and redeployed them into cash, with growth
in all global businesses. The growth reflected customers spending
less during lockdown restrictions and the depositing of loans from
government-backed schemes.
Distributable reserves
The distributable reserves of HSBC Holdings at 30 June 2020 were
$33.1bn, compared with $31.7bn at 31 December 2019. The increase
was primarily driven by profits generated during the year.
Capital position
We actively manage the Group's capital position to support our
business strategy and meet our regulatory requirements at all
times, including under stress, while optimising our capital
efficiency. To do this, we monitor our capital position using a
number of measures. These include: our capital ratios, the impact
on our capital ratios as a result of stress, and the degree of
double leverage being run by HSBC Holdings. Double leverage is a
constraint on managing our capital position, given the complexity
of the Group's subsidiary structure and the multiple regulatory
regimes under which we operate. For further details, see page
77.
Our CET1 ratio at 30 June 2020 was 15.0%, up from 14.7% at 31
December 2019. This increase included the impact of the
cancellation of the 4Q19 dividend and the current suspension of
dividends on ordinary shares. These increases were partly offset by
an increase in RWAs.
Liquidity position
We actively manage the Group's liquidity and funding to support
our business strategy and meet regulatory requirements at all
times, including under stress. To do this, we monitor our position
using a number of risk appetite measures, including the liquidity
coverage ratio and the net stable funding ratio. At 30 June 2020,
we held high-quality liquid assets of $654bn.
Wealth and Personal Banking
Contribution to Group 1H20 adjusted profit before
tax<>
% contribution
to Group
30%
WPB was formed in the second quarter by combining our Retail
Banking and Wealth Management and Global Private Banking
businesses. We supported our customers during the Covid-19 crisis
through payment holidays, short-term credit facilities and access
to cash. We continue to invest in digital capabilities to make it
easier for customers to bank with us. Performance in 1H20 reflected
a rise in adjusted ECL charges and a decline in adjusted revenue
from the fall in global equity prices and lower interest rates.
We provide a full range of retail banking and wealth services to
more than 39 million customers from personal banking to ultra high
net worth individuals and their families.
We offer locally-tailored products and services across multiple
channels for our customers' everyday banking needs, as well as
insurance, investment management and Private Wealth Solutions for
those with more sophisticated requirements. Our global presence
provides for customers with international needs.
Half-year to 1H20 vs 1H19
--------------------
30 Jun 31 Dec
30 Jun
2020 2019 2019
Adjusted results $m $m $m $m %
-------------------- ------- ------- --------- --------
Net operating
income 11,251 12,861 12,492 (1,610) (13)
ECL (2,202) (527) (829) (1,675) >(100)
Operating expenses (7,346) (7,551) (7,685) 205 3
Share of profit
in associates
and JVs (8) 41 11 (49) >(100)
Profit before
tax 1,695 4,824 3,989 (3,129) (65)
RoTE excluding
significant items
and UK bank levy
(annualised,
YTD) (%) 6.0 22.1 19.7
-------------------- ------ ------ ------ --------- --------
1H20 vs
Half-year to 1H19
------------------------------------------------
30 Jun 31 Dec
30 Jun
2020 2019 2019
Management view of adjusted revenue $m $m $m $m %
------------------------------------------------ ------ ------ ------- ------
Retail Banking 6,896 7,649 7,879 (753) (10)
- net interest income 6,301 6,810 7,067 (509) (7)
- non-interest income 595 839 812 (244) (29)
Wealth Management 3,606 4,506 4,056 (900) (20)
- investment distribution 1,602 1,696 1,554 (94) (6)
- life insurance manufacturing 587 1,371 1,078 (784) (57)
- Global Private Banking 921 925 927 (4) -
net interest income 372 441 439 (69) (16)
non-interest income 549 484 488 65 13
- asset management 496 514 497 (18) (4)
Other(1) 262 404 366 (142) (35)
Balance Sheet Management, Holdings
interest expense and Argentina hyperinflation 487 302 191 185 61
Net operating income(2) 11,251 12,861 12,492 (1,610) (13)
1 'Other' mainly includes interest on capital and the
distribution and manufacturing (where applicable) of non-wealth
insurance products.
2 'Net operating income' means net operating income before
change in expected credit losses and other credit impairment
charges (also referred to as 'Revenue').
Financial performance
Adjusted profit before tax of $1.7bn in 1H20 was $3.1bn or 65%
lower than in 1H19. This reflected an increase in adjusted ECL, as
well as lower adjusted revenue. Lower revenue was driven by a
reduction in life insurance manufacturing revenue largely from
negative market impacts following a fall in equity markets in 1Q20,
although these losses were partially reversed in 2Q20 as equity
markets recovered. Retail Banking revenue was also lower from the
reduction in interest rates.
Adjusted revenue of $11.3bn was $1.6bn or 13% lower, and
included the non-recurrence of 1H19 disposal gains in Argentina and
Mexico of $133m.
In Retail Banking, revenue of $6.9bn was down $0.8bn or 10%.
-- Net interest income was $0.5bn lower due to narrower margins,
notably in the second quarter, as global interest rates fell as a
result of the Covid-19 outbreak. This reduction was partly offset
by deposit balance growth of $57bn or 9%, particularly in Hong Kong
and the UK, and lending balance growth of $14bn or 4% compared with
1H19.
-- Non-interest income declined by $0.2bn from lower fee income
earned on unsecured lending products.
In Wealth Management, revenue of $3.6bn was down $0.9bn or
20%.
-- Life insurance manufacturing revenue reduced by $0.8bn or
57%, primarily from an adverse movement in market impacts of $482m
(an adverse movement of $334m in 1H20, compared with a favourable
movement of $148m in 1H19). The value of new business written fell
by $0.3bn or 37% as the reduction in volumes resulting from the
Covid-19 outbreak was in part mitigated by actions to support
remote engagement with customers, including digital enhancements to
sales processes.
-- Investment distribution revenue was $0.1bn or 6% lower
reflecting adverse market conditions in Hong Kong, which resulted
in lower mutual fund sales, partly offset by higher brokerage fees
from increased transaction volumes.
-- Global Private Banking revenue was stable, as higher
investment revenue from increased market volatility and a rise in
fees from advisory and discretionary mandates was broadly offset by
the impact of lower interest rates on deposit revenue.
Adjusted ECL of $2.2bn were $1.7bn higher than in 1H19,
reflecting the global impact of the Covid-19 outbreak on the
forward economic outlook of $1.2bn and from higher charges, notably
in the UK, Asia and the US against unsecured lending driven by
moderate credit deterioration.
Adjusted operating expenses of $7.3bn were $0.2bn or 3% lower,
as a lower performance-related pay accrual and reduced
discretionary expenditure more than offset the impact of inflation
and our continued investment in digital and wealth initiatives.
Divisional highlights
$1.4tn
WPB wealth balances at 30 June 2020. This was a 3% year-on-year
increase, and broadly unchanged from 31 December 2019.
$17bn
Growth in mortgage book in the UK (up 6%) and Hong Kong (up 5%)
since 30 June 2019.
Adjusted profit before tax
($bn)
$1.7bn
Adjusted net operating income
($bn)
$11.3bn
Commercial Banking
Contribution to Group 1H20 adjusted profit before tax
% contribution
to Group
3%
CMB continued to support our customers' liquidity and working
capital needs, growing lending and deposit balances, while our
ongoing investment in technology has enabled us to support
customers under exceptionally challenging conditions. Performance
in 1H20 was adversely impacted by an increase in adjusted ECL
charges and the fall in interest rates globally.
We support approximately 1.3 million business customers in 53
countries and territories, ranging from small enterprises focused
primarily on their domestic markets to large companies operating
globally.
We help entrepreneurial businesses grow by supporting their
financial needs, facilitating cross-border trade and payment
services, and providing access to products and services offered by
other global businesses.
1H20 vs
Half-year to 1H19
--------------------
30 Jun 31 Dec
30 Jun
2020 2019 2019
Adjusted results $m $m $m $m %
-------------------- ------- ------- ------- --------
Net operating
income 7,000 7,647 7,379 (647) (8)
ECL (3,526) (478) (684) (3,048) >(100)
Operating expenses (3,290) (3,258) (3,498) (32) (1)
Share of profit
in associates
and JVs - - - - -
Profit before
tax 184 3,911 3,197 (3,727) (95)
RoTE excluding
significant items
and UK bank levy
(annualised,
YTD) (%) (1.6) 15.3 13.0
-------------------- ------ ------ ------ ------- --------
1H20 vs
Half-year to 1H19
----------------------------------------------
30 Jun 31 Dec
30 Jun
2020 2019 2019
Management view of adjusted revenue $m $m $m $m %
---------------------------------------------- ------ ------ ----- ------
Global Trade and
Receivables Finance 892 920 890 (28) (3)
---- ---
Credit and Lending 2,741 2,685 2,674 56 2
Global Liquidity and Cash Management 2,347 2,986 2,909 (639) (21)
Markets products, Insurance and Investments,
and Other(1) 890 1,058 940 (168) (16)
Balance Sheet Management, Holdings interest
expense and Argentina hyperinflation 130 (2) (34) 132 >100
------
Net operating income(2) 7,000 7,647 7,379 (647) (8)
---------------------------------------------- ------ ----- ----- ---- ---
1 'Markets products, Insurance and Investments and Other'
includes revenue from Foreign Exchange, insurance manufacturing and
distribution, interest rate management and global banking
products.
2 'Net operating income' means net operating income before
change in expected credit losses and other credit impairment
charges (also referred to as 'Revenue').
Financial performance
Adjusted profit before tax of $0.2bn was $3.7bn or 95% lower
than in 1H19. The reduction reflected higher adjusted ECL and lower
adjusted revenue, primarily due to lower interest rates. The impact
of these factors on financial performance increased in the second
quarter, resulting in a loss before tax of $0.5bn for 2Q20.
Adjusted revenue of $7.0bn was $0.6bn or 8% lower.
-- In GLCM, revenue decreased by $0.6bn or 21% due to the impact
of the lower interest rate environment, mainly in Hong Kong and the
UK. This was partly offset by an 11% increase in average deposit
balances, which was across all regions, but mainly concentrated in
the UK and the US.
-- In Global Trade and Receivables Finance, revenue decreased by
$28m or 3% from lower fees and balances, notably in Hong Kong and
the UK, reflecting a reduction in global trade volumes as a result
of the Covid-19 crisis. This was partly offset by wider margins in
Latin America and Asia.
-- In 'Other' products, revenue was $168m lower, reflecting a
reduction in Insurance and Investments (down $29m), lower
revaluation gains on shares (down $27m) and lower revenue from
Global Markets products (down $19m). In addition, 1H19 included a
disposal gain of $24m in Latin America.
This was partly offset by:
-- In Credit and Lending, revenue increased by $56m or 2%,
reflecting balance growth in all regions from increased customer
drawdowns and government-backed lending schemes, partly offset by
lower margins.
Adjusted ECL of $3.5bn were $3.0bn higher than in 1H19. The
increase reflected the global impact of the Covid-19 outbreak on
the forward economic outlook, mainly in the UK and Asia. There were
also higher charges against specific customers in 1H20 across all
regions, particularly in the oil and gas and wholesale trade
sectors, including a significant charge related to a corporate
exposure in Singapore.
Adjusted operating expenses of $3.3bn were marginally higher,
reflecting investment in digital capabilities to improve the client
experience, partly offset by a lower performance-related pay
accrual and a reduction in other discretionary expenditure.
Divisional highlights
$41bn
Growth in customer accounts in 1H20.
12%
Increase in international account openings, compared with
1H19.
Adjusted profit before tax
($bn)
$0.2bn
Adjusted net operating income
($bn)
$7.0bn
Global Banking and Markets
Contribution to Group 1H20 adjusted profit before tax
% contribution
to Group
45%
GBM increased adjusted revenue as a strong Global Markets
performance more than offset the impact of falling interest rates
and adverse movements in credit and funding valuation adjustments.
In 1H20, management actions delivered gross RWA reductions of $21bn
globally, while over 50% of our revenue was generated in Asia.
We continue to invest in digital capabilities to provide value
to our clients and support them in the current environment. This
was recognised in a client survey by Greenwich Associates where we
were voted the leading FX dealer in supporting corporate clients
during the Covid-19 outbreak.
We support major government, corporate and institutional clients
worldwide. Our product specialists deliver a comprehensive range of
transaction banking, financing, advisory, capital markets and risk
management services.
Half-year to 1H20 vs 1H19
--------------------
30 Jun 31 Dec
30 Jun
2020 2019 2019
Adjusted results $m $m $m $m %
-------------------- ------- ------- ------------ --------
Net operating
income 8,178 7,590 7,113 588 8
ECL (1,118) (97) (61) (1,021) >(100)
Operating expenses (4,512) (4,758) (4,656) 246 5
Share of profit
in associates
and JVs - - - - -
Profit before
tax 2,548 2,735 2,396 (187) (7)
RoTE excluding
significant items
and UK bank levy
(annualised,
YTD) (%) 7.7 10.2 9.8
-------------------- ------ ------ ------ ------------ --------
1H20 vs
Half-year to 1H19
---------------------------------------------
30 Jun 31 Dec
30 Jun
2020 2019 2019
Management view of adjusted revenue $m $m $m $m %
--------------------------------------------- ------ ------ --- ------ --------
Global Markets 4,272 3,096 2,584 1,176 38
- FICC 3,913 2,493 2,204 1,420 57
Foreign Exchange 1,917 1,275 1,370 642 50
Rates 1,351 865 575 486 56
Credit 645 353 259 292 83
- Equities 359 603 380 (244) (40)
Securities Services(1) 944 985 1,020 (41) (4)
Global Banking(1) 1,944 1,887 1,953 57 3
Global Liquidity and Cash Management 1,094 1,357 1,349 (263) (19)
Global Trade and Receivables Finance 393 398 394 (5) (1)
Principal Investments (12) 120 138 (132) >(100)
Credit and funding valuation adjustments (355) 14 18 (369) >(100)
Other(2) (300) (328) (333) 28 9
Balance Sheet Management, Holdings interest
expense and Argentina hyperinflation 198 61 (10) 137 >100%
Net operating income(3) 8,178 7,590 7,113 588 8
--------------------------------------------- ----- ----- ----- --- ----- -----
1 From 1 June 2020, revenue from Issuer Services, previously
reported in Securities Services, was reported within Global
Banking. This resulted in $14m additional revenue being recorded in
Global Banking. Comparatives have not been re-presented.
2 Includes allocated funding costs. Additionally, 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 not reflected within operating
income, such as notional credits on income earned from tax-exempt
investments where the economic benefit of the activity is reflected
in tax expense. The offset to these tax credits is included within
'Other'.
3 'Net operating income' means net operating income before
change in expected credit losses and other credit impairment
charges (also referred to as 'Revenue').
Financial performance
Adjusted profit before tax of $2.5bn was $0.2bn lower than in
1H19, mainly due to higher adjusted ECL, which reflected the global
impact of Covid-19 and included charges relating to specific
exposures. The rise in adjusted ECL was partly offset by higher
adjusted revenue and from lower adjusted operating expenses, driven
by a reduced performance-related pay accrual.
Adjusted revenue of $8.2bn increased by $0.6bn compared with
1H19, which included adverse movements in credit and funding
valuation adjustments of $0.4bn.
-- In Global Markets, revenue increased by $1.2bn or 38%, as
client activity increased due to higher volatility levels
supporting an improved FICC performance across Foreign Exchange,
Rates and Credit. By contrast, lower Equities revenue reflected a
weaker performance in prime financing, which included the effect of
dividend cancellation and reduced client activity, as well as the
release of a historical provision in 1H19.
-- Global Banking revenue increased by $57m or 3% from higher
capital markets revenue, increased corporate lending balances and
the impact of widening credit spreads on portfolio hedges, partly
offset by losses on legacy corporate restructuring positions.
This was partly offset by:
-- In GLCM, revenue decreased $0.3bn or 19% due to the lower
interest rate environment across most regions, although we grew
average balances, notably in the UK and the US.
-- In Principal Investments, revenue fell by $132m, reflecting
revaluation losses incurred in 1Q20 as a result of the Covid-19
outbreak, mainly in Europe, which were substantially reversed
during 2Q20.
Adjusted ECL were $1.1bn, up $1.0bn compared with 1H19 from
charges relating to the global impact of Covid-19 on the forward
economic outlook, and as charges against a small number of clients
in 1H20 were higher than those recorded in 1H19.
Adjusted operating expenses of $4.5bn were $0.2bn or 5% lower,
primarily from a lower performance-related pay accrual, which more
than offset investment in regulatory programmes, and higher
amortisation relating to technology investments.
Divisional highlights
50%
Percentage of adjusted revenue generated in Asia in 1H20.
38%
Growth in Global Markets revenue, compared with 1H19.
Adjusted profit before tax
($bn)
$2.5bn
Adjusted net operating income
($bn)
$8.2bn
Corporate Centre
Contribution to Group 1H20 adjusted profit before tax
% contribution
to Group
21%
During the period, we began allocating the revenue and expenses
relating to Balance Sheet Management ('BSM'), the funding costs of
HSBC Holdings debt and the impacts of hyperinflation in Argentina,
to the global businesses to improve how we reflect revenue and
expense related to the global businesses generating or utilising
these activities. All comparatives have been restated
accordingly.
The results of Corporate Centre now primarily comprise the share
of profit from our interests in our associates and joint ventures,
Central Treasury, stewardship costs and consolidation
adjustments.
