TIDM63AS
RNS Number : 6225Q
HSBC Bank plc
20 February 2019
Financial Statements
Page
Consolidated income statement 87
------------------------------------------
Consolidated statement of comprehensive
income 88
------------------------------------------
Consolidated balance sheet 89
------------------------------------------
Consolidated statement of cash
flows 90
------------------------------------------
Consolidated statement of changes
in equity 91
------------------------------------------
HSBC Bank plc balance sheet 93
------------------------------------------
HSBC Bank plc statement of
cash flows 94
------------------------------------------
HSBC Bank plc statement of
changes in equity 95
------------------------------------------ ----
Notes on the Financial
Statements
Basis of preparation and
1 significant accounting policies 97
2 Net fee income 110
Net income/(expense) from
financial instruments measured
at fair value through profit
3 or loss 110
4 Insurance business 111
---- ------------------------------------ ----
5 Operating profit 112
Employee compensation and
6 benefits 112
7 Auditors' remuneration 116
8 Tax 117
9 Dividends 119
10 Trading assets 120
Fair values of financial
instruments carried at fair
11 value 120
Fair values of financial
instruments not carried at
12 fair value 128
Financial assets designated
and otherwise mandatorily
measured at fair value through
13 profit or loss 130
14 Derivatives 130
15 Financial investments 133
----
Assets pledged, collateral
16 received and assets transferred 134
----
17 Interests in associates 135
----
18 Investments in subsidiaries 135
----
19 Structured entities 136
----
20 Goodwill and intangible assets 138
----
Prepayments, accrued income
21 and other assets 140
----
22 Trading liabilities 141
----
Financial liabilities designated
23 at fair value 141
----
Accruals, deferred income
24 and other liabilities 141
----
25 Provisions 142
----
26 Subordinated liabilities 143
----
Maturity analysis of assets,
liabilities and off-balance
27 sheet commitments 144
----
Offsetting of financial assets
28 and financial liabilities 147
Called up share capital and
29 other equity instruments 148
Contingent liabilities, contractual
commitments
30 and guarantees 150
31 Lease commitments 151
Legal proceedings and regulatory
32 matters 151
33 Related party transactions 154
Effects of reclassification
34 upon adoption of IFRS 9 158
35 Discontinued operations 161
Events after the balance
36 sheet date 162
HSBC Bank plc's subsidiaries,
37 joint ventures and associates 162
---- ------------------------------------ ----
Consolidated income statement
for the year ended 31 December
2018 2017
Notes GBPm GBPm
----------------------------------------------------------- ------
Net interest income 3,660 6,181
----------------------------------------------------------- ------ ------ -------
* interest income 7,422 9,043
* interest expense (3,762) (2,862)
------ -------
Net fee income 2 2,044 2,989
----------------------------------------------------------- ------ ------ -------
* fee income 3,402 4,345
* fee expense (1,358) (1,356)
------ -------
Net income from financial instruments held for trading
or managed on a fair value basis(3,4) 3 2,733 2,790
----------------------------------------------------------- ------ ------ -------
Net income/(expense) from assets and liabilities of
insurance businesses, including related derivatives,
measured at fair value through profit or loss(3) 3 (604) 602
----------------------------------------------------------- ------ ------ -------
Changes in fair value of long-term debt and related
derivatives(3) 3 5 113
----------------------------------------------------------- ------ ------ -------
Changes in fair value of other financial instruments
mandatorily measured at fair value through profit
or loss(3) 3 511 N/A
----------------------------------------------------------- ------ ------ ----------
Gains less losses from financial investments 12 262
-------
Net insurance premiums 4 2,005 1,809
Other operating income 580 796
Total operating income 10,946 15,542
----------------------------------------------------------- ------ ------ -------
Net insurance claims incurred and movement in liabilities
to policyholders 4 (1,478) (2,490)
Net operating income before change in expected credit
losses and other credit impairment charges(5) 9,468 13,052
----------------------------------------------------------- ------ ------ -------
Change in expected credit losses and other credit
impairment charges 5 (159) N/A
----------------------------------------------------------- ------
Loan impairment charges and other credit risk provisions 5 N/A (495)
------
Net operating income 9,309 12,557
----------------------------------------------------------- ------ ------ -------
Total operating expenses (7,351) (10,208)
----------------------------------------------------------- ------ ------ -------
* employee compensation and benefits 6 (2,529) (3,129)
* general and administrative expenses (4,501) (6,523)
* depreciation and impairment of property, plant and
equipment (150) (320)
* amortisation and impairment of intangible assets 20 (171) (236)
----------------------------------------------------------- ------ ------ -------
Operating profit 5 1,958 2,349
----------------------------------------------------------- ------ ------ -------
Share of profit in associates and joint ventures 17 16 21
Profit before tax(2) 1,974 2,370
----------------------------------------------------------- ------ ------ -------
Tax expense(4) 8 (442) (528)
Profit for the year(4) 1,532 1,842
----------------------------------------------------------- ------ ------ -------
Profit attributable to shareholders of the parent
company 1,506 1,809
----------------------------------------------------------- ------ ------ -------
Profit attributable to non-controlling interests 26 33
----------------------------------------------------------- ------ ------ -------
Profit from discontinued operations attributable to
shareholders of the company(1) 35 820 802
----------------------------------------------------------- ------ ------ -------
1 Profit from discontinued operations relates to profit
attributable to shareholders of the group from the separation of
HSBC UK Bank plc from the group. HSBC completed the ring-fencing of
its UK retail banking activities on 1 July 2018, transferring
qualifying RBWM, CMB and GPB customers of the group to HSBC UK Bank
plc, HSBC's ring-fenced bank.
2 The group adopted IFRS 9 on 1 January 2018. Comparative
information has not been restated, apart from the re-presentation
of certain income statement line items as explained in footnote
3.
3 The presentation of net income from financial instruments
measured at fair value through profit or loss has been revised
based on the classification and measurement requirements of IFRS 9.
In addition, the effect of foreign exchange exposure on certain
long-term debt instruments has been included in 'Net income from
financial instruments held for trading or managed on a fair value
basis' from 1 January 2018. Comparative information has been
re-presented. The restatement decreased 'Changes in fair value of
long-term debt and related derivatives' by GBP402m for 2017 with an
equivalent increase in 'Net income from financial instruments held
for trading or managed on a fair value basis'.
4 We have considered market practices for the presentation of
certain financial liabilities which contain both deposit and
derivative components and were previously included in 'Trading
liabilities'. Such liabilities amounted to GBP17,958m at 31
December 2017. These liabilities are classified as 'Financial
liabilities designated at fair value' from 1 January 2018.
Comparative information has not been restated. For 2017, a loss of
GBP335m relating to changes in the credit risk of these liabilities
was included in 'Net income from financial instruments held for
trading or managed on a fair value basis' with a credit of GBP96m
recognised in 'Tax expense'. If the change in accounting policy had
been applied retrospectively, these amounts would have been
recognised in other comprehensive income, thereby resulting in a
net increase in profit for 2017 of GBP239m.
5 Net operating income before change in expected credit losses
and other credit impairment charges is also referred to as
'revenue'.
Consolidated statement of comprehensive income
for the year ended 31 December
2018 2017
GBPm GBPm
------------------------------------------------------------- ------ --------
Profit for the year 1,532 1,842
------------------------------------------------------------- ----- -----
Other comprehensive income/(expense)
------ --------
Items that will be reclassified subsequently to profit
or loss when specific conditions are met:
Available-for-sale investments N/A 84
------
- fair value gains N/A 414
- fair value gains reclassified to the income statement N/A (354)
-------------------------------------------------------------
- amounts reclassified to the income statement in respect
of impairment losses N/A 26
-------------------------------------------------------------
- income taxes N/A (2)
------------------------------------------------------------- -----
Debt instruments at fair value through other comprehensive
income 83 N/A
- fair value gains 178 N/A
- fair value gains transferred to the income statement
on disposal (2) N/A
- expected credit losses recognised in the income statement (73) N/A
- income taxes (20) N/A
------------------------------------------------------------- ----- --------
Cash flow hedges (16) (125)
- fair value losses (159) (133)
-------------------------------------------------------------
- fair value losses/(gains) reclassified to the income
statement 157 (26)
-------------------------------------------------------------
- income taxes (14) 34
------------------------------------------------------------- ----- -----
Exchange differences 100 380
-------------------------------------------------------------
Items that will not be reclassified subsequently to
profit or loss:
Remeasurement of defined benefit asset/liability 171 1,797
- before income taxes(3,4) 255 2,393
-------------------------------------------------------------
- income taxes (84) (596)
------------------------------------------------------------- ----- -----
Equity instruments designated at fair value through
other comprehensive income 36 N/A
-------------------------------------------------------------
- fair value gains 1 N/A
-------------------------------------------------------------
- income taxes 35 N/A
------------------------------------------------------------- ----- --------
Changes in fair value of financial liabilities designated
at fair value upon initial recognition arising from
changes in own credit risk(2) 504 (164)
-------------------------------------------------------------
- Fair value gains/(losses) 707 (185)
-------------------------------------------------------------
- income taxes (203) 21
------------------------------------------------------------- ----- -----
Other comprehensive income for the year, net of tax(2) 878 1,972
------------------------------------------------------------- ----- -----
Total comprehensive income for the year 2,410 3,814
------------------------------------------------------------- ----- -----
Attributable to:
- shareholders of the parent company 2,387 3,772
-------------------------------------------------------------
- non-controlling interests 23 42
------------------------------------------------------------- ----- -----
Total comprehensive income for the year(1) 2,410 3,814
------------------------------------------------------------- ----- -----
1 The group adopted IFRS 9 on 1 January 2018. Comparative information has not been restated.
2 We have considered market practices for the presentation of
certain financial liabilities which contain both deposit and
derivative components and were previously included in 'Trading
liabilities'. Such liabilities amounted to GBP17,958m at 31
December 2017. These liabilities are classified as 'Financial
liabilities designated at fair value' from 1 January 2018.
Comparative information has not been restated. For 2017, a loss of
GBP335m relating to changes in the credit risk of these liabilities
was included in 'Net income from financial instruments held for
trading or managed on a fair value basis' with a credit of GBP96m
recognised in 'Tax expense'. If the change in accounting policy had
been applied retrospectively, these amounts would have been
recognised in other comprehensive income, thereby resulting in a
net increase in profit for 2017 of GBP239m. Refer to Note 34 for
further details.
3 An actuarial gain of GBP247m has arisen as a result of the
remeasurement of the defined benefit pension of the HSBC Bank (UK)
Pension Plan. An increase in the discount rate of 0.2%, a 0.1%
reduction in the inflation assumption, and an update of demographic
assumptions led to a gain of GBP1,073m. This was broadly offset by
an adverse movement of GBP826m in plan assets, due to the hedged
nature of the scheme. Other plans within the group, including
defined benefit healthcare plans, had a net gain of GBP8m.
4 An error in an input to the actuarial model resulted in the
pension liability being understated by up to an estimated GBP150m
at 31 December 2017. This has been corrected in the 31 December
2018 position.
Consolidated balance sheet
at 31 December
2018 2017
Notes GBPm GBPm
------------------------------------------------------- ------ -------- ---------
Assets
Cash and balances at central banks 52,013 97,601
Items in the course of collection from other banks 839 2,023
------- -------
Trading assets 10 95,420 145,725
Financial assets designated and otherwise mandatorily
measured at fair value through profit and loss 13 17,799 N/A
------
Financial assets designated at fair value 13 N/A 9,266
Derivatives 14 144,522 143,335
Loans and advances to banks 13,628 14,149
Loans and advances to customers 111,964 280,402
Reverse repurchase agreements - non-trading 80,102 45,808
Financial investments 15 47,272 58,000
Prepayments, accrued income and other assets 21 37,497 16,026
------- -------
Current tax assets 337 140
Interests in associates and joint ventures 17 399 327
Goodwill and intangible assets 20 2,626 5,936
-------
Deferred tax assets 8 540 130
Total assets(1) 604,958 818,868
------------------------------------------------------- ------ ------- -------
Liabilities and equity
Liabilities
Deposits by banks 24,532 29,349
Customer accounts 180,836 381,546
Repurchase agreements - non-trading 46,583 37,775
Items in the course of transmission to other banks 351 1,089
Trading liabilities 22 49,514 106,496
Financial liabilities designated at fair value 23 36,922 18,249
Derivatives 14 139,932 140,070
Debt securities in issue 22,721 13,286
Accruals, deferred income and other liabilities 24 41,036 6,615
-------
Current tax liabilities 128 88
Liabilities under insurance contracts 4 20,657 21,033
Provisions 25 538 1,796
Deferred tax liabilities 8 29 933
Subordinated liabilities 26 13,770 16,494
Total liabilities(1) 577,549 774,819
------------------------------------------------------- ------ ------- -------
Equity
Total shareholders' equity 26,878 43,462
------------------------------------------------------- ------ ------- -------
- called up share capital 29 797 797
- other equity instruments 29 2,403 3,781
------
- other reserves (4,971) 2,744
- retained earnings 28,649 36,140
-------
Non-controlling interests 531 587
------------------------------------------------------- ------ ------- -------
Total equity(1) 27,409 44,049
------------------------------------------------------- ------ ------- -------
Total liabilities and equity(1) 604,958 818,868
------------------------------------------------------- ------ ------- -------
1 The group adopted IFRS 9 together with voluntary changes to
accounting policy and presentation on 1 January 2018. Comparative
information has not been restated. For further details, refer to
Note 34 'Effects of reclassifications upon adoption of IFRS 9'.
The accompanying notes on pages 97 to 165, and the audited
sections of the 'Financial summary' on pages 10 to 15 and the
'Report of the Directors' on pages 20 to 77 form an integral part
of these financial statements.
The financial statements on pages 87 to 96 were approved by the
Board of Directors on 19 February 2019 and signed on its behalf
by:
J Fleurant
Director
Consolidated statement of cash flows
for the year ended 31 December
2018 2017
GBPm GBPm
-------------------------------------------------------------------- -------- ----------
Profit before tax 1,974 2,370
-------
Adjustments for non-cash items
Depreciation, amortisation and impairment of intangible
assets 321 556
Net gain from investing activities (14) (314)
Share of profits in associates and joint ventures (16) (21)
Gain on disposal of subsidiaries, businesses, associates
and joint ventures - (61)
-------------------------------------------------------------------- ------- -------
Change in expected credit losses gross of recoveries and
other credit impairment charges 220 N/A
-------------------------------------------------------------------- ------- ----------
Loan impairment losses gross of recoveries and other credit
risk provisions N/A 877
Provisions including pensions (41) 170
Share-based payment expense 99 114
Other non-cash items included in profit before tax 40 (130)
Elimination of exchange differences(1) (2,074) 67
-------
Changes in operating assets and liabilities (670) 11,458
------- -------
* change in net trading securities and derivatives 7,837 (1,828)
* change in loans and advances to banks and customers (6,377) (5,605)
--------------------------------------------------------------------
* change in reverse repurchase agreements - non-trading (22,893) (9,792)
- change in financial assets designated and otherwise mandatorily
measured at fair value (2,246) (921)
* change in other assets (1,769) (415)
* change in deposits by banks and customer accounts (347) 15,381
* change in repurchase agreements - non-trading 8,807 18,065
* change in debt securities in issue 9,435 (2,854)
* change in financial liabilities designated at fair
value 1,982 (400)
* change in other liabilities 5,394 968
* contributions paid to defined benefit plans (20) (233)
* tax paid (473) (908)
-------
Net cash from operating activities (161) 15,086
-------------------------------------------------------------------- ------- -------
* purchase of financial investments (29,235) (16,573)
* proceeds from the sale and maturity of financial
investments 26,888 39,990
* net cash flows from the purchase and sale of property,
plant and equipment (111) (304)
--------------------------------------------------------------------
* net investment in intangible assets (433) (357)
--------------------------------------------------------------------
- net cash outflow from acquisition of businesses and subsidiaries (227) (43)
* net cash flow on disposal of subsidiaries, business,
associates and joint ventures(4) (29,371) (19)
-------------------------------------------------------------------- ------- -------
Net cash from investing activities (32,489) 22,694
* issue of ordinary share capital and other equity
instruments 818 -
* subordinated loan capital issued(2) 12,274 10,092
* subordinated loan capital repaid(2) (12,765) (1,251)
--------------------------------------------------------------------
* dividends paid to shareholders of the parent company (13,044) (873)
- funds received from the shareholder of the parent company 3,512 1,081
--------------------------------------------------------------------
- dividends paid to non-controlling interests (28) (22)
-------------------------------------------------------------------- ------- -------
Net cash from financing activities (9,233) 9,027
-------------------------------------------------------------------- ------- -------
Net (decrease)/increase in cash and cash equivalents (41,883) 46,807
-------------------------------------------------------------------- ------- -------
Cash and cash equivalents at 1 Jan 129,737 82,037
Exchange difference in respect of cash and cash equivalents 1,148 893
-------
Cash and cash equivalents at 31 Dec 89,002 129,737
-------------------------------------------------------------------- ------- -------
Cash and cash equivalents comprise of(3) :
- cash and balances at central banks 52,013 97,601
- items in the course of collection from other banks 839 2,023
- loans and advances to banks of one month or less 6,333 5,381
- reverse repurchase agreement with banks of one month
or less 22,928 11,528
- treasury bills, other bills and certificates of deposit
less than three months 7,240 14,293
- less: items in the course of transmission to other banks (351) (1,089)
-------------------------------------------------------------------- ------- -------
Cash and cash equivalents at 31 Dec 89,002 129,737
-------------------------------------------------------------------- ------- -------
1 Adjustment to bring changes between opening and closing
balance sheet amounts to average rates. This is not done on a
line-by-line basis, as details cannot be determined without
unreasonable expense.
2 Subordinated liabilities changes during the year are
attributable to cash flows from issuance (GBP12,274m (2017:
GBP10,092m)) and repayment (GBP(12,765)m (2017: GBP(1,251)m)) of
securities as presented in the Consolidated statement of cash
flows. Non-cash changes during the year included foreign exchanges
gains/(losses) (GBP112m (2017: GBP(463)m)) and fair value
gains/(losses) (GBP(132)m (2017: GBP94m)).
3 At 31 December 2018, GBP1,410m (2017: GBP4,159m) was not
available for use by the group, of which GBP1,410m (2017:
GBP1,585m) related to mandatory deposits at central banks.
4 No cash or cash equivalent was received as part of the Part
VII transfer of asset and liabilities. The aggregate amount of cash
and cash equivalent in the subsidiaries and other businesses over
which control transferred was GBP29,410m.
Interest received was GBP8,034m (2017: GBP10,172m), interest
paid was GBP3,177m (2017: GBP2,650m) and dividends received were
GBP938m (2017: GBP1,332m).
Consolidated statement of changes in equity
for the year ended 31 December
Other reserves
Called
up
share
capital Financial Cash Group Total
and Other assets flow Foreign reorganisation share- Non-
share equity Retained at FVOCI hedging exchange reserve holders' controlling Total
premium instruments earnings reserve reserve reserve (GRR) equity interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------------------------------- ------- ------------- -------- ----------- --------- -------- ---------------- -------- ------------- ----------
At 31 Dec 2017 797 3,781 36,140 1,099 (38) 1,683 - 43,462 587 44,049
----------------------------------------------------------- ------- --------- ------- ------ --- ---- -------- --------- ----- ------- ------- ---- -------
Impact on transition
to IFRS 9 - - (283) (249) - - - (532) - (532)
----------------------------------------------------------- ------- --------- ------- ------ ---- --- -------- --------- -----
At 1 Jan 2018(1) 797 3,781 35,857 850 (38) 1,683 - 42,930 587 43,517
----------------------------------------------------------- ------- --------- ------- ------ --- ---- -------- --------- ----- ------- ------- ---- -------
Profit for the
period - - 1,506 - - - - 1,506 26 1,532
-----------------------------------------------------------
Other comprehensive
income (net of
tax) - - 677 126 (16) 94 - 881 (3) 878
-----------------------------------------------------------
* debt instruments at fair value through other
comprehensive income - - - 90 - - - 90 (7) 83
-----------------------------------------------------------
* equity instruments designated at fair value through
other comprehensive income - - - 36 - - - 36 - 36
-----------------------------------------------------------
* cash flow hedges - - - - (16) - - (16) - (16)
-----------------------------------------------------------
* changes in fair value of financial liabilities
designated at fair value due to movement in own
credit risk(2) - - 504 - - - - 504 - 504
-----------------------------------------------------------
* remeasurement of defined benefit asset/liability(3) - - 173 - - - - 173 (2) 171
-----------------------------------------------------------
* exchange differences - - - - - 94 - 94 6 100
----------------------------------------------------------- ------- --------- ------- ------ --- ---- --- -------- --------- ----- ------- ------- ---- -------
Total comprehensive
income for the
year - - 2,183 126 (16) 94 - 2,387 23 2,410
----------------------------------------------------------- ------- --------- ------- ------ --- ---- -------- --------- ----- ------- ------- ---- -------
Capital securities
issued during
the period(4) - 818 - - - - - 818 - 818
----------------------------------------------------------- ------- --------- ------- ------ --- ---- --- -------- --------- ----- ------- ------- ---- -------
Dividends to shareholders(5) - - (13,044) - - - - (13,044) (28) (13,072)
------- --------- ------- ------ --- ---- --- -------- --------- ----- ------- ------- --- -------
Transfer(6) - (2,196) - - - - - (2,196) - (2,196)
----------------------------------------------------------- ------- --------- ------- ------ --- ---- --- -------- --------- ----- ------- ------- ---- -------
Net impact of
equity-settled
share-based payments - - 17 - - - - 17 - 17
----------------------------------------------------------- ------- --------- ------- ------ --- ---- --- -------- --------- ----- ------- ------- ---- -------
Capital contribution(7) - - 3,377 - - - - 3,377 - 3,377
-----------------------------------------------------------
Change in business
combinations and
other movements(8) - 218 (3) - - - 215 (51) 164
----------------------------------------------------------- --------- -----
Tax on items taken
directly to equity - - 41 - - - - 41 - 41
----------------------------------------------------------- ------- --------- ------- ------ --- ---- --- -------- --------- ----- ------- ------- ---- -------
Group reorganisation
reserve (GRR)(9) - - - (4) 29 - (7,692) (7,667) - (7,667)
At 31 Dec 2018 797 2,403 28,649 969 (25) 1,777 (7,692) 26,878 531 27,409
----------------------------------------------------------- ------- --------- ------- ------ --- ---- -------- --------- ---- ------- ------- ---- -------
Consolidated statement of changes in equity (continued)
for the year ended 31 December
Other reserves
Available-
Called for-sale Cash Total
up Other fair flow Foreign share- Non-
share Share equity Retained value hedging exchange holders' controlling Total
capital premium instruments earnings reserve reserve reserve equity interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------------------------- ------- -------- ----------- -------- ---------- --------- -------- -------- ------------- ---------
At 1 Jan 2017 797 20,733 3,781 12,737 1,007 89 786 39,930 695 40,625
-------------------------------------------------------- ------- ------- ----------- ------- ---------- ----- -------- ------- -------- --- ------
Profit for the year - - - 1,809 - - - 1,809 33 1,842
-------------------------------------------------------- ------- ------- ----------- ------- ---------- ----- --------
Other comprehensive
income
(net of tax) - - - 1,632 92 (125) 364 1,963 9 1,972
------- ------- ----------- ------- ---------- ----- -------- ------- -------- --- ------
* available-for-sale investments - - - - 92 - - 92 (8) 84
--------------------------------------------------------
* cash flow hedges - - - - - (125) - (125) - (125)
--------------------------------------------------------
* remeasurement of defined benefit asset/liability - - - 1,796 - - - 1,796 1 1,797
--------------------------------------------------------
* changes in fair value of financial liabilities
designated at fair value due to movement in own
credit risk - - - (164) - - - (164) - (164)
--------------------------------------------------------
* exchange differences and other - - - - - - 364 364 16 380
--------------------------------------------------------
Total comprehensive
income for the year - - - 3,441 92 (125) 364 3,772 42 3,814
-------------------------------------------------------- ------- ------- ----------- ------- ---------- ----- -------- ------- -------- --- ------
Dividends to shareholders - - - (872) - - - (872) (22) (894)
-------------------------------------------------------- ------- ------- ----------- ------- ---------- ----- -------- ------- -------- ------
Distribution in-specie
of HSBC Bank A.S.(10) - - - (1,174) - (2) 533 (643) - (643)
-------------------------------------------------------- ------- ------- ----------- ------- ---------- ----- -------- ------- -------- --- ------
Net impact of equity-settled
share-based payments - - - (21) - - - (21) - (21)
-------------------------------------------------------- ------- ------- ----------- ------- ---------- ----- -------- ------- -------- --- ------
Transfer of share
premium to retained
earnings(11) - (20,733) - 20,733 - - - - - -
------- ------- ----------- ------- ---------- ----- -------- ------- -------- --- ------
Change in business
combinations and
other movements - - - 1,241 - - - 1,241 (128) 1,113
-------------------------------------------------------- ------- ------- ----------- ------- ---------- ----- -------- ------- -------- ------
Tax on items taken
directly to equity - - - 55 - - - 55 - 55
-------------------------------------------------------- ------- ------- ----------- ------- ---------- ----- -------- ------- -------- --- ------
At 31 Dec 2017 797 - 3,781 36,140 1,099 (38) 1,683 43,462 587 44,049
-------------------------------------------------------- ------- ------- ----------- ------- ---------- ----- -------- ------- -------- --- ------
1 Balances at 1 January 2018 have been prepared in accordance
with accounting policies referred to on page 97. 31 December 2017
balances have not been represented.
2 At 1 January 2018, the cumulative changes in fair value
attributable to changes in own credit risk of financial liabilities
designated at fair value was a loss of GBP312m.
3 An actuarial gain has arisen as a result of the remeasurement
of the defined benefit pension obligation of the HSBC Bank (UK)
Pension Scheme.
4 HSBC Bank plc issued additional tier 1 capital instruments of
GBP818m to HSBC Holdings plc in March 2018. See Note 29 for further
details.
5 The dividend to shareholders includes a GBP12,000m dividend
distributed to HSBC Holdings plc in July 2018 to capitalise HSBC UK
Bank plc. See Note 9 for further details of the remaining GBP1,044m
dividend paid to shareholders.
6 HSBC Bank plc transferred two additional tier 1 capital
instruments of GBP2,196m to HSBC UK Bank plc in July 2018.
7 HSBC Holdings plc injected GBP1,900m of CET1 capital into HSBC
Bank plc during March 2018. There was no new issuance of share
capital. In December 2018 HSBC UK Holdings Ltd injected GBP1,477m
of CET1 capital into HSBC Bank plc. There was no new issuance of
share capital.
8 HSBC Holdings plc provided GBP135m to HSBC Bank plc for the
acquisition of HSBC Investment Bank Holdings Limited and its
subsidiaries from HSBC Holdings plc in January 2018. The difference
between the cost of investment and the net assets on acquisition
was recognised as a further capital contribution of GBP102m.
9 The Group reorganisation reserve ('GRR') of GBP7,692m is an
accounting reserve, which relates primarily to the recognition of
goodwill (GBP3,285m) and the pension asset net of deferred tax
(GBP4,776m), resulting from the ring-fencing implementation. The
GRR does not form part of regulatory capital. For further details
refer to Note 35.
10 The distribution in-specie of HSBC Bank A.S. comprises of the
return of cost of investment in HSBC Bank A.S.
11 On 15 March 2017, the High Court confirmed the conversion of
the share premium in full to distributable reserves by means of a
capital reduction.