Adjusted results Half-year to 1H20 vs
1H19
--------------------
30 Jun 30 Jun 31 Dec $m %
2020
$m 2019 2019
$m $m
-------------------- ------ ------ ----- --------
Net operating
income 48 (283) (352) 331 >100
ECL (12) 14 20 (26) >(100)
Operating expenses 206 (172) (609) 378 >100
Share of profit
in associates
and JVs 966 1,244 1,019 (278) (22)
Profit before
tax 1,208 803 78 405 50
RoTE excluding
significant items
and UK bank levy
(annualised,
YTD) (%) 4.7 0.6 0.8
-------------------- ----- ----- ----- ----- --------
Financial performance
Adjusted profit before tax of $1.2bn primarily comprised our
share of profit in associates and joint ventures of $1.0bn, which
decreased by $0.3bn or 22%, primarily reflecting the impact of the
Covid-19 outbreak and the lower interest rate environment. Adjusted
profit before tax was $0.4bn higher than in 1H19, mainly due to
favourable movements in operating expenses and revenue.
Adjusted revenue of $48m compared with net negative adjusted
revenue of $0.3bn in 1H19. This included Central Treasury revenue
of $0.2bn, an increase of $0.1bn compared with 1H19 due to
favourable fair value movements relating to the economic hedging of
interest rate and exchange rate risk on our long-term debt with
associated swaps. In addition, 'Other' income increased by $0.2bn,
which included an adjustment related to holdings of our own
shares.
Adjusted operating expenses, which are stated after recovery of
costs from our global businesses, were a net credit of $0.2bn. This
compared with a net charge of $0.2bn in 1H19.
1H20 vs
Half-year to 1H19
-------------------------------------
30 Jun 31 Dec
30 Jun
2020 2019 2019
Management view of adjusted revenue $m $m $m $m %
------------------------------------- ------ ------ ----- ------
Central Treasury(1, 2) 201 138 41 63 46
Legacy portfolios (48) (83) (28) 35 42
Other (105) (338) (365) 233 69
Net operating income(3) 48 (283) (352) 331 >100
1 Central Treasury includes favourable valuation differences on
issued long-term debt and associated swaps of $195m (1H19: gains of
$143m; 2H19: gains of $3m).
2 During the period we began allocating the revenue from BSM,
Holdings net interest expense and Argentina hyperinflation out to
the global businesses, to align them better with their revenue and
expense. The total BSM revenue component of this allocation for
1H20 was $1,535m (1H19: $1,109m, 2H19: $920m).
3 'Net operating income' means net operating income before
change in expected credit losses and other credit impairment
charges (also referred to as 'Revenue').
Risk overview
Active risk management helps us to achieve our strategy, serve
our customers and communities and grow our business safely.
Managing risk
The first half of 2020 has been marked by unprecedented global
economic events, leading to banks playing an expanded role to
support society and customers. The Covid-19 outbreak and its impact
on the global economy have impacted many of our customers' business
models and income, requiring significant levels of support from
both governments and banks. In response, we have enhanced our
approach to the management of risk in this rapidly changing
environment.
Throughout the Covid-19 outbreak, we have supported our
customers and adapted our operational processes. Our people,
processes and systems have responded to the changes needed and
increased the workload in serving our customers through this time.
Operational resilience has been particularly evident in Hong Kong,
where we have maintained high levels of service throughout the
Covid-19 outbreak and the continuing domestic social unrest.
The performance of our operations has varied in different
geographies, but overall the balance sheet and liquidity of the
Group remain strong. This has helped enable us to respond to the
economic recovery as government lockdowns ease.
Key geopolitical risks also heightened during the first half of
2020. These included rising tensions between the US and China,
strains in relations between the UK and China following the passing
of the new national security law in Hong Kong and the UK's
imposition of restrictions on telecommunications, and the uncertain
relationship between the UK and the EU following the UK's departure
from the EU.
To meet the additional challenges, we supplemented our existing
approach to risk management with additional tools and practices. We
increased our focus on the quality and timeliness of the data used
to inform management decisions, through measures such as early
warning indicators, prudent active risk management of our risk
appetite, and ensuring regular communication with our Board and
other key stakeholders.
Our risk appetite
Our risk appetite defines our desired forward-looking risk
profile, and informs the strategic and financial planning process.
It provides an objective baseline to guide strategic decision
making, helping to ensure that planned business activities provide
an appropriate balance of return for the risk assumed, while
remaining within acceptable risk levels.
Our risk appetite also provides an anchor between our global
businesses and the Global Risk and Global Finance functions,
helping to enable our senior management to allocate capital,
funding and liquidity optimally to finance growth, while monitoring
exposure and the cost impacts of managing non-financial risks. It
also helps to develop aligned people and system capabilities.
Our risk appetite is articulated in our risk appetite statement,
which is approved by the Board. Key elements include:
-- risks that we accept as part of doing business, such as
credit risk, market risk, and capital and liquidity risk, which are
controlled through both active risk management and our risk
appetite;
-- risks that we incur as part of doing business, such as
non-financial risks, which are actively managed to remain within an
acceptable appetite; and
-- risks for which we have zero tolerance, such as knowingly
engaging in activities where foreseeable reputational risk has not
been appropriately considered.
In the first half of 2020, we continued to evolve our risk
appetite by reallocating both financial and non-financial resources
and adapting aspects of our risk appetite statement to ensure we
remained able to support our customers and strategic goals against
the backdrop of the Covid-19 outbreak. A specific emphasis was
placed on capital risk to ensure the Group could withstand extreme
but plausible stress, and had adequate capacity to provide
increasing levels of financial support to customers. Associated
non-financial risks were reviewed and, where applicable, processes
and controls were enhanced to accommodate material increases in
lending volumes and help our people manage the lending process from
a home environment. Additional reporting is under development to
provide a more holistic view of the Group's resilience
capabilities. Significant work is also underway to align to the
revised business segmentation and to further develop our risk
appetite framework, with forward-looking statements informed by
stress testing. The financial impact of Covid-19 is becoming
apparent in our risk appetite where RoTE and ECL charges are
outside of appetite. These are subject to close monitoring and
management actions.
Key risk appetite metrics
Risk
Component Measure appetite 1H20
-------------- -------------------------------- ---------- --------
Return on average tangible
Returns equity ('RoTE') >= 6.5% 3.8%
----
CET1 ratio - end point
Capital basis >= 13.10% 15.0%
-------------- -------------------------------- ----
Change
in expected
credit
losses
and other Change in expected credit
credit losses and other credit
impairment impairment charges
charges as a % of advances: retail <= 0.50% 1.08%
--------------
Change in expected credit
losses and other credit
impairment charges
as a % of advances: wholesale <= 0.45% 0.79%
-------------------------------- ------------------------- --------
Stress tests
We regularly conduct stress tests to assess the resilience of
our balance sheet and our capital adequacy, as well as to provide
actionable insights into how key elements of our portfolios may
behave during crises. Stress tests are used to calibrate our risk
appetite and to review the robustness of our strategic and
financial plans, helping to improve the quality of management's
decision making. Stress testing analysis assists management in
understanding the nature and extent of vulnerabilities to which the
Group is exposed. The results from the stress tests also drive
recovery and resolution planning to enhance the Group's financial
stability under various macroeconomic scenarios.
Risk assessment through internal stress tests is used to assess
the impacts of macroeconomic, geopolitical and other HSBC-specific
risks. The selection of stress scenarios is based upon the
identification and assessment of our top and emerging risks
identified and our risk appetite.
In 2020, the Bank of England ('BoE') and European Banking
Authority ('EBA') cancelled the requirement for all participating
banks to conduct their respective 2020 stress test exercises in
light of the emerging impacts of the Covid-19 outbreak.
Notwithstanding this, we conducted a range of internal stress
tests during the first half of 2020. These included stress tests to
assess the potential future impacts of the Covid-19 crisis and
assess the resilience of key balance sheet metrics including our
capital adequacy. To date, we have conducted stress tests covering
several potential Covid-19-related outcomes, incorporating
assessments from credit experts. We are regularly reviewing the
economic impacts for key economies and markets to understand
potential vulnerabilities in our balance sheet and to identify
appropriate mitigating actions. We continue to monitor emerging
geopolitical, economic and environmental risks impacting the
Group's capital adequacy and liquidity. Our balance sheet and
capital adequacy remain resilient based on regulatory and internal
stress test outcomes.
Our operations
We remain committed to investing in the reliability and
resilience of our IT systems and critical services that support all
parts of our business. We do so to protect our customers,
affiliates and counterparties, and to help ensure that we minimise
any disruption to services that could result in reputational and
regulatory consequences. We continue to operate in a challenging
environment in which cyber threats are prevalent. We continue to
invest in business and technical controls to defend against these
threats.
We paused elements of the transformation programme announced in
February to help ensure our safe operation during a period of
significant change in the external environment due to the Covid-19
outbreak, and to support our people and communities during a
difficult period. With many countries and territories beginning to
relax lockdown rules, we are now starting to move forward with the
implementation of our business transformation plans. We are
ensuring that we are able to manage safely the risks of the
restructuring, which include execution, operational, governance,
reputational, conduct and financial risks. We are also putting
support in place to help our people, particularly when we are
unable to find alternative roles for them.
For further details on our risk management framework and risks
associated with our banking and insurance manufacturing operations,
see pages 74 and 83 of the Annual Report and Accounts 2019,
respectively.
Geopolitical and macroeconomic risks
The Covid-19 outbreak has dominated the political and economic
landscape for the first six months of 2020.
The passage of the Hong Kong national security law and the US
Hong Kong Autonomy Act has heightened existing US-China tensions.
There are also rising tensions in the context of UK-China and
EU-China relations.
In addition, the UK and EU continue to negotiate on the shape of
their future relationship following the UK's departure from the EU,
although the outcome remains uncertain. Failure to reach a
negotiated agreement by the end of the transition period would
result in the application of World Trade Organization ('WTO') rules
and the absence of formal arrangements could set back further the
expected gradual recovery of the UK and EU economies.
For further details on our approach to geopolitical and
macroeconomic risks, see 'Areas of special interest' on page
50.
Risks related to Covid-19
We have needed to build up our operational capacity rapidly as
governments and central banks globally introduced measures to
combat the impacts of the Covid-19 outbreak, and as we have dealt
with complex conduct considerations and heightened risk of fraud.
At a time when most of our people have been working remotely, we
have remained operationally resilient and have continued to keep
our customers at the forefront of our operations. We have
maintained close to normal levels of operations across our
branches.
Levels of Covid-19 infections have declined significantly in
many regions from their respective peaks. However, there are other
locations where infection rates are still increasing. Governments
in some countries and territories that have recorded declines have
begun to lift certain restrictions that they had placed on the
movements of their respective populations. Nevertheless, social
distancing and tight border restrictions remain commonplace, which
is limiting the extent and pace of economic recovery. The situation
remains uncertain as Covid-19 has proved to be highly contagious
and there is some recent evidence of further waves of infection
emerging. Where further waves of Covid-19 are evident, governments
may choose to extend or reinstate lockdowns, leading to a more
prolonged recovery.
In many of our markets we have initiated region-specific
measures to support our personal and business customers through
these challenging times. These measures include mortgage
assistance, payment holidays, the waiving of certain fees and
charges, and liquidity relief for businesses facing difficulties
such as supply chain disruption. We endeavour to remain responsive
to our customers' changing needs and are working closely with
governments and supporting national schemes that focus on the parts
of the economy most impacted by Covid-19.
The Covid-19 outbreak has led to a significant weakening in GDP
in many of our markets with impacts varying by sectors and regions.
The longer-term effects of the outbreak on businesses are uncertain
and may lead to significant ECL charges in the worst affected
sectors. However, our financial position remains strong, allowing
us to continue to support our customers. At 30 June 2020, our CET1
ratio was 15.0%, compared with 14.7% at 31 December 2019, and our
liquidity coverage ratio was 148%. The management of capital and
liquidity was a key focus in the first half of the year to ensure
the Group responded to unprecedented customer and market activity.
Continual monitoring of capital and liquidity was in place at both
Group and entity levels. This included some redeployment of funding
within the Group to ensure customers and the economy could be
supported across geographies and sectors. Additionally, the risk
appetite for the Group CET1 ratio was revised to reflect the
reduction in the UK countercyclical buffer in response to the
Covid-19 outbreak.
The nature and scale of the Covid-19 crisis have necessitated
very strong responses from governments, central banks and
regulators, and has resulted in changes in the behaviours of our
retail and wholesale customers. These factors have impacted the
performance of our financial models, requiring more monitoring of
model outputs and use of model adjustments. Compensating controls
have been implemented as needed.
For further details on our approach to the risks related to
Covid-19, see 'Areas of special interest' on page 51.
Risks to our operations and portfolios in Asia-Pacific
In the first half of 2020, US-China tensions continued to
escalate including in relation to Hong Kong. In June 2020, the
National People's Congress of China enacted the Hong Kong national
security law. In response, the US took steps to terminate the
preferential treatment afforded Hong Kong under the 1992 Hong Kong
Policy Act. Additionally, the US President signed into law the Hong
Kong Autonomy Act, and issued an Executive Order, providing
authority to impose primary sanctions against entities and
individuals determined to have undermined Hong Kong's autonomy. The
Hong Kong Autonomy Act also provides authority to impose secondary
sanctions against non-US financial institutions determined to have
conducted a significant transaction for any individual or entity
subject to primary sanctions under the Act. There are other steps
that have been taken by the US as tensions with China rise.
Domestic social unrest in Hong Kong remains a risk, with
investor and business sentiment in some sectors remaining dampened.
There are concerns that ongoing tensions could result in an
increasingly fragmented trade and regulatory environment, with the
retail and leisure sectors being particularly affected by the lack
of tourists. However, the financial services sector in Hong Kong
has remained strong and has benefited from stable liquidity
conditions.
The plans to roll out 5G telecommunications technology in
several countries and its importance to future standard setting and
economic growth are likely to lead to heightened corporate and
national competition over ownership of the relevant
technologies.
The financial impact to the Group of geopolitical risks in Asia
is heightened due to the importance and profitability of the
region, and Hong Kong in particular. We continue to manage
carefully our exposures and conduct regular stress tests to assess
the resilience of our balance sheet and our capital adequacy. These
are used to consider our risk appetite and provide insights into
our financial stability.
Our operational resilience has been strongly tested during the
Covid-19 outbreak and we have continued to maintain a high level of
service to clients during this period in markets that remain at
different levels of recovery. Our Hong Kong operations in
particular have shown resilience in continuing to operate in times
of domestic social unrest, the Covid-19 outbreak and heightened
geopolitical risks, although this will continue to be closely
monitored.
We continue to believe in the core elements of our strategy,
such as targeting growth on China's Greater Bay Area and the ASEAN
region, and that we are well placed to be able to support
opportunities as the economy recovers from the Covid-19
outbreak.
For further details on our approach to the risks to our
operations and portfolios in Asia-Pacific, see 'Areas of special
interest' on page 52.
UK withdrawal from the European Union
The UK left the EU on 31 January 2020 and entered a transition
period until 31 December 2020. During the transition period, the UK
continues to be bound by EU laws and regulations. Beyond that date,
there is no certainty on what the future relationship between the
UK and the EU will be. The prospect of exiting the transition
period without a trade agreement is likely to drive increasing
market volatility and economic risk, particularly in the UK. Our
global presence and diversified customer base is expected to help
mitigate the direct impacts on our financial position in a scenario
where the transition period ends without a UK-EU trade agreement
being in place. Our existing footprint in the EU, and in particular
our subsidiary in France, provides a strong foundation for us to
build upon. As part of our stress testing programme, a number of
internal macroeconomic and event-driven scenarios were assessed to
support our planning for, and evaluation of, the impact of the UK's
withdrawal from the EU without a trade agreement. The results
confirmed that we are well positioned to withstand potential
shocks.
For further details on our approach to the UK's withdrawal from
the EU, see 'Areas of special interest' on page 52.
Interest rate environment
Central banks have reduced interest rates in most financial
markets due to the adverse impact on the timelines and the path for
economic recovery from the Covid-19 outbreak, which in turn
increased the likelihood of negative interest rates. This raises a
number of risks and concerns, such as the readiness of our systems
and processes to accommodate zero or negative rates, the resulting
impacts on customers, regulatory constraints and the financial
implications given the significant impact that prolonged low
interest rates are likely to have on our net interest income.
For some products, we have floored deposit rates at zero or made
decisions to not charge negative rates. This, alongside loans
repriced at lower rates, results in our commercial margins being
compressed, which is expected to be reflected in our profitability.
The pricing of this risk will need to be carefully considered. If
there is a rebalancing of portfolios towards fee-generating
business and trading activities to offset reduced profits, we may
become exposed once rates start rising again. These factors may
challenge the long-term profitability of the banking sector,
including HSBC, and will be considered as part of the Group's
transformation programme.
For further details on interest rate sensitivity, see page
86.
Top and emerging risks
Our top and emerging risks report identifies forward-looking
risks so that they can be considered in determining whether any
incremental action is needed to either prevent them from
materialising or to limit 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 any of these
risks were to occur, they could have a material effect on HSBC.
Our suite of top and emerging risks are subject to regular
review by senior governance forums. In January 2020, our top and
emerging risk themes were streamlined to interconnect appropriate
thematic risk issues that impact our portfolios and business. The
themes 'geopolitical risk', 'the credit cycle' and 'economic
outlook and capital flows' were merged into a single theme under
'geopolitical and macroeconomic risks'. We continue to monitor
closely the identified risks and ensure robust management actions
are in place, as required.
Update on Ibor transition
As a result of the likely cessation of the London interbank
offered rate ('Libor') and the Euro Overnight Index Average
('Eonia') in 2021, we established an interbank offered rate
('Ibor') transition programme in early 2019 with the objective of
facilitating an orderly transition from Libor and Eonia to new
alternative benchmark rates (near risk free rates or 'RFRs') for
our businesses and our customers.
In addition to conduct and execution risks, the process of
adopting RFRs may expose the Group to an increased level of
operational and financial risks, driven by large volumes of
product, system and associated process changes and potential
earnings volatility resulting from contract modifications.
Furthermore, the transition to RFRs could adversely impact our
businesses through legal proceedings or other actions relating to
the interpretation and/or enforceability of provisions in existing
Ibor-based contracts. The overall level of risks - including
operational, conduct and legal risk - has potentially increased as
a result of delays in our customers' transition plans and in our
interim milestones relating to client outreach resulting from the
Covid-19 outbreak.
For further details on our approach to Ibor transition, see
'Areas of special interest' on page 53.
Our current top and emerging risks are summarised on the next
page and discussed in more detail on page 76 of the Annual Report
and Accounts 2019.
Risk Trend Mitigants
-------------------------- ------ -----------------------------------------------------------
Externally driven
Geopolitical and ^ We monitor developments in geopolitical risk and
macroeconomic assess what impacts these may have on our portfolios.
risks The Covid-19 outbreak has resulted in an unprecedented
global economic slowdown, with a significant increase
in credit stress in the portfolio. Across the Group,
we increased the frequency and depth of the monitoring
activities on the portfolios. We performed stress
tests and other sectoral reviews to identify portfolios
or customers who were experiencing, or were likely
to experience, financial difficulty as a result
of the Covid-19 outbreak. We are increasing resources
to help address the increased level of credit defaults
in the current environment and are monitoring the
impact of prolonged low interest rates.
-----------------------------------------------------------
Cyber threat and > We endeavour to protect HSBC and our customers by
unauthorised access strengthening our cyber defences, helping us to
to systems execute our business priorities safely and keep
our customers' information secure. Our data-driven
approach, grounded in strong controls that mitigate
advanced cyber threats, enhances our capability
in threat detection, access controls and resiliency.
-----------------------------------------------------------
Regulatory developments ^ We monitor closely for regulatory developments and
including conduct, engage with regulators, as appropriate, to help
with adverse impact ensure that new regulatory requirements, such as
on business model those in response to the Covid-19 outbreak, are
and profitability implemented effectively and in a timely way.
------ -----------------------------------------------------------
Financial crime > During the first half of 2020, we continued to improve
risk environment the effectiveness of our financial crime controls
in accordance with our specific regulatory obligations.
The application of both advanced analytics and artificial
intelligence remain key elements of our next generation
of tools to fight financial crime, and our investment
in these areas is ongoing. As fraudulent activity
is often more prevalent in times of crisis, we have
put in place additional measures to help minimise
and detect fraud.
------ -----------------------------------------------------------
Ibor transition ^ We are focused on developing RFRs alongside the
supporting processes and systems to make them available
to our customers. Our programme is concurrently
developing the capability to transition, through
repapering, outstanding Libor and Eonia contracts.
We continue to engage with industry participants
and the official sector to support an orderly transition.
------ -----------------------------------------------------------
Climate-related ^ We continue to improve how we identify, oversee
risks and manage climate-related risk, both physical and
transition. Our Board-approved risk appetite statement
contains a qualitative statement, which will be
further enhanced in 2020. Our risk management priorities
are focusing on: assessing the physical and transition
risk in our wholesale credit portfolio; reviewing
retail mortgage exposures in respect of natural
hazard risk; and developing scenarios internally
for risk management, planning and stress testing.
We continue to engage with our stakeholders, in
particular with regard to how we compile related
data and disclosures.
-------------------------- ------ -----------------------------------------------------------
Internally driven
IT systems infrastructure > We actively monitor and improve service resilience
and resilience across our technology infrastructure. We are enhancing
our service management disciplines and change execution
capabilities to minimise service disruption to our
customers. Our IT systems have been resilient and
we have further improved them to support both our
customers and our people in new ways of operating
during the Covid-19 outbreak.
------ -----------------------------------------------------------
Risks associated ^ We continue to monitor workforce capacity and capability
with workforce requirements in line with our published growth strategy
capability, capacity and any emerging issues in the markets in which
and environmental we operate. We have also put in place measures to
factors with potential ensure that our people are properly supported and
impact on growth able to work safely during the Covid-19 outbreak.
We are monitoring people risks that may arise due
to business transformation to help ensure that we
sensitively manage any redundancies and support
impacted employees.
------ -----------------------------------------------------------
Risks arising > We have set up a third-party risk management programme
from the receipt so we can better identify, understand, mitigate
of services from and manage the risks that arise from the outsourcing
third parties of services. The programme, due to conclude in the
second half of 2020, aims to ensure adherence to
our internal third-party risk policy and framework.
We have worked closely with our third-party providers,
which have faced constraints and enhanced oversight
on their operations during the Covid-19 outbreak.
There has been no major impact to our services during
the period.
-----------------------------------------------------------
Enhanced model ^ We continue to strengthen our oversight of models
risk management and the second line of defence Model Risk Management
expectations function. We are embedding a new model risk policy
across the Group, which includes updated controls
around the monitoring and use of models. The impact
of Covid-19 on model performance has highlighted
the importance of the new policy, with several credit
and risk models potentially requiring revisions
to reflect the current extreme economic shocks and
the various government support measures that are
now in place.
-----------------------------------------------------------
Data management > We continue to enhance and advance our insights,
data aggregation, reporting and decisions through
ongoing improvement and investments in data governance,
data quality, data privacy, data architecture, machine
learning and artificial intelligence capabilities.
We are continuing to work to modernise our data
infrastructure, leveraging cloud technologies to
increase flexibility and scalability and improve
our fit-for-purpose data.
-------------------------- ------ -----------------------------------------------------------
^ Risk heightened during first half 2020
> Risk remained at the same level as 2019
Financial summary
Page
Use of non-GAAP financial measures 25
Adjusted performance 25
Significant items 25
Foreign currency translation
differences 25
Summary consolidated income statement 26
Income statement commentary 26
---------------------------------------
Net interest income 27
Summary consolidated balance
sheet 30
Balance sheet commentary compared
with 31 December 2019 31
--------------------------------------- ----
Use of non-GAAP financial measures
Our reported results are prepared in accordance with IFRSs as
detailed in the interim condensed financial statements starting on
page 92.
To measure our performance we also use non-GAAP financial
measures, including those derived from our reported results that
eliminate factors that distort period-on-period comparisons. The
'adjusted performance' measure used throughout this report is
described below, and where others are used they are described. All
non-GAAP financial measures are reconciled to the closest reported
financial measure.
A change in reportable segments was made in 2Q20 by combining
Global Private Banking and Retail Banking and Wealth Management to
form Wealth and Personal Banking. Comparative data have been
re-presented accordingly. The global business segmental results are
presented on an adjusted basis in accordance with IFRS 8 'Operating
Segments' with the change in reportable segments explained in more
detail in Note 5: 'Segmental analysis' on page 100.
Adjusted performance
Adjusted performance is computed by adjusting reported results
for the effects of foreign currency translation differences and
significant items, which both distort period-on-period
comparisons.
We consider adjusted performance provides useful information for
investors by aligning internal and external reporting, identifying
and quantifying items management believes to be significant, and
providing insight into how management assesses period-on-period
performance.
Significant items
'Significant items' refers collectively to the items that
management and investors would ordinarily identify and consider
separately to improve the understanding of the underlying trends in
the business.
The tables on pages 33 to 35 and pages 42 to 49 detail the
effects of significant items on each of our global business
segments, geographical regions and selected countries/territories
in 1H20, 1H19 and 2H19.
Foreign currency translation differences
Foreign currency translation differences reflect the movements
of the US dollar against most major currencies during 2020.
We exclude them to derive constant currency data, allowing us to
assess balance sheet and income statement performance on a
like-for-like basis and to better understand the underlying trends
in the business.
Foreign currency translation differences
Foreign currency translation differences
for the half-year to 30 June 2020
are computed by retranslating into
US dollars for non-US dollar branches,
subsidiaries, joint ventures and
associates:
* the income statements for the half-years to 30 June
2019 and 31 December 2019 at the average rates of
exchange for the half-year to 30 June 2020; and
* the balance sheets at 30 June 2019 and 31 December
2019 at the prevailing rates of exchange on 30 June
2020.
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. The constant currency
data of HSBC's Argentina subsidiaries
have not been adjusted further for
the impacts of hyperinflation. 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 period on
the basis described above.
===========================================================
Summary consolidated income statement
Half-year to
30 Jun 30 Jun 31 Dec
2020 2019 2019
Footnotes $m $m $m
Net interest income 14,509 15,240 15,222
Net fee income 5,926 6,124 5,899
Net income from financial instruments held
for trading or managed on a fair value basis 5,768 5,331 4,900
------------------------------------------------------ ---------- ------- ------- -------
Net income/(expense) from assets and liabilities
of insurance businesses, including related
derivatives, measured at fair value through
profit or loss (1,290) 2,196 1,282
------- ------- -------
Change in fair value of designated debt and
related derivatives 1 197 88 2
------- ------- -------
Changes in fair value of other financial instruments
mandatorily measured at fair value through
profit or loss 80 457 355
------------------------------------------------------ ------- ------- -------
Gains less losses from financial investments 466 201 134
Net insurance premium income 5,020 6,323 4,313
Other operating income 471 2,072 885
Total operating income 31,147 38,032 32,992
------------------------------------------------------ ---------- ------- ------- -------
Net insurance claims and benefits paid and
movement in liabilities to policyholders (4,402) (8,660) (6,266)
Net operating income before change in expected
credit losses and other credit impairment charges 2 26,745 29,372 26,726
------------------------------------------------------ ---------- ------- ------- -------
Change in expected credit losses and other
credit impairment charges (6,858) (1,140) (1,616)
------------------------------------------------------ ---------- ------- ------- -------
Net operating income 19,887 28,232 25,110
------------------------------------------------------ ---------- ------- ------- -------
Total operating expenses excluding impairment
of goodwill and other intangible assets (15,239) (17,125) (17,830)
------------------------------------------------------ ---------- ------- ------- -------
Impairment of goodwill and other intangible
assets (1,288) (24) (7,370)
------- -------
Operating profit/(loss) 3,360 11,083 (90)
------------------------------------------------------ ---------- ------- ------- -------
Share of profit in associates and joint ventures 958 1,324 1,030
Profit before tax 4,318 12,407 940
------------------------------------------------------ ---------- ------- ------- -------
Tax expense (1,193) (2,470) (2,169)
Profit/(loss) for the period 3,125 9,937 (1,229)
------------------------------------------------------ ---------- ------- ------- -------
Attributable to:
- ordinary shareholders of the parent company 1,977 8,507 (2,538)
------------------------------------------------------ ----------
- preference shareholders of the parent company 45 45 45
------------------------------------------------------ ----------
- other equity holders 617 664 660
- non-controlling interests 486 721 604
------------------------------------------------------ ---------- ------- ------- -------
Profit/(loss) for the period 3,125 9,937 (1,229)
------------------------------------------------------ ---------- ------- ------- -------
$ $ $
--------
Basic earnings per share 0.10 0.42 (0.13)
-------
Diluted earnings per share 0.10 0.42 (0.13)
-------
Dividend per ordinary share 3 - 0.31 0.20
------- ------- -------
% % %
--------
Post-tax return on average total assets (annualised) 0.2 0.7 (0.1)
------- ------- -------
Return on average ordinary shareholders' equity
(annualised) 2.4 10.4 (3.0)
---------- ------- -------
Return on average tangible equity (annualised) 4 3.8 11.2 8.4
------------------------------------------------------ ---------- ------- ------- -------
1 The debt instruments, issued for funding purposes, are
designated under the fair value option to reduce an accounting
mismatch.
2 Net operating income before change in expected credit losses
and other credit impairment charges, also referred to as
revenue.
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 Half-year to 31 December 2019 is calculated on a full-year basis and not a 2H19 basis.
Income statement commentary
For further financial performance data of our global business
segments, see pages 33 to 39. For further financial performance
data by geographical regions and selected countries/territories,
see pages 40 to 49.
Net interest income
Half-year
to Quarter to
30 Jun 30 Jun 30 Jun 31 March 30 Jun
2020 2019 2020 2020 2019
Footnotes $m $m $m $m $m
-------------------------------- ---------- ---------- ---------- -------------- ---------- ------------
Interest income 23,000 27,750 10,372 12,628 14,207
------------- --------- ---------
Interest expense (8,491) (12,510) (3,475) (5,016) (6,435)
-------------------------------- ---------- --------- --------- ------------- --------- ---------
Net interest income 14,509 15,240 6,897 7,612 7,772
-------------------------------- ---------- --------- --------- ------------- --------- ---------
Average interest-earning assets 2,034,939 1,912,708 2,078,178.362 1,991,702 1,922,392
------------- --------- ---------
% % % % %
-------------- ---------- ------------
Gross interest yield 1 2.27 2.93 2.01 2.55 2.96
Less: cost of funds 1 (1.00) (1.55) (0.81) (1.19) (1.57)
---------- -------------
Net interest spread 2 1.27 1.38 1.20 1.36 1.39
------------- --------- ---------
Net interest margin 3 1.43 1.61 1.33 1.54 1.62
-------------------------------- ---------- --------- --------- ------------- --------- ---------
1 Gross interest yield is the average annualised interest rate
earned on average interest-earning assets ('AIEA'). Cost of funds
is the average annualised interest cost as a percentage on average
interest-bearing liabilities.
2 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 payable on
average interest-bearing funds.
3 Net interest margin is net interest income expressed as an annualised percentage of AIEA.
Summary of interest income by type of asset
Half-year to Full-year to
----------------------------
30 Jun 2020 30 Jun 2019 31 Dec 2019
Average Interest Average Interest Average Interest
balance income Yield balance income Yield balance income Yield
$m $m % $m $m % $m $m %
Short-term funds
and loans
and advances to
banks 255,559 760 0.60 217,474 1,285 1.19 212,920 2,411 1.13
Loans and
advances to
customers 1,041,931 15,978 3.08 1,011,928 17,833 3.55 1,021,554 35,578 3.48
Reverse
repurchase
agreements
- non-trading 222,151 1,292 1.17 231,308 2,635 2.30 224,942 4,690 2.08
Financial
investments 451,344 4,451 1.98 408,673 5,380 2.65 417,939 10,705 2.56
Other
interest-earning
assets 63,954 519 1.63 43,325 617 2.87 45,467 1,311 2.88
------------------ --------- -------- ----- --------- -------- ----- --------- -------- -----
Total
interest-earning
assets 2,034,939 23,000 2.27 1,912,708 27,750 2.93 1,922,822 54,695 2.84
------------------ --------- -------- ----- --------- -------- ----- --------- -------- -----
Summary of interest expense by type of liability
Half-year to Full-year to
---------------------------
30 Jun 2020 30 Jun 2019 31 Dec 2019
Average Interest Average Interest Average Interest
balance expense Cost balance expense Cost balance expense Cost
Footnotes $m $m % $m $m % $m $m %
------------------ ---------- --------- -------- ---- --------- -------- ---- --------- -------- ------
Deposits by banks 1 61,765 226 0.74 51,199 370 1.46 52,515 702 1.34
Customer accounts 2 1,203,640 4,069 0.68 1,138,196 5,637 1.00 1,149,483 11,238 0.98
----------
Repurchase
agreements
- non-trading 139,498 754 1.09 170,342 2,320 2.75 160,850 4,023 2.50
Debt securities
in
issue -
non-trading 223,255 2,720 2.45 205,192 3,361 3.30 211,229 6,522 3.09
------------------ ----------
Other
interest-bearing
liabilities 77,256 722 1.88 59,266 822 2.80 59,980 1,748 2.91
------------------ ---------- --------- -------- ---- --------- -------- ---- --------- -------- ----
Total
interest-bearing
liabilities 1,705,414 8,491 1.00 1,624,195 12,510 1.55 1,634,057 24,233 1.48
------------------ ---------- --------- -------- ---- --------- -------- ---- --------- -------- ----
1 Including interest-bearing bank deposits only.
2 Including interest-bearing customer accounts only.
Net interest income ('NII') for 1H20 was $14.5bn, a decrease of
$0.7bn or 5% compared with 1H19. This reflected the lower average
interest rates compared with 1H19, partly offset by interest income
associated with the increase in average interest-earning assets
('AIEA') of $122bn or 6%.
Excluding the effects of foreign currency translation
differences, NII decreased by $0.4bn or 3%.
NII for 2Q20 was $6.9bn, down 11% compared with the previous
year, and 9% compared with the previous quarter. This was driven by
the impact of lower rates, partly offset by higher NII from growth
in liquid assets and term lending balances.
Net interest margin ('NIM') of 1.43% was 18 basis points ('bps')
lower compared with 1H19 as the reduction in the yield on AIEA of
66bps was partly offset by the fall in funding cost of average
interest-bearing liabilities of 55bps. The decrease in NIM in 1H20
included the adverse effects of foreign currency translation
differences. Excluding this, NIM fell by 16bps.
NIM for 2Q20 was 1.33%, down 29bps compared with the previous
year, and down 21bps from the previous quarter, predominantly
driven by the impact of lower rates.
Interest income of $23bn in 1H20 decreased by $4.8bn or 17%,
primarily due to the lower average interest rates compared with
1H19 as the yield on AIEA fell 66bps. This was partly offset by
increased income from growth in loans and advances to customers of
$30bn, as well as a rise in income from short-term funds and loans
and advances to banks and financial investments of $81bn. The
decrease in interest income included $0.8bn in relation to the
adverse effects of foreign currency translation. Excluding this,
interest income decreased by $4.0bn.