HSBC Bank plc balance sheet
at 31 December
2018 2017
Notes GBPm GBPm
------------------------------------------------------- ------ -------- ---------
Assets
Cash and balances at central banks 40,657 81,358
Items in the course of collection from other banks 442 1,407
------- -------
Trading assets 10 77,765 124,094
-------
Financial assets designated and otherwise mandatorily
measured at fair value through profit and loss 5,745 N/A
------
Derivatives 14 139,229 135,236
Loans and advances to banks 12,686 15,160
Loans and advances to customers 58,783 220,450
Reverse repurchase agreements - non-trading 56,495 36,627
Financial investments 15 26,699 31,382
------- -------
Prepayments, accrued income and other assets 21 30,488 12,858
------- -------
Current tax assets 278 195
Interests in associates and joint ventures 17 - 5
------- -------
Investments in subsidiary undertakings 18 7,215 8,476
------ ------- -------
Goodwill and intangible assets 20 500 1,048
------- -------
Deferred tax assets 8 447 5
Total assets(1) 457,429 668,301
------------------------------------------------------- ------ -------
Liabilities and equity
-------- ---------
Liabilities
Deposits by banks 18,148 24,626
Customer accounts 125,871 320,026
Repurchase agreements - non-trading 35,693 35,220
Items in the course of transmission to other banks 83 600
Trading liabilities 22 27,301 77,303
Financial liabilities designated at fair value 23 22,931 11,006
Derivatives 14 135,307 133,035
Debt securities in issue 19,085 6,108
Accruals, deferred income and other liabilities 24 35,150 3,367
Current tax liabilities 40 54
Provisions 25 400 1,394
Deferred tax liabilities 8 2 932
Subordinated liabilities 26 13,323 15,930
Total liabilities(1) 433,334 629,601
------------------------------------------------------- ------ ------- -------
Equity
Called up share capital 29 797 797
Other equity instruments 29 2,403 3,781
Other reserves (5,138) 277
Retained earnings 26,033 33,845
------------------------------------------------------- ------ -------
Total equity(1) 24,095 38,700
------------------------------------------------------- ------ ------- -------
Total liabilities and equity(1) 457,429 668,301
------------------------------------------------------- ------ ------- -------
1 The group adopted IFRS 9 together with voluntary changes to
accounting policy and presentation on 1 January 2018. Comparative
information has not been restated. For further details, refer to
Note 34 'Effects of reclassifications upon adoption of IFRS 9'.
Profit after tax for the year was GBP1,411m (2017:
GBP2,565m).
The accompanying notes on pages 97 to 165, and the audited
sections of the 'Report of the Directors' on pages 20 to 77 form an
integral part of these financial statements.
The financial statements on pages 87 to 96 were approved by the
Board of Directors on 19 February 2019 and signed on its behalf
by:
J Fleurant
Director
HSBC Bank plc statement of cash flows
for the year ended 31 December
2018 2017
GBPm GBPm
--------------------------------------------------------------- -------- ----------
Profit before tax 1,699 2,898
------- -------
Adjustments for non-cash items
Depreciation, amortisation and impairment of intangible
assets 238 460
Net gain from investing activities (24) (208)
------- -------
Gain on disposal of subsidiaries, businesses, associates
and joint ventures - (61)
---------------------------------------------------------------- ------- -------
Change in expected credit losses gross of recoveries
and other credit impairment charges 294 N/A
--------------------------------------------------------------- ------- ----------
Loan impairment losses gross of recoveries and other
credit risk provisions N/A 548
-------- -------
Provisions including pensions (113) 37
Share-based payment expense 74 85
Other non-cash items included in profit before tax 25 17
Elimination of exchange differences(1) (1,578) 826
------- -------
Changes in operating assets and liabilities (2,055) 5,619
* change in net trading securities and derivatives 7,860 (12,326)
----------------------------------------------------------------
* change in loans and advances to banks and customers (4,001) (3,695)
* change in reverse repurchase agreements - non-trading (18,033) (10,416)
----------------------------------------------------------------
* change in financial assets designated and otherwise
mandatorily measured at fair value (2,032) -
----------------------------------------------------------------
* change in other assets (2,566) 80
* change in deposits by banks and customer accounts (220) 14,773
* change in repurchase agreements - non-trading 472 19,801
* change in debt securities in issue 12,977 (758)
* change in financial liabilities designated at fair
value (2,183) 692
* change in other liabilities 6,063 (1,685)
* contributions paid to defined benefit plans (20) (233)
* tax paid (372) (614)
------- -------
Net cash from operating activities (1,440) 10,221
---------------------------------------------------------------- ------- -------
* purchase of financial investments (23,545) (12,624)
* proceeds from the sale and maturity of financial
investments 17,303 28,834
* net cash flows from the purchase and sale of property,
plant and equipment (75) (168)
* net investment in intangible assets (295) (276)
----------------------------------------------------------------
* net cash outflow from acquisition of businesses and
subsidiaries - (1)
* net cash flow on disposal of subsidiaries, business,
associates and joint ventures (29,246) 599
------- -------
Net cash from investing activities (35,858) 16,364
- issue of ordinary share capital and other equity
instruments 818 -
* subordinated loan capital issued(2) 12,274 10,067
* subordinated loan capital repaid(2) (12,726) (1,085)
----------------------------------------------------------------
* funds received from the shareholder of the parent
company 3,512 1,081
* dividends paid to shareholders of the parent company (13,044) (1,368)
---------------------------------------------------------------- ------- -------
Net cash from financing activities (9,166) 8,695
---------------------------------------------------------------- ------- -------
Net (decrease)/increase in cash and cash equivalents (46,464) 35,280
---------------------------------------------------------------- ------- -------
Cash and cash equivalents at 1 Jan 106,067 70,344
Exchange difference in respect of cash and cash
equivalents 817 443
Cash and cash equivalents at 31 Dec 60,420 106,067
---------------------------------------------------------------- ------- -------
Cash and cash equivalents comprise of:
- cash and balances at central banks 40,657 81,358
- items in the course of collection from other banks 442 1,407
- loans and advances to banks of one month or less 3,764 4,264
- reverse repurchase agreement with banks of one
month or less 8,829 6,995
- treasury bills, other bills and certificates of
deposit less than three months 6,811 12,643
- less: items in the course of transmission to other
banks (83) (600)
---------------------------------------------------------------- ------- -------
Cash and cash equivalents at 31 Dec 60,420 106,067
---------------------------------------------------------------- ------- -------
1 Adjustment to bring changes between opening and closing
balance sheet amounts to average rates. This is not done on a
line-by-line basis, as details cannot be determined without
unreasonable expense.
2 Subordinated liabilities changes during the year are
attributable to cash flows from issuance (GBP12,274m (2017:
GBP10,067m)) and repayment (GBP(12,726)m (2017: GBP(1,085)m)) of
securities as presented in the bank's statement of cash flows.
Non-cash changes during the year included foreign exchanges
gain(losses) (GBP108m (2017: GBP(110)m)) and fair value
gains(losses) (GBP(150)m (2017: GBP94m)).
Interest received was GBP6,328m (2017: GBP7,498m), interest paid
was GBP2,304m (2017: GBP1,634m) and dividends received was GBP905m
(2017: GBP1,294m).
HSBC Bank plc statement of changes in equity
for the year ended 31 December
Other reserves
Called
up
share
capital Financial Cash Group
and Other assets flow Foreign reorganisation Total
share equity Retained at FVOCI hedging exchange reserve shareholders'
premium instruments earnings reserve reserve reserve (GRR) equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------------------------------- ------- ------------- -------- ----------- --------- ---------- ---------------- ---------------
At 31 Dec 2017 797 3,781 33,845 190 (18) 105 - 38,700
----------------------------------------------------------- ------- -------- --- ------- ------ --- ---- ---- ----
Impact on transition
to IFRS 9 - - (227) (163) - - - (390)
----------------------------------------------------------- ------- -------- --- ------- ------ ---- --- ---- ---- --------- ----- --------- ---
At 1 Jan 2018(1) 797 3,781 33,618 27 (18) 105 - 38,310
------- -------- ---
Profit for the year - - 1,411 - - - - 1,411
------- -------- --- ------- ------ --- ---- --- ---- ----
Other comprehensive
income (net of tax) - - 543 33 (58) (25) - 493
-----------------------------------------------------------
* debt instruments at fair value through other
comprehensive income - - - (3) - - - (3)
-----------------------------------------------------------
* equity instruments designated at fair value through
other comprehensive income - - - 36 - - - 36
-----------------------------------------------------------
* cash flow hedges - - - - (58) - - (58)
-----------------------------------------------------------
* changes in fair value of financial liabilities
designated at fair value due to movement in own
credit risk(2) - - 364 - - - - 364
-----------------------------------------------------------
* remeasurement of defined benefit asset/liability(3) - - 179 - - - - 179
-----------------------------------------------------------
* exchange differences - - - - - (25) - (25)
----------------------------------------------------------- ------- -------- --- ------- ------ --- ---- --- ---- --- --------- ----- --------- ---
Total comprehensive
income for the period - - 1,954 33 (58) (25) - 1,904
----------------------------------------------------------- ------- -------- --- ------- ------ --- ---- ---- --- --------- ----- --------- ----
Capital securities
issued during the period(4) - 818 - - - - - 818
Dividends to shareholders(5) - - (13,044) - - - - (13,044)
Transfers(6) - (2,196) - - - - - (2,196)
----------------------------------------------------------- ------- -------- ------- ------ --- ---- --- ---- ---- --------- ----- --------- ---
Net impact of equity-settled
share-based payments - - 12 - - - - 12
-----------------------------------------------------------
Capital contribution(7) - - 3,377 - - - - 3,377
----------------------------------------------------------- -------
Change in business
combinations and other
movements - - 75 21 - - - 96
----------------------------------------------------------- -------
Tax on items taken
directly to equity - - 41 - - - - 41
----------------------------------------------------------- ------- -------- --- ------- ------ --- ---- --- ---- ---- --------- ----- --------- ----
Group reorganisation
reserve (GRR)(8) - - - (4) 29 - (5,248) (5,223)
At 31 Dec 2018 797 2,403 26,033 77 (47) 80 (5,248) 24,095
----------------------------------------------------------- ------- -------- --- ------- ------ --- ---- ---- ---- --------- ---- --------- ----
HSBC Bank plc statement of changes in equity (continued)
for the year ended 31 December
Other reserves
Available-
Called for-sale Cash Total
up Other fair flow Foreign share-
share Share equity Retained value hedging exchange holders'
capital premium instruments earnings reserve reserve reserve equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------- -------- ----------- -------- ------------ --------- -------- ----------
At 1 Jan 2017 797 20,733 3,781 9,007 218 137 73 34,746
------- ------- ----------- ------- ----- ----- ----- -------- -------
Profit for the year - - - 2,565 - - - 2,565
Other comprehensive
income (net of tax) - - - 1,641 (28) (155) 32 1,490
------- -----
* available-for-sale investments - - - - (28) - - (28)
* cash flow hedges - - - - - (155) - (155)
* remeasurement of defined benefit asset/liability - - - 1,790 - - - 1,790
* changes in fair value of financial liabilities
designated at fair value due to movement in own
credit risk - - - (149) - - - (149)
* exchange differences and other - - - - - - 32 32
------- ------- ----------- ------- ----- ----- ----- -------- -------
Total comprehensive
income for the year
from continued operations - - - 4,206 (28) (155) 32 4,055
------- ----------- ------- ----- ---- -------- -------
Dividends to shareholders - - - (872) - - - (872)
Distribution in specie
of HSBC Bank A.S.(9) - - - (496) - - - (496)
------- ------- ----------- ------- ----- ----- ----- -------- -------
Net impact of equity-settled
share-based payments - - - (20) - - - (20)
Transfer of share premium
to retained earnings(10) - (20,733) - 20,733 - - - -
------- ------- ----------- ------- ----- ----- ----- -------- -------
Change in business combinations
and other movements - - - 1,232 - - - 1,232
Tax on items taken directly
to equity - - - 55 - - - 55
------- ------- ----------- ------- ----- ----- ----- -------- -------
At 31 Dec 2017 797 - 3,781 33,845 190 (18) 105 38,700
-------------------------------------------------------- ------- ------- ----------- ------- ----- ----- ----- -------- -------
1 Balances at 1 January 2018 have been prepared in accordance
with accounting policies referred to on page 97. 31 December 2017
balances have not been represented.
2 At 1 January 2018, the cumulative changes in fair value
attributable to changes in own credit risk of financial liabilities
designated at fair value was a loss of GBP204m.
3 An actuarial gain has arisen as a result of the remeasurement
of the defined benefit pension obligation of the HSBC Bank (UK)
Pension Scheme. Refer to Note 6 for further details.
4 HSBC Bank plc issued additional tier 1 capital instruments of
GBP818m to HSBC Holdings plc in March 2018. See Note 29 for further
details.
5 The dividend to shareholders includes a GBP12,000m dividend
distributed to HSBC Holdings plc in July 2018 to capitalise HSBC UK
Bank plc. See Note 9 for further details of the remaining GBP1,044m
dividend paid tp shareholders.
6 HSBC Bank plc transferred two additional tier 1 capital
instruments of GBP2,196m to HSBC UK Bank plc in July 2018.
7 HSBC Holdings plc injected GBP1,900m of CET1 capital into HSBC
Bank plc during March 2018. There was no new issuance of share
capital. In December 2018 HSBC UK Holdings Ltd injected GBP1,477m
of CET1 capital into HSBC Bank plc. There was no new issuance of
share capital.
8 The Group reorganisation reserve ('GRR') of GBP5,248m is an
accounting reserve, which relates primarily to the recognition of
goodwill (GBP223m) and the pension asset net of deferred tax
(GBP4,776m), resulting from the ring-fencing implementation. The
GRR does not form part of regulatory capital. For further details
refer to Note 35.
9 The distribution in-specie of HSBC Bank A.S. comprises of the
return of cost of investment in HSBC Bank A.S.
10 On 15 March 2017, the High Court confirmed the conversion of
the share premium in full to distributable reserves by means of a
capital reduction.
Notes on the Financial Statements
1 Basis of preparation and significant accounting policies
---------------------------------------------------------
1.1 Basis of preparation
(a) Compliance with International Financial Reporting Standards
The consolidated financial statements of the group and the
separate financial statements of HSBC Bank plc have been prepared
in accordance with International Financial Reporting Standards
('IFRSs') as issued by the International Accounting Standards Board
('IASB'), including interpretations issued by the IFRS
Interpretations Committee, and as endorsed by the European Union
('EU'). At
31 December 2018, there were no unendorsed standards effective
for the year ended 31 December 2018 affecting these consolidated
and separate financial statements, and the group's application of
IFRSs results in no differences between IFRSs as issued by the IASB
and IFRSs as endorsed by the EU.
Standards adopted during the year ended 31 December 2018
The group has adopted the requirements of IFRS 9 'Financial
Instruments' from 1 January 2018, with the exception of the
provisions relating to the presentation of gains and losses on
financial liabilities designated at fair value, which were adopted
from 1 January 2017. This includes the adoption of 'Prepayment
Features with Negative Compensation ('Amendments to IFRS 9') which
is effective for annual periods beginning on or after 1 January
2019 with early adoption permitted. The effect of its adoption is
not considered to be significant. IFRS 9 includes an accounting
policy choice to remain with IAS 39 hedge accounting, which HSBC
has exercised. The classification and measurement, and impairment
requirements are applied retrospectively by adjusting the opening
balance sheet at the date of initial application. As permitted by
the transitional requirements of IFRS 9, comparatives have not been
restated. Adoption reduced net assets at 1 January 2018 by GBP532m
as set out in Note 34.
In addition, the group has adopted the requirements of IFRS 15
'Revenue from contracts with customers' and a number of
interpretations and amendments to standards, which have had an
insignificant effect on the consolidated financial statements of
the group and the separate financial statements of HSBC Bank
plc.
IFRS 9 transitional requirements
The transitional requirements of IFRS 9 necessitated a review of
the designation of financial instruments at fair value. IFRS 9
requires that the designation is revoked where there is no longer
an accounting mismatch at 1 January 2018 and permits designations
to be revoked or additional designations created at 1 January 2018
if there are accounting mismatches at that date. As a result:
-- fair value designations for financial liabilities were
revoked where the accounting mismatch no longer exists, as required
by IFRS 9; and
-- fair value designations were revoked for certain long-dated
securities where accounting mismatches continue to exist, but where
HSBC has revoked the designation as permitted by IFRS 9 since it
will better mitigate the accounting mismatch by undertaking fair
value hedge accounting. The results of these changes are included
in the reconciliation set out in Note 34.
Changes in accounting policy
While not necessarily required by the adoption of IFRS 9, the
following voluntary changes in accounting policy and presentation
were made as a result of reviews carried out in conjunction with
its adoption. The effect of presentational changes at 1 January
2018 is included in the reconciliation set out in Note 34 and
comparatives have not been restated.
-- We considered market practices for the presentation of
certain financial liabilities which contain both deposit and
derivative components. We concluded that it would be appropriate to
change the accounting policy and presentation of 'trading customer
accounts and other debt securities in issue' to better align with
the presentation of similar financial instruments by peers. This
would therefore provide more relevant information about the effect
of these financial liabilities on our financial position and
performance. As a result, rather than being classified as held for
trading, we will designate these financial liabilities as at fair
value through profit or loss since they are managed and their
performance evaluated on a fair value basis. A further consequence
of this change in presentation is that the effects of changes in
the liabilities' credit risk will be presented in 'Other
comprehensive income' with the remaining effect presented in profit
or loss in accordance with group accounting policy adopted in 2017
(following the adoption of the requirements in IFRS 9 relating to
the presentation of gains and losses on financial liabilities
designated at fair value).
-- Cash collateral, margin and settlement accounts have been
reclassified from 'Trading assets' and 'Loans and advances to banks
and customers' to 'Prepayments, accrued income and other assets'
and from 'Trading liabilities' and 'Deposits by banks' and
'Customer accounts' to 'Accruals, deferred income and other
liabilities'. The change in presentation for financial assets is in
accordance with IFRS 9 and the change in presentation for financial
liabilities is considered to provide more relevant information,
given the change in presentation for the financial assets. The
change in presentation for financial liabilities has had no effect
on the measurement of these items and therefore on retained
earnings or profit for any period.
-- Certain stock borrowing assets have been reclassified from
'Loans and advances to banks and customers' to 'Trading assets'.
The change in measurement is a result of the determination of the
global business model for this activity and will align the
presentation throughout HSBC Group.
-- Prior to 2018, foreign exchange exposure on some financial
instruments designated at fair value was presented in the same line
in the income statement as the underlying fair value movement on
these instruments. In 2018, we have grouped the presentation of the
entire effect of foreign exchange exposure in profit or loss and
presented it within 'Net income from financial instruments held for
trading or managed on a fair value basis'. Comparative data has
been re-presented.
(b) Separation of the Ring-fenced bank
In order to meet HSBC Holdings plc's UK ring-fencing obligations
in accordance with the UK Banking Reform Act, on 1 July 2018, HSBC
Bank plc's UK Retail and SME operations were legally separated into
a ring-fenced bank, HSBC UK Bank plc. This legal separation
resulted in the split of the ring-fenced businesses in accordance
with the application made to the High Court. The transfer of the
various assets and liabilities making up the ring-fenced bank
followed a variety of legal mechanisms (the most significant
mechanism being a transfer under Part VII of the Financial Services
and Markets Act 2000). Further information is set out in Note 35
Discontinued operations.
The separation results in the creation of an equity reserve used
to recognise the distribution of equity reserves associated with
the ring- fenced businesses which are notionally transferred from
HSBC Bank plc. It reflects the distribution of net assets or OCI
reserves which were not compensated for through cash or high
quality liquid assets.
(c) Future accounting developments
Minor amendments to IFRSs
The IASB published a number of minor amendments to IFRSs which
are effective from 1 January 2019, some of which have been endorsed
for use in the EU. The group expects they will have an
insignificant effect, when adopted, on the consolidated financial
statements of the group and the separate financial statements of
HSBC Bank plc.
Major new IFRSs
The IASB has published IFRS 16 'Leases' and IFRS 17 'Insurance
Contracts'. IFRS 16 has been endorsed for use in the EU and IFRS 17
has not yet been endorsed . In addition, an amendment to IAS 12
'Income Taxes' has not yet been endorsed.
IFRS 16 'Leases'
IFRS 16 'Leases' has an effective date for annual periods
beginning on or after 1 January 2019. IFRS 16 results in lessees
accounting for most leases within the scope of the standard in a
manner similar to the way in which finance leases are currently
accounted for under IAS 17 'Leases'. Lessees will recognise a right
of use ('ROU') asset and a corresponding financial liability on the
balance sheet. The asset will be amortised over the length of the
lease, and the financial liability measured at amortised cost.
Lessor accounting remains substantially the same as under IAS 17.
At 1 January 2019, HSBC Group expects to adopt the standard using a
modified retrospective approach where the cumulative effect of
initially applying it is recognised as an adjustment to the opening
balance of retained earnings and comparatives are not restated. The
implementation is expected to increase assets by approximately
GBP0.9bn in the group (GBP0.6bn in the separate financial
statements of HSBC Bank plc) and increase liabilities by the same
amounts with no effect on net assets or retained earnings.
IFRS 17 'Insurance Contracts'
IFRS 17 'Insurance Contracts' was issued in May 2017, and sets
out the requirements that an entity should apply in accounting for
insurance contracts it issues and reinsurance contracts it holds.
IFRS17 is currently effective from 1 January 2021. However, the
IASB is considering delaying the mandatory implementation date by
one year and may make additional changes to the standard. The group
is in the process of implementing IFRS17. Industry practice and
interpretation of the standard are still developing and there may
be changes to it, therefore the likely impact of its implementation
remains uncertain.
Amendment to IAS 12 'Income Taxes'
An amendment to IAS 12 was issued in December 2017 as part of
the annual improvement cycle. The amendment clarifies that an
entity should recognise the tax consequences of dividends in the
same place where the transactions or events that generated the
distributable profits are recognised. This amendment is effective
for the annual periods beginning on or after 1 January 2019 and is
applied to the income tax consequences of distributions recognised
on or after the beginning of the earliest comparative period. As a
result of its application, the income tax consequences of
distributions on certain capital securities classified as equity
will be presented in profit or loss rather than directly in equity.
If the amendment had been applied in 2018 the impact for the year
ended 31 December 2018 would have been GBP49m increase in profit
after tax (2017: GBP55m) with no affect on equity.
(d) Foreign currencies
The functional currency of the bank is sterling, which is also
the presentational currency of the consolidated financial
statements of the group.
Transactions in foreign currencies are recorded at the rate of
exchange on the date of the transaction. Assets and liabilities
denominated in foreign currencies are translated at the rate of
exchange at the balance sheet date except non-monetary assets and
liabilities measured at historical cost, which are translated using
the rate of exchange at the initial transaction date. Exchange
differences are included in other comprehensive income or in the
income statement depending on where the gain or loss on the
underlying item is recognised.
In the consolidated financial statements, the assets,
liabilities and results of foreign operations, whose functional
currency is not sterling, are translated into the group's
presentation currency at the reporting date. Exchange differences
arising are recognised in other comprehensive income. On disposal
of a foreign operation, exchange differences previously recognised
in other comprehensive income are reclassified to the income
statement.
(e) Presentation of information
Certain disclosures required by IFRSs have been included in the
audited sections of this Annual Report and Accounts as follows:
-- segmental disclosures are included in the 'Strategic Report:
Financial Summary' on pages 10 to 15;
-- disclosures concerning the nature and extent of risks
relating to financial instruments and insurance contracts are
included in the 'Report of the Directors: Risk' on pages 26 to
68;
-- capital disclosures are included in the 'Report of the
Directors: Capital' on pages 69 to 70; and
-- disclosures relating to HSBC's securitisation activities and
structured products are included in the 'Report of the Directors:
Risk' on pages 54 and 55.
-- in publishing the parent company financial statements
together with the group financial statements, the bank has taken
advantage of the exemption in section 408(3) of the Companies Act
2006 not to present its individual income statement and related
notes.
(f) Critical accounting estimates and judgements
The preparation of financial information requires the use of
estimates and judgements about future conditions. In view of the
inherent uncertainties and the high level of subjectivity involved
in the recognition or measurement of items highlighted as the
critical accounting estimates and judgements in section 1.2
below, it is possible that the outcomes in the next financial year
could differ from those on which management's estimates are based.
This could result in materially different estimates and judgements
from those reached by management for the purposes of the these
financial statements. Management's selection of the group's
accounting policies that contain critical estimates and judgements
reflects the materiality of the items to which the policies are
applied and the high degree of judgement and estimation uncertainty
involved.
(g) Segmental analysis
HSBC Bank plc's chief operating decision maker is the group
Chief Executive, supported by the group Executive Committee, and
operating segments are reported in a manner consistent with the
internal reporting provided to the group Chief Executive and the
group Executive Committee.
Measurement of segmental assets, liabilities, income and
expenses is in accordance with the bank's accounting policies.
Segmental income and expenses include transfers between segments
and these transfers are conducted at arm's length. Shared costs are
included in segments on the basis of the actual recharges made.
The types of products and services from which each reportable
segment derives its revenue are discussed in the 'Strategic Report
- Products and services'.
(h) Going concern
The financial statements are prepared on a going concern basis,
as the Directors are satisfied that the group and bank have the
resources to continue in business for the foreseeable future. In
making this assessment, the Directors have considered a wide range
of information relating to present and future conditions, including
future projections of profitability, cash flows and capital
resources.
1.2 Summary of significant accounting policies
(a) Consolidation and related policies
Investments in subsidiaries
Where an entity is governed by voting rights, the group
consolidates when it holds - directly or indirectly - the necessary
voting rights to pass resolutions by the governing body. In all
other cases, the assessment of control is more complex and requires
judgement of other factors, including having exposure to
variability of returns, power to direct relevant activities and
whether power is held as agent or principal.
Business combinations are accounted for using the acquisition
method. The amount of non-controlling interest is measured either
at fair value or at the non-controlling interest's proportionate
share of the acquiree's identifiable net assets.
The bank's investments in subsidiaries are stated at cost less
impairment losses.
Critical accounting estimates and judgements
Investments in subsidiaries are tested for impairment when there is
an indication that the investment may be impaired. Impairment testing
involves significant judgement in determining the value in use ('VIU'),
and in particular estimating the present values of cash flows expected
to arise from continuing to hold the investment and the rates used
to discount these cash flows.
=========================================================================
Goodwill
Goodwill is allocated to cash-generating units ('CGUs') for the
purpose of impairment testing, which is undertaken at the lowest
level at which goodwill is monitored for internal management
purposes. The group's CGUs are based on global businesses.
Impairment testing is performed once a year, or whenever there is
an indication of impairment, by comparing the recoverable amount of
a CGU with its carrying amount.
Goodwill is included in a disposal group if the disposal group
is a CGU to which goodwill has been allocated or it is an operation
within such a CGU. The amount of goodwill included in a disposal
group is measured on the basis of the relative values of the
operation disposed of and the portion of the CGU retained.
Critical accounting estimates and judgements
The review of goodwill for impairment reflects management's best estimate
of the future cash flows of the CGUs and the rates used to discount
these cash flows, both of which are subject to uncertain factors as
follows:
* The future cash flows of the CGUs are sensitive to
the cash flows projected for the periods for which
detailed forecasts are available and to assumptions
regarding the long-term pattern of sustainable cash
flows thereafter. Forecasts are compared with actual
performance and verifiable economic data, but they
reflect management's view of future business
prospects at the time of the assessment;
* The rates used to discount future expected cash flows
can have a significant effect on their valuation and
are based on the costs of capital assigned to
individual CGUs. The cost of capital percentage is
generally derived from a capital asset pricing model,
which incorporates inputs reflecting a number of
financial and economic variables, including the
risk-free interest rate in the country concerned and
a premium for the risk of the business being
evaluated. These variables are subject to
fluctuations in external market rates and economic
conditions beyond management's control. They are
therefore subject to uncertainty and require the
exercise of significant judgement.