Interest income of $10.4bn in 2Q20 was down $3.8bn compared with
the previous year, and down $2.3bn from the previous quarter. This
was predominantly driven by the impact of lower rates, although
partly offset by growth in short-term funds and loans and advances
to banks, financial investments and term lending.
Interest expense of $8.5bn in 1H20 decreased by $4.0bn or 32%
compared with 1H19. This mainly reflected the decrease in funding
cost of 55bps, offset by higher interest expense from growth in
interest-bearing customer accounts of $65bn.
The decrease in interest expense included the favourable effects
of foreign currency translation differences of $0.4bn. Excluding
this, interest expense was $3.6bn lower.
Interest expense of $3.5bn in 2Q20 was down $2.9bn compared with
the previous year, and down $1.5bn from the previous quarter. This
was predominantly driven by the impact of lower rates, partly
offset by growth in customer accounts.
Net fee income of $5.9bn was $0.2bn lower than in 1H19, and
included adverse foreign currency translation differences of
$0.1bn. The remaining reduction primarily reflected lower net fee
income in WPB and CMB, partly offset by an increase in GBM.
In WPB, lower fee income reflected a reduction in income from
credit cards, as customer spending activity fell across most
markets, mainly in Hong Kong, Europe and MENA. Fee income from
account services fell by $0.1bn due to lower customer activity and
the change from fee-based to interest-based overdraft charges.
These reductions were partly offset by higher fees from broking (up
$0.1bn), primarily in Hong Kong as volatility resulted in increased
customer activity, and by lower fee expenses as a result of reduced
customer activity levels.
In CMB, trade-related fee income fell, reflecting the reduction
in global trade activity, notably in Hong Kong and the UK. Income
also fell in remittances, clearing fees and cards due to lower
client activity.
In GBM, net fee income was higher, mainly from growth in
underwriting fees in the US and the UK, as we helped clients raise
finance during the Covid-19 outbreak. Global custody and broking
fees also rose as client activity increased due to market
volatility. These increases were partly offset by a reduction in
fee income from credit facilities.
Net income from financial instruments held for trading or
managed on a fair value basis of $5.8bn was $0.4bn higher and
included a favourable fair value movement on non-qualifying hedges
of $0.1bn.
The increase was in the US, mainly in our Rates business. Income
also rose in Asia, notably in Hong Kong, reflecting increased
market volatility and higher client activity in our Fixed Income
and Foreign Exchange businesses.
Net income/(expense) from assets and liabilities of insurance
businesses, including related derivatives, measured at fair value
through profit or loss was a net expense of $1.3bn, compared with a
net income of $2.2bn in 1H19. This decrease primarily reflected
adverse equity market performance in Hong Kong and France due to
the impact of the Covid-19 outbreak, resulting in revaluation
losses on the equity and unit trust assets supporting insurance and
investment contracts.
This adverse movement resulted in a corresponding movement in
liabilities to policyholders and the present value of in-force
long-term insurance business ('PVIF') (see 'Other operating income'
below). This reflected the extent to which the policyholders and
shareholders respectively participate in the investment performance
of the associated assets.
Change in fair value of designated debt and related derivatives
of $0.2bn was $0.1bn favourable compared with 1H19. The movements
were driven by the fall in interest rates between the periods,
notably in US dollars and pounds sterling.
The majority of our 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. These liabilities are discussed further on
page 31.
Changes in fair value of other financial instruments mandatorily
measured at fair value through profit or loss of $0.1bn was $0.4bn
lower compared with 1H19. This primarily reflected adverse
movements in equity markets due to the impact of the Covid-19
outbreak.
Gains less losses from financial investments of $0.5bn increased
by $0.3bn, reflecting higher gains from the disposal of debt
securities in Balance Sheet Management.
Net insurance premium income of $5.0bn was $1.3bn lower than in
1H19. The decrease reflected lower new business volumes,
particularly in Hong Kong and France.
Other operating income of $0.5bn decreased by $1.6bn compared
with 1H19, primarily reflecting the non-recurrence of an $0.8bn
dilution gain in 1H19 following the merger of The Saudi British
Bank ('SABB') with Alawwal bank in Saudi Arabia.
The change in PVIF was $0.5bn lower due to a decrease of $0.3bn
in the value of new business written, primarily in Hong Kong in
line with the adverse operating conditions. Assumption changes and
experience variances decreased by $0.1bn, primarily in France.
The reduction also reflected the non-recurrence of 1H19 gains
recognised in both Argentina, following the sale of a stake in the
payment processing company Prisma Medios de Pago S.A., and in
Mexico, associated with the launch of a merchant acquiring services
joint venture with Global Payments Inc. In addition, we recognised
revaluation losses on investment properties in Hong Kong in 1H20,
compared with gains in 1H19.
Net insurance claims and benefits paid and movement in
liabilities to policyholders was $4.3bn lower, primarily due to
lower returns on financial assets supporting contracts where the
policyholder is subject to part or all of the investment risk. New
business volumes were also lower, particularly in Hong Kong and
France, leading to lower amounts of policyholder liabilities being
established at the point of sale.
Change in expected credit losses and other credit impairment
charges ('ECL') of $6.9bn was $5.7bn higher compared with 1H19. ECL
increased in all global businesses, mainly from charges relating to
the global impact of the Covid-19 outbreak on the forward economic
outlook.
The increase in ECL also reflected higher charges related to
specific wholesale exposures, including a significant charge
related to a corporate exposure in Singapore in CMB.
The estimated impact of the Covid-19 outbreak was incorporated
in the ECL through additional scenario analysis, which considered
differing severity and duration assumptions relating to the global
pandemic. These included probability-weighted shocks to annual GDP
and consequential impacts on unemployment and other economic
variables, with differing economic recovery assumptions. Given the
severity of the macroeconomic projections, and the complexities of
the government measures, which have never been modelled, additional
judgemental adjustments have been made to our provisions.
Applying a range of weightings to our ECL sensitivity analysis,
as disclosed on pages 56 to 62, could result in an ECL charge in
the range of $8bn to $13bn for 2020. This range is higher than at
1Q20, given the deterioration in consensus economic forecasts and
actual loss experience during 2Q20, and reflects the current
run-rate of stage 3 losses and our economic forecasts remaining
broadly within the bounds of our Central and Downside consensus
scenarios.
For further details on the calculation of ECL, including the
measurement uncertainties and significant judgements applied to
such calculations, the impact of alternative/additional scenarios
and post model-adjustments, see pages 56 to 62.
There remains significant uncertainty over the ECL charge for
the year given the ongoing impact of the Covid-19 outbreak,
including further waves, the unwinding of government support
schemes, geopolitical risks across a number of our markets
including Hong Kong and the UK, and other factors discussed in
'Areas of special interest' on pages 50 to 54. As disclosed on page
62, under our alternative Downside scenario, the ECL charge would
be higher than the stated range for the year.
Significant items and currency translation
Half-year to
30 Jun 30 Jun 31 Dec
2020 2019 2019
Footnotes $m $m $m
------------------------------------------------- ---------- ------ ------ --------
Significant items 1,585 957 8,524
------------------------------------------------- ---------- ------ ----- -----
- costs of structural reform - 91 67
- customer redress programmes 50 610 671
- impairment of goodwill and other intangibles 1,025 - 7,349
------------------------------------------------- ----------
- restructuring and other related costs 1 505 287 540
----------
- settlements and provisions in connection with
legal and regulatory matters 5 (2) (59)
------------------------------------------------- ----------
- currency translation on significant items (29) (44)
---------- ------
Currency translation 453 228
------------------------------------------------- ---------- ------ ----- -----
Total 1,585 1,410 8,752
------------------------------------------------- ---------- ------ ----- -----
1 Includes impairment of software intangible assets of $173m.
Staff numbers (full-time equivalents)
At
30 Jun 30 Jun(1) 31 Dec(1)
2020 2019 2019
Global businesses
----------------------------- ------- --------- -----------
Wealth and Personal Banking 140,040 142,951 141,341
----------------------------- ------- --------- ---------
Commercial Banking 44,506 45,203 44,706
Global Banking and Markets 47,811 49,052 48,859
----------------------------- ------- --------- ---------
Corporate Centre 407 479 445
Total staff numbers 232,764 237,685 235,351
----------------------------- ------- --------- ---------
1 A change in reportable segments was made in 2Q20. Comparative
data have been re-presented accordingly. For further guidance,
refer to Note 5 on page 100.
Operating expenses
Reported operating expenses of $16.5bn were $0.6bn or 4% lower
than in 1H19. These included favourable foreign currency
translation differences of $0.5bn and a net adverse movement in
significant items of $0.6bn, which included:
-- a $1.0bn impairment of capitalised software related
principally to businesses within HSBC Bank plc, our non-ring-fenced
bank in Europe. This reflected underperformance and a deterioration
in the future forecasts of these businesses, substantially relating
to prior periods (for more information see Note 11 on the interim
condensed financial statements); and
-- restructuring and other related costs of $0.5bn compared with
$0.3bn in 1H19. In 1H20, $116m related to severance, while $0.2bn
related to an impairment of software intangibles.
These were partly offset by:
-- customer redress programme costs in respect of payment
protection insurance ('PPI') of $0.1bn in 1H20, compared with
$0.6bn in 1H19.
The remaining reduction in operating expenses reflected a lower
performance-related pay accrual (down $0.6bn), as well as a
reduction in discretionary expenditure, including marketing (down
$0.2bn) and travel costs (down $0.1bn). In addition, our
cost-saving initiatives resulted in a reduction of $0.3bn.
These decreases were partly offset by an increase of $0.2bn in
technology investments to enhance our digital capabilities and
automate how we serve our customers.
The number of employees expressed in full-time equivalent staff
('FTEs') at 30 June 2020 was 232,764, a decrease of 2,587 from
31 December 2019. Additionally, the number of contractors at 30
June 2020 was 6,221, a decrease of 1,190 from
31 December 2019.
Share of profit in associates and joint ventures
Share of profit in associates and joint ventures of $1.0bn was
$0.4bn or 28% lower, primarily reflecting the impact of the
Covid-19 outbreak and the lower interest rate environment on the
share of profit we recognise from our associates.
At 30 June 2020, we performed impairment reviews of our
investments in Bank of Communications Co., Limited ('BoCom') and
SABB and concluded that they were not impaired, based on our
value-in-use ('VIU') calculations. For more information on the key
assumptions in our VIU calculations, including the sensitivity of
the VIU to each key assumption, see Note 10 on the interim
condensed financial statements.
Tax expense
The effective tax rate for 1H20 of 27.6% was higher than the
19.9% for 1H19, primarily reflecting the non-recognition of
deferred tax on losses in the UK in 1H20. The effective tax rate
for 1H19 was reduced by the non-taxable dilution gain arising on
the merger of SABB with Alawwal Bank.
Summary consolidated balance sheet
At
30 Jun 31 Dec
2020 2019
Footnotes $m $m
----------
Assets
Cash and balances at central banks 249,673 154,099
Trading assets 208,964 254,271
Financial assets designated and otherwise mandatorily
measured at fair value through profit or loss 41,785 43,627
---------
Derivatives 313,781 242,995
Loans and advances to banks 77,015 69,203
Loans and advances to customers 1 1,018,681 1,036,743
----------
Reverse repurchase agreements - non-trading 226,345 240,862
Financial investments 494,109 443,312
Other assets 292,445 230,040
------------------------------------------------------- ---------- --------- ---------
Total assets 2,922,798 2,715,152
------------------------------------------------------- ---------- --------- ---------
Liabilities and equity
Liabilities
Deposits by banks 82,715 59,022
Customer accounts 1,532,380 1,439,115
Repurchase agreements - non-trading 112,799 140,344
Trading liabilities 79,612 83,170
Financial liabilities designated at fair value 156,608 164,466
Derivatives 303,059 239,497
Debt securities in issue 110,114 104,555
Liabilities under insurance contracts 98,832 97,439
Other liabilities 251,458 194,876
------------------------------------------------------- ---------- --------- ---------
Total liabilities 2,727,577 2,522,484
------------------------------------------------------- ---------- --------- ---------
Equity
Total shareholders' equity 187,036 183,955
Non-controlling interests 8,185 8,713
------------------------------------------------------- ----------
Total equity 195,221 192,668
------------------------------------------------------- ---------- --------- ---------
Total liabilities and equity 2,922,798 2,715,152
------------------------------------------------------- ---------- --------- ---------
1 Net of impairment allowances.
Selected financial information
At
30 Jun 31 Dec
2020 2019
Footnotes $m $m
--------------------------------------------------------- ---------- -------- ----------
Called up share capital 10,346 10,319
--------------------------------------------------------- ---------- -------- ----------
Capital resources 1 177,242 172,150
--------------------------------------------------------- ---------- -------- ----------
Undated subordinated loan capital 1,968 1,968
--------------------------------------------------------- ---------- -------- ----------
Preferred securities and dated subordinated loan capital 2 31,706 33,063
--------------------------------------------------------- ---------- -------- ----------
Risk-weighted assets 854,552 843,395
--------------------------------------------------------- ---------- --------
Total shareholders' equity 187,036 183,955
--------------------------------------------------------- ---------- -------- ----------
Less: preference shares and other equity instruments (22,319) (22,276)
--------------------------------------------------------- ---------- -------- ----------
Total ordinary shareholders' equity 164,717 161,679
--------------------------------------------------------- ---------- -------- ----------
Less: goodwill and intangible assets (net of tax) (16,838) (17,535)
--------------------------------------------------------- ---------- -------- ----------
Tangible ordinary shareholders' equity 147,879 144,144
--------------------------------------------------------- ---------- -------- ----------
Financial statistics
--------------------------------------------------------- ---------- --------
Loans and advances to customers as a percentage of
customer accounts 66.5% 72.0%
--------------------------------------------------------- ---------- -------- ----------
Average total shareholders' equity to average total
assets 6.51% 6.97%
--------------------------------------------------------- ---------- --------
Net asset value per ordinary share at period end ($) 3 8.17 8.00
--------------------------------------------------------- ---------- -------- ----------
Tangible net asset value per ordinary share at period
end ($) 7.34 7.13
--------------------------------------------------------- ---------- -------- ----------
Tangible net asset value per fully diluted ordinary
share at period end ($) 7.32 7.11
--------------------------------------------------------- ---------- -------- ----------
Number of $0.50 ordinary shares in issue (millions) 20,691 20,639
--------------------------------------------------------- ---------- -------- --------
Basic number of $0.50 ordinary shares outstanding
(millions) 20,162 20,206
--------------------------------------------------------- ---------- -------- ----------
Basic number of $0.50 ordinary shares outstanding
and dilutive potential ordinary shares (millions) 20,198 20,280
--------------------------------------------------------- ---------- -------- ----------
Closing foreign exchange translation rates to $:
--------------------------------------------------------- ---------- --------
$1: GBP 0.811 0.756
--------------------------------------------------------- ---------- --------
$1: EUR 0.891 0.890
--------------------------------------------------------- ---------- -------- ----------
1 Capital resources are regulatory capital, the calculation of which is set out on page 78.
2 Including perpetual preferred securities.
3 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 own shares held by the company, including those
purchased and held in treasury.
A more detailed consolidated balance sheet is contained in the
interim condensed financial statements on page 94.
Balance sheet commentary compared with 31 December 2019
At 30 June 2020, our total assets were $2.9tn, an increase of
$208bn or 8% on a reported basis, and $284bn or 11% on a constant
currency basis.
The increase in total assets included growth in cash balances,
financial investments and derivative assets, as well as higher
settlement accounts and cash collateral due to the seasonal
reduction at 31 December 2019 as clients settled trades prior to
the year-end.
Our ratio of customer advances to customer accounts was 66%,
down from 72% at 31 December 2019.
Assets
Cash and balances at central banks increased by $96bn or 62%,
mainly in the UK, France and the US as a result of deposit inflows
and as we redeployed our commercial surplus to cash to increase
liquidity for our clients during the Covid-19 outbreak.
Trading assets decreased by $45bn or 18%, notably from a
reduction in equity securities held, mainly in the UK and Hong
Kong, and adverse mark-to-market movements as a result of
unfavourable market conditions.
Derivative assets increased by $71bn or 29%, primarily in the
UK, France and Hong Kong, reflecting favourable revaluation
movements on interest rate contracts as interest rates fell in most
major markets. Foreign exchange contracts also increased, amid a
rise in currency volatility. The growth in derivative assets was
consistent with the increase in derivative liabilities, as the
underlying risk is broadly matched.
Loans and advances to customers decreased by $18bn on a reported
basis compared with 31 December 2019. This included adverse foreign
currency translation differences of $30bn. Excluding the effects of
foreign currency translation differences, loans and advances to
customers increased by $12bn or 1%.
The commentary below is on a constant currency basis.
In CMB, customer lending was $8bn higher, primarily in Europe
(up $5bn) and North America (up $3bn). In GBM, lending was $3bn
higher, mainly in Europe, North America and MENA, partly offset by
Asia. The growth in both of these businesses occurred in the first
quarter of 2020 and included the effect of clients drawing down on
credit facilities and partially redeploying these funds into their
customer accounts to increase cash balances during the initial
stages of the Covid-19 outbreak. These balances subsequently
reduced in the second quarter as a portion of these facilities were
repaid.
In WPB, lending was broadly stable (up $1bn). Mortgages grew,
notably in the UK (up $3bn) and Hong Kong (up $2bn), but this was
mostly offset by a reduction in credit card balances, overdrafts
and other personal lending as customer activity fell as a result of
government measures to restrict the movement of populations
following the outbreak of Covid-19.