The accuracy of forecast cash flows is subject to a high degree of uncertainty
in volatile market conditions. In such circumstances, management retests
goodwill for impairment more frequently than once a year when indicators
of impairment exist. This ensures that the assumptions on which the
cash flow forecasts are based continue to reflect current market conditions
and management's best estimate of future business prospects.
================================================================================
Group sponsored structured entities
The group is considered to sponsor another entity if, in
addition to ongoing involvement with the entity, it had a key role
in establishing that entity or in bringing together relevant
counterparties so the transaction that is the purpose of the entity
could occur. The group is generally not considered a sponsor if the
only involvement with the entity is merely administrative.
Interests in associates and joint arrangements
Joint arrangements are investments in which the group, together
with one or more parties, has joint control. Depending on the
group's rights and obligations, the joint arrangement is classified
as either a joint operation or a joint venture. The group
classifies investments in entities over which it has significant
influence, and that are neither subsidiaries nor joint
arrangements, as associates.
The group recognises its share of the assets, liabilities and
results in a joint operation. Investments in associates and
interests in joint ventures are recognised using the equity method.
The attributable share of the results and reserves of joint
ventures and associates are included in the consolidated financial
statements of the group based on either financial statements made
up to 31 December or pro-rated amounts adjusted for any material
transactions or events occurring between the date the financial
statements are available and
31 December.
Investments in associates and joint ventures are assessed at
each reporting date and tested for impairment when there is an
indication that the investment may be impaired. Goodwill on
acquisition of interests in joint ventures and associates is not
tested separately for impairment, but is assessed as part of the
carrying amount of the investment.
(b) Income and expense
Operating income
Interest income and expense
Interest income and expense for all financial instruments,
excluding those classified as held for trading or designated at
fair value, are recognised in 'Interest income' and 'Interest
expense' in the income statement using the effective interest
method. However, as an exception to this, interest on debt
securities issued by the group that are designated under the fair
value option and derivatives managed in conjunction with those debt
securities is included in interest expense.
Interest on credit-impaired financial assets is recognised using
the rate of interest used to discount the future cash flows for the
purpose of measuring the impairment loss.
Non-interest income and expense
The group generates fee income from services provided at a fixed
price over time, such as account service and card fees, or when the
group delivers a specific transaction at a point in time, such as
broking services and import/export services. With the exception of
certain fund management and performance fees, all other fees are
generated at a fixed price. Fund management and performance fees
can be variable depending on the size of the customer portfolio and
HSBC's performance as fund manager. Variable fees are recognised
when all uncertainties are resolved. Fee income is generally earned
from short-term contracts with payment terms that do not include a
significant financing component.
The group acts as principal in the majority of contracts with
customers, with the exception of broking services. For most
brokerage trades, the group acts as agent in the transaction and
recognises broking income net of fees payable to other parties in
the arrangement.
The group recognises fees earned on transaction-based
arrangements at a point in time when we have fully provided the
service to the customer. Where the contract requires services to be
provided over time, income is recognised on a systematic basis over
the life of the agreement.
Where the group offers a package of services that contains
multiple non-distinct performance obligations, such as those
included in account service packages, the promised services are
treated as a single performance obligation. If a package of
services contains distinct performance obligations, such as those
including both account and insurance services, the corresponding
transaction price is allocated to each performance obligation based
on the estimated stand-alone selling prices.
Dividend income is recognised when the right to receive payment
is established. This is the ex-dividend date for listed equity
securities, and usually the date when shareholders approve the
dividend for unlisted equity securities.
Net income/(expense) from financial instruments measured at fair
value through profit or loss includes the following:
-- 'Net income from financial instruments held for trading or
managed on a fair value basis': This comprises net trading income,
which includes all gains and losses from changes in the fair value
of financial assets and financial liabilities held for trading,
together with the related interest income, expense and dividends.
It also includes all gains and losses from changes in the fair
value of derivatives that are managed in conjunction with financial
assets and liabilities measured at fair value through profit or
loss.
-- 'Net income/(expense) from assets and liabilities of
insurance businesses, including related derivatives, measured at
fair value through profit or loss': This includes interest income,
interest expense and dividend income in respect of financial assets
and liabilities measured at fair value through profit or loss; and
those derivatives managed in conjunction with the above that can be
separately identifiable from other trading derivatives.
-- 'Changes in fair value of long-term debt and related
derivatives': Interest paid on the external long-term debt and
interest cash flows on related derivatives is presented in interest
expense.
-- 'Changes in fair value of other financial instruments
mandatorily measured at fair value through profit or loss': This
includes interest on instruments that fail the solely payments of
principal and interest ('SPPI') test, see (d) below.
The accounting policies for insurance premium income are
disclosed in Note 1.2(j).
(c) Valuation of financial instruments
All financial instruments are initially recognised at fair
value. Fair value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The fair value
of a financial instrument on initial recognition is generally its
transaction price (that is, the fair value of the consideration
given or received). However, if there is a difference between the
transaction price and the fair value of financial instruments whose
fair value is based on a quoted price in an active market or a
valuation technique that uses only data from observable markets,
the group recognises the difference as a trading gain or loss at
inception (a 'day 1 gain or loss'). In all other cases, the entire
day 1 gain or loss is deferred and recognised in the income
statement over the life of the transaction either until the
transaction matures or is closed out or the valuation inputs become
observable.
The fair value of financial instruments is generally measured on
an individual basis. However, in cases where the group manages a
group of financial assets and liabilities according to its net
market or credit risk exposure, the fair value of the group of
financial instruments is measured on a net basis but the underlying
financial assets and liabilities are presented separately in the
financial statements, unless they satisfy the IFRS offsetting
criteria. Financial instruments are classified into one of three
fair value hierarchy levels, described in Note 11, 'Fair values of
financial instruments carried at fair'.
Critical accounting estimates and judgements
The majority of valuation techniques employ only observable market
data. However, certain financial instruments are classified on the
basis of valuation techniques that feature one or more significant
market inputs that are unobservable, and for them the measurement of
fair value is more judgemental. An instrument in its entirety is classified
as valued using significant unobservable inputs if, in the opinion
of management, greater than 5% of the instrument's valuation is driven
by unobservable inputs. 'Unobservable' in this context means that there
is little or no current market data available from which to determine
the price at which an arm's length transaction would be likely to occur.
It generally does not mean that there is no data available at all upon
which to base a determination of fair value (consensus pricing data
may, for example, be used).
=============================================================================
(d) Financial instruments measured at amortised cost
Financial assets that are held to collect the contractual cash
flows and which contain contractual terms that give rise on
specified dates to cash flows that are solely payments of principal
and interest are measured at amortised cost. Such financial assets
include most loans and advances to banks and customers and some
debt securities. In addition, most financial liabilities are
measured at amortised cost. The group accounts for regular way
amortised cost financial instruments using trade date accounting.
The carrying value of these financial assets at initial recognition
includes any directly attributable transactions costs. If the
initial fair value is lower than the cash amount advanced, such as
in the case of some leveraged finance and syndicated lending
activities, the difference is deferred and recognised over the life
of the loan through the recognition of interest income.
The group may commit to underwriting loans on fixed contractual
terms for specified periods of time. When the loan arising from the
lending commitment is expected to be held for trading, the
commitment to lend is recorded as a derivative. When the group
intends to hold the loan, the loan commitment is included in the
impairment calculations set out below.
Non-trading reverse repurchase, repurchase and similar
agreements
When debt securities are sold subject to a commitment to
repurchase them at a predetermined price ('repos'), they remain on
the balance sheet and a liability is recorded in respect of the
consideration received. Securities purchased under commitments to
resell ('reverse repos') are not recognised on the balance sheet
and an asset is recorded in respect of the initial consideration
paid. Non-trading repos and reverse repos are measured at amortised
cost. The difference between the sale and repurchase price or
between the purchase and resale price is treated as interest and
recognised in net interest income over the life of the
agreement.
Contracts that are economically equivalent to reverse repo or
repo agreements (such as sales or purchases of debt securities
entered into together with total return swaps with the same
counterparty) are accounted for similarly to, and presented
together with, reverse repo or repo agreements.
(e) Financial assets measured at fair value through other comprehensive income
Financial assets held for a business model that is achieved by
both collecting contractual cash flows and selling and which
contain contractual terms that give rise on specified dates to cash
flows that are solely payments of principal and interest are
measured at fair value through other comprehensive income
('FVOCI'). These comprise primarily debt securities. They are
recognised on the trade date when HSBC enters into contractual
arrangements to purchase and are normally derecognised when they
are either sold or redeemed. They are subsequently remeasured at
fair value and changes therein (except for those relating to
impairment, interest income and foreign currency exchange gains and
losses) are recognised in other comprehensive income until the
assets are sold. Upon disposal, the cumulative gains or losses in
other comprehensive income are recognised in the income statement
as 'Gains less losses from financial instruments'. Financial assets
measured at FVOCI are included in the impairment calculations set
out below and impairment is recognised in profit or loss.
(f) Equity securities measured at fair value with fair value
movements presented in other comprehensive income
The equity securities for which fair value movements are shown
in other comprehensive income are business facilitation and other
similar investments where HSBC holds the investments other than to
generate a capital return. Gains or losses on the derecognition of
these equity securities are not transferred to profit or loss.
Otherwise, equity securities are measured at fair value through
profit or loss (except for dividend income which is recognised in
profit or loss).
(g) Financial instruments designated at fair value through profit or loss
Financial instruments, other than those held for trading, are
classified in this category if they meet one or more of the
criteria set out below and are so designated irrevocably at
inception:
-- the use of the designation removes or significantly reduces an accounting mismatch;
-- a group of financial assets and liabilities or a group of
financial liabilities is managed and its performance is evaluated
on a fair value basis, in accordance with a documented risk
management or investment strategy; and
-- the financial liability contains one or more non-closely related embedded derivatives.
Designated financial assets are recognised when HSBC enters into
contracts with counterparties, which is generally on trade date,
and are normally derecognised when the rights to the cash flows
expire or are transferred. Designated financial liabilities are
recognised when HSBC enters into contracts with counterparties,
which is generally on settlement date, and are normally
derecognised when extinguished. Subsequent changes in fair values
are recognised in the income statement in 'Net income from
financial instruments held for trading or managed on a fair value
basis' or 'Net income/(expense) from assets and liabilities of
insurance businesses, including related derivatives, measured at
fair value through profit or loss'.
Under the above criterion, the main classes of financial
instruments designated by HSBC are:
-- Long-term debt issues: The interest and/or foreign exchange
exposure on certain fixed-rate debt securities issued has been
matched with the interest and/or foreign exchange exposure on
certain swaps as part of a documented risk management strategy.
-- Financial assets and financial liabilities under unit-linked
and non-linked investment contracts: A contract under which HSBC
does not accept significant insurance risk from another party is
not classified as an insurance contract, other than investment
contracts with discretionary participation features ('DPF'), but is
accounted for as a financial liability. Customer liabilities under
linked and certain non-linked investment contracts issued by
insurance subsidiaries are determined based on the fair value of
the assets held in the linked funds. If no fair value designation
was made for the related assets, at least some of the assets would
otherwise be measured at either fair value through other
comprehensive income or amortised cost. The related financial
assets and liabilities are managed and reported to management on a
fair value basis. Designation at fair value of the financial assets
and related liabilities allows changes in fair values to be
recorded in the income statement and presented in the same
line.
(h) Derivatives
Derivatives are financial instruments that derive their value
from the price of underlying items such as equities, interest rates
or other indices. Derivatives are recognised initially and are
subsequently measured at fair value through profit or loss, with
changes in fair value generally recorded in the income statement.
Derivatives are classified as assets when their fair value is
positive or as liabilities when their fair value is negative. This
includes embedded derivatives in financial liabilities, which are
bifurcated from the host contract when they meet the definition of
a derivative on a stand-alone basis. Where the derivatives are
managed with debt securities issued by HSBC that are designated at
fair value, the contractual interest is shown in 'Interest expense'
together with the interest payable on the issued debt.
Hedge accounting
When derivatives are not part of fair value designated
relationships, if held for risk management purposes they are
designated in hedge accounting relationships where the required
criteria for documentation and hedge effectiveness are met. The
group uses these derivatives or, where allowed, other
non-derivative hedging instruments in fair value hedges, cash flow
hedges or hedges of net investments in foreign operations as
appropriate to the risk being hedged.
Fair value hedge
Fair value hedge accounting does not change the recording of
gains and losses on derivatives and other hedging instruments, but
results in recognising changes in the fair value of the hedged
assets or liabilities attributable to the hedged risk that would
not otherwise be recognised in the income statement. If a hedge
relationship no longer meets the criteria for hedge accounting,
hedge accounting is discontinued; the cumulative adjustment to the
carrying amount of the hedged item is amortised to the income
statement on a recalculated effective interest rate, unless the
hedged item has been derecognised, in which case it is recognised
in the income statement immediately.
Cash flow hedge
The effective portion of gains and losses on hedging instruments
is recognised in other comprehensive income; the ineffective
portion of the change in fair value of derivative hedging
instruments that are part of a cash flow hedge relationship is
recognised immediately in the income statement within 'Net trading
income'. The accumulated gains and losses recognised in other
comprehensive income are reclassified to the income statement in
the same periods in which the hedged item affects profit or loss.
When a hedge relationship is discontinued, or partially
discontinued, any cumulative gain or loss recognised in other
comprehensive income remains in equity until the forecast
transaction is recognised in the income statement. When a forecast
transaction is no longer expected to occur, the cumulative gain or
loss previously recognised in other comprehensive income is
immediately reclassified to the income statement.
Net investment hedge
Hedges of net investments in foreign operations are accounted
for in a similar way to cash flow hedges. The effective portion of
gains and losses on the hedging instrument is recognised in other
comprehensive income; other gains and losses are recognised
immediately in the income statement. Gains and losses previously
recognised in other comprehensive income are reclassified to the
income statement on the disposal, or part disposal, of the foreign
operation.
Derivatives that do not qualify for hedge accounting
Non-qualifying hedges are derivatives entered into as economic
hedges of assets and liabilities for which hedge accounting was not
applied.
Critical accounting estimates and judgements
As a result of the request received by the Financial Stability Board
from the G20, a fundamental review and reform of the major interest
rate benchmarks is underway across the world's largest financial markets.
The process of replacing existing benchmark interbank offered rates
('Ibors') with alternative risk free rates ('RFRs') is at different
stages, and is progressing at different speeds, across several major
jurisdictions. There is therefore uncertainty as to the timing and
the methods of transition for many financial products affected by these
changes, and whether some existing benchmarks will continue to be supported
in some way.
As a result of these developments, significant accounting judgement
is involved in determining whether certain hedge accounting relationships
that hedge the variability of cash flows and interest rate risk due
to changes in Ibors continue to qualify for hedge accounting as at
31 December 2018. Management's judgement is that those existing hedge
accounting relationships continue to be supported at the 2018 year-end.
Even though there are plans to replace those rates with economically
similar rates based on new RFRs over the next few years, there is widespread
continued reliance on Ibors in market pricing structures for long term
products with maturities over hedging horizons that extend beyond the
timescales for replacing Ibors. In addition, there is a current absence
of term structures based on the new RFRs. This judgement will be kept
under review in the future as markets based on the new RFRs develop,
taking into consideration any specific accounting guidance that may
be developed to deal with these unusual circumstances. The IASB has
commenced the due process for providing clarification on how the guidance
for hedge accounting in IAS 39 'Financial Instruments: Recognition
and Measurement' and IFRS 9: 'Financial Instruments' should be applied
in these circumstances, which were not contemplated when the standards
were published.
==============================================================================
(i) Impairment of amortised cost and FVOCI financial assets
Expected credit losses are recognised for loans and advances to
banks and customers, non-trading reverse repurchase agreements,
other financial assets held at amortised cost, debt instruments
measured at FVOCI, and certain loan commitments and financial
guarantee contracts. At initial recognition, allowance (or
provision in the case of some loan commitments and financial
guarantees) is required for ECL resulting from default events that
are possible within the next 12 months, or less, where the
remaining life is less than 12 months, ('12-month ECL'). In the
event of a significant increase in credit risk, allowance (or
provision) is required for ECL resulting from all possible default
events over the expected life of the financial instrument
('lifetime ECL'). Financial assets where 12-month ECL is recognised
are considered to be 'stage 1'; financial assets which are
considered to have experienced a significant increase in credit
risk are in 'stage 2'; and financial assets for which there is
objective evidence of impairment so are considered to be in default
or otherwise credit impaired are in 'stage 3'. Purchased or
originated credit-impaired financial assets ('POCI') are treated
differently as set out below.
Credit impaired (stage 3)
The group determines that a financial instrument is credit
impaired and in stage 3 by considering relevant objective evidence,
primarily whether:
-- contractual payments of either principal or interest are past due for more than 90 days;
-- there are other indications that the borrower is unlikely to
pay, such as when a concession has been granted to the borrower for
economic or legal reasons relating to the borrower's financial
condition; and
-- the loan is otherwise considered to be in default.
If such unlikeliness to pay is not identified at an earlier
stage, it is deemed to occur when an exposure is 90 days past due,
even where regulatory rules permit default to be defined based on
180 days past due. Therefore the definitions of credit impaired and
default are aligned as far as possible so that stage 3 represents
all loans that are considered defaulted or otherwise credit
impaired.
Interest income is recognised by applying the effective interest
rate to the amortised cost amount, i.e. gross carrying amount
less
ECL allowance.
Write-off
Financial assets (and the related impairment allowances) are
normally written off, either partially or in full, when there is no
realistic prospect of recovery. Where loans are secured, this is
generally after receipt of any proceeds from the realisation of
security. In circumstances where the net realisable value of any
collateral has been determined and there is no reasonable
expectation of further recovery, write-off may be earlier.
Renegotiation
Loans are identified as renegotiated and classified as credit
impaired when we modify the contractual payment terms due to
significant credit distress of the borrower. Renegotiated loans
remain classified as credit impaired until there is sufficient
evidence to demonstrate a significant reduction in the risk of
non-payment of future cash flows and retain the designation of
renegotiated until maturity or derecognition.
A loan that is renegotiated is derecognised if the existing
agreement is cancelled and a new agreement is made on substantially
different terms or if the terms of an existing agreement are
modified such that the renegotiated loan is a substantially
different financial instrument. Any new loans that arise following
derecognition events in these circumstances are considered to be
POCI and will continue to be disclosed as renegotiated loans.
Other than originated credit-impaired loans, all other modified
loans could be transferred out of stage 3 if they no longer exhibit
any evidence of being credit impaired and, in the case of
renegotiated loans, there is sufficient evidence to demonstrate a
significant reduction in the risk of non-payment of future cash
flows, over the minimum observation period, and there are no other
indicators of impairment. These loans could be transferred to stage
1 or 2 based on the mechanism as described below by comparing the
risk of a default occurring at the reporting date (based on the
modified contractual terms) and the risk of a default occurring at
initial recognition (based on the original, unmodified contractual
terms). Any amount written off as a result of the modification of
contractual terms would not be reversed.
Loan modifications that are not credit impaired
Loan modifications that are not identified as renegotiated are
considered to be commercial restructuring. Where a commercial
restructuring results in a modification (whether legalised through
an amendment to the existing terms or the issuance of a new loan
contract) such that HSBC's rights to the cash flows under the
original contract have expired, the old loan is derecognised and
the new loan is recognised at fair value. The rights to cash flows
are generally considered to have expired if the commercial
restructure is at market rates and no payment-related concession
has been provided.
Significant increase in credit risk (stage 2)
An assessment of whether credit risk has increased significantly
since initial recognition is performed at each reporting period by
considering the change in the risk of default occurring over the
remaining life of the financial instrument. The assessment
explicitly or implicitly compares the risk of default occurring at
the reporting date compared with that at initial recognition,
taking into account reasonable and supportable information,
including information about past events, current conditions and
future economic conditions. The assessment is unbiased,
probability-weighted, and to the extent relevant, uses
forward-looking information consistent with that used in the
measurement of ECL. The analysis of credit risk is multifactor. The
determination of whether a specific factor is relevant and its
weight compared with other factors depends on the type of product,
the characteristics of the financial instrument and the borrower,
and the geographical region. Therefore, it is not possible to
provide a single set of criteria that will determine what is
considered to be a significant increase in credit risk and these
criteria will differ for different types of lending, particularly
between retail and wholesale. However, unless identified at an
earlier stage, all financial assets are deemed to have suffered a
significant increase in credit risk when 30 days past due. In
addition, wholesale loans that are individually assessed, typically
corporate and commercial customers, and included on a watch or
worry list, are included in stage 2.
For wholesale portfolios, the quantitative comparison assesses
default risk using a lifetime probability of default which
encompasses a wide range of information including the obligor's
customer risk rating ('CRR'), macroeconomic condition forecasts and
credit transition probabilities. For origination CRRs up to 3.3,
significant increase in credit risk is measured by comparing the
average PD for the remaining term estimated at origination with the
equivalent estimation at reporting date. The quantitative measure
of significance varies depending on the credit quality at
origination as follows:
Origination CRR Significance trigger - PD to increase
by
---------------- --------------------------------------
0.1-1.2 15bps
2.1-3.3 30bps
---------------- --------------------------------------
For CRRs greater than 3.3 that are not impaired, a significant
increase in credit risk is considered to have occurred when the
origination PD has doubled. The significance of changes in PD was
informed by expert credit risk judgement, referenced to historical
credit migrations and to relative changes in external market
rates.
For loans originated prior to the implementation of IFRS 9, the
origination PD does not include adjustments to reflect expectations
of future macroeconomic conditions since these are not available
without the use of hindsight. In the absence of this data,
origination PD must be approximated assuming through-the-cycle
('TTC') PDs and TTC migration probabilities, consistent with the
instrument's underlying modelling approach and the CRR at
origination. For these loans, the quantitative comparison is
supplemented with additional CRR deterioration-based thresholds, as
set out in the table below:
Additional significance criteria
-- Number of CRR grade notches deterioration
required to identify as significant
credit deterioration (stage 2) (>
Origination CRR or equal to)
0.1 5 notches
---------------- ----------------------------------------------
1.1-4.2 4 notches
---------------- ----------------------------------------------
4.3-5.1 3 notches
---------------- ----------------------------------------------
5.2-7.1 2 notches
----------------------------------------------
7.2-8.2 1 notch
---------------- ----------------------------------------------
8.3 0 notch
---------------- ----------------------------------------------
Further information about the 23-grade scale used for CRR can be
found on page 27.
For certain portfolios of debt securities where external market
ratings are available and credit ratings are not used in credit
risk management, the debt securities will be in stage 2 if their
credit risk increases to the extent they are no longer considered
investment grade. Investment grade is where the financial
instrument has a low risk of incurring losses, the structure has a
strong capacity to meet its contractual cash flow obligations in
the near term and adverse changes in economic and business
conditions in the longer term may, but will not necessarily, reduce
the ability of the borrower to fulfil their contractual cash flow
obligations.
For retail portfolios, default risk is assessed using a
reporting date 12-month PD derived from credit scores, which
incorporates all available information about the customer. This PD
is adjusted for the effect of macroeconomic forecasts for periods
longer than 12 months and is considered to be a reasonable
approximation of a lifetime PD measure. Retail exposures are first
segmented into homogeneous portfolios, generally by country,
product and brand. Within each portfolio, the stage 2 accounts are
defined as accounts with an adjusted 12-month PD greater than the
average 12-month PD of loans in that portfolio 12 months before
they become 30 days past due. The expert credit risk judgement is
that no prior increase in credit risk is significant. This
portfolio-specific threshold identifies loans with a PD higher than
would be expected from loans that are performing as originally
expected, and higher than what would have been acceptable at
origination. It therefore approximates a comparison of origination
to reporting date PDs.
Unimpaired and without significant increase in credit risk -
(stage 1)
ECL resulting from default events that are possible within the
next 12 months ('12-month ECL') are recognised for financial
instruments that remain in stage 1.
Purchased or originated credit impaired
Financial assets that are purchased or originated at a deep
discount that reflects the incurred credit losses are considered to
be POCI. This population includes the recognition of a new
financial instrument following a renegotiation where concessions
have been granted for economic or contractual reasons relating to
the borrower's financial difficulty that otherwise would not have
been considered. The amount of change-in-lifetime ECL is recognised
in profit or loss until the POCI is derecognised, even if the
lifetime ECL are less than the amount of ECL included in the
estimated cash flows on initial recognition.
Movement between stages
Financial assets can be transferred between the different
categories (other than POCI) depending on their relative increase
in credit risk since initial recognition. Financial instruments are
transferred out of stage 2 if their credit risk is no longer
considered to be significantly increased since initial recognition
based on the assessments described above. Except for renegotiated
loans, financial instruments are transferred out of stage 3 when
they no longer exhibit any evidence of credit impairment as
described above. Renegotiated loans that are not POCI will continue
to be in stage 3 until there is sufficient evidence to demonstrate
a significant reduction in the risk of non-payment of future cash
flows, observed over a minimum one-year period and there are no
other indicators of impairment. For loans that are assessed for
impairment on a portfolio basis, the evidence typically comprises a
history of payment performance against the original or revised
terms, as appropriate to the circumstances. For loans that are
assessed for impairment on an individual basis, all available
evidence is assessed on a case-by-case basis.
Measurement of ECL
The assessment of credit risk and the estimation of ECL are
unbiased and probability-weighted, and incorporate all available
information that is relevant to the assessment including
information about past events, current conditions and reasonable
and supportable forecasts of future events and economic conditions
at the reporting date. In addition, the estimation of ECL should
take into account the time value of money.
In general, HSBC calculates ECL using three main components, a
probability of default, a loss given default ('LGD') and the
exposure at default ('EAD').
The 12-month ECL is calculated by multiplying the 12-month PD,
LGD and EAD. Lifetime ECL is calculated using the lifetime PD
instead. The 12-month and lifetime PDs represent the probability of
default occurring over the next 12 months and the remaining
maturity of the instrument respectively.
The EAD represents the expected balance at default, taking into
account the repayment of principal and interest from the balance
sheet date to the default event together with any expected
drawdowns of committed facilities. The LGD represents expected
losses on the EAD given the event of default, taking into account,
among other attributes, the mitigating effect of collateral value
at the time it is expected to be realised and the time value of
money.
HSBC leverages the Basel II IRB framework where possible, with
recalibration to meet the differing IFRS 9 requirements as set out
in the following table:
Model Regulatory capital IFRS 9
PD
* Through the cycle (represents long-run average PD * Point in time (based on current conditions, adjusted
throughout a full economic cycle) to take into account estimates of future conditions
that will impact PD)
* The definition of default includes a backstop of 90+
days past due, although this has been modified to * Default backstop of 90+ days past due for all
180+ days past due for some portfolios, particularly portfolios
UK and US mortgages
------------------------------------------------------------
EAD
* Cannot be lower than current balance * Amortisation captured for term products
------ ----------------------------------------------------------- ------------------------------------------------------------
LGD
* Downturn LGD (consistent losses expected to be * Expected LGD (based on estimate of loss given default
suffered during a severe but plausible economic including the expected impact of future economic
downturn) conditions such as changes in value of collateral)
* Regulatory floors may apply to mitigate risk of * No floors
underestimating downturn LGD due to lack of
historical data
* Discounted using the original effective interest rate
of the loan
* Discounted using cost of capital
* Only costs associated with obtaining/selling
* All collection costs included collateral included
------ ----------------------------------------------------------- ------------------------------------------------------------
Other
* Discounted back from point of default to balance
sheet date
------ ----------------------------------------------------------- ------------------------------------------------------------
While 12-month PDs are recalibrated from Basel II models where
possible, the lifetime PDs are determined by projecting the
12-month PD using a term structure. For the wholesale methodology,
the lifetime PD also takes into account credit migration, i.e. a
customer migrating through the CRR bands over its life.
The ECL for wholesale stage 3 is determined on an individual
basis using a discounted cash flow ('DCF') methodology. The
expected future cash flows are based on the credit risk officer's
estimates as at the reporting date, reflecting reasonable and
supportable assumptions and projections of future recoveries and
expected future receipts of interest. Collateral is taken into
account if it is likely that the recovery of the outstanding amount
will include realisation of collateral based on its estimated fair
value of collateral at the time of expected realisation, less costs
for obtaining and selling the collateral. The cash flows are
discounted at a reasonable approximation of the original effective
interest rate. For significant cases, cash flows under four
different scenarios are probability-weighted by reference to the
three economic scenarios applied more generally by HSBC Group and
the judgement of the credit risk officer in relation to the
likelihood of the workout strategy succeeding or receivership being
required. For less significant cases, the effect of different
economic scenarios and work-out strategies is approximated and
applied as an adjustment to the most likely outcome.
Period over which ECL is measured
Expected credit loss is measured from the initial recognition of
the financial asset. The maximum period considered when measuring
ECL (be it 12-month or lifetime ECL) is the maximum contractual
period over which HSBC is exposed to credit risk. For wholesale
overdrafts, credit risk management actions are taken no less
frequently than on an annual basis and therefore this period is to
the expected date of the next substantive credit review. The date
of the substantive credit review also represents the initial
recognition of the new facility. However, where the financial
instrument includes both a drawn and undrawn commitment and the
contractual ability to demand repayment and cancel the undrawn
commitment does not serve to limit HSBC's exposure to credit risk
to the contractual notice period, the contractual period does not
determine the maximum period considered. Instead, ECL is measured
over the period HSBC remains exposed to credit risk that is not
mitigated by credit risk management actions. This applies to retail
overdrafts and credit cards, where the period is the average time
taken for stage 2 exposures to default or close as performing
accounts, determined on a portfolio basis and ranging from between
two and six years. In addition, for these facilities it is not
possible to identify the ECL on the loan commitment component
separately from the financial asset component. As a result, the
total ECL is recognised in the loss allowance for the financial
asset unless the total ECL exceeds the gross carrying amount of the
financial asset, in which case the ECL is recognised as a
provision.
Forward-looking economic inputs
HSBC will in general apply three forward-looking global economic
scenarios determined with reference to external forecast
distributions representative of our view of forecast economic
conditions, the consensus economic scenario approach. This approach
is considered sufficient to calculate unbiased expected loss in
most economic environments. They represent a most likely outcome
(the Central scenario) and two, less likely, 'outer' scenarios on
either side of the Central, referred to as the Upside and Downside
scenarios. The Central scenario is the basis for the annual
operating planning process and, with regulatory modifications, will
also be used in enterprise-wide stress tests. The Upside and
Downside scenarios are constructed following a standard process
supported by a scenario narrative reflecting HSBC Group's current
top and emerging risks and by consulting external and internal
subject matter experts. The relationship between the outer
scenarios and Central scenario will generally be fixed with the
Central scenario being assigned a weighting of 80% and the Upside
and Downside scenarios 10% each, with the difference between the
Central and outer scenarios in terms of economic severity being
informed by the spread of external forecast distributions among
professional industry forecasts. The outer scenarios are
economically plausible, internally consistent states of the world
and will not necessarily be as severe as scenarios used in stress
testing. The period of forecasts is 5 years for the central
scenario. Upside and Downside scenarios use distributional
forecasts for the first two years after which they converge to the
central forecasts. The central forecast and spread between the
Central and outer scenarios is grounded on the expected Gross
Domestic Product of the UK and France. This includes consideration
of these country's economic factors as well as global economic
events, the economic performance of other countries and the impact
these can have on the Gross Domestic Product in the UK and France.
HSBC runs a global process which ensures that both domestic and
international economic factors are considered in creating scenarios
for Europe.
In general, the consequences of the assessment of credit risk
and the resulting ECL outputs will be probability-weighted using
the standard probability weights. This probability weighting may be
applied directly or the effect of the probability weighting
determined on a periodic basis, at least annually, and then applied
as an adjustment to the outcomes resulting from the central
economic forecast. The central economic forecast is updated
quarterly.
HSBC recognises that the consensus economic scenario approach
using three scenarios will be insufficient in certain economic
environments. Additional analysis may be requested at management's
discretion, including the production of extra scenarios. If
conditions warrant, this could result in alternative scenarios and
probability weightings being applied in arriving at the ECL.
Critical accounting estimates and judgements
In determining ECL, management is required to exercise judgement in
defining what is considered to be a significant increase in credit
risk and in making assumptions and estimates to incorporate relevant
information about past events, current conditions and forecasts of
economic conditions. Judgement has been applied in determining the
lifetime and point of initial recognition of revolving facilities.
The PD, LGD and EAD models which support these determinations are reviewed
regularly in light of differences between loss estimates and actual
loss experience, but given that IFRS 9 requirements have only just
been applied, there has been little time available to make these comparisons.
Therefore, the underlying models and their calibration, including how
they react to forward-looking economic conditions, remain subject to
review and refinement. This is particularly relevant for lifetime PDs,
which have not been previously used in regulatory modelling and for
the incorporation of 'Upside scenarios' which have not generally been
subject to experience gained through stress testing.
The exercise of judgement in making estimations requires the use of
assumptions which are highly subjective and very sensitive to the risk
factors, in particular to changes in economic and credit conditions.
Many of the factors have a high degree of interdependency and there
is no single factor to which loan impairment allowances as a whole
are sensitive. The sections marked as audited on pages 42 to 44 'Measurement
uncertainty and sensitivity analysis of ECL estimates' set out the
assumptions underlying the Central scenario and information about how
scenarios are developed in relation to HSBC Group's top and emerging
risks and its judgements, informed by consensus forecasts of professional
industry forecasters. The sensitivity of ECL to different economic
scenarios is illustrated by recalculating the ECL for selected portfolios
as if 100% weighting had been assigned to each scenario.
===============================================================================
(j) Insurance contracts
A contract is classified as an insurance contract where the
group accepts significant insurance risk from another party by
agreeing to compensate that party on the occurrence of a specified
uncertain future event. An insurance contract may also transfer
financial risk, but is accounted for as an insurance contract if
the insurance risk is significant. In addition, the group issues
investment contracts with discretionary participation features
('DPF') which are also accounted for as insurance contracts as
required by IFRS 4 'Insurance Contracts'.
Net insurance premium income
Premiums for life insurance contracts are accounted for when
receivable, except in unit-linked insurance contracts where
premiums are accounted for when liabilities are established.
Reinsurance premiums are accounted for in the same accounting
period as the premiums for the direct insurance contracts to which
they relate.
Net insurance claims and benefits paid and movements in
liabilities to policyholders
Gross insurance claims for life insurance contracts reflect the
total cost of claims arising during the year, including claim
handling costs and any policyholder bonuses allocated in
anticipation of a bonus declaration.
Maturity claims are recognised when due for payment. Surrenders
are recognised when paid or at an earlier date on which, following
notification, the policy ceases to be included within the
calculation of the related insurance liabilities. Death claims are
recognised when notified.
Reinsurance recoveries are accounted for in the same period as
the related claim.
Liabilities under insurance contracts
Liabilities under non-linked life insurance contracts are
calculated by each life insurance operation based on local
actuarial principles. Liabilities under unit-linked life insurance
contracts are at least equivalent to the surrender or transfer
value, which is calculated by reference to the value of the
relevant underlying funds or indices.
Future profit participation on insurance contracts with DPF
Where contracts provide discretionary profit participation
benefits to policyholders, liabilities for these contracts include
provisions for the future discretionary benefits to policyholders.
These provisions reflect the actual performance of the investment
portfolio to date and management's expectation of the future
performance of the assets backing the contracts, as well as other
experience factors such as mortality, lapses and operational
efficiency, where appropriate. The benefits to policyholders may be
determined by the contractual terms, regulation or past
distribution policy.
Investment contracts with DPF
While investment contracts with DPF are financial instruments,
they continue to be treated as insurance contracts as required by
IFRS 4. The group therefore recognises the premiums for these
contracts as revenue and recognises as an expense the resulting
increase in the carrying amount of the liability.
In the case of net unrealised investment gains on these
contracts, whose discretionary benefits principally reflect the
actual performance of the investment portfolio, the corresponding
increase in the liabilities is recognised in either the income
statement or other comprehensive income, following the treatment of
the unrealised gains on the relevant assets. In the case of net
unrealised losses, a deferred participating asset is recognised
only to the extent that its recoverability is highly probable.
Movements in the liabilities arising from realised gains and losses
on relevant assets are recognised in the income statement.
Present value of in-force long-term insurance business
The group recognises the value placed on insurance contracts,
and investment contracts with DPF, that are classified as long-term
and
in-force at the balance sheet date, as an asset. The asset
represents the present value of the equity holders' interest in the
issuing insurance companies' profits expected to emerge from these
contracts written at the balance sheet date. The present value
of
in-force long-term insurance business ('PVIF') is determined by
discounting those expected future profits using appropriate
assumptions in assessing factors such as future mortality, lapse
rates and levels of expenses, and a risk discount rate that
reflects the risk premium attributable to the respective contracts.
The PVIF incorporates allowances for both non-market risk and the
value of financial options and guarantees. The PVIF asset is
presented gross of attributable tax in the balance sheet and
movements in the PVIF asset are included in 'Other operating
income' on a gross of tax basis.
(k) Employee compensation and benefits
Share-based payments
The group enters into both equity-settled and cash-settled
share-based payment arrangements with its employees as compensation
for the provision of their services. The vesting period for these
schemes may commence before the legal grant date if the employees
have started to render services in respect of the award before the
legal grant date, where there is a shared understanding of the
terms and conditions of the arrangement. Expenses are recognised
when the employee starts to render service to which the award
relates.
Cancellations result from the failure to meet a non-vesting
condition during the vesting period, and are treated as an
acceleration of vesting recognised immediately in the income
statement. Failure to meet a vesting condition by the employee is
not treated as a cancellation, and the amount of expense recognised
for the award is adjusted to reflect the number of awards expected
to vest.
Post-employment benefit plans
The group operates a number of pension schemes including defined
benefit, defined contribution and post-employment benefit
schemes.
Payments to defined contribution schemes are charged as an
expense as the employees render service.
Defined benefit pension obligations are calculated using the
projected unit credit method. The net charge to the income
statement mainly comprises the service cost and the net interest on
the net defined benefit asset or liability, and is presented in
operating expenses.
Remeasurements of the net defined benefit asset or liability,
which comprise actuarial gains and losses, return on plan assets
(excluding interest) and the effect of the asset ceiling (if any,
excluding interest), are recognised immediately in other
comprehensive income. The net defined benefit asset or liability
represents the present value of defined benefit obligations reduced
by the fair value of plan assets, after applying the asset ceiling
test, where the net defined benefit surplus is limited to the
present value of available refunds and reductions in future
contributions to the plan.
The cost of obligations arising from other post-employment plans
are accounted for on the same basis as defined benefit pension
plans.
(l) Tax
Income tax comprises current tax and deferred tax. Income tax is
recognised in the income statement except to the extent that it
relates to items recognised in other comprehensive income or
directly in equity, in which case the tax is recognised in the same
statement in which the related item appears.
Current tax is the tax expected to be payable on the taxable
profit for the year and on any adjustment to tax payable in respect
of previous years. The group provides for potential current tax
liabilities that may arise on the basis of the amounts expected to
be paid to the tax authorities. Payments associated with any
incremental base erosion and anti-abuse tax are reflected in tax
expense in the period incurred.
Deferred tax is recognised on temporary differences between the
carrying amounts of assets and liabilities in the balance sheet,
and the amounts attributed to such assets and liabilities for tax
purposes. Deferred tax is calculated using the tax rates expected
to apply in the periods as the assets will be realised or the
liabilities settled.
Current and deferred tax are calculated based on tax rates and
laws enacted, or substantively enacted, by the balance sheet
date.
(m) Provisions, contingent liabilities and guarantees
Provisions
Provisions are recognised when it is probable that an outflow of
economic benefits will be required to settle a present legal or
constructive obligation that has arisen as a result of past events
and for which a reliable estimate can be made.
Critical accounting estimates and judgements
Judgement is involved in determining whether a present obligation exists
and in estimating the probability, timing and amount of any outflows.
Professional expert advice is taken on the assessment of litigation,
property (including onerous contracts) and similar obligations. Provisions
for legal proceedings and regulatory matters typically require a higher
degree of judgement than other types of provisions. When matters are
at an early stage, accounting judgements can be difficult because of
the high degree of uncertainty associated with determining whether
a present obligation exists, and estimating the probability and amount
of any outflows that may arise. As matters progress, management and
legal advisers evaluate on an ongoing basis whether provisions should
be recognised, revising previous judgements and estimates as appropriate.
At more advanced stages, it is typically easier to make judgements
and estimates around a better defined set of possible outcomes. However,
the amount provisioned can remain very sensitive to the assumptions
used. There could be a wide range of possible outcomes for any pending
legal proceedings, investigations or inquiries. As a result, it is
often not practicable to quantify a range of possible outcomes for
individual matters. It is also not practicable to meaningfully quantify
ranges of potential outcomes in aggregate for these types of provisions
because of the diverse nature and circumstances of such matters and
the wide range of uncertainties involved. Provisions for customer remediation
also require significant levels of estimation and judgement. The amounts
of provisions recognised depend on a number of different assumptions,
such as, the volume of inbound complaints, the projected period of
inbound complaint volumes, the decay rate of complaint volumes, the
population identified as systemically mis-sold and the number of policies
per customer complaint.
===============================================================================
Contingent liabilities, contractual commitments and
guarantees
Contingent liabilities
Contingent liabilities, which include certain guarantees and
letters of credit pledged as collateral security, and contingent
liabilities related to legal proceedings or regulatory matters, are
not recognised in the financial statements but are disclosed unless
the probability of settlement is remote.
Financial guarantee contracts
Liabilities under financial guarantee contracts that are not
classified as insurance contracts are recorded initially at their
fair value, which is generally the fee received or present value of
the fee receivable.
The bank has issued financial guarantees and similar contracts
to other group entities. The group elects to account for certain
guarantees as insurance contracts in the bank's financial
statements, in which case they are measured and recognised as
insurance liabilities. This election is made on a contract by
contract basis, and is irrevocable.
(n) Accounting policies applied to financial instruments prior to 1 January 2018
Financial instruments measured at amortised cost
Loans and advances to banks and customers, held-to-maturity
investments and most financial liabilities are measured at
amortised cost. The carrying value of these financial assets at
initial recognition includes any directly attributable transactions
costs. If the initial fair value is lower than the cash amount
advanced, such as in the case of some leveraged finance and
syndicated lending activities, the difference is deferred and
recognised over the life of the loan (as described in sub-section
(c) above) through the recognition of interest income, unless the
loan becomes impaired. HSBC may commit to underwriting loans on
fixed contractual terms for specified periods of time. When the
loan arising from the lending commitment is expected to be held for
trading, the commitment to lend is recorded as a derivative. When
HSBC intends to hold the loan, a provision on the loan commitment
is only recorded where it is probable that HSBC will incur a
loss.
Impairment of loans and advances
Losses for impaired loans are recognised when there is objective
evidence that impairment of a loan or portfolio of loans has
occurred. Losses which may arise from future events are not
recognised.
Individually assessed loans and advances
The factors considered in determining whether a loan is
individually significant for the purposes of assessing impairment
include the size of the loan, the number of loans in the portfolio,
the importance of the individual loan relationship and how this is
managed. Loans that are determined to be individually significant
will be individually assessed for impairment, except when volumes
of defaults and losses are sufficient to justify treatment under a
collective methodology.
Loans considered as individually significant are typically to
corporate and commercial customers, are for larger amounts and are
managed on an individual basis. For these loans, HSBC considers on
a case-by-case basis at each balance sheet date whether there is
any objective evidence that a loan is impaired.
The determination of the realisable value of security is based
on the most recently updated market value at the time the
impairment assessment is performed. The value is not adjusted for
expected future changes in market prices, though adjustments are
made to reflect local conditions such as forced sale discounts.
Impairment losses are calculated by discounting the expected
future cash flows of a loan, which include expected future receipts
of contractual interest, at the loan's original effective interest
rate or an approximation thereof, and comparing the resultant
present value with the loan's current carrying amount.
Collectively assessed loans and advances
Impairment is assessed collectively to cover losses which have
been incurred but have not yet been identified on loans subject to
individual assessment or for homogeneous groups of loans that are
not considered individually significant, which are generally retail
lending portfolios.
Incurred but not yet identified impairment
Individually assessed loans for which no evidence of impairment
has been specifically identified on an individual basis are grouped
together according to their credit risk characteristics for a
collective impairment assessment. This assessment captures
impairment losses that HSBC has incurred as a result of events
occurring before the balance sheet date that HSBC is not able to
identify on an individual loan basis, and that can be reliably
estimated. When information becomes available that identifies
losses on individual loans within a group, those loans are removed
from the group and assessed individually.
Homogeneous groups of loans and advances
Statistical methods are used to determine collective impairment
losses for homogeneous groups of loans not considered individually
significant. The methods used to calculate collective allowances
are set out below:
-- When appropriate empirical information is available, HSBC
utilises roll-rate methodology, which employs statistical analyses
of historical data and experience of delinquency and default to
reliably estimate the amount of the loans that will eventually be
written off as a result of events occurring before the balance
sheet date. Individual loans are grouped using ranges of past due
days, and statistical estimates are made of the likelihood that
loans in each range will progress through the various stages of
delinquency and become irrecoverable. Additionally, individual
loans are segmented based on their credit characteristics, such as
industry sector, loan grade or product. In applying this
methodology, adjustments are made to estimate the periods of time
between a loss event occurring, for example because of a missed
payment, and its confirmation through write-off (known as the loss
identification period). Current economic conditions are also
evaluated when calculating the appropriate level of allowance
required to cover inherent loss. In certain highly developed
markets, models also take into account behavioural and account
management trends as revealed in, for example bankruptcy and
rescheduling statistics.
-- When the portfolio size is small or when information is
insufficient or not reliable enough to adopt a roll-rate
methodology, HSBC adopts a basic formulaic approach based on
historical loss rate experience, or a discounted cash flow model.
Where a basic formulaic approach is undertaken, the period between
a loss event occurring and its identification is estimated by local
management, and is typically between six and 12 months.
Write-off of loans and advances
Loans and the related impairment allowance accounts are normally
written off, either partially or in full, when there is no
realistic prospect of recovery. Where loans are secured, this is
generally after receipt of any proceeds from the realisation of
security. In circumstances where the net realisable value of any
collateral has been determined and there is no reasonable
expectation of further recovery, write-off may be earlier.
Reversals of impairment
If the amount of an impairment loss decreases in a subsequent
period, and the decrease can be related objectively to an event
occurring after the impairment was recognised, the excess is
written back by reducing the loan impairment allowance account
accordingly. The write-back is recognised in the income
statement.
Assets acquired in exchange for loans
When non-financial assets acquired in exchange for loans as part
of an orderly realisation are held for sale, these assets are
recorded as 'Assets held for sale'.
Renegotiated loans
Loans subject to collective impairment assessment whose terms
have been renegotiated are no longer considered past due, but are
treated as up-to-date loans for measurement purposes once a minimum
number of required payments has been received. Where collectively
assessed loan portfolios include significant levels of renegotiated
loans, these loans are segregated from other parts of the loan
portfolio for the purposes of collective impairment assessment to
reflect their risk profile. Loans subject to individual impairment
assessment, whose terms have been renegotiated, are subject to
ongoing review to determine whether they remain impaired. The
carrying amounts of loans that have been classified as renegotiated
retain this classification until maturity or derecognition.
A loan that is renegotiated is derecognised if the existing
agreement is cancelled and a new agreement made on substantially
different terms or if the terms of an existing agreement are
modified such that the renegotiated loan is substantially a
different financial instrument. Any new loans that arise following
derecognition events will continue to be disclosed as renegotiated
loans and are assessed for impairment as above.
Non-trading reverse repurchase, repurchase and similar
agreements
When debt securities are sold subject to a commitment to
repurchase them at a predetermined price ('repos'), they remain on
the balance sheet and a liability is recorded in respect of the
consideration received. Securities purchased under commitments to
resell ('reverse repos') are not recognised on the balance sheet
and an asset is recorded in respect of the initial consideration
paid. Non-trading repos and reverse repos are measured at amortised
cost. The difference between the sale and repurchase price or
between the purchase and resale price is treated as interest and
recognised in net interest income over the life of the
agreement.
Contracts that are economically equivalent to reverse repurchase
or repurchase agreements (such as sales or purchases of debt
securities entered into together with total return swaps with the
same counterparty) are accounted for similarly to, and presented
together with, reverse repurchase or repurchase agreements.
Financial instruments measured at fair value
Available-for-sale financial assets
Available-for-sale financial assets are recognised on the trade
date when HSBC enters into contractual arrangements to purchase
them, and are normally derecognised when they are either sold or
redeemed. They are subsequently remeasured at fair value, and
changes therein are recognised in other comprehensive income until
the assets are either sold or become impaired. Upon disposal, the
cumulative gains or losses in other comprehensive income are
recognised in the income statement as 'Gains less losses from
financial investments'.
Impairment of available-for-sale financial assets
Available-for-sale financial assets are assessed at each balance
sheet date for objective evidence of impairment. Impairment losses
are recognised in the income statement within 'Loan impairment
charges and other credit risk provisions' for debt instruments and
within 'Gains less losses from financial investments' for
equities.
Available-for-sale debt securities
In assessing objective evidence of impairment at the reporting
date, HSBC considers all available evidence, including observable
data or information about events specifically relating to the
securities which may result in a shortfall in the recovery of
future cash flows. A subsequent decline in the fair value of the
instrument is recognised in the income statement when there is
objective evidence of impairment as a result of decreases in the
estimated future cash flows. Where there is no further objective
evidence of impairment, the decline in the fair value of the
financial asset is recognised in other comprehensive income. If the
fair value of a debt security increases in a subsequent period, and
the increase can be objectively related to an event occurring after
the impairment loss was recognised in the income statement, or the
instrument is no longer impaired, the impairment loss is reversed
through the income statement.
Available-for-sale equity securities
A significant or prolonged decline in the fair value of the
equity below its cost is objective evidence of impairment. In
assessing whether it is significant, the decline in fair value is
evaluated against the original cost of the asset at initial
recognition. In assessing whether it is prolonged, the decline is
evaluated against the continuous period in which the fair value of
the asset has been below its original cost at initial
recognition.
All subsequent increases in the fair value of the instrument are
treated as a revaluation and are recognised in other comprehensive
income. Subsequent decreases in the fair value of the
available-for-sale equity security are recognised in the income
statement to the extent that further cumulative impairment losses
have been incurred. Impairment losses recognised on the equity
security are not reversed through the income statement.
Financial instruments designated at fair value
Financial instruments, other than those held for trading, are
classified in this category if they meet one or more of the
criteria set out below, and are so designated irrevocably at
inception:
-- the use of the designation removes or significantly reduces an accounting mismatch;
-- when a group of financial assets, liabilities or both is
managed and its performance is evaluated on a fair value basis, in
accordance with a documented risk management or investment
strategy; and
-- where financial instruments contain one or more non-closely related embedded derivatives.
Designated financial assets are recognised when HSBC enters into
contracts with counterparties, which is generally on trade date,
and are normally derecognised when the rights to the cash flows
expire or are transferred. Designated financial liabilities are
recognised when HSBC enters into contracts with counterparties,
which is generally on settlement date, and are normally
derecognised when extinguished. Subsequent changes in fair values
are recognised in the income statement in 'Net income/(expense)
from financial instruments designated at fair value'. Under this
criterion, the main classes of financial instruments designated by
HSBC are:
Long-term debt issues
The interest and/or foreign exchange exposure on certain fixed
rate debt securities issued has been matched with the interest
and/or foreign exchange exposure on certain swaps as part of a
documented risk management strategy.
Financial assets and financial liabilities under unit-linked and
non-linked investment contracts.
A contract under which HSBC does not accept significant
insurance risk from another party is not classified as an insurance
contract, other than investment contracts with discretionary
participation features ('DPF'), but is accounted for as a financial
liability. See Note 1.2(j) for investment contracts with DPF and
contracts where HSBC accepts significant insurance risk. Customer
liabilities under linked and certain non-linked investment
contracts issued by insurance subsidiaries and the corresponding
financial assets are designated at fair value. Liabilities are at
least equivalent to the surrender or transfer value which is
calculated by reference to the value of the relevant underlying
funds or indices. Premiums receivable and amounts withdrawn are
accounted for as increases or decreases in the liability recorded
in respect of investment contracts. The incremental costs directly
related to the acquisition of new investment contracts or renewing
existing investment contracts are deferred and amortised over the
period during which the investment management services are
provided.
2 Net fee income
---------------
Net fee income by global business
2018 2017
---------
Retail
Banking Global
and Banking Global
Wealth Commercial and Private Corporate
Management Banking Markets Banking Centre Total Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- ------------- ------------ -------- ---------- --------- ------- ---------
Account services 203 214 179 13 - 609 902
--------- -------- ------- ------ -------- ------
Funds under management 228 26 150 47 - 451 508
--------- -------- ------- ------ -------- ------
Cards 105 39 6 - - 150 354
--------- -------- ------- ------ -------- ------
Credit facilities 1 157 229 6 - 393 494
----------------------------- --------- -------- ------- ------ -------- ------
Broking income 16 23 215 28 - 282 310
--------- -------- ------- ------ -------- ------
Unit trusts 9 - - 2 - 11 15
--------- -------- ------- ------ -------- ------ ------
Imports/exports - 44 36 - - 80 122
--------- -------- ------- ------ -------- ------
Remittances 13 23 50 2 - 88 177
----------------------------- --------- -------- ------- ------ -------- ------ ------
Underwriting - 3 238 3 - 244 276
--------- -------- ------- ------ -------- ------
Global custody 6 8 106 9 - 129 122
--------- -------- ------- ------ -------- ------
Insurance agency commission 40 2 - 9 - 51 98
----------------------------- --------- -------- ------- ------ -------- ------
Other 316 230 894 30 (556) 914 967
----------------------------- --------- -------- ------- ------ -------- ------
Fee income 937 769 2,103 149 (556) 3,402 4,345
----------------------------- --------- -------- ------- ------ -------- ------ ------
Less: fee expense (339) (56) (1,464) (40) 541 (1,358) (1,356)
----------------------------- --------- -------- ------- ------ -------- ------ ------
Net fee income 598 713 639 109 (15) 2,044 2,989
----------------------------- --------- -------- ------- ------ -------- ------ ------
Net fee income includes GBP1,875m of fees earned on financial
assets that are not at fair value through profit or loss (other
than amounts included in determining the effective interest rate)
(2017: GBP2,780m), GBP365m of fees payable on financial liabilities
that are not at fair value through profit of loss (other than
amounts included in determining the effective interest rate) (2017:
GBP471m), GBP613m of fees earned on trust and other fiduciary
activities (2017: GBP677m), and GBP2m of fees payable relating to
trust and other fiduciary activities (2017: GBP1m). Comparatives
for fees earned on trust and other fiduciary activities have been
restated to align with current year treatment.