Financial investments increased by $51bn or 11%, mainly as we
increased our holdings of debt securities, mortgage-backed
securities and treasury bills, as well as from valuation gains
resulting from interest rate reductions in the UK, France and the
US. Financial investments rose in Hong Kong as we increased our
holdings of government-issued bonds and bills.
Other assets grew by $62bn or 27%, primarily due to an increase
in settlement accounts and cash collateral in the US, the UK and
Hong Kong from higher trading activity and derivative balances,
compared with the seasonal reduction in December 2019.
Liabilities
Customer accounts increased by $93bn on a reported basis, and
included adverse foreign currency translation differences of $39bn.
Excluding this, customer accounts increased by $133bn or 9%.
The commentary below is on a constant currency basis.
Customer accounts increased in all our global businesses and
regions, as corporate and personal customers consolidated their
funds and redeployed them into cash. In WPB, customer account
balances increased by $41bn with notable growth in the UK, Hong
Kong and the US.
In GBM, customer accounts increased by $52bn, and in CMB,
balances grew by $41bn. These increases included the impact of
corporate clients drawing down on credit facilities, primarily in
the first quarter, then partially redeploying the funds into their
customer accounts to maintain liquidity, notably in the UK and US.
In CMB, the increase was partly offset by a reduction in Hong Kong
of $2.5bn due to a managed reduction in short-term time deposits in
the first quarter, although balances increased in the second
quarter.
Repurchase agreements - non-trading decreased by $28bn or 20%,
primarily in Europe and the US due to higher balances eligible for
netting, resulting in an overall balance reduction.
Derivative liabilities increased by $64bn or 27%, which is
consistent with the increase in derivative assets, since the
underlying risk is broadly matched.
Other liabilities increased by $57bn or 29%, mainly from an
increase in settlement accounts and cash collateral in the US, the
UK and Hong Kong due to higher seasonal trading activity compared
with December 2019.
Equity
Total shareholders' equity increased by $3.1bn or 2% compared
with 31 December 2019, reflecting the effects of profits generated
of $3.1bn combined with other comprehensive income ('OCI') of
$1.0bn. OCI included fair value gains on liabilities related to
changes in own credit risk of $2.4bn, fair value gains of debt
instruments of $1.7bn and favourable remeasurement of defined
benefit pension obligations of $1.2bn. These were partly offset by
adverse foreign exchange differences of $4.6bn. In addition, coupon
distributions on securities classified as equity and dividends paid
by non-controlling interests were $1.2bn.
Customer accounts by country/territory
At
30 Jun 31 Dec
2020 2019
$m $m
--------- -----------
Europe 562,505 528,718
--------------------------
- UK 437,735 419,642
- France 57,229 47,699
- Germany 23,757 19,361
- Switzerland 9,146 6,558
- other 34,638 35,458
--------- ---------
Asia 723,072 697,358
--------------------------
- Hong Kong 514,381 499,955
- Singapore 53,417 48,569
- mainland China 47,557 48,323
--------------------------
- Australia 25,448 23,191
- India 18,047 14,935
- Malaysia 14,688 14,624
- Taiwan 14,720 14,668
--------------------------
- Indonesia 4,467 4,732
- other 30,347 28,361
--------- ---------
Middle East and North
Africa (excluding Saudi
Arabia) 41,197 38,126
--------------------------
- United Arab Emirates 20,906 17,949
- Egypt 5,465 5,186
- Turkey 3,787 3,870
- other 11,039 11,121
-------------------------- --------- ---------
North America 180,489 146,676
-------------------------- --------- ---------
- US 120,236 90,834
- Canada 52,458 48,425
- other 7,795 7,417
--------- ---------
Latin America 25,117 28,237
-------------------------- --------- ---------
- Mexico 19,759 23,051
- other 5,358 5,186
--------- ---------
At end of period 1,532,380 1,439,115
-------------------------- --------- ---------
Risk-weighted assets
Risk-weighted assets ('RWAs') rose by $11.2bn during the first
half of the year, including a reduction of $22.0bn due to foreign
currency translation differences. The increase of $33.2bn in RWAs
(excluding foreign currency translation differences) included the
following movements:
-- a $23.3bn asset size increase, of which $15.2bn arose from
changes in credit and counterparty credit risk. This reflected a
rise of $31.2bn in 1Q20, largely due to lending growth in GBM, CMB
and WPB. During 2Q20, RWAs fell by $16.0bn as a result of
repayments, maturities and management initiatives. The remaining
$8.1bn increase stemmed from rises in market risk RWAs, mainly as a
result of increased market volatility;
-- a $16.8bn increase in RWAs due to changes in asset quality,
mainly in CMB and GBM. This included the impact of credit migration
of $18.3bn, mostly in North America, Europe and Asia. The impact of
credit migration was more pronounced during 2Q20, rising from
$4.7bn in 1Q20 to $13.6bn; and
-- a $6.4bn fall in RWAs due to changes in methodology and
policy. This included $11.1bn related to refined calculations by
GBM and CMB, partly offset by RWA increases mainly as a result of
changes in approach for our wholesale credit risk exposures.
From a global business perspective, GBM increases from lending
growth, credit migration and market risk volatility were broadly
mitigated by reductions of $21.2bn as a result of management
actions during 1H20. Increases in CMB were mainly from lending
growth and credit migration, partly offset by management actions.
The WPB increase primarily reflected lending growth.
In response to the Covid-19 outbreak, governments and regulators
around the world have introduced a number of support measures. We
are participating in market-wide schemes with $33.5bn of financing
raised for wholesale clients in our major markets. We had $12.0bn
of exposure (including undrawn commitments) through
government-guaranteed loan schemes attracting $2.7bn RWAs at 30
June 2020.
Global businesses
Page
Summary 32
Basis of preparation 32
Reconciliation of reported and
adjusted items - global businesses 33
Reconciliation of reported and
adjusted items - risk-weighted
assets 36
Supplementary tables for WPB
and Global Private Banking 36
------------------------------------- ----
Summary
The Group Chief Executive, supported by the rest of the Group
Executive Committee ('GEC') (previously the Group Management
Board), reviews operating activity on a number of bases, including
by global business and geographical region. Global businesses are
our reportable segments under IFRS 8 'Operating Segments'.
Basis of preparation
The Group Chief Executive, supported
by the rest of the GEC, is considered
the Chief Operating Decision Maker
('CODM') for the purposes of identifying
the Group's reportable segments.
Global business results are assessed
by the CODM on the basis of adjusted
performance, which removes the effects
of significant items and currency
translation from reported results.
Therefore, we present these results
on an adjusted basis. Adjusted performance
information for 1H19 and 2H19 is
presented on a constant basis as
described on page 25.
As required by IFRS 8, reconciliations
of the total adjusted global business
results to the Group's reported
results are presented on page 101.
Effective from 2Q20, we made the
following realignments within our
internal reporting to the GEC and
CODM:
* We simplified our matrix organisational structure by
combining Global Private Banking and Retail Banking
and Wealth Management to form Wealth and Personal
Banking ('WPB').
* We reallocated our reporting of Balance Sheet
Management, hyperinflation accounting in Argentina
and Holdings net interest expense from Corporate
Centre to the global businesses.
Comparative data have been re-presented
accordingly. Supplementary reconciliations
from reported to adjusted results
by global business are presented
on pages 33 to 35 for information
purposes.
Global business performance is also
assessed using return on tangible
equity ('RoTE'), excluding significant
items and the UK bank levy. A reconciliation
of global business RoTE, excluding
significant items and the UK bank
levy, to the Group's RoTE is provided
in the Reconciliations of Non-GAAP
Financial Measures 30 June 2020.
Our operations are closely integrated
and, accordingly, the presentation
of data includes internal allocations
of certain items of income and expense.
These allocations include the costs
of certain support services and
global functions to the extent that
they can be meaningfully attributed
to global businesses and geographical
regions. While such allocations
have been made on a systematic and
consistent basis, they necessarily
involve a degree of subjectivity.
Costs that are not allocated to
global businesses are included in
Corporate Centre.
Where relevant, income and expense
amounts presented include the results
of inter-segment funding along with
inter-company and inter-business
line transactions. All such transactions
are undertaken on arm's length terms.
The intra-Group elimination items
for the global businesses are presented
in Corporate Centre.
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 Corporate Centre.
The results of geographical regions
are presented on a reported basis.
Geographical information is classified
by the location of the principal
operations of the subsidiary or,
for The Hongkong and Shanghai Banking
Corporation Limited, HSBC Bank plc,
HSBC UK Bank plc, HSBC Bank Middle
East Limited and HSBC Bank USA,
by the location of the branch responsible
for reporting the results or providing
funding.
============================================================
A description of the global businesses is provided in the
Overview section, pages 14 to 20.
Reconciliation of reported and adjusted items - global businesses
Supplementary analysis of significant items by global business
is presented below.
Half-year to 30 Jun 2020
Wealth Global
and Banking
Personal Commercial and Corporate
Banking Banking Markets Centre Total
Footnotes $m $m $m $m $m
-------- ------------ -------- ----------- ------------
Revenue 1
----------
Reported 11,270 7,000 8,185 290 26,745
------- -------- ------- ------ --- ---------
Significant items (19) - (7) (242) (268)
----------------------------------------------------------- ----------
* customer redress programmes (26) - - - (26)
-----------------------------------------------------------
* disposals, acquisitions and investment in new
businesses 7 - - 1 8
----------------------------------------------------------- ----------
* fair value movements on financial instruments 2 - - (65) (234) (299)
----------------------------------------------------------- ----------
* restructuring and other related costs - - 58 (9) 49
----------------------------------------------------------- ---------- ------- -------- ------- ------ ---------
Adjusted 11,251 7,000 8,178 48 26,477
----------------------------------------------------------- ---------- ------- -------- ------- ------ --- ---------
ECL
----------------------------------------------------------- -------- ------------ -------- ----------- ------------
Reported (2,202) (3,526) (1,118) (12) (6,858)
------- -------- ------- ------ ---------
Adjusted (2,202) (3,526) (1,118) (12) (6,858)
----------------------------------------------------------- ---------- ------- -------- ------- ------ ---------
Operating expenses
-------- ------------ -------- ----------- ------------
Reported (7,569) (3,397) (5,153) (408) (16,527)
------- -------- ------- ------ ---------
Significant items 223 107 641 614 1,585
----------------------------------------------------------- ------- -------- ------- ------ --- ---------
* customer redress programmes 49 1 - - 50
-----------------------------------------------------------
- impairment of goodwill and other
intangibles 85 41 567 332 1,025
-----------------------------------------------------------
* restructuring and other related costs 3 89 65 72 279 505
-----------------------------------------------------------
* settlements and provisions in connection with legal
and regulatory matters - - 2 3 5
----------------------------------------------------------- ------- -------- ------- ------ --- ---------
Adjusted (7,346) (3,290) (4,512) 206 (14,942)
----------------------------------------------------------- ---------- ------- -------- ------- ------ --- ---------
Share of profit in associates and
joint ventures
-------- ------------ -------- ----------- ------------
Reported (8) - - 966 958
------- -------- ------- ------ --- ---------
Adjusted (8) - - 966 958
----------------------------------------------------------- ---------- ------- -------- ------- ------ --- ---------
Profit before tax
-------- ------------ -------- ----------- ------------
Reported 1,491 77 1,914 836 4,318
------- -------- ------- ------ --- ---------
Significant items 204 107 634 372 1,317
----------------------------------------------------------- ---------- ------- -------- ------- ------ --- ---------
* revenue (19) - (7) (242) (268)
* operating expenses 223 107 641 614 1,585
------- -------- ------- ------ --- ---------
Adjusted 1,695 184 2,548 1,208 5,635
----------------------------------------------------------- ---------- -------- ------- ------ --- ---------
Loans and advances to customers
(net)
--------
Reported 429,487 344,567 243,355 1,272 1,018,681
----------------------------------------------------------- ---------- ------- -------- ------- ------ --- ---------
Adjusted 429,487 344,567 243,355 1,272 1,018,681
------- -------- ------- ------ --- ---------
Customer accounts
----------------------------------------------------------- ---------- -------- ------------ -------- ----------- ------------
Reported 775,870 418,263 337,573 674 1,532,380
----------------------------------------------------------- ---------- ------- -------- ------- ------ --- ---------
Adjusted 775,870 418,263 337,573 674 1,532,380
----------------------------------------------------------- ---------- ------- -------- ------- ------ --- ---------
1 Net operating income before change in expected credit losses
and other credit impairment charges, also referred to as
revenue.
2 Includes fair value movements on non-qualifying hedges and
debt valuation adjustments on derivatives.
3 Includes impairment of software intangible assets of $173m.
Reconciliation of reported results to adjusted results - global businesses
(continued)
Half-year to 30 Jun 2019(4)
Wealth Global
and Banking
Personal Commercial and Corporate
Banking Banking Markets Centre Total
Footnotes $m $m $m $m $m
Revenue 1
----------
Reported 13,154 7,812 7,696 710 29,372
------- -------- ------- ------ --- ---------
Currency translation (301) (169) (181) (30) (681)
------- -------- ------- ------ ---------
Significant items 8 4 75 (963) (876)
----------------------------------------------------------- ---------- ------- -------- ------- ------ ---------
* disposals, acquisitions and investment in new
businesses - - - (827) (827)
-----------------------------------------------------------
* fair value movements on financial instruments 2 7 4 77 (138) (50)
----------
* currency translation on significant items 1 - (2) 2 1
------- -------- ------- ------ --- ---------
Adjusted 12,861 7,647 7,590 (283) 27,815
----------------------------------------------------------- ---------- ------- -------- ------- ------ ---------
ECL
-------- ------------ -------- ----------- ------------
Reported (561) (496) (98) 15 (1,140)
------- -------- ------- ------ --- ---------
Currency translation 34 18 1 (1) 52
------- -------- ------- ------ ---------
Adjusted (527) (478) (97) 14 (1,088)
----------------------------------------------------------- ---------- ------- -------- ------- ------ --- ---------
Operating expenses
-------- ------------ -------- ----------- ------------
Reported (8,428) (3,368) (4,988) (365) (17,149)
------- -------- ------- ------ ---------
Currency translation 228 84 112 29 453
------- -------- ------- ------ --- ---------
Significant items 649 26 118 164 957
----------------------------------------------------------- ---------- ------- -------- ------- ------ --- ---------
* costs of structural reform 3 - 3 29 59 91
----------------------------------------------------------- ----------
- customer redress programmes 615 (1) (4) - 610
----------------------------------------------------------- ----------
* restructuring and other related costs 57 24 96 110 287
-----------------------------------------------------------
* settlements and provisions in connection with legal
and regulatory matters (1) - - (1) (2)
-----------------------------------------------------------
* currency translation on significant items (22) - (3) (4) (29)
------- -------- ------- ------ ---------
Adjusted (7,551) (3,258) (4,758) (172) (15,739)
----------------------------------------------------------- ---------- ------- -------- ------- ------ ---------
Share of profit in associates and
joint ventures
Reported 43 - - 1,281 1,324
------- -------- ------- ------ --- ---------
Currency translation (2) - - (37) (39)
------- -------- ------- ------ ---------
Adjusted 41 - - 1,244 1,285
----------------------------------------------------------- ---------- ------- -------- ------- ------ --- ---------
Profit before tax
-------- ------------ -------- ----------- ------------
Reported 4,208 3,948 2,610 1,641 12,407
------- -------- ------- ------ --- ---------
Currency translation (41) (67) (68) (39) (215)
------- -------- ------- ------ ---------
Significant items 657 30 193 (799) 81
----------------------------------------------------------- ---------- ------- -------- ------- ------ ---------
* revenue 8 4 75 (963) (876)
* operating expenses 649 26 118 164 957
------- -------- ------- ------ --- ---------
Adjusted 4,824 3,911 2,735 803 12,273
----------------------------------------------------------- ---------- ------- -------- ------- ------ --- ---------
Loans and advances to customers
(net)
Reported 421,987 347,437 250,999 1,209 1,021,632
----------------------------------------------------------- ------- -------- ------- ------ --- ---------
Currency translation (7,376) (6,461) (4,790) (25) (18,652)
----------------------------------------------------------- -------
Adjusted 414,611 340,976 246,209 1,184 1,002,980
Customer accounts
-----------------------------------------------------------
Reported 724,955 361,286 293,367 516 1,380,124
-----------------------------------------------------------
Currency translation (9,986) (6,480) (6,500) (11) (22,977)
-----------------------------------------------------------
Adjusted 714,969 354,806 286,867 505 1,357,147
----------------------------------------------------------- ---------- ------- -------- ------- ------ --- ---------
1 Net operating income before change in expected credit losses
and other credit impairment charges, also referred to as
revenue.
2 Includes fair value movements on non-qualifying hedges and
debt valuation adjustments on derivatives.
3 Comprises costs associated with preparations for the UK's exit from the European Union.
4 A change in reportable segments was made in 2Q20. Comparative
data have been re-presented accordingly. For further guidance,
refer to Note 5 on page 100.