3 Net income/(expense) from financial instruments measured at fair
value through profit or
loss
-----------------------------------------------------------------
2018 2017
GBPm GBPm
-------------------------------------------------------- ------ --------
Net income/(expense) arising on:
-------------------------------------------------------- ------ --------
Trading activities 391 2,803
--------------------------------------------------------- ----- -----
Other trading income - hedge ineffectiveness (18) 3
--------------------------------------------------------- ----- -----
- on cash flow hedges (6) (8)
---------------------------------------------------------
- on fair value hedges (12) 11
--------------------------------------------------------- ----- -----
Fair value movement on non-qualifying hedges (13) (16)
--------------------------------------------------------- ----- -----
Other instruments designated and mandatorily measured
at fair value and related derivatives 2,373 N/A
-------------------------------------------------------- ----- --------
Net income from financial instruments held for trading
or managed on a fair value basis(1) 2,733 2,790
--------------------------------------------------------- ----- -----
Financial assets held to meet liabilities under
insurance and investment contracts (626) 639
----- -----
Liabilities to customers under investment contracts 22 (37)
--------------------------------------------------------- ----- -----
Net income from assets and liabilities of insurance
businesses, including related derivatives, measured
at fair value through profit or loss (604) 602
--------------------------------------------------------- ----- -----
Derivatives managed in conjunction with the group's
issued debt securities (157) (176)
--------------------------------------------------------- ----- -----
Other changes in fair value 162 289
--------------------------------------------------------- ----- -----
Changes in fair value of long-term debt and related
derivatives(1) 5 113
--------------------------------------------------------- ----- -----
Changes in fair value of other financial instruments
mandatorily measured at fair value through profit
or loss 511 N/A
-------------------------------------------------------- ----- --------
Year ended 31 Dec 2,645 3,505
--------------------------------------------------------- ----- -----
1 The effect of foreign exchange exposure on certain long-term
debt instruments has been included in 'Net income from financial
instruments held for trading or managed on a fair value basis' from
1 January 2018. Comparative information has been re-presented. The
restatement decreased 'Changes in fair value of long-term debt and
related derivatives' by GBP402m with an equivalent increase in 'Net
income from financial instruments held for trading or managed on a
fair value basis'. For further details, refer to 'Changes to
accounting from 1 January 2018' on page 10.
4 Insurance business
-------------------
Net insurance premium income
Investment
Non-linked Linked life contracts
insurance insurance with DPF(1) Total
GBPm GBPm GBPm GBPm
-------------------------------------- ------------ ------------- ------------ --------
Gross insurance premium income 202 166 1,734 2,102
-------- --------- ------------ -----
Reinsurers' share of gross insurance
premium income (94) (3) - (97)
-------- --------- ------------ -----
Year ended 31 Dec 2018 108 163 1,734 2,005
-------------------------------------- -------- --------- ------------ -----
Gross insurance premium income 219 106 1,575 1,900
Reinsurers' share of gross insurance
premium income (88) (3) - (91)
------------
Year ended 31 Dec 2017 131 103 1,575 1,809
-------------------------------------- -------- --------- ------------ -----
1 Discretionary participation features.
Net insurance claims and benefits paid and movement in liabilities
to policyholders
Investment
Non-linked Linked life contracts
insurance insurance with DPF(1) Total
GBPm GBPm GBPm GBPm
----------------------------------------------- ------------ ------------- -------------- --------
Gross claims and benefits paid and
movement in liabilities 167 (40) 1,284 1,411
- claims, benefits and surrenders
paid 169 90 1,407 1,666
- movement in liabilities (2) (130) (123) (255)
----------------------------------------------- -------- --------- ---------- -----
Reinsurers' share of claims and
benefits paid and movement in liabilities (69) 136 - 67
- claims, benefits and surrenders
paid (64) (2) - (66)
- movement in liabilities (5) 138 - 133
-------- --------- ---------- -----
Year ended 31 Dec 2018 98 96 1,284 1,478
----------------------------------------------- -------- --------- ---------- -----
Gross claims and benefits paid and
movement in liabilities 132 217 2,257 2,606
- claims, benefits and surrenders
paid 145 90 1,556 1,791
- movement in liabilities (13) 127 701 815
-------- --------- ---------- -----
Reinsurers' share of claims and
benefits paid and movement in liabilities (49) (67) - (116)
- claims, benefits and surrenders
paid (61) (3) - (64)
- movement in liabilities 12 (64) - (52)
-------- --------- ---------- -----
Year ended 31 Dec 2017 83 150 2,257 2,490
----------------------------------------------- -------- --------- ---------- -----
1 Discretionary participation features.
Liabilities under insurance contracts
Investment
Non-linked Linked life contracts
insurance insurance with DPF(1) Total
GBPm GBPm GBPm GBPm
---------------------------------- ------------ ----------- ------------ ---------
Gross liabilities under insurance
contracts at 1 Jan 2018 617 1,166 19,250 21,033
----------------------------------- -------- ---------- ----------- ------
Claims and benefits paid (169) (90) (1,407) (1,666)
----------------------------------- -------- ---------- ----------- ------
Increase in liabilities to
policyholders 167 (40) 1,284 1,411
----------------------------------- -------- ---------- ----------- ------
Exchange differences and other
movements(2) 2 5 (128) (121)
Gross liabilities under insurance
contracts at 31 Dec 2018 617 1,041 18,999 20,657
----------------------------------- -------- ---------- ----------- ------
Reinsurers' share of liabilities
under insurance contracts (129) (50) - (179)
----------------------------------- -------- ---------- ----------- ------
Net liabilities under insurance
contracts at 31 Dec 2018 488 991 18,999 20,478
----------------------------------- -------- ---------- ----------- ------
Gross liabilities under insurance
contracts at 1 Jan 2017 616 1,030 18,078 19,724
----------------------------------- -------- ---------- ----------- ------
Claims and benefits paid (145) (90) (1,556) (1,791)
----------------------------------- -------- ---------- ----------- ------
Increase in liabilities to
policyholders 132 217 2,257 2,606
----------------------------------- -------- ---------- ----------- ------
Exchange differences and other
movements 14 9 471 494
----------------------------------- -------- ---------- ----------- ------
Gross liabilities under insurance
contracts at 31 Dec 2017 617 1,166 19,250 21,033
----------------------------------- -------- ---------- ----------- ------
Reinsurers' share of liabilities
under insurance contracts (148) (188) - (336)
----------------------------------- -------- ---------- ----------- ------
Net liabilities under insurance
contracts at 31 Dec 2017 469 978 19,250 20,697
----------------------------------- -------- ---------- ----------- ------
1 Discretionary participation features.
2 'Exchange differences and other movements' includes movements
in liabilities arising from net unrealised investment gains
recognised in other comprehensive income.
The key factors contributing to the movement in liabilities to
policyholders included movement in the market value of assets
supporting policyholder liabilities, death claims, surrenders,
lapses, liabilities to policyholders created at the initial
inception of the policies, the declaration of bonuses and other
amounts attributable to policyholders.
5 Operating profit
-----------------
Operating profit is stated after the following items:
2018 2017
GBPm GBPm
--------------------------------------------------------------- ------- ---------
Income
Interest recognised on impaired financial assets 54 39
Interest recognised on financial assets measured at
amortised cost 6,178 N/A
------ ---------
Interest recognised on financial assets measured at
fair value through other comprehensive income 902 N/A
--------------------------------------------------------------- ------ ---------
Expense
Interest on financial instruments, excluding interest
on trading liabilities designated or otherwise mandatorily
measured at
fair value (3,074) (2,216)
---------------------------------------------------------------
Payments under lease and sublease agreements (76) (174)
- minimum lease payments (76) (171)
- contingent rents and sublease payments - (3)
------ ------
Gains/(losses)
Impairment of available-for-sale equity securities N/A (26)
Gains recognised on assets held for sale 6 65
--------------------------------------------------------------- ------ ------
Change in expected credit losses and other credit impairment
charges (159) N/A
--------------------------------------------------------------- ---------
- loans and advances to banks and customers (196) N/A
---------------------------------------------------------------
- loans commitments and guarantees (42) N/A
---------------------------------------------------------------
- debt instruments measured at fair value though other
comprehensive income 79 N/A
--------------------------------------------------------------- ------
Loan impairment charges and other credit risk provisions N/A (495)
---------------------------------------------------------------
- net impairment charge on loans and advances N/A (624)
---------------------------------------------------------------
- release of impairment on available-for-sale debt securities N/A 145
---------------------------------------------------------------
- other credit risk provisions N/A (16)
--------------------------------------------------------------- ------- ------
External net operating income is attributed to countries on the
basis of the location of the branch responsible for reporting the
results or advancing the funds:
2018 2017
GBPm GBPm
----- --------
External net operating income by country 9,468 13,052
------------------------------------------ ----- ------
* United Kingdom(1) 6,537 9,693
- France 1,532 1,708
- Germany 654 653
* Turkey(2) - 133
* Other countries 745 865
------------------------------------------ ----- ------
1 Impacted by the transfers to HSBC UK Bank plc under the
ring-fence implementation. For further information see Note 35
'Discontinued operations'.
2 On 29 June 2017, the Turkish operations transferred to HSBC
Middle East Holdings B.V. and HSBC Bank Middle East Limited.
6 Employee compensation and benefits
-----------------------------------
2018 2017
GBPm GBPm
-------------------------- ----- -------
Wages and salaries 2,035 2,550
Social security costs 434 475
Post-employment benefits 60 104
Year ended 31 Dec 2,529 3,129
-------------------------- ----- -----
Average number of persons employed by the group during the year
2018(1,2) 2017(2)
-------------------------------------------------- --------- ---------
Retail Banking and Wealth Management 14,699 24,793
Commercial Banking 4,943 6,659
Global Banking and Markets 4,659 5,295
Global Private Banking 541 677
Corporate Centre 5,595 7,918
Year ended 31 Dec 30,437 45,342
-------------------------------------------------- --------- -------
1 Impacted by the transfers to HSBC UK Bank plc and its
subsidiaries under the ring-fence implementation. For further
information, see Note 35 'Discontinued operations'.
2 In October 2017, 21,571 employees were transferred from the
group to HSBC UK Bank plc, and were seconded back to the group
until 30 June 2018.
Share-based payments
The share-based payment income statement charge is recognised in
wages and salaries as follows:
2018 2017
GBPm GBPm
---------------------------------------------------- ---- ----
Restricted share awards 99 104
Savings-related and other share award option plans 4 10
Year ended 31 Dec 103 114
---------------------------------------------------- ---- ----
HSBC share awards
Award Policy
Restricted share
awards (including * An assessment of performance over the relevant period
annual incentive ending on 31 December is used to determine the amount
awards delivered of the award to be granted.
in shares) and
Group Performance
Share Plan ('GPSP') * Deferred awards generally require employees to remain
in employment over the vesting period and are not
subject to performance conditions after the grant
date.
* Deferred share awards generally vest over a period of
three years and GPSP awards vest after five years.
* Vested shares may be subject to a retention
requirement post-vesting. GPSP awards are retained
until cessation of employment.
* Awards granted from 2010 onwards are subject to a
malus provision prior to vesting.
--------------------- -------------------------------------------------------------
International
Employee Share * The plan was first introduced in Hong Kong in 2013
Purchase Plan and now includes employees based in 25 jurisdictions.
('ShareMatch')
* Shares are purchased in the market each quarter up to
a maximum value of GBP750, or the equivalent in local
currency.
* Matching awards are added at a ratio of one free
share for every three purchased.
* Matching awards vest subject to continued employment
and the retention of the purchased shares for a
maximum period of two years and nine months.
--------------------- -------------------------------------------------------------
Movement on HSBC share awards
2018 2017
Number Number
(000s) (000s)
----------------------------------------------------- ----------
Restricted share awards outstanding at 1 Jan 25,368 30,513
-----------------------------------------------------
Transfers to HSBC UK Bank plc and its subsidiaries (883) N/A
----------------------------------------------------- ------- ----------
Additions during the year(1) 20,315 17,287
Released in the year(1) (20,737) (21,858)
Forfeited in the year (668) (574)
Restricted share awards outstanding at 31 Dec 23,395 25,368
----------------------------------------------------- ------- -------
Weighted average fair value of awards granted (GBP) 6.35 5.00
----------------------------------------------------- ------- -------
1 Includes a number of share option plans transferred from or to
other subsidiaries of HSBC Holdings plc.
HSBC share option plans
Main plans Policy
Savings-related
share option * Two plans: the UK Plan and the International Plan.
plans ('Sharesave') The last grant of options under the International
Plan was in 2012.
* From 2014, eligible employees can save up to GBP500
per month with the option to use the savings to
acquire shares.
* Exercisable within six months following either the
third or fifth anniversary of the commencement of a
three-year or five-year contract, respectively.
* The exercise price is set at a 20% (2017: 20%)
discount to the market value immediately preceding
the date of invitation.
HSBC Holdings
Group share option * Plan ceased in May 2005.
plan
* Exercisable between the third and tenth anniversaries
of the date of grant.
--------------------- -------------------------------------------------------------
Calculation of fair values
The fair values of share options are calculated using a
Black-Scholes model. The fair value of a share award is based on
the share price at the date of the grant.
Movement on HSBC share option plans
Savings-related
share option plans
Number WAEP(1)
(000s) GBP
----------------------------------------------------- ---------------- ---------
Outstanding at 1 Jan 2018 32,567 4.51
-------
Transfers to HSBC UK Bank plc and its subsidiaries (25,608) 4.50
------------ -------
Granted during the year(2) 2,205 5.19
------------ -------
Exercised during the year(2) (3,742) 4.42
-------
Expired during the year (987) 4.99
-------
Forfeited during the year (427) 4.54
----------------------------------------------------- ------------ -------
Outstanding at 31 Dec 2018 4,008 4.88
----------------------------------------------------- ------------ -------
Weighted average remaining contractual life (years) 2.54
----------------------------------------------------- ------------ ---------
Outstanding at 1 Jan 2017 34,365 4.32
Granted during the year(2) 5,510 5.13
-----------------------------------------------------
Exercised during the year(2) (4,438) 4.61
-----------------------------------------------------
Expired during the year (2,870) 4.41
-----------------------------------------------------
Outstanding at 31 Dec 2017 32,567 4.51
----------------------------------------------------- ------------ -------
Weighted average remaining contractual life (years) 2.39
----------------------------------------------------- ------------ ---------
1 Weighted average exercise price.
2 Includes a number of share option plans transferred from or to
other subsidiaries of HSBC Holdings plc.
Post-employment benefit plans
We operate a number of pension plans throughout Europe for our
employees. Some are defined benefit plans, and prior to
ring-fencing, the largest was HSBC Bank (UK) Pension Scheme.
Pension risk section on page 34 contains details about policies and
practices associated with the pensions plans.
The group's balance sheet includes the net surplus or deficit,
being the difference between the fair value of plan assets and the
discounted value of scheme liabilities at the balance sheet date
for each plan. Surpluses are only recognised to the extent that
they are recoverable through reduced contributions in the future,
or through potential future refunds from the schemes. In assessing
whether a surplus is recoverable, the group has considered its
current right to obtain a future refund or a reduction in future
contributions.
HSBC Bank (UK) Pension Scheme
To meet the requirements of the Banking Reform Act, from 1 July
2018, the main employer of HSBC Bank (UK) Pension Scheme changed
from HSBC Bank plc to HSBC UK Bank plc, with additional support
from HSBC Holdings plc. At the same time, non-ring fenced entities
including HSBC Bank plc exited the section of the plan for
ring-fenced entities, and joined a newly created section with
segregated assets and liabilities (approximately 0.2% of the total
plan).
The plan has a defined benefit section and a defined
contribution section. The defined benefit section was closed to
future benefit accrual in 2015, with defined benefits earned by
employees at that date continuing to be linked to their salary
while they remain employed by HSBC. The new segregated section
provides HSBC Bank plc employees with their defined contribution
pension and, where relevant, defined benefit pension benefits
arising from future salary increases above CPI. The plan is
overseen by an independent corporate trustee, who has a fiduciary
responsibility for the operation of the plan. Its assets are held
separately from the assets of HSBC Group.
The first funding valuation of the new segregated section of the
plan for HSBC Bank plc non ring-fenced entities is currently being
assessed as at 31 December 2018. The assessment will be carried out
by Colin G Singer, at Willis Towers Watson Limited, who is a Fellow
of the UK Institute and Faculty of Actuaries, using the projected
unit credit method.
Income statement charge
2018 2017
GBPm GBPm
--------------------------------------------------- ---- ------
Defined benefit pension plans (33) (40)
--- ---
Defined contribution pension plans 91 140
--------------------------------------------------- --- ---
Pension plans 58 100
--------------------------------------------------- --- ---
Defined benefit and contribution healthcare plans 2 4
--------------------------------------------------- --- ---
Year ended 31 Dec 2018 60 104
--------------------------------------------------- --- ---
Cumulative actuarial gains/(losses) recognised in other comprehensive
income
2018 2017
GBPm GBPm
------------------------------------------------------------- ----- -------
At 1 Jan 2,498 105
----- -----
Actuarial gains recognised in other comprehensive income
for the year 255 2,393
------------------------------------------------------------- ----- -----
At 31 Dec 2,753 2,498
------------------------------------------------------------- ----- -----
Net assets/(liabilities) recognised on the balance sheet in respect
of defined benefit plans
Present
value Effect
Fair value of defined of limit
of plan benefit on plan
assets obligations surpluses Total
GBPm GBPm GBPm GBPm
----------------------------------------------------- ---------- ------------ ---------- --------
Defined benefit pension plans 496 (723) - (227)
Defined benefit healthcare plans - (81) - (81)
At 31 Dec 2018 496 (804) - (308)
----------------------------------------------------- ---------- ----------- ---------- -----
Total employee benefit liabilities (within
'Accruals, deferred income and other liabilities') (332)
----------------------------------------------------- ---------- ------------ ---------- -----
Total employee benefit assets (within
'Prepayments, accrued income and other
assets') 24
----------------------------------------------------- ---------- ------------ ---------- -----
Defined benefit pension plans 28,309 (22,481) - 5,828
----------
Defined benefit healthcare plans - (100) - (100)
At 31 Dec 2017 28,309 (22,581) - 5,728
----------------------------------------------------- ---------- ----------- ---------- -----
Total employee benefit liabilities (within
'Accruals, deferred income and other liabilities') (338)
----------------------------------------------------- ---------- ------------ ---------- -----
Total employee benefit assets (within
'Prepayments, accrued income and other
assets') 6,066
----------------------------------------------------- ---------- ------------ ---------- -----
Defined benefit pension plans
Net asset/(liability) under defined benefit pension plans
Present value
of defined Net defined
Fair value of benefit benefit
plan assets obligations asset/(liability)
HSBC HSBC
Bank Bank HSBC Bank
(UK) (UK) (UK)
Pension Other Pension Other Pension Other
Plan plans Plan plans Plan plans
GBPm GBPm GBPm GBPm GBPm GBPm
At 1 Jan 2018 27,940 369 (21,874) (607) 6,066 (238)
------------------------------------------------------------- ------- ---- ------- ---- ------- ----- ---
Reorganisation resulting from
ring-fencing(1) (26,948) - 20,580 - (6,368) -
------------------------------------------------------------- ------- ---- ------- ---- ------- ----- ----
Transfer into HSBC Trinkaus
& Burkhardt Pension Scheme - 8 - (4) - 4
------- ---- ------- ---- ------- ----- ----
Service cost (7) (19) (7) (19)
* current service cost (8) (22) (8) (22)
* past service cost and gains from settlements 1 3 1 3
Net interest income/(cost)
on the net defined benefit
asset/(liability) 359 3 (279) (8) 80 (5)
Remeasurement effects recognised
in other comprehensive income (826) (15) 1,073 7 247 (8)
- return on plan assets (excluding
interest income) (826) (15) (826) (15)
- actuarial gains 1,073 7 1,073 7
Exchange differences - 51 - (53) - (2)
Contributions by the group 20 - 20 -
- normal 20 - 20 -
Benefits paid (444) - 444 18 - 18
Administrative costs and taxes
paid by plan (21) - 7 (1) (14) (1)
At 31 Dec 2018 80 416 (56) (667) 24 (251)
------------------------------------------------------------- ------- ---- ------- ---- ------- ----- ---
Present value of defined benefit
obligation relating to:
- active (56) (452)
------------------------------------------------------------- -------
- deferred - (42)
------------------------------------------------------------- -------- ----- -------
- pensioners - (173)
------------------------------------------------------------- -------- ----- ------- ---- ----------- -----------
At 1 Jan 2017 26,891 430 (23,413) (679) 3,478 (249)
-------------------------------------------------------------
Service cost (90) (20) (90) (20)
------------------------------------------------------------- -------- ----- ------- ---- ------- ----- ---
* current service cost (10) (20) (10) (20)
-------------------------------------------------------------
* past service cost and gains/(losses) from settlements (80) - (80) -
-------------------------------------------------------------
Net interest income/(cost)
on the net defined benefit
asset/(liability) 665 5 (576) (9) 89 (4)
-------------------------------------------------------------
Remeasurement effects recognised
in other comprehensive income 1,076 6 1,299 2 2,375 8
-------------------------------------------------------------
- return on plan assets (excluding
interest income) 1,076 6 1,076 6
-------------------------------------------------------------
- actuarial gains 1,299 2 1,299 2
-------------------------------------------------------------
- other changes - - - -
-------------------------------------------------------------
Exchange differences - (44) - 48 - 4
-------------------------------------------------------------
Contributions by the group 229 4 229 4
-------------------------------------------------------------
- normal 168 4 168 4
-------------------------------------------------------------
- special 61 - 61 -
-------------------------------------------------------------
Benefits paid (888) (32) 888 51 - 19
Administrative costs and taxes
paid by plan (33) - 18 - (15) -
------------------------------------------------------------- ------- ---- ------- ---- ------- ----- ----
At 31 Dec 2017 27,940 369 (21,874) (607) 6,066 (238)
------------------------------------------------------------- ------- ---- ------- ---- ------- ----- ---
Present value of defined benefit
obligation relating to:
- active (4,052) (422)
------------------------------------------------------------- -------
- deferred (6,468) (42)
------------------------------------------------------------- -------- ----- -------
- pensioners (11,354) (143)
------------------------------------------------------------- -------- ----- ------- ---- ----------- -----------
1 A new section of the HSBC Bank (UK) Pension Scheme was created
on 1 July 2018. The HSBC Bank plc non ring-fenced entities were
transferred to the new section in respect of the pension benefit
arising from future salary increase above CPI for employees.
Directors' emoluments
The aggregate emoluments of the Directors of the bank, computed
in accordance with the Companies Act 2006 as amended by statutory
instrument 2008 No.410, were:
2018 2017
GBP000 GBP000
---------------------------------- ------ --------
Fees(1) 1,586 1,830
-----------------------------------
Salaries and other emoluments(2) 1,276 1,581
Annual incentives(3) 515 810
Long-term incentives(4) 679 1,396
Year ended 31 Dec 4,056 5,617
----------------------------------- ------ ------
1 Fees paid to non-executive Directors.
2 Salaries and other emoluments include Fixed Pay Allowances.
3 Discretionary annual incentives for executive Directors are
based on a combination of individual and corporate performance, and
are determined by the Remuneration Committee of the bank's parent
company, HSBC Holdings plc. Incentive awards made to executive
directors are delivered in the form of cash and HSBC Holdings plc
shares. The total amount shown is comprised of GBP257,400 (2017:
GBP404,880) in cash and GBP257,400 (2017: GBP404,880) in Restricted
Shares, which is the upfront portion of the annual incentive
granted in respect of performance year 2018.
4 The amount shown is comprised of GBP135,525 (2017: GBP441,103)
in deferred cash, GBP223,451 (2017: GBP700,709) in deferred
Restricted Shares, and GBP319,734 (2017: GBP253,806) in shares
under the Group Performance Share Plan ('GPSP'). These amounts
relate to the portion of the awards that will vest following the
substantial completion of the vesting condition attached to these
awards in 2018. The total vesting period of deferred cash and share
awards is no less than three years, with 33% of the award vesting
on each of the first and second anniversaries of the date of the
award, and the balance vesting on the third anniversary of the date
of the award. The deferred share awards are subject to a six-month
retention period upon vesting. GPSP awards are subject to a
five-year vesting period and a retention requirement until
cessation of employment upon vesting. Details of the Plans are
contained within the Directors' Remuneration Report of HSBC
Holdings plc. The cost of any awards subject to service conditions
under the HSBC Share Plan 2011 are recognised through an annual
charge based on the fair value of the awards, apportioned over the
period of service to which the award relates.
No Director exercised share options over HSBC Holdings plc
ordinary shares during the year.
Awards were made to one Director under long-term incentive plans
in respect of qualifying services rendered in 2018 (2017: one
Director). During 2018, one Director received shares in respect of
awards under long-term incentive plans that vested during the year
(2017: one Director).
Retirement benefits are accruing to one Director under money
purchase schemes in respect of Directors' qualifying services
(2017: one Director). Contributions of GBP3,778 were made during
the year to money purchase arrangements in respect of Directors'
qualifying services (2017: GBP10,000).
In addition, there were payments under retirement benefit
agreements with former Directors of GBP817,163 (2017: GBP791,152),
including payments in respect of unfunded pension obligations to
former Directors of GBP687,227 (2017: GBP666,214). The provision at
31 December 2018 in respect of unfunded pension obligations to
former Directors amounted to GBP10,956,784 (2017:
GBP11,695,477).
Of these aggregate figures, the following amounts are
attributable to the highest paid Director:
2018 2017
GBP000 GBP000
------------------------------- ------ --------
Salaries and other emoluments 623 1,581
Annual incentives(1) 361 810
Long-term incentives(2) 575 1,396
Year ended 31 Dec 1,559 3,787
-------------------------------- ------ ------
1 Awards made to the highest paid Director are delivered in the
form of cash and HSBC Holdings plc shares. The amount shown is
comprised of GBP180,277 (2017: GBP404,880) in cash and
GBP180,277 (2017: GBP404,880) in Restricted Shares.
2 The amount shown is comprised of GBP108,586 (2017: GBP441,103)
in deferred cash, GBP178,022 (2017: GBP700,709) in deferred
Restricted Shares and GBP288,351 (2017: GBP253,806) in shares under
the GPSP. These amounts relate to a portion of the awards that will
vest following the substantial completion of the vesting condition
attached to these awards in 2018. The total vesting period of
deferred cash and share awards is no less than three years, with
33% of the award vesting on each of the first and second
anniversaries of the date of the award, and the balance vesting on
the third anniversary of the date of the award. The share awards
are subject to a six-month retention period upon vesting. GPSP
awards are subject to a five-year vesting period and a retention
requirement until cessation of employment upon vesting.
The highest paid Director received shares in respect of
qualifying services under a long-term incentive scheme.
Pension contributions of GBP3,778 were made by the bank in
respect of services by the highest paid Director during the year
(2017: GBP10,000).
7 Auditors' remuneration
-----------------------
2018 2017
GBPm GBPm
----
Audit fees payable to PwC 11.8 14.1
----
Other audit fees payable 0.4 0.5
--------------------------- ---- ----
Year ended 31 Dec 12.2 14.6
--------------------------- ---- ----
Fees payable by the group to PwC
2018 2017
GBPm GBPm
--------------------------------------------------- ---- ------
Audit fees for HSBC Bank plc's statutory audit(1) 6.7 7.7
---------------------------------------------------- ----
Fees for other services provided to the group 11.8 13.3
- audit of the group's subsidiaries(2) 5.1 6.4
----------------------------------------------------
- audit-related assurance services(3) 2.2 2.5
----------------------------------------------------
- other assurance services 4.4 4.0
----------------------------------------------------
- other non-audit services(4) 0.1 0.4
---------------------------------------------------- ---- ----
Year ended 31 Dec(5) 18.5 21.0
---------------------------------------------------- ---- ----
1 Fees payable to PwC for the statutory audit of the
consolidated financial statements of the group and the separate
financial statements of HSBC Bank plc. They exclude amounts payable
for the statutory audit of the bank's subsidiaries which have been
included in 'Fees for other services provided to the group'.
2 Including fees payable to PwC for the statutory audit of the bank's subsidiaries.
3 Including services for assurance and other services that
relate to statutory and regulatory filings, including comfort
letters and interim reviews.
4 Including other permitted services relating to advisory,
corporate finance transactions, etc.
5 The 2017 comparatives have been represented to reflect the
Financial Reporting Council guidance regarding classifications of
non-audit services. The totals remain unchanged for 2017.
Fees payable for non-audit services for HSBC Bank plc are not
disclosed separately because such fees are disclosed on a
consolidated basis for the group.
8 Tax
----
Tax expense
2018 2017
GBPm GBPm
----------------------------------------------------- ---- ------
Current tax 490 599
- for this year 512 642
- adjustments in respect of prior years (22) (43)
--- ---
Deferred tax (48) (71)
- origination and reversal of temporary differences (61) (18)
------------------------------------------------------
- effect of changes in tax rates 13 (15)
------------------------------------------------------
- adjustments in respect of prior years - (38)
------------------------------------------------------ --- ---
Year ended 31 Dec 442 528
------------------------------------------------------ --- ---
Continued operations 119 198
---
Discontinued operations 323 330
------------------------------------------------------ --- ---
The group's profits are taxed at different rates depending on
the country in which the profits arise. The key applicable
corporate tax rates in 2018 include the UK and France. The UK tax
rate applying to HSBC Bank plc and its banking subsidiaries was
27.00% (2017: 27.25%), comprising 19% corporation tax plus 8%
surcharge on UK banking profits. The decrease from 2017 is due to
the reduction in the corporation tax rate from 20% to 19% from 1
April 2017. The 19% rate of corporation tax in the UK will be
reduced to 17% on 1 April 2020. The applicable tax rate in France
was 34% (2017: 44%) and will be reduced to 26% from 1 January 2022.
Other overseas subsidiaries and overseas branches provided for
taxation at the appropriate rates in the countries in which they
operate. The tax relating to discontinued operations relates to the
activities transferred to HSBC Bank UK plc on 1 July 2018.
Tax reconciliation
The tax charged to the income statement differs from the tax
expense that would apply if all profits had been taxed at the UK
corporation tax rate as follows:
2018 2017
GBPm % GBPm %
------ ------ ------ --------
Profit before tax 1,974 2,370
---------------------------------------
Tax expense
--------------------------------------- ------ ------ ------ --------
UK corporation tax at 19.00% (2017:
19.25%) 375 19.00 456 19.25
--------------------------------------- ----- ----- ----- -----
8% surcharge on UK banking profits 94 4.8 108 4.6
--------------------------------------- ----- ----- ----- -----
Non-deductible customer compensation
expense (2) (0.1) 129 5.4
--------------------------------------- ----- ----- ----- -----
Permanent disallowables 38 1.9 99 4.2
--------------------------------------- ----- ----- ----- -----
Impact of taxing overseas profits at
different rates 32 1.6 106 4.5
--------------------------------------- ----- ----- ----- -----
Local taxes and overseas withholding
taxes 52 2.6 31 1.3
--------------------------------------- ----- ----- ----- -----
Impairment of goodwill - - 9 0.3
--------------------------------------- ----- ----- ----- -----
Non-deductible regulatory settlements (8) (0.4) (153) (6.5)
--------------------------------------- ----- ----- ----- -----
Non-taxable income and gains subject
to tax at a lower rate (106) (5.4) (129) (5.4)
--------------------------------------- ----- ----- ----- -----
Adjustment in respect of prior years (22) (1.1) (81) (3.4)
--------------------------------------- ----- ----- ----- -----
Movements in unrecognised deferred
tax (8) (0.4) (25) (1.1)
--------------------------------------- ----- ----- ----- -----
Change in tax rates 13 0.7 (15) (0.6)
--------------------------------------- ----- ----- ----- -----
Other (16) (0.8) (7) (0.3)
--------------------------------------- ----- ----- ----- -----
Year ended 31 Dec 442 22.4 528 22.3
--------------------------------------- ----- ----- ----- -----
Continued operations 119 198
-----
Discontinued operations 323 330
--------------------------------------- ----- ------ ----- --------
The effective tax rate for the year was 22.4 % (2017: 22.3%).
This was higher than 2017 mainly due to a lower level of
non-taxable regulatory provision releases and other non-taxable
income, offset by a reduced level of overseas profits taxed at
higher rates and a lower
level of non-deductible expenses.
Accounting for taxes involves some estimation because the tax
law is uncertain and the application requires a degree of
judgement, which authorities may dispute. Liabilities are
recognised based on best estimates of the probable outcome, taking
into account external advice where appropriate. We do not expect
significant liabilities to arise in excess of the amounts provided.
The current tax asset includes an estimate of tax recoverable from
HMRC with regards to past dividends received from EU resident
companies. The ultimate resolution of this matter involves
litigation for which the outcome is uncertain and is unlikely to be
resolved in the short-term.
Movement of deferred tax assets and liabilities
Loan Property, Goodwill
Retirement impairment plant FVOCI/Available-for-sale and
benefits provisions and equipment investments intangibles Other(1) Total
The group GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Assets(2) 34 35 349 - 185 134 737
-----------------
Liabilities(2) (1,455) (5) - (80) - - (1,540)
----------------- --------- -------- -------- --- -------------- --------- -------- ---- ------- ------
At 1 Jan 2018 (1,421) 30 349 (80) 185 134 (803)
----------------- --------- -------- --- -------- --- -------------- --------- -------- ---- ------- ------
IFRS 9
transitional
adjustment - 38 (1) 153 (1) (17) 172
----------------- --------- -------- --- -------- -------------- ---------- -------- --- ------- ------
Transfer to HSBC
UK
Bank plc and
its
subsidiaries 1,592 (156) (73) 1 (20) (10) 1,334
--------- -------- -------- -------------- ---------- -------- --- ------- ------
Income statement 8 (13) (3) - 10 46 48
----------------- --------- -------- -------- -------------- ---------- -------- ---- ------- ------
Other
comprehensive
income (87) 129 - (147) - (135) (240)
At 31 Dec 2018 92 28 272 (73) 174 18 511
----------------- --------- -------- --- -------- --- -------------- --------- -------- ---- ------- ------
Assets(2) 92 32 281 - 174 26 605
-----------------
Liabilities(2) - (4) (9) (73) - (8) (94)
----------------- --------- -------- -------- -------------- --------- -------- ---- ------- ------
Assets(2) 75 78 297 - 156 428 1,034
-----------------
Liabilities(2) (840) (11) (7) (100) (9) (444) (1,411)
----------------- --------- -------- -------- -------------- --------- -------- --- ------- ------
At 1 Jan 2017 (765) 67 290 (100) 147 (16) (377)
----------------- --------- -------- --- -------- --- -------------- --------- -------- ---- ------- ------
Income statement (61) (22) 73 (4) 36 49 71
Other
comprehensive
income (596) - - 27 - 67 (502)
Equity - - - - - 11 11
--------- -------- --- -------- --- -------------- ---------- -------- ---- ------- ------
Foreign exchange
and
other
adjustments 1 (15) (14) (3) 2 23 (6)
-----------------
At 31 Dec 2017 (1,421) 30 349 (80) 185 134 (803)
----------------- --------- -------- --- -------- --- -------------- --------- -------- ---- ------- ------
Assets(2) 34 35 349 - 185 134 737
-----------------
Liabilities(2) (1,455) (5) - (80) - - (1,540)
----------------- --------- -------- -------- --- -------------- --------- -------- ---- ------- ------
1 Other deferred tax assets and liabilities relate to unused tax
losses, share-based payments and cash flow hedges.
2 After netting off balances within countries, the balances as
disclosed in the accounts are as follows: deferred tax assets
GBP540m (2017: GBP130m); and deferred tax liabilities GBP29m
(2017: GBP933m).
Movement of deferred tax assets and liabilities
Property,
Retirement plant and Goodwill
benefits equipment and intangibles Other(1) Total
The bank GBPm GBPm GBPm GBPm GBPm
Assets(2) - 289 192 81 562
---------------------------------
Lliabilities(2) (1,489) - - - (1,489)
--------------------------------- --------- -------- ------------ ---- ------- ------
At 1 Jan 2018 (1,489) 289 192 81 (927)
--------------------------------- --------- -------- ------------ ---- ------- ------
IFRS 9 transitional adjustment 1 - - 143 144
--------------------------------- --------- -------- ------------ ---- ------- ------
Transfer to HSBC UK Bank
plc 1,592 (47) (23) (154) 1,368
--------------------------------- --------- -------- ------------ --- ------- ------
Income statement 7 13 8 (2) 26
--------------------------------- --------- -------- ------------ ---- ------- ------
Other comprehensive income (89) - - (76) (165)
--------------------------------- --------- -------- ------------ ---- ------- ------
Foreign exchange and other
adjustments - - - (1) (1)
At 31 Dec 2018 22 255 177 (9) 445
--------------------------------- --------- -------- ------------ ---- ------- ------
Assets(2) 22 257 177 - 456
---------------------------------
Liabilities(2) - (2) - (9) (11)
--------------------------------- --------- -------- ------------ ---- ------- ------
Assets(2) - 217 156 94 467
---------------------------------
Liabilities(2) (838) - - (93) (931)
--------------------------------- --------- -------- ------------ ---- ------- ------
At 1 Jan 2017 (838) 217 156 1 (464)
--------------------------------- --------- -------- ------------ ---- ------- ------
Income statement (57) 72 35 79 129
--------------------------------- --------- -------- ------------ ---- ------- ------
Other comprehensive income (594) - - - (594)
--------------------------------- --------- -------- ------------ ---- ------- ------
Equity - - - - -
-------------------------------- --------- -------- ------------ ---- ------- ------
Foreign exchange and other
adjustments - - 1 1 2
---------------------------------
At 31 Dec 2017 (1,489) 289 192 81 (927)
--------------------------------- --------- -------- ------------ ---- ------- ------
Assets(2) - 289 192 81 562
---------------------------------
Liabilities(2) (1,489) - - - (1,489)
--------------------------------- --------- -------- ------------ ---- ------- ------
1 Other deferred tax assets and liabilities relate to fair value
of own debt, loan impairment allowances, unused tax losses,
share-based payments and cash flow hedges.
2 After netting off balances within countries, the balances as
disclosed in the accounts are as follows: deferred tax assets
GBP447m (2017: GBP5m) and deferred tax liabilities GBP2m
(2017: GBP932m).
Unrecognised deferred tax
The group
The amount of temporary differences, unused tax losses and tax
credits for which no deferred tax asset is recognised in the
balance sheet was GBP870m (2017: GBP765m). These amounts consist of
unused tax losses and tax credits arising in the US branch of
GBP694m (2017: GBP513m) and unused temporary differences and tax
losses in Europe of GBP176m (2017: GBP251m). The majority of the
unrecognised losses in the group expire after 10 years.
The bank
The amount of temporary differences, unused tax losses and tax
credits for which no deferred tax asset is recognised in the
balance sheet was GBP825m (2017: GBP707m). These amounts include
unused tax losses and tax credits arising in the US branch of
GBP694m (2017: GBP513m) and unused temporary differences and tax
losses in Europe of GBP131m (2017: GBP251m). The unrecognised
losses in the bank expire after 10 years.
There are no unrecognised deferred tax liabilities arising from
the group's investments in subsidiaries and branches.
9 Dividends
----------
Dividends to shareholders of the parent company
2018 2017
GBP per GBP per
share GBPm share GBPm
------------------------------------------- ------- ---- ------- ------
Dividends paid on ordinary shares
------------------------------------------- ------- ---- ------- ------
Second interim dividend in respect
of the previous year 0.73 583 0.52 415
---- ----
First interim dividend in respect
of the current year 0.30 234 0.23 186
-------------------------------------------
Total 1.03 817 0.75 601
------------------------------------------- ------- ---- ------- ----
Dividends on preference shares classified
as equity
------------------------------------------- ------- ---- ------- ------
Dividend on HSBC Bank plc non-cumulative
third dollar preference shares 1.47 51 1.43 50
------------------------------------------- ------- ---- ------- ----
Total 1.47 51 1.43 50
------------------------------------------- ------- ---- ------- ----
A second interim dividend for 2018 of GBP406m to the shareholder
of the parent company was declared by the Directors after 31
December 2018 (Note 36).
In addition to the second interim dividend above, a special
dividend of GBP674m was declared after 31 December 2018 on the
ordinary share capital of HSBC Bank plc in respect of 2018 and will
be payable on the 26 February 2019.
The total dividend declared on ordinary shares in respect of
2018 was GBP1,314m (2017: GBP769m).
Transfer of the ring-fenced bank
On the 22 June, the Directors declared a dividend for 2018 of
GBP12bn to the shareholder of the parent company with respect to
ring-fencing. The dividend was distributed on 1 July 2018 on
completion of ring-fencing. This dividend did not form part of the
regular dividend policy.
Total coupons on capital securities classified
as equity
2018 2017
First call
date GBPm GBPm
---------------------------------------------------
Undated Subordinated additional Tier 1 instruments
--------------------------------------------------- ------
- GBP1,096m(1) Dec 2019 31 59
----
- GBP1,100m(1) Dec 2024 31 61
----
- EUR1,900m Dec 2020 102 100
--------------------------------------------------- ---------- ---- ----
- EUR235m Jan 2022 12 1
--------------------------------------------------- ---------- ---- ----
176 221
--------------------------------------------------- ---------- ---- ----
1 With effect from 1 July 2018 under the ring-fencing transfer
scheme, all rights and obligations in respect of the existing
GBP1,096m Undated Subordinated Additional Tier 1 Instrument issued
2014 (Callable December 2019 onwards) and GBP1,100m Undated
Subordinated Additional Tier 1 Instrument issued 2014 (Callable
December 2024 onwards) issued by HSBC Bank plc were transferred to
HSBC UK Bank plc.
10 Trading assets
--- ---------------
The group The bank
2018 2017 2018 2017
GBPm GBPm GBPm GBPm
Treasury and other eligible bills 2,411 1,948 1,104 1,379
Debt securities(1, 2) 41,108 37,536 26,144 22,333
Equity securities 35,257 63,131 33,695 60,384
------------------------------------- ------ ------- ------ -------
Trading securities 78,776 102,615 60,943 84,096
------------------------------------- ------ ------- ------ -------
Loans and advances to banks(3,
4) 7,857 20,590 7,148 17,744
Loans and advances to customers(3,
4) 8,787 22,520 9,674 22,254
------------------------------------- ------ ------- ------ -------
At 31 Dec 95,420 145,725 77,765 124,094
------------------------------------- ------ ------- ------ -------
1 Included within the above figures for the group are debt
securities issued by banks and other financial institutions of
GBP9,564m (2017: GBP8,659m), of which GBP1,486m (2017: GBP551m) are
guaranteed by various governments.
2 Included within the above figures for the bank are debt
securities issued by banks and other financial institutions of
GBP6,951m (2017: GBP6,272m), of which GBP985m (2017: nil) are
guaranteed by governments.
3 Loans and advances to banks and customers include reverse
repos, stock borrowing and other amounts.
4 Settlement accounts, cash collateral and margin receivables
included within 'Loans and advances to banks' and 'Loans and
advances to customers' (the group: GBP26,447m; the bank:
GBP22,772m) were reclassified from 'Trading assets' to
'Prepayments, accrued income and other assets' on 1 January 2018,
and comparative data was not restated. This reclassification was in
accordance with IFRS 9. Refer to Note 34 'Effects of
reclassifications upon adoption of IFRS 9' for further details.
11 Fair values of financial instruments carried at fair value
--- -----------------------------------------------------------
Control framework
Fair values are subject to a control framework designed to
ensure that they are either determined or validated by a function
independent of the risk taker.
For all financial instruments where fair values are determined
by reference to externally quoted prices or observable pricing
inputs to models, independent price determination or validation is
utilised. In inactive markets, the group will source alternative
market information to validate the financial instrument's fair
value, with greater weight given to information that is considered
to be more relevant and reliable. The factors that are considered
in this regard are, inter alia:
-- the extent to which prices may be expected to represent genuine traded or tradable prices;
-- the degree of similarity between financial instruments;
-- the degree of consistency between different sources;
-- the process followed by the pricing provider to derive the data;
-- the elapsed time between the date to which the market data
relates and the balance sheet date; and
-- the manner in which the data was sourced.
For fair values determined using valuation models, the control
framework may include, as applicable, development or validation by
independent support functions of: (i) the logic within valuation
models; (ii) the inputs to these models; (iii) any adjustments
required outside the valuation models; and (iv) where possible,
model outputs. Valuation models are subject to a process of due
diligence and calibration before becoming operational and are
calibrated against external market data on an ongoing basis.
Financial liabilities measured at fair value
In certain circumstances, the group records its own debt in
issue at fair value, based on quoted prices in an active market for
the specific instrument. When quoted market prices are unavailable,
the own debt in issue is valued using valuation techniques, the
inputs for which are based either on quoted prices in an inactive
market for the instrument or are estimated by comparison with
quoted prices in an active market for similar instruments. In both
cases, the fair value includes the effect of applying the credit
spread that is appropriate to the group's liabilities.
Structured notes issued and certain other hybrid instruments are
included within trading liabilities and are measured at fair value.
The spread applied to these instruments is derived from the spreads
at which the group issues structured notes.
Fair value hierarchy
Fair values of financial assets and liabilities are determined
according to the following hierarchy:
-- Level 1 - valuation technique using quoted market price:
financial instruments with quoted prices for identical instruments
in active markets that HSBC can access at the measurement date.
-- Level 2 - valuation technique using observable inputs:
financial instruments with quoted prices for similar instruments in
active markets or quoted prices for identical or similar
instruments in inactive markets and financial instruments valued
using models where all significant inputs are observable.
-- Level 3 - valuation technique with significant unobservable
inputs: financial instruments valued using valuation techniques
where one or more significant inputs are unobservable.
Financial instruments carried at fair value and bases of valuation
2018 2017
Level Level Level Level Level Level
1 2 3 Total 1 2 3 Total
The group GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------ ------- ----- -------
Recurring fair value measurements
at 31 Dec
----------------------------------- ------ ------- ----- ------- ------ ------- ----- ---------
Assets
----------------------------------- ------ ------- ----- ------- ------ ------- ----- ---------
Trading assets 69,774 22,094 3,552 95,420 92,032 51,409 2,284 145,725
----------------------------------- ------ ------- ----- -------
Financial assets designated
and otherwise mandatorily
measured at fair value
through profit or loss 10,128 5,590 2,081 17,799 N/A N/A N/A N/A
----------------------------------- ------ ------- ----- ------- ------- ----- ---------
Derivatives 1,101 141,341 2,080 144,522 234 141,337 1,764 143,335
----------------------------------- ------ ------- ----- ------- ------ ------- ----- -------
Financial assets designated
at fair value N/A N/A N/A N/A 8,936 276 54 9,266
----------------------------------- ------ ------- ----- -------
Financial investments 40,237 6,232 790 47,259 46,967 9,598 1,435 58,000
-----------------------------------
Liabilities
----------------------------------- ------ ------- ----- ------- ------ ------- ----- ---------
Trading liabilities 35,964 13,504 46 49,514 31,396 74,096 1,004 106,496
-----------------------------------
Financial liabilities
designated at fair value 5,337 30,595 990 36,922 3,082 15,167 - 18,249
----------------------------------- ------ ------- ----- ------- ------ ------- ----- -------
Derivatives 1,420 137,049 1,463 139,932 597 138,140 1,333 140,070
----------------------------------- ------ ------- ----- ------- ------ ------- ----- -------
Financial instruments carried at fair value and bases of valuation
2018 2017
Level Level Level Level Level Level
1 2 3 Total 1 2 3 Total
The bank GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------ ------- ----- -------
Recurring fair value measurements
at 31 Dec
----------------------------------- ------ ------- ----- ------- ------ ------- ----- ---------
Assets
----------------------------------- ------ ------- ----- ------- ------ ------- ----- ---------
Trading assets 53,104 21,075 3,586 77,765 74,535 47,200 2,359 124,094
-----------------------------------
Financial assets designated
and otherwise mandatorily
measured at fair value
through profit or loss 24 5,051 670 5,745 N/A N/A N/A N/A
----------------------------------- ------ ------- ----- ---------
Derivatives 849 136,247 2,133 139,229 69 133,359 1,808 135,236
----------------------------------- ------ ------- ----- ------- ------ ------- ----- -------
Financial assets designated
at fair value N/A N/A N/A N/A - - - -
----------------------------------- ------ ------- ----- -------
Financial investments 24,511 2,116 72 26,699 27,493 2,817 1,072 31,382
-----------------------------------
Liabilities
----------------------------------- ------ ------- ----- ------- ------ ------- ----- ---------
Trading liabilities 15,128 12,154 19 27,301 10,529 66,042 732 77,303
-----------------------------------
Financial liabilities
designated at fair value - 22,203 728 22,931 - 11,006 - 11,006
----------------------------------- ------ ------- ----- ------- ------ ------- ----- -------
Derivatives 1,237 132,351 1,719 135,307 425 131,003 1,607 133,035
----------------------------------- ------ ------- ----- ------- ------ ------- ----- -------
Transfers between Level 1 and Level 2 fair values
Assets Liabilities
Designated
and
otherwise
mandatorily
measured
at fair value
through Designated
Financial Trading profit or Trading at fair
investments assets loss(2) Derivatives liabilities value Derivatives
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 31 Dec
2018
------------- ------------------ -------- ------------- ------------- ------------ ---------- -------------
Transfers
from Level
1 to Level
2 - 183 - - 33 - -
------------------ -------- ------------- --------- ------------ ---------- ---------
Transfers
from Level
2 to Level
1(1) - 1,625 - (96) 1,275 - (103)
------------- ------------------ -------- ------------- --------- ------------ ---------- ---------
Assets Liabilities
Designated
Held for Designated Held for at fair
Available-for-sale trading at fair value Derivatives trading value Derivatives
------------- ------------------ -------- ------------- ------------- ------------ ---------- -------------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------- ------------------ -------- ------------- ------------- ------------ ---------- -------------
At 31 Dec
2017
------------- ------------------ -------- ------------- ------------- ------------ ---------- -------------
Transfers
from Level
1 to Level
2 714 29 - - 11 - -
------------- ------------------ -------- ------------- --------- ------------ ---------- ---------
Transfers
from Level
2 to Level
1 - 84 - - 28 - -
------------- ------------------ -------- ------------- --------- ------------ ---------- ---------
1 Liquid corporate bonds of GBP1,547m in trading assets and
GBP1,220m in trading liabilities were transferred from Level 2 to
Level 1 during the period.
2 The group adopted IFRS 9 on 1 January 2018 resulting in the
reclassification of certain financial assets and liabilities. The
comparatives for 'financial assets designated and otherwise
mandatorily measured at fair value through profit or loss' refer to
prior period 'financial assets designated at fair value'. Refer to
Note 34 'Effects of reclassifications upon adoption of IFRS 9' for
further details.
Transfers between levels of the fair value hierarchy are deemed
to occur at the end of each quarterly reporting period. Transfers
into and out of levels of the fair value hierarchy are normally
attributable to observability of valuation inputs and price
transparency. In the current year the majority of the transfer
relates to the reclassification of certain positions where improved
data is now available.
Fair value adjustments
Fair value adjustments are adopted when the group determines
there are additional factors considered by market participants that
are not incorporated within the valuation model. Movements in the
level of fair value adjustments do not necessarily result in the
recognition of profits or losses within the income statement, such
as when models are enhanced and fair value adjustments may no
longer be required.
Bid-offer
IFRS 13 'Fair value measurement' requires use of the price
within the bid-offer spread that is most representative of fair
value. Valuation models will typically generate mid-market values.
The bid-offer adjustment reflects the extent to which bid-offer
costs would be incurred if substantially all residual net portfolio
market risks were closed using available hedging instruments or by
disposing of or unwinding the position.
Uncertainty
Certain model inputs may be less readily determinable from
market data, and/or the choice of model itself may be more
subjective. In these circumstances, an adjustment may be necessary
to reflect the likelihood that market participants would adopt more
conservative values for uncertain parameters and/or model
assumptions than those used in the valuation model.
Credit and debit valuation adjustments
The CVA is an adjustment to the valuation of over-the-counter
('OTC') derivative contracts to reflect the possibility that the
counterparty may default, and that the group may not receive the
full market value of the transactions.
The DVA is an adjustment to the valuation of OTC derivative
contracts to reflect the possibility that HSBC may default, and
that it may not pay the full market value of the transactions.
HSBC calculates a separate CVA and DVA for each legal entity,
and for each counterparty to which the entity has exposure. With
the exception of central clearing parties, all third-party
counterparties are included in the CVA and DVA calculations, and
these adjustments are not netted across Group entities.
HSBC calculates the CVA by applying the probability of default
('PD') of the counterparty, conditional on the non-default of HSBC,
to HSBC's expected positive exposure to the counterparty and
multiplying the result by the loss expected in the event of
default.
Conversely, HSBC calculates the DVA by applying the PD of HSBC,
conditional on the non-default of the counterparty, to the expected
positive exposure of the counterparty to HSBC and multiplying the
result by the proportional loss expected in the event of default.
Both calculations are performed over the life of the potential
exposure.
For most products, HSBC uses a simulation methodology, which
incorporates a range of potential exposures over the life of the
portfolio, to calculate the expected positive exposure to a
counterparty. The simulation methodology includes credit mitigants,
such as counterparty netting agreements and collateral agreements
with the counterparty.
The methodologies do not, in general, account for 'wrong-way
risk', which arises when the underlying value of the derivative
prior to any CVA is positively correlated to the PD of the
counterparty. When there is significant wrong-way risk, a
trade-specific approach is applied to reflect this risk in the
valuation.
Funding fair value adjustment
The FFVA is calculated by applying future market funding spreads
to the expected future funding exposure of any uncollateralised
component of the OTC derivative portfolio. The expected future
funding exposure is calculated by a simulation methodology, where
available, and is adjusted for events that may terminate the
exposure, such as the default of HSBC or the counterparty. The FFVA
and DVA are calculated independently.
Model limitation
Models used for portfolio valuation purposes may be based upon a
simplified set of assumptions that do not capture all current and
future material market characteristics. In these circumstances,
model limitation adjustments are adopted.
Inception profit (Day 1 P&L reserves)
Inception profit adjustments are adopted when the fair value
estimated by a valuation model is based on one or more significant
unobservable inputs. The accounting for inception profit
adjustments is discussed in Note 1.