Reconciliation of reported results to adjusted results - global businesses
(continued)
Half-year to 31 Dec 2019(4)
Wealth Global
and Banking
Personal Commercial and Corporate
Banking Banking Markets Centre Total
Footnotes $m $m $m $m $m
Revenue 1
----------
Reported 12,398 7,444 7,198 (314) 26,726
---------- ------- -------- ------- ------ ---------
Currency translation (116) (72) (90) (3) (281)
---------- ------- -------- ------- ------ ---------
Significant items 210 7 5 (35) 187
----------------------------------------------------------- ---------- ------- -------- ------- ------ ---------
* customer redress programmes 155 7 - 1 163
----------------------------------------------------------- ----------
* disposals, acquisitions and investment in new
businesses 52 - - 7 59
----------------------------------------------------------- ----------
* fair value movements on financial instruments 2 - - 7 (41) (34)
-----------------------------------------------------------
* currency translation on significant items 3 - (2) (2) (1)
----------------------------------------------------------- ------- -------- ------- ------ ---------
Adjusted 12,492 7,379 7,113 (352) 26,632
------- -------- ------- ------ ---------
ECL
----------------------------------------------------------- -------- ------------ -------- ----------- ------------
Reported (876) (696) (64) 20 (1,616)
------- -------- ------- ------ --- ---------
Currency translation 47 12 3 - 62
------- -------- ------- ------ --- ---------
Adjusted (829) (684) (61) 20 (1,554)
------- -------- ------- ------ --- ---------
Operating expenses
-------- ------------ -------- ----------- ------------
Reported (8,923) (6,537) (8,802) (938) (25,200)
------- -------- ------- ------ ---------
Currency translation 127 55 45 1 228
------- -------- ------- ------ --- ---------
Significant items 1,111 2,984 4,101 328 8,524
----------------------------------------------------------- ---------- ------- -------- ------- ------ --- ---------
* costs of structural reform 3 - 1 13 53 67
----------
* customer redress programmes 649 18 4 - 671
-----------------------------------------------------------
- impairment of goodwill and other
intangibles 431 2,956 3,962 - 7,349
-----------------------------------------------------------
- restructuring and other related
costs 123 27 121 269 540
-----------------------------------------------------------
* settlements and provisions in connection with legal
and regulatory matters (68) - 2 7 (59)
-----------------------------------------------------------
* currency translation on significant items (24) (18) (1) (1) (44)
----------------------------------------------------------- ------- -------- ------- ------ ---------
Adjusted (7,685) (3,498) (4,656) (609) (16,448)
------- -------- ------- ------ ---------
Share of profit in associates and
joint ventures
Reported 12 - - 1,018 1,030
------- -------- ------- ------ --- ---------
Currency translation (1) - - 1 -
------- -------- ------- ------ --- ---------
Adjusted 11 - - 1,019 1,030
------- -------- ------- ------ --- ---------
Profit/(loss) before tax
-------- ------------ -------- ----------- ------------
Reported 2,611 211 (1,668) (214) 940
------- -------- ------- ------ ---------
Currency translation 57 (5) (42) (1) 9
------- -------- ------- ------ ---------
Significant items 1,321 2,991 4,106 293 8,711
----------------------------------------------------------- ---------- ------- -------- ------- ------ --- ---------
* revenue 210 7 5 (35) 187
* operating expenses 1,111 2,984 4,101 328 8,524
------- -------- ------- ------ --- ---------
Adjusted 3,989 3,197 2,396 78 9,660
----------------------------------------------------------- ---------- ------- -------- ------- ------ --- ---------
Loans and advances to customers (net)
Reported 443,025 346,105 246,492 1,121 1,036,743
----------------------------------------------------------- ---------- ------- -------- ------- ------ --- ---------
Currency translation (14,191) (9,760) (6,081) (50) (30,082)
----------------------------------------------------------- ---------- -------
Adjusted 428,834 336,345 240,411 1,071 1,006,661
----------------------------------------------------------- ----------
Customer accounts
----------------------------------------------------------- ----------
Reported 753,769 388,723 295,880 743 1,439,115
----------------------------------------------------------- ----------
Currency translation (18,468) (11,032) (9,926) (33) (39,459)
----------------------------------------------------------- ----------
Adjusted 735,301 377,691 285,954 710 1,399,656
----------------------------------------------------------- ---------- ------- -------- ------- ------ --- ---------
1 Net operating income before change in expected credit losses
and other credit impairment charges, also referred to as
revenue.
2 Includes fair value movements on non-qualifying hedges and
debt valuation adjustments on derivatives.
3 Comprises costs associated with preparations for the UK's exit from the European Union.
4 A change in reportable segments was made in 2Q20. Comparative
data have been presented accordingly. For further guidance, refer
to Note 5 on page 100.
Reconciliation of reported and adjusted risk-weighted assets
At 30 Jun 2020
Global
Wealth Banking
and Personal Commercial and Corporate
Banking Banking Markets Centre Total
$bn $bn $bn $bn $bn
------------------------ --------------- ---------- -------- --------- --------
Risk-weighted assets
Reported 161.8 330.9 277.6 84.3 854.6
------------------------ ----------- --------- ------- -------- -----
Adjusted 161.8 330.9 277.6 84.3 854.6
------------------------ ----------- --------- ------- -------- -----
At 30 Jun 2019
Risk-weighted assets
Reported 164.2 339.2 304.0 78.6 886.0
-----------
Currency translation (3.2) (7.3) (5.2) (0.5) (16.2)
------------------------ ----------- --------- ------- -------- -----
Disposals - - - (0.8) (0.8)
------------------------ ----------- --------- ------- -------- -----
- operations in Brazil - - - (0.8) (0.8)
------------------------ ----------- --------- ------- -------- -----
Adjusted 161.0 331.9 298.8 77.3 869.0
------------------------ ----------- --------- ------- -------- -----
At 31 Dec 2019
Risk-weighted assets
------ ------ ------ ----- --------
Reported 162.6 325.9 273.4 81.5 843.4
Currency translation (4.8) (10.3) (6.3) (0.7) (22.1)
---------------------- ----- ----- ----- ---- -----
Adjusted 157.8 315.6 267.1 80.8 821.3
---------------------- ----- ----- ----- ---- -----
Supplementary tables for WPB
WPB adjusted performance by business unit
A breakdown of WPB by business unit is presented below to
reflect the basis of how the revenue performance of the business
units is assessed and managed.
WPB - summary (adjusted basis)
Consists of
Global
Total Banking Insurance Private Asset
WPB operations manufacturing Banking management
Footnotes $m $m $m $m $m
---------- ------- ----------- ---------------- -------- -------------
Half-year to 30 Jun 2020
----------------------------------- ----------
Net operating income before
change in expected credit losses
and other credit impairment
charges 1 11,251 9,211 623 921 496
----------------------------------- ---------- ------ ---------- ------------ ------- ---------
- net interest income 8,032 6,562 1,100 372 (2)
- net fee income/(expense) 2,691 2,065 (277) 416 487
- other income 528 584 (200) 133 11
----------------------------------- ------ ---------- ------------ ------- ---------
ECL (2,202) (2,027) (122) (53) -
Net operating income 9,049 7,184 501 868 496
----------------------------------- ---------- ------ ---------- ------------ ------- ---------
Total operating expenses (7,346) (6,132) (197) (669) (348)
Operating profit 1,703 1,052 304 199 148
----------------------------------- ---------- ------ ---------- ------------ ------- ---------
Share of profit in associates
and joint ventures (8) 3 (11) - -
----------------------------------- ---------- ------ ---------- ------------ ------- ---------
Profit before tax 1,695 1,055 293 199 148
----------------------------------- ---------- ------ ---------- ------------ ------- ---------
Half-year to 30 Jun 2019
-----------------------------------
Net operating income before
change in expected credit losses
and other credit impairment
charges 1 12,861 9,923 1,500 924 514
----------------------------------- ---------- ------ ---------- ------------ ------- ---------
- net interest income 8,525 7,039 1,049 441 (4)
- net fee income/(expense) 2,826 2,366 (392) 375 477
- other income 1,510 518 843 108 41
ECL (527) (507) (2) (18) -
Net operating income 12,334 9,416 1,498 906 514
----------------------------------- ---------- ------ ---------- ------------ ------- ---------
Total operating expenses (7,551) (6,249) (220) (709) (373)
Operating profit 4,783 3,167 1,278 197 141
----------------------------------- ---------- ------ ---------- ------------ ------- ---------
Share of profit in associates
and joint ventures 41 6 35 - -
----------------------------------- ---------- ------ ---------- ------------ ------- ---------
Profit before tax 4,824 3,173 1,313 197 141
----------------------------------- ---------- ------ ---------- ------------ ------- ---------
WPB - summary (adjusted basis) (continued)
Consists of
Global
Total Banking Insurance Private Asset
WPB operations manufacturing Banking management
Footnotes $m $m $m $m $m
--------
Half-year to 31 Dec 2019
-----------------------------------
Net operating income before
change in expected credit losses
and other credit impairment
charges 1 12,492 9,945 1,123 927 497
------ ---------- ------------ ------- ---------
- net interest income 8,768 7,226 1,105 439 (2)
- net fee income/(expense) 2,750 2,188 (319) 398 483
- other income 974 531 337 90 16
ECL (829) (736) (90) (3) -
Net operating income 11,663 9,209 1,033 924 497
----------------------------------- ---------- ------ ---------- ------------ ------- ---------
Total operating expenses (7,685) (6,357) (247) (717) (364)
Operating profit 3,978 2,852 786 207 133
----------------------------------- ---------- ------ ---------- ------------ ------- ---------
Share of profit in associates
and joint ventures 11 3 8 - -
----------------------------------- ---------- ------ ---------- ------------ ------- ---------
Profit before tax 3,989 2,855 794 207 133
----------------------------------- ---------- ------ ---------- ------------ ------- ---------
1 Net operating income before change in expected credit losses
and other credit impairment charges, also referred to as revenue.
WPB insurance manufacturing adjusted revenue of $623m (1H19:
$1,500m, 2H19: $1,123m) was disclosed within the management view of
adjusted revenue on page 14, as follows: Wealth Management $587m
(1H19: $1,371m, 2H19: $1,078m) and Other $36m (1H19: $129m, 2H19:
$45m).
WPB insurance manufacturing adjusted results
The following table shows the results of our insurance
manufacturing operations by income statement line item. It
shows
the results of insurance manufacturing operations for WPB and
for all global business segments in aggregate, and separately the
insurance distribution income earned by HSBC bank channels.
Adjusted results(1) of insurance manufacturing operations and insurance
distribution income earned by HSBC bank channels(2)
Half-year to
30 Jun 30 Jun 31 Dec
2020 2019 2019
All global All global All global
WPB businesses WPB businesses WPB businesses
Footnotes $m $m $m $m $m $m
---------- ------- ----------- ------- ----------- ------- -------------
Net interest income 1,100 1,173 1,049 1,122 1,105 1,173
---------------------------- ---------- ------ ---------- ------ ---------- ------ ----------
Net fee income (277) (301) (392) (413) (319) (323)
---------------------------- ---------- ------ ---------- ------ ---------- ------ ----------
- fee income 60 69 51 62 56 67
----------------------------
- fee expense (337) (370) (443) (475) (375) (390)
---------------------------- ---------- ------ ---------- ------ ---------- ------ ----------
Net income from financial
instruments
held for trading or
managed on
a fair value basis 22 22 (80) (79) 10 15
---------------------------- ---------- ------ ---------- ------ ---------- ------ ----------
Net income/(expense) from
assets
and liabilities of
insurance businesses,
including related
derivatives,
measured at fair value
through
profit or loss (1,268) (1,286) 2,208 2,205 1,330 1,315
---------------------------- ---------- ------ ---------- ------ ---------- ------ ----------
Gains less losses from
financial
investments 4 4 3 3 2 2
---------------------------- ---------- ------ ---------- ------ ---------- ------ ----------
Net insurance premium
income 4,821 5,077 6,052 6,321 4,260 4,358
---------------------------- ---------- ------ ---------- ------ ---------- ------ ----------
Other operating income 400 415 961 963 824 840
---------------------------- ---------- ------ ---------- ------ ---------- ------ ----------
Of which: PVIF 434 449 889 916 828 846
---------------------------- ---------- ------ ---------- ------ ---------- ------ ----------
Total operating income 4,802 5,104 9,801 10,122 7,212 7,380
---------------------------- ---------- ------ ---------- ------ ---------- ------ ----------
Net insurance claims and
benefits
paid and movement in
liabilities
to policyholders (4,179) (4,426) (8,301) (8,578) (6,089) (6,218)
---------------------------- ---------- ------ ---------- ------ ---------- ------ ----------
Net operating income before
change
in expected credit losses
and other
credit impairment charges 3 623 678 1,500 1,544 1,123 1,162
---------------------------- ---------- ------ ---------- ------ ---------- ------ ----------
Change in expected credit
losses
and other credit
impairment charges (122) (135) (2) (2) (90) (98)
---------------------------- ---------- ------ ---------- ------ ---------- ------ ----------
Net operating income 501 543 1,498 1,542 1,033 1,064
---------------------------- ---------- ------ ---------- ------ ---------- ------ ----------
Total operating expenses (197) (224) (220) (233) (247) (260)
---------------------------- ---------- ------ ---------- ------ ---------- ------ ----------
Operating profit 304 319 1,278 1,309 786 804
---------------------------- ---------- ------ ---------- ------ ---------- ------ ----------
Share of profit in
associates and
joint ventures (11) (11) 35 35 8 8
---------------------------- ---------- ------ ---------- ------ ---------- ------ ----------
Profit before tax of
insurance
manufacturing operations 4 293 308 1,313 1,344 794 812
---------------------------- ---------- ------ ---------- ------ ---------- ------ ----------
Annualised new business
premiums
of insurance manufacturing
operations 1,199 1,241 1,943 2,006 1,372 1,388
Insurance distribution
income earned
by HSBC bank channels 394 445 513 576 425 457
---------------------------- ---------- ------ ---------- ------ ---------- ------ ----------
1 Adjusted results are derived by adjusting for period-on-period
effects of foreign currency translation differences, and the effect
of significant items that distort period-on-period comparisons.
There are no significant items included within insurance
manufacturing, and the impact of foreign currency translation on
all global businesses profit before tax is 1H19: $3m adverse
(reported: $1,347), 2H19: $24m favourable (reported: $788).
2 The results presented for insurance manufacturing operations
are shown before elimination of inter-company transactions with
HSBC non-insurance operations.
3 Net operating income before change in expected credit losses
and other credit impairment charges, also referred to as
revenue.
4 The effect on the insurance manufacturing operations of
applying hyperinflation accounting in Argentina resulted in a
reduction in adjusted revenue in 1H20 of $1m (1H19: reduction of
$8m, 2H19: increase of $5m) and a reduction in profit before tax
('PBT') in 1H20 of $3m (1H19: reduction of $9m, 2H19: increase of
$6m). These effects are recorded within 'All global
businesses'.
Insurance manufacturing
The following commentary, unless otherwise specified, relates to
the 'All global businesses' results.
HSBC recognises the present value of long-term in-force
insurance contracts and investment contracts with discretionary
participation features ('PVIF') as an asset on the balance sheet.
The overall balance sheet equity, including PVIF, is therefore a
measure of the embedded value in the insurance manufacturing
entities, and the movement in this embedded value in the period
drives the overall income statement result.
Adjusted profit before tax of $0.3bn decreased by $1.0bn or 77%
compared with 1H19.
Net operating income before change in expected credit losses and
other credit impairment changes was $0.9bn or 56% lower than in
1H19. This reflected the following:
-- 'Net expense from assets and liabilities of insurance
businesses, including related derivatives, measured at fair value
through profit or loss' of $1.3bn in 1H20 compared with a net
income of $2.2bn in 1H19. This was primarily due to adverse equity
market performances in Hong Kong, France and Singapore. This
adverse movement resulted in a corresponding movement in
liabilities to policyholders and PVIF (see 'Other operating income'
below), reflecting the extent to which policyholders and
shareholders respectively participate in the investment performance
of the associated asset portfolios.
-- Net insurance premium income of $5.1bn was $1.2bn lower
compared with 1H19. This was driven by lower new business volumes,
particularly in Hong Kong and France.
-- Other operating income of $0.4bn decreased by $0.5bn compared
with 1H19, mainly from adverse movements in PVIF. This reflected a
decrease of $0.3bn in the value of new business written, primarily
from Hong Kong in line with the lower business volumes. In
addition, assumption changes and experience variances decreased by
$0.1bn, primarily in France due to the effect of interest rate
changes on the valuation of the liabilities under insurance
contracts.
-- Net insurance claims and benefits paid and movement in
liabilities to policyholders of $4.4bn were $4.2bn lower than 1H19.
This was primarily due to lower returns on financial assets
supporting contracts where the policyholder is subject to part or
all of the investment risk and lower new business volumes in Hong
Kong and France.
-- Change in expected credit losses and other credit impairment
charges ('ECL') of $0.1bn was $0.1bn higher compared with 1H19,
mainly from charges relating to the global impact of the Covid-19
outbreak on the forward economic outlook. The increase in ECL also
reflected higher charges related to specific exposures, including a
significant charge related to sovereign exposure in Argentina.
Adjusted operating expenses of $0.2bn decreased by 2% compared
with 1H19, reflecting cost-saving initiatives during the
period.
Annualised new business premiums ('ANP') is used to assess new
insurance premium generation by the business. It is calculated as
100% of annualised first year regular premiums and 10% of single
premiums, before reinsurance ceded. Lower ANP during the period
reflected a reduction in new business volumes, mainly in Hong Kong
and France.
Insurance distribution income from HSBC channels included $271m
(1H19: $376m; 2H19: $278m) on HSBC manufactured products, for which
a corresponding fee expense is recognised within insurance
manufacturing, and $174m (1H19: $200m; 2H19: $179m) on products
manufactured by third-party providers. The WPB component of this
distribution income was $228m (1H19: $323m; 2H19: $256m) from HSBC
manufactured products and $166m (1H19: $190m; 2H19: $169m) from
third-party products.
WPB: Client assets and funds under management
The following table shows the client assets and funds under
management, including self-directed client investments and
execution-only trades, across our WPB global business. Funds under
management represents assets managed, either actively or passively,
on behalf of our customers.
WPB - reported client assets and funds under management(1)
Half-year to
30 Jun 30 Jun 31 Dec
2020 2019 2019
$bn $bn $bn
Global Private Banking client assets 353 341 361
- managed by Global Asset Management 62 57 61
---------------------------------------------------
- external managers, direct securities and other 291 284 300
--------------------------------------------------- ------- ------ ------
Retail Wealth balances 357 370 380
- managed by Global Asset Management 196 189 199
---------------------------------------------------
- external managers, direct securities and other 161 181 181
--------------------------------------------------- ------- ------ ------
Asset Management third-party distribution 263 249 247
--------------------------------------------------- ------- ------ ------
Closing balance 973 960 988
--------------------------------------------------- ------- ------ ------
1 Client funds distributed and under management 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.
WPB wealth balances
The following table shows the consolidated areas of focus across
all WPB wealth balances.
WPB wealth balances
Half-year to
30 Jun 30 Jun 31 Dec
2020 2019 2019
$bn $bn $bn
Client assets and funds under management 973 960 988
------------------------------------------ ------ ------ ------
Premier and Jade deposits(1) 445 412 433
Total 1,418 1,372 1,421
------------------------------------------ ------ ------ ------
1 Premier and Jade deposits, which include Prestige deposits in
Hang Seng Bank, form part of the total WPB customer accounts
balance of $776bn on page 33 (30 June 2019: $725bn, 31 December
2019: $754bn).
Asset Management: Funds under management
The following table shows the funds under management of our
Asset Management business. Funds under management represents assets
managed, either actively or passively, on behalf of our
customers.
Asset Management - reported funds under management(1)
Half-year to
30 Jun 30 Jun 31 Dec
2020 2019 2019
$bn $bn $bn
Opening balance 506 444 495
Net new money 33 31 (1)
Value change (9) 20 10
Exchange and other (9) - 2
------------------------------------------ ------- ------ ------
Closing balance 521 495 506
------------------------------------------ ------- ------ ------
Asset Management - reported funds under management by geography
At
30 Jun 30 Jun 31 Dec
2020 2019 2019
$bn $bn $bn
Europe 292 271 287
Asia 160 178 161
MENA 5 2 6
North America 57 37 44
------------------------------------------ ------- ------ ------
Latin America 7 7 8
------------------------------------------ ------- ------ ------
Closing balance 521 495 506
------------------------------------------ ------- ------ ------
1 Funds under management 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.
Global Private Banking client assets(1)
The following table shows the client assets of our Global
Private Banking business.
Global Private Banking - reported client assets
Half-year to
30 Jun 30 Jun 31 Dec
2020 2019 2019
$bn $bn $bn
Opening balance 361 309 341
Net new money 5 14 9
---------------------------------
Value change (16) 15 8
Exchange and other 3 3 3
Closing balance 353 341 361
--------------------------------- ----- ------ ------
Global Private Banking - reported client assets by geography
At
30 Jun 30 Jun 31 Dec
2020 2019 2019
$bn $bn $bn
------- ---------
Europe 161 160 171
Asia 154 143 151
North America 38 38 39
Closing balance 353 341 361
----------------------------------------- ------- ------- -------
1 'Client assets' are translated at the rates of exchange
applicable for their respective period-ends, with the effects of
currency translation reported separately.
Geographical regions
Page
Analysis of reported results
by geographical regions 40
-------------------------------- ----
Reconciliation of reported and
adjusted items - geographical
regions 42
-------------------------------- ----
Analysis by country/territory 48
-------------------------------- ----
Analysis of reported results by geographical regions
HSBC reported profit/(loss) before tax and balance sheet data
Half-year to 30 Jun 2020
North Latin Intra-HSBC
Europe Asia MENA America America items Total
Footnotes $m $m $m $m $m $m $m
---------- ---------- ------- -------- ------- ---------- ------------
Net interest income 2,782 7,820 777 1,483 963 684 14,509
Net fee income 1,747 2,692 347 910 230 - 5,926
Net income from
financial
instruments held
for trading
or managed on a
fair value
basis 2,090 2,630 211 630 370 (163) 5,768
---------------------
Net income from
assets
and liabilities of
insurance
businesses,
including related
derivatives,
measured at
fair value through
profit
and loss (809) (512) - - 31 - (1,290)
---------------------
Changes in fair
value of
other financial
instruments
mandatorily
measured at
fair value through
profit
or loss 563 22 (5) (2) 21 (519) 80
--------------------- --------- --------- ------ ------- ------ --------- ---------
Other
income/(expense) 1 2,603 1,928 49 384 (38) (3,174) 1,752
----------
Net operating income
before
change in expected
credit
losses and other
credit
impairment charges 2 8,976 14,580 1,379 3,405 1,577 (3,172) 26,745
--------------------- ---------- --------- --------- ------ ------- ------ --------- ---------
Change in expected
credit
losses and other
credit
impairment charges (2,885) (1,818) (611) (887) (657) - (6,858)
---------------------
Net operating income 6,091 12,762 768 2,518 920 (3,172) 19,887
--------------------- ---------- --------- --------- ------ ------- ------ --------- ---------
Total operating
expenses
excluding
impairment of
goodwill and other
intangible
assets (7,933) (6,356) (722) (2,491) (909) 3,172 (15,239)
--------------------- ---------- --------- --------- ------ ------- ------ --------- ---------
Impairment of
goodwill
and other
intangible assets (1,168) (74) (41) (4) (1) - (1,288)
--------------------- ---------- --------- --------- ------ ------- ------ --------- ---------
Operating
profit/(loss) (3,010) 6,332 5 23 10 - 3,360
--------------------- ---------- --------- --------- ------ ------- ------ --------- ---------
Share of
profit/(loss)
in associates and
joint
ventures (50) 1,037 (31) - 2 - 958
--------------------- ---------- --------- --------- ------ ------- ------ --------- ---------
Profit/(loss) before
tax (3,060) 7,369 (26) 23 12 - 4,318
--------------------- ---------- --------- --------- ------ ------- ------ --------- ---------
% % % % % %
----------
Share of HSBC's
profit
before tax (70.9) 170.7 (0.6) 0.5 0.3 100.0
Cost efficiency
ratio 101.4 44.1 55.3 73.3 57.7 61.8
Balance sheet data $m $m $m $m $m $m $m
Loans and advances
to customers
(net) 378,729 474,739 29,615 115,813 19,785 - 1,018,681
Total assets 1,357,087 1,164,850 68,418 449,393 48,933 (165,883) 2,922,798
Customer accounts 562,505 723,072 41,197 180,489 25,117 - 1,532,380
Risk-weighted assets 3 278,500 374,684 58,585 130,580 33,278 - 854,552
--------------------- ----------
Half-year to 30 Jun 2019
Net interest income 3,309 8,182 897 1,685 1,076 91 15,240
Net fee income 1,869 2,765 326 903 261 - 6,124
Net income from
financial
instruments held
for trading
or managed on a
fair value
basis 1,837 2,352 175 412 403 152 5,331
---------------------
Net expense from
assets
and liabilities of
insurance
businesses,
including related
derivatives,
measured at
fair value through
profit
and loss 1,056 1,117 - - 23 - 2,196
--------------------- ----------
Changes in fair
value of
other financial
instruments
mandatorily
measured at
fair value through
profit
or loss 596 14 1 15 75 (244) 457
--------------------- ---------- --------- --------- ------ ------- --------- ---------
Other income 1 585 1,029 844 350 62 (2,846) 24
----------
Net operating income
before
change in expected
credit
losses and other
credit
impairment charges 2 9,252 15,459 2,243 3,365 1,900 (2,847) 29,372
--------------------- ---------- --------- --------- ------ ------- --------- ---------
Change in expected
credit
losses and other
credit
impairment
charges/(recoveries) (536) (260) (49) (60) (235) - (1,140)
Net operating income 8,716 15,199 2,194 3,305 1,665 (2,847) 28,232
--------------------- ----------
Total operating
expenses
excluding
impairment of
goodwill and other
intangible
assets (9,234) (6,480) (694) (2,557) (1,008) 2,847 (17,126)
--------------------- ----------
Impairment of
goodwill
and other
intangible assets (10) (10) - (2) (1) - (23)
--------------------- ----------
Operating
profit/(loss) (528) 8,709 1,500 746 656 - 11,083
--------------------- ----------
Share of profit in
associates
and joint ventures 8 1,071 236 - 9 - 1,324
--------------------- ----------
Profit/(loss) before
tax (520) 9,780 1,736 746 665 - 12,407
--------------------- ----------
% % % % % %
Share of HSBC's
profit
before tax (4.2) 78.8 14.0 6.0 5.4 100.0
Cost efficiency
ratio 99.9 42.0 30.9 76.0 53.1 58.4
Balance sheet data $m $m $m $m $m $m $m
Loans and advances
to customers
(net) 383,363 473,627 28,509 112,693 23,440 - 1,021,632
Total assets 1,235,615 1,101,387 61,771 436,742 53,919 (138,161) 2,751,273
Customer accounts 504,386 677,289 36,593 135,400 26,456 - 1,380,124
Risk-weighted assets 3 309,378 371,747 57,530 133,448 40,254 - 885,971
--------------------- ----------
HSBC reported profit/(loss) before tax and balance sheet data (continued)
Half-year to 31 Dec 2019
North Latin Intra-HSBC/Global
Europe Asia MENA America America impairment Total
Footnotes $m $m $m $m $m $m $m
Net interest
income 2,292 8,425 884 1,556 985 1,080 15,222
Net fee income 1,799 2,560 359 901 279 1 5,899
Net income from
financial
instruments held
for trading
or managed on a
fair value
basis 1,948 2,383 152 461 480 (524) 4,900
Net
income/(expense)
from
assets and
liabilities
of insurance
businesses,
including
related
derivatives,
measured at fair
value
through profit
and loss 600 686 - - (9) 5 1,282
----------
Changes in fair
value of
other financial
instruments
mandatorily
measured at
fair value
through profit
or loss 920 14 - 16 (34) (561) 355
---------- ----
Other
income/(expense) 1 1,245 892 72 288 (85) (3,344) (932)
----------
Net operating
income before
change in the
expected
credit losses
and other
credit
impairment
charges 2 8,804 14,960 1,467 3,222 1,616 (3,343) 26,726
---------- ----
Change in
expected credit
losses and other
credit
impairment
charges (402) (464) (68) (177) (505) - (1,616)
---------- -----
Net operating
income 8,402 14,496 1,399 3,045 1,111 (3,343) 25,110
Total operating
expenses
excluding
impairment of
goodwill and
other intangible
assets (9,976) (6,804) (758) (2,593) (1,042) 3,343 (17,830)
-----
Impairment of
goodwill
and other
intangible
assets (2,539) (3) (97) (431) (338) (3,962) (7,370)
Operating
profit/(loss) (4,113) 7,689 544 21 (269) (3,962) (90)
---------- ----
Share of
profit/(loss)
in associates
and joint
ventures (20) 999 47 - 4 - 1,030
---------- -----
Profit/(loss)
before tax (4,133) 8,688 591 21 (265) (3,962) 940
---------- ----
% % % % % %
-------------------
Share of HSBC's
profit
before tax (439.7) 924.3 62.9 2.2 (28.2) 100.0
Cost efficiency
ratio 142.2 45.5 58.3 93.9 85.4 94.3
Balance sheet
data $m $m $m $m $m $m $m
Loans and
advances to
customers
(net) 393,850 477,727 28,556 113,474 23,136 - 1,036,743
Total assets 1,248,205 1,102,805 65,369 377,095 52,879 (131,201) 2,715,152
Customer accounts 528,718 697,358 38,126 146,676 28,237 - 1,439,115
Risk-weighted
assets 3 280,983 366,375 57,492 121,953 38,460 - 843,395
---------- -----
1 Other income in this context comprises, where applicable, 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.
2 Net operating income before change in expected credit losses
and other credit impairment charges, also referred to as
revenue.
3 Risk-weighted assets are non-additive across geographical
regions due to market risk diversification effects within the
Group.
Reconciliation of reported and adjusted items - geographical regions
Reconciliation of reported results to adjusted results - geographical
regions and selected countries/territories
Half-year to 30 Jun 2020
North Latin
Europe Asia MENA America America Total
Footnotes $m $m $m $m $m $m
Revenue 1
----------
Reported 2 8,976 14,580 1,379 3,405 1,577 26,745
---------
Significant items (230) (34) (1) 6 (9) (268)
---------- ---------
* customer redress programmes (26) - - - - (26)
----------
* disposals, acquisitions and investment in new
businesses - - - 8 - 8
----------
* fair value movements on financial instruments 3 (252) (34) (1) (3) (9) (299)
* restructuring and other related costs 48 - - 1 - 49
---------- ---------
Adjusted 2 8,746 14,546 1,378 3,411 1,568 26,477
---------- ---------
ECL
------------
Reported (2,885) (1,818) (611) (887) (657) (6,858)
Adjusted (2,885) (1,818) (611) (887) (657) (6,858)
---------- ---------
Operating expenses
Reported 2 (9,101) (6,430) (763) (2,495) (910) (16,527)
---------
Significant items 1,331 18 41 184 11 1,585
---------- ---------
- customer redress programmes 50 - - - - 50
----------
- impairment of goodwill and other
intangibles 984 - 41 - - 1,025
----------
* restructuring and other related costs 4 292 18 - 184 11 505
----------
* settlements and provisions in connection with legal
and regulatory matters 5 - - - - 5
Adjusted 2 (7,770) (6,412) (722) (2,311) (899) (14,942)
---------- ---------
Share of profit in associates and
joint ventures
------------
Reported (50) 1,037 (31) - 2 958
---------
Adjusted (50) 1,037 (31) - 2 958
Profit/(loss) before tax
Reported (3,060) 7,369 (26) 23 12 4,318
---------
Significant items 1,101 (16) 40 190 2 1,317
---------- ---------
- revenue (230) (34) (1) 6 (9) (268)
- operating expenses 1,331 18 41 184 11 1,585
---------
Adjusted (1,959) 7,353 14 213 14 5,635
---------- ---------
Loans and advances to customers (net)
Reported 378,729 474,739 29,615 115,813 19,785 1,018,681
---------- ---------
Adjusted 378,729 474,739 29,615 115,813 19,785 1,018,681
Customer accounts
---------- ------------
Reported 562,505 723,072 41,197 180,489 25,117 1,532,380
----------
Adjusted 562,505 723,072 41,197 180,489 25,117 1,532,380
----------
1 Net operating income before change in expected credit losses
and other credit impairment charges, also referred to as
revenue.
2 Amounts are non-additive across geographical regions due to
inter-company transactions within the Group.
3 Includes fair value movements on non-qualifying hedges and
debt valuation adjustments on derivatives.
4 Includes impairment of software intangible assets of $173m.
Reconciliation of reported results to adjusted results - geographical
regions and selected countries/territories (continued)
Half-year to 30 Jun 2020
Hong Mainland
UK Kong China US Mexico
Footnotes $m $m $m $m $m
Revenue 1
----------
Reported 6,329 9,075 1,576 2,492 1,139
----------
Significant items (222) (16) - 6 (6)
----------
* customer redress programmes (26) - - - -
----------
* disposals, acquisitions and investment in new
businesses - - - 8 -
----------
* fair value movement on financial instruments 2 (243) (16) - (3) (6)
----------
- restructuring and other related costs 47 - - 1 -
Adjusted 6,107 9,059 1,576 2,498 1,133
----------
ECL
----------
Reported (2,492) (516) (107) (615) (574)
----------
Adjusted (2,492) (516) (107) (615) (574)
----------
Operating expenses
Reported (7,210) (3,460) (1,016) (1,957) (647)
----------
Significant items 995 10 1 177 2
----------
- customer redress programmes 50 - - - -
----------
- impairment of goodwill and other intangibles 842 - - - -
----------
* restructuring and other related costs 98 10 1 177 2
----------
* settlements and provisions in connection with legal
and regulatory matters 5 - - - -
----------
Adjusted (6,215) (3,450) (1,015) (1,780) (645)
----------
Share of profit in associates and joint
ventures
Reported (49) (7) 1,044 - 2
Adjusted (49) (7) 1,044 - 2
----------
Profit/(loss) before tax
Reported (3,422) 5,092 1,497 (80) (80)
----------
Significant items 773 (6) 1 183 (4)
----------
- revenue (222) (16) - 6 (6)
----------
- operating expenses 995 10 1 177 2
----------
Adjusted (2,649) 5,086 1,498 103 (84)
----------
Loans and advances to customers (net)
Reported 285,335 308,798 43,338 68,036 17,220
----------
Adjusted 285,335 308,798 43,338 68,036 17,220
Customer accounts
----------
Reported 437,735 514,381 47,557 120,236 19,759
----------
Adjusted 437,735 514,381 47,557 120,236 19,759
----------
1 Net operating income before change in expected credit losses
and other credit impairment charges, also referred to as
revenue.
2 Includes fair value movements on non-qualifying hedges and
debt valuation adjustments on derivatives.