Fair value valuation bases
Financial instruments measured at fair value using a valuation technique
with significant unobservable inputs - Level 3
Assets Liabilities
Designated
and
otherwise
mandatorily
measured
at fair
value
Held through Held Designated
Financial for profit or for at fair
Investments trading loss Derivatives Total trading value Derivatives Total
The group GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ -------- ----------- ----------- ------ -------- ---------- ----------- -------
Private
equity
including
strategic
investments 62 10 1,673 - 1,745 10 - - 10
------------------ -------- ----------- ----------- ------ -------- ---------- ----------- -----
Asset-backed
securities 723 730 24 - 1,477 - - - -
------------------ -------- ----------- ----------- ------ -------- ---------- ----------- -----
Structured
notes - 2 - - 2 36 990 - 1,026
------------------ -------- ----------- ----------- ------ -------- ---------- ----------- -----
Derivatives - - - 2,080 2,080 - - 1,463 1,463
------------------ -------- ----------- ----------- ------ -------- ---------- ----------- -----
Other
portfolios 5 2,810 384 - 3,199 - - - -
-------------- ------------------ -------- ----------- ----------- ------ -------- ---------- ----------- -----
At 31 Dec 2018 790 3,552 2,081 2,080 8,503 46 990 1,463 2,499
-------------- ------------------ -------- ----------- ----------- ------ -------- ---------- ----------- -----
Assets Liabilities
Held Designated Held Designated
for at fair for at fair
Available-for-sale trading value Derivatives Total trading value Derivatives Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Private
equity
including
strategic
investments 547 15 54 - 616 14 - - 14
Asset-backed
securities 879 888 - - 1,767 - - - -
Structured
notes - 2 - - 2 990 - - 990
Derivatives - - - 1,764 1,764 - - 1,333 1,333
Other
portfolios 9 1,379 - - 1,388 - - - -
--------------
At 31 Dec 2017 1,435 2,284 54 1,764 5,537 1,004 - 1,333 2,337
--------------
Financial instruments measured at fair value using a valuation technique
with significant unobservable inputs - Level 3 (continued)
Assets Liabilities
Designated
and
otherwise
mandatorily
measured
at fair
value
Held through Held Designated
Financial for profit for at fair
Investments trading or loss Derivatives Total trading value Derivatives Total
The bank GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Private equity
including
strategic
investments 53 1 444 - 498 - - - -
Asset-backed
securities 19 776 226 - 1,021 - - - -
------------------ -------- ----------- ------ -------- ---------- ----------- --------
Structured
notes - - - - - 19 728 - 747
------------------ -------- ----------- ------ -------- ---------- ----------- ------
Derivatives - - - 2,133 2,133 - - 1,713 1,713
------------------ -------- ----------- ------ -------- ---------- ----------- ------
Other
portfolios - 2,809 - - 2,809 - - 6 6
-------------- ------------------ -------- ----------- ------ -------- ---------- ----------- ------
At 31 Dec 2018 72 3,586 670 2,133 6,461 19 728 1,719 2,466
-------------- ------------------ -------- ----------- ------ -------- ---------- ----------- ------
Assets Liabilities
Held Designated Held Designated
for at fair for at fair
Available-for-sale trading value Derivatives Total trading value Derivatives Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-----------
Private equity
including
strategic
investments 347 - - - 347 - - - -
Asset-backed
securities 725 980 - - 1,705 - - - -
Structured
notes - - - - - 732 - - 732
Derivatives - - - 1,808 1,808 - - 1,607 1,607
Other
portfolios - 1,379 - - 1,379 - - - -
-------------- -----------
At 31 Dec 2017 1,072 2,359 - 1,808 5,239 732 - 1,607 2,339
-------------- -----------
Level 3 instruments are present in both ongoing and legacy
businesses. Loans held for securitisation, derivatives with
monolines, certain 'other derivatives' and predominantly all Level
3 ABSs are legacy positions. HSBC has the capability to hold these
positions.
Private equity including strategic investments
The investment's fair value is estimated: on the basis of an
analysis of the investee's financial position and results, risk
profile, prospects and other factors; by reference to market
valuations for similar entities quoted in an active market; or the
price at which similar companies have changed ownership.
Asset-backed securities
While quoted market prices are generally used to determine the
fair value of these securities, valuation models are used to
substantiate the reliability of the limited market data available
and to identify whether any adjustments to quoted market prices are
required. For certain ABSs, such as residential mortgage-backed
securities, the valuation uses an industry standard model with
assumptions relating to prepayment speeds, default rates and loss
severity based on collateral type, and performance, as appropriate.
The valuations output is benchmarked for consistency against
observable data for securities of a similar nature.
Structured notes
The fair value of Level 3 structured notes is derived from the
fair value of the underlying debt security, and the fair value of
the embedded derivative is determined as described in the paragraph
below on derivatives. These structured notes comprise principally
equity-linked notes, issued by HSBC, which provide the counterparty
with a return linked to the performance of equity securities and
other portfolios. Examples of the unobservable parameters include
long-dated equity volatilities and correlations between equity
prices, and interest and foreign exchange rates.
Derivatives
OTC derivative valuation models calculate the present value of
expected future cash flows, based upon 'no-arbitrage' principles.
For many vanilla derivative products, the modelling approaches used
are standard across the industry. For more complex derivative
products, there may be some differences in market practice. Inputs
to valuation models are determined from observable market data,
wherever possible, including prices available from exchanges,
dealers, brokers or providers of consensus pricing. Certain inputs
may not be observable in the market directly, but can be determined
from observable prices through model calibration procedures or
estimated from historical data or other sources.
Reconciliation of fair value measurements in Level 3 of the fair
value hierarchy
Movement in Level 3 financial instruments
Assets Liabilities
Designated
and otherwise
mandatorily
measured
at fair
value
through Designated
Financial Trading profit Trading at fair
Investments assets or loss Derivatives liabilities value Derivatives
The group GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 Jan 2018 943 2,284 1,794 1,764 67 937 1,333
Total gains/(losses) recognised
in profit or loss (1) 118 307 586 (2) (111) 181
* net income from financial instruments held for
trading or managed on a fair value basis - 118 - 586 (2) - 181
* changes in fair value of other financial instruments
mandatorily measured at fair value through profit or
loss - - 307 - - (111) -
* gains less losses from financial investments at fair
value through other comprehensive income (1) - - - - - -
Total gains/(losses) recognised
in other comprehensive income
('OCI') 61 145 - (4) - 3 1
* financial investments: fair value gains/(losses) 25 - - - - - -
* exchange differences 36 145 - (4) - 3 1
---------- -------- ------ ---- ------- --- ------- ---- ------- --- ------- ----
Purchases 25 3,059 524 6 3 57 79
New issuances - 701 - 6 4 1,287 26
Sales (35) (991) (240) - (9) - (11)
Settlements (93) (1,463) (282) (123) (1) (812) 59
Transfers out (347) (1,114) (71) (257) (16) (371) (354)
Transfers in 237 813 49 102 - - 149
---------- -------- ------ ---- ------- ---- ------- ---- ------- --- ------- ----
At 31 Dec 2018 790 3,552 2,081 2,080 46 990 1,463
---------- -------- ------ ---- ------- ---- ------- ---- ------- --- ------- ----
Unrealised gains/(losses)
recognised in profit or loss
relating to assets and liabilities
held at 31 Dec 2018 - (5) 89 302 4 56 245
* trading income/(expense) excluding net interest
income - (5) - 302 4 - 245
* net income/(expense) from other financial instruments
designated at fair value - - 89 - - 56 -
-------- ------- ------- ------- -------
Assets Liabilities
Held Designated Designated
for at fair Held at fair
Available-for-sale trading value Derivatives for trading value Derivatives
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 Jan 2017 982 2,721 21 2,151 762 5 1,877
-------- ---- ---- ---- --- ----
Total gains/(losses) recognised
in profit or loss (24) (171) (3) 36 52 (5) 433
* trading income/(expense) excluding net interest
income - (171) - 36 52 - 433
- gains less losses from
financial investments (24) - (3) - - (5) -
------- --- ---- ---- ----
Total gains/(losses) recognised
in other comprehensive income
('OCI')(1) 108 (121) 1 (26) 8 - (30)
* available-for-sale investments: fair value
gains/(losses) 146 - - - - - -
- cash flow hedges: fair
value gains/(losses) - - - (18) - - (28)
- exchange differences (38) (121) 1 (8) 8 - (2)
------- ---- --- ---- --- ---
Purchases 112 1,026 36 2 4 - -
New issuances - - - - 776 - -
Sales (131) (1,464) - (6) (9) - (12)
Settlements (46) (230) - (12) (459) - (272)
Transfers out (269) (101) (1) (595) (144) - (814)
Transfers in 703 624 - 214 14 - 151
-------- ---- ---- ---- --- ----
At 31 Dec 2017 1,435 2,284 54 1,764 1,004 - 1,333
-------- ---- ---- ---- --- ----
Unrealised gains/(losses)
recognised in profit or loss
relating to assets and liabilities
held at 31 Dec 2017 17 22 4 76 156 - 173
* trading income/(expense) excluding net interest
income - 22 - 76 156 - 173
* net income from other financial instruments
designated at fair value - - 4 - - - -
* loan impairment charges and other credit risk
provisions 17 - - - - - -
-------- ---- ---- ---- --- ----
1 Included in 'Available-for-sale investments: fair value
gains/(losses)' and 'Exchange differences' in the consolidated
statement of comprehensive income.
Movement in Level 3 financial instruments (continued)
Assets Liabilities
Designated
and
otherwise
mandatorily
measured at
fair value
through Designated
Financial Trading profit or Trading at fair
Investments Assets loss Derivatives Liabilities value Derivatives
The bank GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- ------- -------------
At 1 Jan 2018 140 2,362 980 1,808 32 700 1,605
----------- ------- ------ ------ ---- ----- --- ----
Total gains/(losses)
recognised in profit
or loss (1) 117 98 610 (2) (87) 187
* net income from financial instruments held for
trading or managed on a fair value basis - 117 - 610 (2) - 187
* changes in fair value of other financial instruments
mandatorily measured at fair value through profit or
loss - - 98 - - (87) -
* gains less losses from financial investments at fair
value through other comprehensive income (1) - - - - - -
Total gains/(losses)
recognised in other
comprehensive income
('OCI') 1 144 16 - - - -
* exchange differences 1 144 16 - - - -
----------- ------- ------ ------ ---- ----- --- ----
Purchases 23 3,126 18 - - - 76
New issuances - 701 - 6 - 1,273 39
Sales (12) (1,101) (278) - - - (11)
Settlements (10) (1,462) (164) (130) 6 (797) 52
Transfers out (73) (1,114) - (265) (17) (361) (367)
Transfers in 4 813 - 104 - - 138
At 31 Dec 2018 72 3,586 670 2,133 19 728 1,719
Unrealised gains/(losses)
recognised in profit
or loss relating to
assets and liabilities
held at 31 Dec 2018 - (5) 6 255 (4) 48 (246)
* trading income/(expense) excluding net interest
income - (5) - 255 (4) - (246)
* net income/(expense) from other financial instruments
designated at fair value - - 6 - - 48 -
----------- ------
Assets Liabilities
Held Designated
for Designated at Held at fair
Available-for-sale trading fair value Derivatives for trading value Derivatives
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------
At 1 Jan 2017(1) 1,426 2,722 - 2,242 499 - 2,115
------- ------ ---- ----- --- ----
Total gains/(losses)
recognised in profit
or loss - (139) - 33 28 - 427
* trading income/(expense) excluding net interest
income - (139) - 33 28 - 427
* gains less losses from financial investments - - - - - - -
Total gains/(losses)
recognised in other
comprehensive income
('OCI')(2) 189 (122) - (42) - - (30)
* available-for-sale investments: fair value
gains/(losses) 197 - - - - - -
* cash flow hedges: fair value gains/(losses) - - - (25) - - (28)
* exchange differences (8) (122) - (17) - - (2)
------ ------ --- ----- --- ---
Purchases 846 1,097 - 1 - - 15
New issuances - - - - 756 - -
Sales (1,131) (1,491) - (6) (6) - (9)
Settlements (224) (222) - (3) (416) - (244)
Transfers out (51) (106) - (649) (129) - (847)
------
Transfers in 17 620 - 232 - - 180
------- ------ ---- ----- --- ----
At 31 Dec 2017 1,072 2,359 - 1,808 732 - 1,607
------- ------ ---- ----- --- ----
Unrealised gains/(losses)
recognised in profit
or loss relating to
assets and liabilities
held at 31 Dec 2017 - 22 - (38) 130 - 177
* trading income/(expense) excluding net interest
income - 22 - (38) 130 - 177
------- ------ --- ----- ---
1 The bank had no level 3 assets or liabilities designated at fair value in 2017.
2 Included in 'Available-for-sale investments: fair value
gains/(losses)' and 'Exchange differences' in the consolidated
statement of comprehensive income.
Effect of changes in significant unobservable assumptions to
reasonably possible alternatives
Sensitivity of Level 3 fair values to reasonably possible alternative
assumptions
2018 2017
Reflected Reflected
in in
profit or Reflected profit or Reflected
loss in OCI loss in OCI
Un- Un- Un- Un-
Favourable favourable Favourable favourable Favourable favourable Favourable favourable
changes changes changes changes changes changes changes changes
The group GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------- ------------ ---------- -------------
Derivatives,
trading assets
and trading
liabilities(1) 155 (147) - - 150 (141) - -
Designated and
otherwise
mandatorily
measured at
fair value
through profit
or loss 177 (124) 3 (1) 3 (3) - -
Financial
investments 7 (9) 17 (17) 53 (77) 2 (2)
---------- -------- ---------- --------
At 31 Dec 339 (280) 20 (18) 206 (221) 2 (2)
---------- -------- ---------- --------
The bank
Derivatives, trading assets
and trading liabilities(1) 136 (127) --136 (127) --
Designated and otherwise
mandatorily measured at
fair value through profit
or loss 53 (51) -- - - --
Financial investments 6 (6) -- 43 (40) --
At 31 Dec 195 (184) --179 (167) --
--- ----
1 Derivatives, trading assets and trading liabilities are
presented as one category to reflect the manner in which these
instruments are risk managed.
Sensitivity of Level 3 fair values to reasonably possible alternative
assumptions by instrument type
2018 2017
Reflected Reflected
in in
profit or Reflected profit or Reflected
loss in OCI loss in OCI
Favourable Un-favourable Favourable Un-favourable Favourable Un-favourable Favourable Un-favourable
changes changes changes changes changes changes changes changes
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------- --------------- ---------- ---------------
Private
equity
including
strategic
investments 173 (119) - - 55 (53) 2 (2)
Asset-backed
securities 38 (18) 20 (18) 34 (40) - -
Structured
notes 10 (10) - - 6 (6) - -
Derivatives 74 (74) - - 82 (84) - -
Other - - - - - - - -
derivatives
Other
portfolios 44 (59) - - 29 (38) - -
---- ----
At 31 Dec 339 (280) 20 (18) 206 (221) 2 (2)
---------- --------- --- ---------- --------- --- --- ---
The sensitivity analysis aims to measure a range of fair values
consistent with the application of a 95% confidence interval.
Methodologies take account of the nature of the valuation technique
employed, as well as the availability and reliability of observable
proxy and historical data.
When the fair value of a financial instrument is affected by
more than one unobservable assumption, the above table reflects the
most favourable or the most unfavourable change from varying the
assumptions individually.
Key unobservable inputs to Level 3 financial instruments
Quantitative information about significant unobservable inputs in Level
3 valuations
Fair value 2018 2017
Key
Valuation unobservable Full range Core range Full range Core range
Assets Liabilities techniques inputs of inputs of inputs(1) of inputs of inputs(1)
GBPm GBPm Lower Higher Lower Higher Lower Higher Lower Higher
Private equity
including
strategic See page See page
investments 1,745 10 123 123 N/A N/A N/A N/A N/A N/A N/A N/A
Asset-backed
securities 1,477 -
Market
- CLO/CDO(2) 146 - proxy Bid quotes - 100 88 100 - 101 13 57
Market
- Other ABSs 1,331 - proxy Bid quotes - 100 68 99 - 103 35 99
Structured
notes 2 1,026
- equity-linked Model-Option Equity
notes - 929 model volatility 8% 79% 13% 43% 7% 57% 11% 24%
Model-Option Equity
- - model correlation 31% 88% 40% 77% 34% 91% 41% 60%
- fund-linked Model-Option Fund
notes - 65 model volatility 7% 21% 7% 21% 6% 15% 6% 15%
- FX-linked Model-Option FX
notes - 19 model volatility 8% 27% 8% 25% 4% 20% 5% 17%
- other 2 13
Derivatives 2,080 1,463
Interest rate
derivatives: 1,172 694
Model-Discounted
- securitisation cash Prepayment
swaps 183 548 flow rate 6% 7% 6% 7% 20% 90% 20% 90%
- long-dated Model-Option IR
swaptions 796 22 model volatility 13% 39% 18% 31% 8% 41% 16% 34%
- other 193 124
FX derivatives: 342 379
Model-Option FX
- FX options 342 379 model Volatility 3% 27% 6% 18% 1% 26% 6% 15%
Equity
derivatives: 545 343
- long-dated
single stock Model-Option Equity
options 121 157 model volatility 5% 83% 13% 46% 8% 49% 12% 36%
- other 424 186
Credit
derivatives: 21 47
- other 21 47
Other portfolios 3,199 -
Model-Discounted
- structured cash Credit
certificates 949 - flow volatility 2% 4% 2% 4% 2% 4% 2% 4%
- other 2,250 -
At 31 Dec 8,503 2,499
1 The core range of inputs is the estimated range within which 90% of the inputs fall.
2 Collateralised loan obligation/collateralised debt obligation.
Private equity including strategic investments
Given the bespoke nature of the analysis in respect of each
holding, it is not practical to quote a range of key unobservable
inputs.
Prepayment rates
Prepayment rates are a measure of the anticipated future speed
at which a loan portfolio will be repaid in advance of the due
date. They vary according to the nature of the loan portfolio and
expectations of future market conditions, and may be estimated
using a variety of evidence, such as prepayment rates implied from
proxy observable security prices, current or historical prepayment
rates and macroeconomic modelling.
Market proxy
Market proxy pricing may be used for an instrument when specific
market pricing is not available, but there is evidence from
instruments with common characteristics. In some cases, it might be
possible to identify a specific proxy, but more generally evidence
across a wider range of instruments will be used to understand the
factors that influence current market pricing and the manner of
that influence.
Volatility
Volatility is a measure of the anticipated future variability of
a market price. It varies by underlying reference market price, and
by strike and maturity of the option.
Certain volatilities, typically those of a longer-dated nature,
are unobservable and estimated from observable data. The range of
unobservable volatilities reflects the wide variation in volatility
inputs by reference market price. The core range is significantly
narrower than the full range because these examples with extreme
volatilities occur relatively rarely within the HSBC portfolio.
Correlation
Correlation is a measure of the inter-relationship between two
market prices, and is expressed as a number between minus one and
one. It is used to value more complex instruments where the payout
is dependent upon more than one market price. There is a wide range
of instruments for which correlation is an input, and consequently
a wide range of both same-asset correlations and cross-asset
correlations is used. In general, the range of same-asset
correlations will be narrower than the range of cross-asset
correlations.
Unobservable correlations may be estimated based upon a range of
evidence, including consensus pricing services, HSBC trade prices,
proxy correlations and examination of historical price
relationships. The range of unobservable correlations quoted in the
table reflects the wide variation in correlation inputs by market
price pair.
Credit spread
Credit spread is the premium over a benchmark interest rate
required by the market to accept lower credit quality. In a
discounted cash flow model, the credit spread increases the
discount factors applied to future cash flows, thereby reducing the
value of an asset. Credit spreads may be implied from market prices
and may not be observable in more illiquid markets.
Inter-relationships between key unobservable inputs
Key unobservable inputs to Level 3 financial instruments may not
be independent of each other. As described above, market variables
may be correlated. This correlation typically reflects the manner
in which different markets tend to react to macroeconomic or other
events. Furthermore, the effect of changing market variables on the
HSBC portfolio will depend on HSBC's net risk position in respect
of each variable.
12 Fair values of financial instruments not carried at fair value
--- ---------------------------------------------------------------
Fair values of financial instruments not carried at fair value and
bases of valuation
Fair value
Significant
Quoted market Observable unobservable
Carrying price inputs inputs Level
amount Level 1 Level 2 3 Total
The group GBPm GBPm GBPm GBPm GBPm
At 31 Dec 2018
Assets
Loans and advances to
banks 13,628 - 11,970 1,662 13,632
Loans and advances to
customers 111,964 - 3 112,662 112,665
Reverse repurchase agreements
- non-trading 80,102 - 80,102 - 80,102
Financial investments
- at amortised cost 13 - 8 5 13
Liabilities
Deposits by banks 24,532 - 24,514 - 24,514
Customer accounts 180,836 - 180,719 119 180,838
Repurchase agreements
- non-trading 46,583 - 46,582 - 46,582
Debt securities in issue 22,721 - 22,721 - 22,721
Subordinated liabilities 13,770 - 13,999 - 13,999
At 31 Dec 2017
Assets
Loans and advances to
banks 14,149 - 13,302 847 14,149
Loans and advances to
customers 280,402 - 1,245 280,518 281,763
Reverse repurchase agreements
- non-trading 45,808 - 45,808 - 45,808
Liabilities
Deposits by banks 29,349 - 29,328 - 29,328
Customer accounts 381,546 - 380,646 897 381,543
Repurchase agreements
- non-trading 37,775 - 37,775 - 37,775
Debt securities in issue 13,286 - 13,296 - 13,296
Subordinated liabilities 16,494 - 16,982 - 16,982
Fair values of financial instruments not carried at fair value and
bases of valuation (continued)
Fair value
Significant
Quoted market Observable unobservable
Carrying price inputs inputs Level
amount Level 1 Level 2 3 Total
The bank GBPm GBPm GBPm GBPm GBPm
At 31 Dec 2018
Assets
Loans and advances to
banks 12,686 - 11,556 1,130 12,686
Loans and advances to
customers 58,783 - 5 59,425 59,430
Reverse repurchase agreements
- non-trading 56,495 - 56,494 - 56,494
Financial investments
- at amortised cost - - - - -
Liabilities
Deposits by banks 18,148 - 18,147 - 18,147
Customer accounts 125,871 - 125,871 - 125,871
Repurchase agreements
- non-trading 35,693 - 35,693 - 35,693
Debt securities in issue 19,085 - 19,085 - 19,085
Subordinated liabilities 13,323 - 13,535 - 13,535
At 31 Dec 2017
Assets
Loans and advances to
banks 15,160 - 15,122 38 15,160
Loans and advances to
customers 220,450 - 1,125 220,420 221,545
Reverse repurchase agreements
- non-trading 36,627 - 36,627 - 36,627
Liabilities
Deposits by banks 24,626 - 24,626 - 24,626
Customer accounts 320,026 - 320,026 - 320,026
Repurchase agreements
- non-trading 35,220 - 35,220 - 35,220
Debt securities in issue 6,108 - 6,108 - 6,108
Subordinated liabilities 15,930 - 16,392 - 16,392
Other financial instruments not carried at fair value are
typically short-term in nature and reprice to current market rates
frequently. Accordingly, their carrying amount is a reasonable
approximation of fair value. They include cash and balances at
central banks and items in the course of collection from and
transmission to other banks, all of which are measured at amortised
cost.
Valuation
Fair value is an estimate of the price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. It
does not reflect the economic benefits and costs that HSBC expects
to flow from an instrument's cash flow over its expected future
life. Our valuation methodologies and assumptions in determining
fair values for which no observable market prices are available may
differ from those of other companies.
Loans and advances to banks and customers
To determine the fair value of loans and advances to banks and
customers, loans are segregated, as far as possible, into
portfolios of similar characteristics. Fair values are based on
observable market transactions, when available. When they are
unavailable, fair values are estimated using valuation models
incorporating a range of input assumptions. These assumptions may
include: value estimates from third-party brokers reflecting
over-the-counter trading activity; forward-looking discounted cash
flow models, taking account of expected customer prepayment rates,
using assumptions that HSBC believes are consistent with those that
would be used by market participants in valuing such loans; new
business rates estimates for similar loans; and trading inputs from
other market participants including observed primary and secondary
trades. From time to time, we may engage a third-party valuation
specialist to measure the fair value of a pool of loans.
The fair value of loans reflects expected credit losses at the
balance sheet date and estimates of market participants'
expectations of credit losses over the life of the loans, and the
fair value effect of repricing between origination and the balance
sheet date. For credit impaired loans, fair value is estimated by
discounting the future cash flows over the time period they are
expected to be recovered.
Financial investments
The fair values of listed financial investments are determined
using bid market prices. The fair values of unlisted financial
investments are determined using valuation techniques that
incorporate the prices and future earnings streams of equivalent
quoted securities.
Deposits by banks and customer accounts
The fair values of on-demand deposits are approximated by their
carrying value. For deposits with longer-term maturities, fair
values are estimated using discounted cash flows, applying current
rates offered for deposits of similar remaining maturities.
Debt securities in issue and subordinated liabilities
Fair values are determined using quoted market prices at the
balance sheet date where available, or by reference to quoted
market prices for similar instruments.
Repurchase and reverse repurchase agreements - non-trading
Fair values approximate carrying amounts as balances are
generally short dated.
13 Financial assets designated and otherwise mandatorily measured at
fair value through profit
or loss
2018 2017
Mandatorily Mandatorily
Designated measured Designated measured
at fair at fair at fair at fair
value value Total value value Total
GBPm GBPm GBPm GBPm GBPm GBPm
---------- ----------- ------ ---------- -------
Securities - 12,515 12,515 9,260 N/A 9,260
- debt securities - 2,992 2,992 1,034 N/A 1,034
- equity securities - 9,523 9,523 8,226 N/A 8,226
Loans and advances to banks
and customers - 5,141 5,141 6 N/A 6
Other - 143 143 - N/A -
At 31 Dec - 17,799 17,799 9,266 N/A 9,266
14 Derivatives
--- ------------
Notional contract amounts and fair values of derivatives by product
contract type
Notional contract
amount Fair value - Assets Fair value - Liabilities
Trading Hedging Trading Hedging Total Trading Hedging Total
The group GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Foreign exchange 4,341,381 4,227 50,881 109 50,990 (48,088) (155) (48,243)
Interest rate 13,252,292 38,617 107,028 497 107,525 (104,490) (812) (105,302)
-------
Equities 984,963 - 9,131 - 9,131 (9,181) - (9,181)
Credit 304,263 - 2,893 - 2,893 (3,190) - (3,190)
Commodity and
other 47,470 - 675 - 675 (708) - (708)
----------- -------
Offset (Note 28) (26,692) 26,692
----------- ------- -------- ------- ------- --------- ------- --------
At 31 Dec 2018 18,930,369 42,844 170,608 606 144,522 (165,657) (967) (139,932)
----------- ------- -------- ------- ------- -------- ------ --------
Foreign exchange 3,172,038 2,334 41,100 39 41,139 (38,709) (135) (38,844)
Interest rate 9,973,858 60,496 156,780 571 157,351 (152,079) (1,390) (153,469)
Equities 448,156 - 7,393 - 7,393 (9,795) - (9,795)
Credit 306,855 - 3,566 - 3,566 (4,087) - (4,087)
Commodity and
other 38,939 - 622 - 622 (611) - (611)
Offset (Note 28) (66,736) 66,736
----------- ------- -------- ------- ------- --------- ------- --------
At 31 Dec 2017 13,939,846 62,830 209,461 610 143,335 (205,281) (1,525) (140,070)
----------- ------- -------- ------- ------- -------- ------ --------
The notional contract amounts of derivatives held for trading
purposes and derivatives designated in hedge accounting
relationships indicate the nominal value of transactions
outstanding at the balance sheet date; they do not represent
amounts at risk.
Derivative assets and liabilities decreased during 2018, driven
by the adoption of Settled to Market accounting for cleared
derivatives, yield curve movements and changes in foreign exchange
rates.