Reconciliation of reported results to adjusted results - geographical
regions and selected countries/territories (continued)
Half-year to 30 Jun 2019
North Latin
Europe Asia MENA America America Total
Footnotes $m $m $m $m $m $m
Revenue 1
----------
Reported 2 9,252 15,459 2,243 3,365 1,900 29,372
Currency translation 2 (246) (98) 3 (19) (355) (681)
----------
Significant items (107) 40 (827) 8 10 (876)
- disposals, acquisitions and investment
in new businesses - - (828) - 1 (827)
----------
* fair value movements on financial instruments 3 (107) 40 - 8 9 (50)
* currency translation on significant items - - 1 - - 1
Adjusted 2 8,899 15,401 1,419 3,354 1,555 27,815
----------
ECL
----------
Reported (536) (260) (49) (60) (235) (1,140)
Currency translation 14 3 (1) 1 35 52
Adjusted (522) (257) (50) (59) (200) (1,088)
----------
Operating expenses
Reported 2 (9,244) (6,490) (694) (2,559) (1,009) (17,149)
Currency translation 2 205 81 7 12 182 453
----------
Significant items 861 46 5 35 10 957
----------
- costs of structural reform 4 90 1 - - - 91
----------
* customer redress programmes 610 - - - - 610
- restructuring and other related costs 189 47 5 34 12 287
* settlement and provisions in connection with legal
and regulatory matters (1) (1) - - - (2)
- currency translation on significant
items (27) (1) - 1 (2) (29)
Adjusted 2 (8,178) (6,363) (682) (2,512) (817) (15,739)
----------
Share of profit in associates and joint
ventures
Reported 8 1,071 236 - 9 1,324
Currency translation - (36) (1) - (2) (39)
Adjusted 8 1,035 235 - 7 1,285
----------
Profit/(loss) before tax
Reported (520) 9,780 1,736 746 665 12,407
Currency translation (27) (50) 8 (6) (140) (215)
----------
Significant items 754 86 (822) 43 20 81
----------
* revenue (107) 40 (827) 8 10 (876)
----------
* operating expenses 861 46 5 35 10 957
Adjusted 207 9,816 922 783 545 12,273
----------
Loans and advances to customers (net)
Reported 383,363 473,627 28,509 112,693 23,440 1,021,632
----------
Currency translation (10,207) (1,732) (376) (1,796) (4,541) (18,652)
----------
Adjusted 373,156 471,895 28,133 110,897 18,899 1,002,980
----------
Customer accounts
----------
Reported 504,386 677,289 36,593 135,400 26,456 1,380,124
----------
Currency translation (14,050) (1,028) (445) (1,912) (5,542) (22,977)
----------
Adjusted 490,336 676,261 36,148 133,488 20,914 1,357,147
----------
1 Net operating income before change in expected credit losses
and other credit impairment charges, also referred to as
revenue.
2 Amounts are non-additive across geographical regions due to
inter-company transactions within the Group.
3 Includes fair value movements on non-qualifying hedges and
debt valuation adjustments on derivatives.
4 Comprises costs associated with preparations for the UK's exit from the European Union.
Reconciliation of reported results to adjusted results - geographical
regions and selected countries/territories (continued)
Half-year to 30 Jun 2019
Hong Mainland
UK Kong China US Mexico
Footnotes $m $m $m $m $m
Revenue 1
----------
Reported 6,758 9,935 1,598 2,398 1,271
Currency translation (195) 101 (56) - (137)
----------
Significant items (110) 30 1 7 7
----------
* fair value movements on financial instruments 2 (110) 29 1 7 7
----------
* currency translation on significant items - 1 - - -
----------
Adjusted 6,453 10,066 1,543 2,405 1,141
----------
ECL
----------
Reported (429) (134) (67) (36) (198)
Currency translation 10 (1) 2 - 22
----------
Adjusted (419) (135) (65) (36) (176)
----------
Operating expenses
----------
Reported (7,590) (3,405) (1,038) (1,989) (686)
Currency translation 170 (33) 37 - 77
----------
Significant items 787 21 2 26 4
- costs of structural reform 3 59 1 - - -
- customer redress programmes 610 - - - -
----------
- restructuring and other related costs 142 21 2 26 5
* settlements and provisions in connection with legal
and regulatory matters (1) (1) - - -
* currency translation on significant items (23) - - - (1)
Adjusted (6,633) (3,417) (999) (1,963) (605)
----------
Share of profit in associates and joint
ventures
Reported 8 23 1,031 - 9
Currency translation (1) 1 (36) - (2)
----------
Adjusted 7 24 995 - 7
----------
Profit/(loss) before tax
----------
Reported (1,253) 6,419 1,524 373 396
Currency translation (16) 68 (53) - (40)
Significant items 677 51 3 33 11
----------
- revenue (110) 30 1 7 7
- operating expenses 787 21 2 26 4
Adjusted (592) 6,538 1,474 406 367
----------
Loans and advances to customers (net)
Reported 291,955 304,431 42,657 67,039 20,135
----------
Currency translation (8,952) 2,299 (1,232) - (3,455)
----------
Adjusted 283,003 306,730 41,425 67,039 16,680
----------
Customer accounts
----------
Reported 398,857 487,948 45,409 82,260 20,437
----------
Currency translation (12,228) 3,690 (1,311) - (3,501)
----------
Adjusted 386,629 491,638 44,098 82,260 16,936
----------
1 Net operating income before change in expected credit losses
and other credit impairment charges, also referred to as
revenue.
2 Includes fair value movements on non-qualifying hedges and
debt valuation adjustments on derivatives.
3 Comprises costs associated with preparations for the UK's exit from the European Union.
Reconciliation of reported results to adjusted results - geographical
regions and selected countries/territories (continued)
Half-year to 31 Dec 2019
North Latin
Europe Asia MENA America America Total
Footnotes $m $m $m $m $m $m
------------
Revenue 1
----------
Reported 2 8,804 14,960 1,467 3,222 1,616 26,726
Currency translation 2 (31) (27) (11) (27) (206) (281)
Significant items 131 (5) - 60 1 187
----------------------------------------------------------- ----------
* customer redress programmes 163 - - - - 163
* disposals, acquisitions and investment in new
businesses - - - 59 - 59
-----------------------------------------------------------
* fair value movements on financial instruments 3 (30) (5) - 1 - (34)
- currency translation on significant
items (2) - - - 1 (1)
Adjusted 2 8,904 14,928 1,456 3,255 1,411 26,632
----------------------------------------------------------- ----------
ECL
Reported (402) (464) (68) (177) (505) (1,616)
Currency translation (5) (1) 2 1 65 62
Adjusted (407) (465) (66) (176) (440) (1,554)
----------------------------------------------------------- ----------
Operating expenses
2,
Reported 5 (12,515) (6,807) (855) (3,024) (1,380) (25,200)
Currency translation 2 56 36 10 15 132 228
Significant items 5 3,504 80 108 508 362 8,524
----------------------------------------------------------- ----------
* costs of structural reform 4 64 3 - - - 67
----------------------------------------------------------- ----------
* customer redress programmes 671 - - - - 671
-----------------------------------------------------------
- impairment of goodwill and other
intangibles 5 2,522 - 97 431 337 7,349
-----------------------------------------------------------
* restructuring and other related costs 349 76 10 79 26 540
* settlements and provisions in connection with legal
and regulatory matters (59) - - - - (59)
* currency translation on significant items (43) 1 1 (2) (1) (44)
Adjusted 5 (8,955) (6,691) (737) (2,501) (886) (16,448)
----------------------------------------------------------- ----------
Share of profit in associates and joint
ventures
Reported (20) 999 47 - 4 1,030
Currency translation 2 (1) - - (1) -
Adjusted (18) 998 47 - 3 1,030
----------------------------------------------------------- ----------
Profit/(loss) before tax
Reported 5 (4,133) 8,688 591 21 (265) 940
Currency translation 22 7 1 (11) (10) 9
Significant items 5 3,635 75 108 568 363 8,711
-----------------------------------------------------------
* revenue 131 (5) - 60 1 187
* operating expenses 5 3,504 80 108 508 362 8,524
----------
Adjusted (476) 8,770 700 578 88 9,660
----------------------------------------------------------- ----------
Loans and advances to customers (net)
Reported 393,850 477,727 28,556 113,474 23,136 1,036,743
----------------------------------------------------------- ----------
Currency translation (20,562) (2,574) (398) (2,382) (4,166) (30,082)
----------------------------------------------------------- ----------
Adjusted 373,288 475,153 28,158 111,092 18,970 1,006,661
----------------------------------------------------------- ----------
Customer accounts
----------------------------------------------------------- ---------- ------------
Reported 528,718 697,358 38,126 146,676 28,237 1,439,115
----------------------------------------------------------- ----------
Currency translation (28,957) (2,505) (586) (2,417) (4,994) (39,459)
----------------------------------------------------------- ----------
Adjusted 499,761 694,853 37,540 144,259 23,243 1,399,656
----------------------------------------------------------- ----------
1 Net operating income before change in expected credit losses
and other credit impairment charges, also referred to as
revenue.
2 Amounts are non-additive across geographical regions due to
inter-company transactions within the Group.
3 Includes fair value movements on non-qualifying hedges and
debt valuation adjustments on derivatives.
4 Comprises costs associated with preparations for the UK's exit from the European Union.
5 Amounts are non-additive across geographical regions due to
goodwill impairment recognised on the Global Banking and Markets
cash-generating unit, which is monitored on a global basis.
Reconciliation of reported results to adjusted results - geographical
regions and selected countries/territories (continued)
Half-year to 31 Dec 2019
Hong Mainland
UK Kong China US Mexico
Footnotes $m $m $m $m $m
Revenue 1
----------
Reported 6,780 9,477 1,503 2,240 1,284
Currency translation (16) 79 (1) - (130)
----------
Significant items 134 (3) - 59 -
----------
* customer redress programmes 162 - - - -
----------
* disposals, acquisitions and investment in new
businesses - - - 59 -
----------
* fair value movements on financial instruments 2 (29) (3) - - 1
----------
* currency translation on significant items 1 - - - (1)
----------
Adjusted 6,898 9,553 1,502 2,299 1,154
----------
ECL
----------
Reported (285) (325) (62) (134) (293)
Currency translation (5) (3) - - 30
----------
Adjusted (290) (328) (62) (134) (263)
----------
Operating expenses
----------
Reported (8,567) (3,530) (1,073) (2,044) (704)
Currency translation (4) (28) 1 - 74
----------
Significant items 993 44 4 67 13
- costs of structural reform 3 42 3 - - -
- customer redress programmes 671 - - - -
----------
- restructuring and other related costs 263 40 4 67 15
* settlements and provisions in connection with legal
and regulatory matters 9 - - - -
* currency translation on significant items 8 1 - - (2)
Adjusted (7,578) (3,514) (1,068) (1,977) (617)
----------
Share of profit/(loss) in associates and
joint ventures
Reported (20) 8 985 - 4
Currency translation 2 - - - (1)
----------
Adjusted (18) 8 985 - 3
----------
Profit/(loss) before tax
----------
Reported (2,092) 5,630 1,353 62 291
Currency translation (23) 48 - - (27)
Significant items 1,127 41 4 126 13
----------
- revenue 134 (3) - 59 -
- operating expenses 993 44 4 67 13
Adjusted (988) 5,719 1,357 188 277
----------
Loans and advances to customers (net)
Reported 303,041 306,964 42,380 63,588 20,426
----------
Currency translation (20,400) 1,532 (655) - (3,795)
----------
Adjusted 282,641 308,496 41,725 63,588 16,631
----------
Customer accounts
----------
Reported 419,642 499,955 48,323 90,834 23,051
----------
Currency translation (28,249) 2,496 (747) - (4,282)
----------
Adjusted 391,393 502,451 47,576 90,834 18,769
----------
1 Net operating income before change in expected credit losses
and other credit impairment charges, also referred to as
revenue.
2 Includes fair value movements on non-qualifying hedges and
debt valuation adjustments on derivatives.
3 Comprises costs associated with preparations for the UK's exit from the European Union.
Analysis by country/territory
Profit/(loss) before tax by priority growth market within global businesses
Wealth and Global
Personal Commercial Banking Corporate
Banking Banking and Markets Centre Total
Footnotes $m $m $m $m $m
Europe (898) (678) (1,298) (186) (3,060)
- UK 1 (536) (638) (1,243) (1,005) (3,422)
----------
of which: HSBC UK Bank plc
(RFB) (275) (242) 39 (10) (488)
----------
of which: HSBC Bank plc
(NRFB) 44 1 (858) (279) (1,092)
----------
of which: Holdings and other (305) (397) (424) (716) (1,842)
----------
- France (343) (127) (207) (64) (741)
- Germany 12 (4) 109 (9) 108
- Switzerland (15) 3 1 (1) (12)
- other (16) 88 42 893 1,007
---------- --------- ------
Asia 2,799 921 2,393 1,256 7,369
- Hong Kong 2,790 1,173 1,119 10 5,092
- Australia 32 35 78 1 146
- India 5 83 313 160 561
- Indonesia (11) (1) 81 (8) 61
- mainland China (26) 190 232 1,101 1,497
- Malaysia 1 12 82 (6) 89
- Singapore 3 (682) 140 (9) (548)
- Taiwan 12 12 58 (1) 81
- other (7) 99 290 8 390
---------- --------- ------
Middle East and North Africa (63) (122) 208 (49) (26)
- Egypt 34 19 101 1 155
- UAE (40) (158) 23 (23) (198)
- Saudi Arabia 5 - 14 (32) (13)
- other (62) 17 70 5 30
---------- --------- ------
North America (224) (62) 509 (200) 23
- US (274) (89) 463 (180) (80)
- Canada 32 25 34 (22) 69
- other 18 2 12 2 34
---------- --------- ------
Latin America (123) 18 102 15 12
- Mexico (67) (31) (5) 23 (80)
- other (56) 49 107 (8) 92
---------- --------- ------
Half-year to 30 Jun 2020 1,491 77 1,914 836 4,318
---------- ---------- --------- ------
Wealth and Global
Personal Commercial Banking Corporate
Banking(3) Banking(3) and Markets(3) Centre(3) Total
Europe (339) 688 (436) (433) (520)
----------
- UK 1 (401) 510 (504) (858) (1,253)
----------
of which: HSBC UK Bank plc
(RFB) (74) 845 35 (6) 800
----------
of which: HSBC Bank plc
(NRFB) 113 146 (8) (281) (30)
----------
of which: Holdings and other (440) (481) (531) (571) (2,023)
----------
- France 12 88 (68) (27) 5
----------
- Germany 10 13 42 (12) 53
----------
- Switzerland 5 2 (2) 6 11
----------
- other 35 75 96 458 664
----------
Asia 4,076 2,467 2,068 1,169 9,780
- Hong Kong 3,790 1,771 886 (28) 6,419
----------
- Australia 58 60 99 (14) 203
----------
- India 39 108 264 101 512
----------
- Indonesia 6 31 67 25 129
----------
- mainland China 3 181 235 1,105 1,524
----------
- Malaysia 49 41 98 (7) 181
----------
- Singapore 82 70 133 (17) 268
----------
- Taiwan 27 15 51 (3) 90
----------
- other 22 190 235 7 454
----------
Middle East and North Africa 146 185 393 1,012 1,736
- Egypt 33 40 131 1 205
- UAE 86 46 120 (48) 204
- Saudi Arabia - - - 1,063 1,063
- other 27 99 142 (4) 264
---------- ---------- --------- ------
North America (10) 447 393 (84) 746
- US (73) 208 307 (69) 373
- Canada 29 219 66 (14) 300
- other 34 20 20 (1) 73
---------- --------- ------
Latin America 335 161 192 (23) 665
- Mexico 190 113 104 (11) 396
- other 145 48 88 (12) 269
----------
Half-year to 30 Jun 2019 4,208 3,948 2,610 1,641 12,407
---------- ---------- --------- ------
Profit/(loss) before tax by priority growth market within global businesses
(continued)
Wealth Global
and Personal Commercial Banking Corporate
Banking(3) Banking(3) and Markets(3) Centre(3) Total
Footnotes $m $m $m $m $m
---------- ----------- ---------- ---------
Europe (502) (2,012) (561) (1,058) (4,133)
- UK 1 (652) 394 (713) (1,121) (2,092)
of which: HSBC UK Bank plc
(RFB) (257) 710 35 15 503
of which: HSBC Bank plc
(NRFB) 132 132 (178) (186) (100)
of which: Holdings and
other (527) (448) (570) (950) (2,495)
- France 43 32 3 (47) 31
- Germany 8 33 53 14 108
- Switzerland 88 5 (1) (12) 80
- other 2 11 (2,476) 97 108 (2,260)
Asia 3,639 2,052 2,015 982 8,688
- Hong Kong 3,430 1,471 843 (114) 5,630
- Australia 72 67 100 2 241
- India 28 93 269 104 494
- Indonesia 14 24 60 (11) 87
- mainland China (76) 136 277 1,016 1,353
- Malaysia 53 32 91 (15) 161
- Singapore 72 35 117 (14) 210
- Taiwan 16 10 46 (1) 71
- other 30 184 212 15 441
Middle East and North Africa 108 27 368 88 591
- Egypt 40 41 114 10 205
- UAE 53 48 126 (6) 221
- Saudi Arabia (3) - 13 82 92
- other 2 18 (62) 115 2 73
North America (563) 408 336 (160) 21
- US (204) 178 240 (152) 62
- Canada 41 208 77 (8) 318
- other 2 (400) 22 19 (359)
Latin America (71) (264) 136 (66) (265)
- Mexico 121 63 125 (18) 291
- other 2 (192) (327) 11 (48) (556)
GBM goodwill impairment 2 - - (3,962) - (3,962)
----------
Half-year to 31 Dec 2019 2,611 211 (1,668) (214) 940
----------
1 UK includes results from the ultimate holding company, HSBC
Holdings plc, and the separately incorporated group of service
companies ('ServCo Group').
2 Includes the impact of goodwill impairment. As per Group
accounting policy, HSBC's cash-generating units are based on
geographical regions subdivided by global business, except for
Global Banking and Markets, for which goodwill is monitored on a
global basis.
3 A change in reportable segments was made in 2Q20. Comparative
data have been presented accordingly. For further guidance, refer
to Note 5 on page 100.
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END
IR PAMBTMTITTIM
(END) Dow Jones Newswires
August 26, 2020 11:30 ET (15:30 GMT)
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