Notional contract
amount Fair value - Assets Fair value - Liabilities
Trading Hedging Trading Hedging Total Trading Hedging Total
The bank GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Foreign exchange 4,338,438 4,215 50,638 109 50,747 (47,976) (155) (48,131)
Interest rate 11,462,267 25,685 90,831 494 91,325 (88,976) (670) (89,646)
-------
Equities 979,037 - 8,976 - 8,976 (9,031) - (9,031)
Credit 304,093 - 2,901 - 2,901 (3,185) - (3,185)
Commodity and
other 47,463 - 675 - 675 (709) - (709)
Offset (15,395) 15,395
----------- ------- -------- ------- ------- --------- ------- --------
At 31 Dec 2018 17,131,298 29,900 154,021 603 139,229 (149,877) (825) (135,307)
----------- ------- -------- ------- ------- -------- ------ --------
Foreign exchange 3,202,826 1,153 40,818 29 40,847 (38,603) (108) (38,711)
Interest rate 8,627,923 51,387 137,241 552 137,793 (133,750) (1,142) (134,892)
Equities 437,029 - 7,367 - 7,367 (9,690) - (9,690)
Credit 306,633 - 3,569 - 3,569 (4,088) - (4,088)
Commodity and
other 39,389 - 620 - 620 (614) - (614)
Offset (54,960) 54,960
----------- -------- ------- ------- --------- ------- --------
At 31 Dec 2017 12,613,800 52,540 189,615 581 135,236 (186,745) (1,250) (133,035)
----------- -------- ------- ------- -------- ------ --------
Use of derivatives
We undertake derivatives activity for three primary purposes: to
create risk management solutions for clients, to manage the
portfolio risks arising from client business, and to manage and
hedge our own risks.
Trading derivatives
Most of the group's derivative transactions relate to sales and
trading activities. Sales activities include the structuring and
marketing of derivative products to customers to enable them to
take, transfer, modify or reduce current or expected risks. Trading
activities include market-making and risk management. Market-making
entails quoting bid and offer prices to other market participants
for the purpose of generating revenues based on spread and volume.
Risk management activity is undertaken to manage the risk arising
from client transactions, with the principal purpose of retaining
client margin. Other derivatives classified as held for trading
include non-qualifying hedging derivatives.
Substantially all of the group's derivatives entered into with
subsidiaries are managed in conjunction with financial liabilities
designated at fair value.
Derivatives valued using models with unobservable inputs
The difference between the fair value at initial recognition
(the transaction price) and the value that would have been derived
had the valuation techniques used for subsequent measurement been
applied at initial recognition, less subsequent releases, is in the
following table:
Unamortised balance of derivatives valued using models with significant
unobservable inputs
The group The bank
2018 2017 2018 2017
GBPm GBPm GBPm GBPm
----- ----
Unamortised balance at 1 Jan 72 72 69 69
Deferral on new transactions 88 126 88 126
---- ---
Recognised in the income statement during
the year: (87) (123) (87) (123)
---
- amortisation (59) (60) (59) (60)
- maturity, termination or offsetting derivative (28) (63) (28) (63)
---- ---
Exchange differences and other (15) (3) (15) (3)
---- ---- --- ----
Unamortised balance at 31 Dec(1) 58 72 55 69
---- ---
1 This amount is yet to be recognised in the consolidated income statement.
Hedge accounting derivatives
The group applies hedge accounting to manage the following
risks: interest rate and foreign exchange. The Report of the
Directors-Risk presents more details on how these risks arise and
how they are managed by the group.
Fair value hedges
The group enters into fixed-for-floating-interest-rate swaps to
manage the exposure to changes in fair value due to movements in
market interest rates on certain fixed rate financial instruments
which are not measured at fair value through profit or loss,
including debt securities held and issued.
Hedging instrument by hedged risk
Hedging instrument
Carrying amount
Balance sheet Change in
The group Notional amount(1) Assets Liabilities presentation fair value(2)
Hedged risk GBPm GBPm GBPm GBPm
Interest rate(3) 29,142 433 (787) Derivatives 161
At 31 Dec 2018 29,142 433 (787) 161
1 The notional contract amounts of derivatives designated in
qualifying hedge accounting relationships indicate the nominal
value of transactions outstanding at the balance sheet date; they
do not represent amounts at risk.
2 Used in effectiveness testing; comprising the full fair value
change of the hedging instrument not excluding any component.
3 The hedged risk 'interest rate' includes inflation risk.
Hedged item by hedged risk
Hedged item Ineffectiveness
Accumulated
fair value
hedge adjustments
included in
Carrying amount carrying amount(2)
Change Recognised
in fair in profit
The group Assets Liabilities Assets Liabilities value(1) and loss
Profit and
Hedged Balance sheet loss
risk GBPm GBPm GBPm GBPm presentation GBPm GBPm presentation
------------
Net income
from
financial
Financial instruments
assets at held for
fair value trading
through other or managed
Interest comprehensive on a fair
rate(3) 16,242 55 income (132) (12) value basis
Loans and
advances to
997 (3) customers (3)
Debt
securities
570 97 in issue (16)
Deposits by
10,048 35 banks(4) (23)
At 31 Dec
2018 17,239 10,618 52 132 (174) (12)
----
1 Used in effectiveness assessment; comprising amount
attributable to the designated hedged risk that can be a risk
component.
2 The accumulated amounts of fair value adjustments remaining in
the statement of financial position for hedged items that have
ceased to be adjusted for hedging gains and losses were GBP(58)m
for 'Financial assets at fair value through other comprehensive
income' and GBP34m for 'Debt securities in issue'.
3 The hedged risk 'interest rate' includes inflation risk.
4 The notional amount of non-dynamic fair value hedges was
GBP9,953m, of which the weighted-average maturity is February 2023
and the weighted average swap rate is 0.45%. GBP6,276m of these
hedges are internal to HSBC Group and composed by internal funding
between HSBC Holdings and the group.
Hedging instrument by hedged risk
Hedging instrument
Carrying amount
Notional Balance sheet Change in
The bank amount(1) Assets Liabilities presentation fair value(2)
Hedged risk GBPm GBPm GBPm GBPm GBPm
Interest rate(3) 20,438 481 (656) Derivatives 94
At 31 Dec 2018 20,438 481 (656) 94
1 The notional contract amounts of derivatives designated in
qualifying hedge accounting relationships indicate the nominal
value of transactions outstanding at the balance sheet date; they
do not represent amounts at risk.
2 Used in effectiveness testing; comprising the full fair value
change of the hedging instrument not excluding any component.
3 The hedged risk 'interest rate' includes inflation risk.
Hedged item by hedged risk
Hedged item Ineffectiveness
Accumulated
fair value
hedge adjustments
included in
Carrying amount carrying amount(2)
Change Recognised
in fair in profit
The bank Assets Liabilities Assets Liabilities value(1) and loss
Profit and
Hedged Balance sheet loss
risk GBPm GBPm GBPm GBPm presentation GBPm GBPm presentation
------------
Net income
from
financial
Financial instruments
assets at held for
fair value trading
through other or managed
Interest comprehensive on a fair
rate(3) 12,490 55 income (77) (12) value basis
Loans and
advances to
73 (3) customers (2)
Debt
securities
570 97 in issue (16)
Deposits by
6,305 - banks(4) (11)
At 31 Dec
2018 12,563 6,875 52 97 (106) (12)
-----
1 Used in effectiveness assessment; comprising amount
attributable to the designated hedged risk that can be a risk
component.
2 The accumulated amounts of fair value adjustments remaining in
the statement of financial position for hedged items that have
ceased to be adjusted for hedging gains and losses were GBP(58)m
for 'Financial assets at fair value through other comprehensive
income' and GBP34m for 'Debt securities in issue'.
3 The hedged risk 'interest rate' includes inflation risk.
4 The notional amount of non-dynamic fair value hedges was
GBP6,276m, of which the weighted-average maturity is August 2024
and the weighted average swap rate is 0.87%. Those hedges are
internal to HSBC Group and composed by internal funding between
HSBC Holdings and the group.
Sources of hedge ineffectiveness may arise from basis risk
including, but not limited to the discount rates used for
calculating the fair value of derivatives, hedges using instruments
with a non-zero fair value and notional, and timing differences
between the hedged items and hedging instruments.
For some debt securities held, the group manages interest rate
risk in a dynamic risk management strategy. The assets in scope of
this strategy are high quality fixed-rate debt securities, which
may be sold to meet liquidity and funding requirements.
The interest rate risk of the group's fixed rate debt securities
issued is managed in a non-dynamic risk management strategy.
Cash flow hedges
The group's cash flow hedging instruments consist principally of
interest rate swaps and cross-currency swaps that are used to
manage the variability in future interest cash flows of non-trading
financial assets and liabilities, arising due to changes in market
interest rates and foreign-currency basis.
The group applies macro cash flow hedging for interest-rate risk
exposures on portfolios of replenishing current and forecasted
issuances of non-trading assets and liabilities that bear interest
at variable rates, including rolling such instruments. The amounts
and timing of future cash flows, representing both principal and
interest flows, are projected for each portfolio of financial
assets and liabilities on the basis of their contractual terms and
other relevant factors, including estimates of prepayments and
defaults. The aggregate cash flows representing both principal
balances and interest cash flows across all portfolios are used to
determine the effectiveness and ineffectiveness. Macro cash flow
hedges are considered to be dynamic hedges.
The group also hedges the variability in future cash-flows on
foreign-denominated financial assets and liabilities arising due to
changes in foreign exchange market rates with cross-currency swaps;
these are considered dynamic hedges.
Hedging instrument by hedged risk
Hedged
Hedging instrument item Ineffectiveness
Balance Profit
sheet and loss
Carrying amount presentation presentation
------------
Change Change Recognised
Notional in fair in fair in profit
amount(1) Assets Liabilities value(2) value(3) and loss
------------
Hedged
risk GBPm GBPm GBPm GBPm GBPm GBPm
--------- --------- ----------- ------------ --------- ------------
Net income
from
financial
instruments
held for
trading
or managed
on a fair
Foreign value
exchange 4,215 109 (155) Derivatives (121) (121) - basis
Interest
rate 9,475 64 (25) (44) (38) (6)
At 31 Dec
2018 13,690 173 (180) (165) (159) (6)
1 The notional contract amounts of derivatives designated in
qualifying hedge accounting relationships indicate the nominal
value of transactions outstanding at the balance sheet date; they
do not represent amounts at risk.
2 Used in effectiveness testing; comprising the full fair value
change of the hedging instrument not excluding any component.
3 Used in effectiveness assessment; comprising amount
attributable to the designated hedged risk that can be a risk
component.
Sources of hedge ineffectiveness may arise from basis risk
including, but not limited to timing differences between the hedged
items and hedging instruments, and hedges using instruments with a
non-zero fair value.
Reconciliation of equity and analysis of other comprehensive income
by risk type
Interest Foreign
rate exchange
GBPm GBPm
Cash flow hedging reserve at 1 Jan 2018 (42) 4
Fair value losses (38) (121)
Fair value losses reclassified from cash flow hedge
reserve to income statement in respect of:
- hedged items that have affected profit or loss 44 113
Income taxes (14) -
------- --------
Transfer to HSBC UK Bank plc and its subsidiaries 26 3
Cash flow hedging reserve at 31 Dec 2018 (24) (1)
15 Financial investments
Carrying amount of financial investments
The group The bank
2018 2017 2018 2017
GBPm GBPm GBPm GBPm
Financial investments measured
at fair value through other comprehensive
income 47,259 N/A 26,699 N/A
- treasury and other eligible bills 3,123 N/A 2,135 N/A
- debt securities 43,973 N/A 24,511 N/A
- equity securities 87 N/A 53 N/A
- other instruments(1) 76 N/A - N/A
------ ------ ------
Debt instruments measured at amortised
cost 13 N/A - N/A
------ ------ ------ --------
- treasury and other eligible bills 8 N/A - N/A
- debt securities 5 N/A - N/A
------ ------ ------
Available-for-sale securities at
fair value N/A 58,000 N/A 31,382
------ ------
- treasury and other eligible bills N/A 3,043 N/A 2,292
- debt securities N/A 54,295 N/A 28,683
- equity securities N/A 662 N/A 407
At 31 Dec(2) 47,272 58,000 26,699 31,382
------ ------
1 'Other instruments' are comprised of loans and advances.
2 Categories of financial instruments are disclosed under IFRS 9
at 31 December 2018. These are not directly comparable with 31
December 2017, where the instruments were categorised in accordance
with IAS 39.
For the group, GBP13m (2017: GBP7,241m), and for the bank,
GBPnil (2017: GBP4,819m), of the debt securities issued by banks
and other financial institutions are guaranteed by various
governments.
Equity instruments measured at fair value through other comprehensive
income
Instruments held
at year end
Dividends
Fair value recognised
Type of equity instruments GBPm GBPm
--------------- -------------
Business facilitation 75 1
Investments required by central institutions 9 7
--------------- -----------
Others 3 -
--------------- -----------
At 31 Dec 2018 87 8
--------------- -----------
Net gains/losses on equity instruments measured at fair value
through other comprehensive income during 2018 amounted to
GBP1m.
16 Assets pledged, collateral received and assets transferred
--- -----------------------------------------------------------
Assets pledged
Financial assets pledged as collateral
The group The bank
2018 2017 2018 2017
GBPm GBPm GBPm GBPm
------- ------- ------ --------
Treasury bills and other eligible securities 1,317 745 - -
Loans and advances to banks 29 7,084 - 4,914
Loans and advances to customers 22,148 32,528 - 9,863
Debt securities 37,250 48,247 26,555 30,322
Equity securities 18,644 24,562 18,561 24,473
Other(1) 21,810 226 18,530 39
Assets pledged at 31 Dec 101,198 113,392 63,646 69,611
--------------------------------------------- ------- ------- ------ ------
1 Settlement accounts, cash collateral and margin receivables
included within 'Loans and advances to banks' and 'Loans and
advances to customers' were reclassified from 'Trading assets' to
'Other assets' on 1 January 2018. Comparative data has not been
restated.
Financial assets pledged as collateral which the counterparty has the
right to sell or repledge
The group The bank
2018 2017 2018 2017
GBPm GBPm GBPm GBPm
Trading assets 43,505 41,593 36,945 32,036
--------- --------- --------- ---------
Financial investments 1,637 7,198 236 2,833
---------
At 31 Dec 45,142 48,791 37,181 34,869
--------- --------- --------- ---------
Assets pledged as collateral include all assets categorised as
encumbered in the disclosure on page 63.
The amount of assets pledged to secure liabilities may be
greater than the book value of assets utilised as collateral. For
example, in the case of securitisations and covered bonds, the
amount of liabilities issued, plus mandatory
over-collateralisation, is less than the book value of the pool of
assets available for use as collateral. This is also the case where
assets are placed with a custodian or a settlement agent that has a
floating charge over all the assets placed to secure any
liabilities under settlement accounts.
These transactions are conducted under terms that are usual and
customary to collateralised transactions including, where relevant,
standard securities lending and borrowing, repurchase agreements
and derivative margining. The group places both cash and non-cash
collateral in relation to derivative transactions.
Collateral received
The fair value of assets accepted as collateral, relating
primarily to standard securities lending, reverse repurchase
agreements and derivative margining, that the group is permitted to
sell or repledge in the absence of default was GBP250,277m (2017:
GBP173,386m) (the bank: 2018: GBP201,548m; 2017: GBP136,570m). The
fair value of any such collateral sold or repledged was GBP202,782m
(2017: GBP130,430m) (the bank: 2018: GBP152,454m; 2017:
GBP98,215m). The group is obliged to return equivalent securities.
These transactions are conducted under terms that are usual and
customary to standard securities lending, reverse repurchase
agreements and derivative margining.
Assets transferred
The assets pledged include transfers to third parties that do
not qualify for derecognition, notably secured borrowings such as
debt securities held by counterparties as collateral under
repurchase agreements and equity securities lent under securities
lending agreements, as well as swaps of equity and debt securities.
For secured borrowings, the transferred asset collateral continues
to be recognised in full and a related liability, reflecting the
group's obligation to repurchase the assets for a fixed price at a
future date is also recognised on the balance sheet. Where
securities are swapped, the transferred asset continues to be
recognised in full. There is no associated liability as the
non-cash collateral received is not recognised on the balance
sheet. The group is unable to use, sell or pledge the transferred
assets for the duration of these transactions, and remains exposed
to interest rate risk and credit risk on these pledged assets. The
counterparty's recourse is not limited to the transferred
assets.
Transferred financial assets not qualifying for full derecognition
and associated financial liabilities
Carrying amount
of: Fair value of:
Transferred Associated Transferred Associated Net
assets liabilities assets liabilities position
The group GBPm GBPm GBPm GBPm GBPm
----------- ------------ -------------- ------------ -----------
At 31 Dec 2018
Repurchase agreements 19,375 19,396 - - -
Securities lending agreements 25,765 2,865 - - -
----------- ------------ -------------- ------------ ---------
At 31 Dec 2017
----------- ------------ -------------- ------------ -----------
Repurchase agreements 24,323 23,004 - - -
Securities lending agreements 24,562 2,385 - - -
----------- ------------ -------------- ------------ ---------
Transferred financial assets not qualifying for full derecognition
and associated financial liabilities (continued)
Carrying amount
of: Fair value of:
Transferred Associated Transferred Associated Net
assets liabilities assets liabilities position
The bank GBPm GBPm GBPm GBPm GBPm
----------- ------------ -------------- ------------ -----------
At 31 Dec 2018
Repurchase agreements 8,976 8,976 - - -
Securities lending agreements 28,205 2,794 - - -
----------- ------------ -------------- ------------ ---------
At 31 Dec 2017
----------- ------------ -------------- ------------ -----------
Repurchase agreements 10,401 8,979 - - -
Securities lending agreements 24,473 2,338 - - -
----------- ------------ -------------- ------------ ---------
17 Interests in associates
--- ------------------------
Principal associates of the group and the bank
Business Growth Fund Group PLC ('BGF') is a principal associate
of the group. BGF is an independent company, established in 2011 to
provide investment to growing small and medium sized British
businesses. BGF is backed by five of the UK's main banking groups:
Barclays, HSBC, Lloyds, RBS and Standard Chartered. At 31 December
2018, the group had a 24.5% interest in the equity capital of
BGF.
Interests in joint ventures
On the 1 July 2018, the group transferred its shareholding in
Vaultex through the court approved ring-fencing transfer scheme as
provided for in Part VII of the FSMA to HSBC UK.
A list of all associates is set out on page 164.
18 Investments in subsidiaries
--- ----------------------------
Principal subsidiary undertakings of HSBC Bank plc
At 31 Dec 2018
Country of HSBC Bank plc's
incorporation interest in
or registration equity capital Share class
%
England and
HSBC Investment Bank Holdings Limited Wales 100.00 Ordinary GBP1
--------------------------------------
England and
HSBC Asset Finance (UK) Limited Wales 100.00 Ordinary GBP1
England and
HSBC Life (UK) Limited Wales 100.00 Ordinary GBP1
HSBC France France 99.99 EUR5 Actions
HSBC Trinkaus & Burkhardt AG Germany 80.67 Stückaktien
HSBC Bank Malta p.l.c Malta 70.03 Ordinary EUR0.30
--------------------------------------
All the above prepare their financial statements up to 31
December.
Transfer of the ring-fenced bank entities
On 1 July 2018, the bank transferred its shareholding in a
number of entities, most notably HSBC Equipment Finance (UK)
Limited, HSBC Invoice Finance (UK) Limited, HSBC Private Bank (UK)
Limited, HSBC Trust Company (UK) Limited and Marks and Spencer
Financial Services plc. These transfers were made through the court
approved ring-fencing transfer scheme as provided for in Part VII
of the Financial Services and Markets Act 2000 ('FSMA'). The group
transferred GBP211.9bn of total assets, including goodwill and
GBP212.0bn of total liabilities, resulting in a GBP9.9bn reduction
in the group's equity. The bank transferred GBP212.0bn of total
assets and GBP204.6bn of total liabilities, resulting in a GBP7.4bn
reduction in the bank's equity. From that date the results of these
entities are excluded from the group's results. For further
information refer to Note 35 'Discontinued operations'.
Details of all group subsidiaries, as required under Section 409
of the Companies Act 2006, are set out in Note 37. The principal
countries of operation are the same as the countries of
incorporation.
Impairment testing of investments in subsidiaries
At each reporting period end, HSBC Bank plc reviews investments
in subsidiaries for indicators of impairment. An impairment is
recognised when the carrying amount exceeds the recoverable amount
for that investment.
The recoverable amount is the higher of the investment's fair
value less costs of disposal and its value in use. The value in use
is calculated by discounting management's cash flow projections for
the investment.
-- The cash flow projections for each investment are based on
the latest approved plans and a long-term growth rate is used to
extrapolate the cash flows in perpetuity.
-- The growth rate reflects GDP and inflation for the country
within which the investment operates and is based on the long-term
average growth rates.
-- The rate used to discount the cash flows is based on the cost
of capital assigned to each investment, which is derived using a
capital asset pricing model ('CAPM'). CAPM depends on a number of
inputs reflecting financial and economic variables, including the
risk-free rate and a premium to reflect the inherent risk of the
business being evaluated. These variables are based on the market's
assessment of the economic variables and management's judgement.
The discount rates for each investment are refined to reflect the
rates of inflation for the countries within which the investment
operates. In addition, for the purposes of testing investments for
impairment, management supplements this process by comparing the
discount rates derived using the internally generated CAPM, with
cost of capital rates produced by external sources for businesses
operating in similar markets.
No impairment was recognised in 2018. An impairment of GBP29m
was recognised as a result of the impairment test performed in
2017, this related to an investment in HSBC Polska.
19 Structured entities
--- --------------------
The group is mainly involved with both consolidated and
unconsolidated structured entities through the securitisation of
financial assets, conduits and investment funds, established either
by the group or a third party.
Consolidated structured entities
Total assets of the group's consolidated structured entities, split
by entity type
Group managed
Conduits Securitisations funds Other Total
GBPm GBPm GBPm GBPm GBPm
At 31 Dec 2018 7,218 232 3,378 2,912 13,740
At 31 Dec 2017 9,551 330 3,210 3,500 16,591
Conduits
The group has established and manages two types of conduits:
securities investment conduits ('SICs') and multi-seller
conduits.
Securities investment conduits
The SICs purchase highly rated ABSs to facilitate tailored
investment opportunities.
-- At 31 December 2018, Solitaire, the group's principal SIC
held GBP1.8bn of ABSs (2017: GBP2.4bn). These are included within
the disclosures of ABSs on page 55. It is currently funded entirely
by commercial paper ('CP') issued to the group. Although the group
continues to provide a liquidity facility, Solitaire has no need to
draw on it as long as the group purchases its issued CP, which the
group intends to do for the foreseeable future. At 31 December
2018, the group held GBP2.7bn of CP (2017: GBP3.4bn).
-- Mazarin's clean up redemption conditions were triggered in
September 2018. The group's primary exposure to Mazarin is
represented by the amortised cost of the debt required to support
the non-cash assets of the vehicle. At 31 December 2018, this
amounted to GBP0.3bn (2017: GBP0.7bn). First loss protection is
provided through the capital notes issued by this vehicle, which
are held substantially by third parties.
-- Barion and Malachite's clean up redemption conditions were
triggered in March and August 2018 respectively, resulting in the
full redemption of these vehicles.
Multi-seller conduit
The group's multi-seller conduit was established to provide
access to flexible market-based sources of finance for its clients.
Currently, the group bears risk equal to transaction-specific
facility offered to the multi-seller conduit, amounting to GBP9.7bn
at 31 December 2018 (2017: GBP9.4bn). First loss protection is
provided by the originator of the assets, and not by the group,
through transaction-specific credit enhancements. A layer of
secondary loss protection is provided by the group in the form of
programme-wide enhancement facilities.
Securitisations
The group uses structured entities to securitise customer loans
and advances it originates in order to diversify its sources of
funding for asset origination and capital efficiency purposes. The
loans and advances are transferred by the group to the structured
entities for cash or synthetically through credit default swaps,
and the structured entities issue debt securities to investors.
Group managed funds
The group has established a number of money market and non-money
market funds. Where it is deemed to be acting as principal rather
than agent in its role as investment manager, the group controls
these funds.
Other
The group has entered into a number of transactions in the
normal course of business, which include asset and structured
finance transactions where it has control of the structured entity.
In addition, the group is deemed to control a number of third-party
managed funds through its involvement as a principal in the
funds.
Unconsolidated structured entities
The term 'unconsolidated structured entities' refers to all
structured entities not controlled by the group. The group enters
into transactions with unconsolidated structured entities in the
normal course of business to facilitate customer transactions and
for specific investment opportunities.
Nature and risks associated with the group's interests in unconsolidated
structured entities
Group Non-group
managed managed
Securitisations funds funds Other Total
Total asset values of the entities
(GBPm)
0 - 400 6 81 884 37 1,008
400 - 1,500 3 6 505 3 517
1,500 - 4,000 - - 229 - 229
4,000 - 20,000 - - 74 1 75
20,000+ - - 5 - 5
Number of entities at 31 Dec
2018 9 87 1,697 41 1,834
GBPm GBPm GBPm GBPm GBPm
Total assets in relation to the
group's interests in the unconsolidated
structured entities 1,160 2,038 4,788 1,788 9,774
- trading assets - 1 281 1,051 1,333
* financial assets designated and otherwise mandatorily
measured at fair value - 2,032 3,944 - 5,976
- loans and advances to customers 1,160 - 211 536 1,907
- financial investments - 5 352 201 558
Total liabilities in relation
to the group's interests in the
unconsolidated structured entities - 8 - - 8
Other off-balance sheet commitments 608 5 1,666 - 2,279
The group's maximum exposure
at 31 Dec 2018 1,768 2,035 6,454 1,788 12,045
Total asset values of the entities
(GBPm)
0 - 400 11 82 1,327 190 1,610
400 - 1,500 1 6 512 3 522
1,500 - 4,000 - - 229 - 229
4,000 - 20,000 - - 80 2 82
20,000+ - - 4 - 4
Number of entities at 31 Dec
2017 12 88 2,152 195 2,447
GBPm GBPm GBPm GBPm GBPm
Total assets in relation to the
group's interests in the unconsolidated
structured entities 1,016 1,286 4,286 2,033 8,621
- trading assets - - 126 1,895 2,021
* financial assets designated at fair value - 1,277 3,843 - 5,120
* loans and advances to customers 1,016 - - 23 1,039
* financial investments - 9 317 115 441
Total liabilities in relation
to group's interests in the unconsolidated
structured entities - 6 2 - 8
Other off-balance sheet commitments - - 33 - 33
The group's maximum exposure
at 31 Dec 2017 1,016 1,280 4,317 2,033 8,646
The maximum exposure to loss from the group's interests in
unconsolidated structured entities represents the maximum loss it
could incur as a result of its involvement with these entities
regardless of the probability of the loss being incurred.
-- For commitments, guarantees and written credit default swaps,
the maximum exposure to loss is the notional amount of potential
future losses.
-- For retained and purchased investments in and loans to
unconsolidated structured entities, the maximum exposure to loss is
the carrying value of these interests at the balance sheet
reporting date.
The maximum exposure to loss is stated gross of the effects of
hedging and collateral arrangements entered into to mitigate the
group's exposure to loss.
Securitisations
The group has interests in unconsolidated securitisation
vehicles through holding notes issued by these entities. In
addition, the group has investments in ABSs issued by third-party
structured entities, as set out on page 55.
Group managed funds
The group establishes and manages money market funds and
non-money market investment funds to provide customers with
investment opportunities. The group, as fund manager, may be
entitled to receive management and performance fees based on the
assets under management. The group may also retain units in these
funds.
Non-group managed funds
The group purchases and holds units of third-party managed funds
in order to facilitate business and meet customer needs.
Other
The group has established structured entities in the normal
course of business, such as structured credit transactions for
customers, to provide finance to public and private sector
infrastructure projects, and for asset and structured finance
transactions.
In addition to the interests disclosed above, the group enters
into derivative contracts, reverse repos and stock borrowing
transactions with structured entities. These interests arise in the
normal course of business for the facilitation of third-party
transactions and risk management solutions.
Group sponsored structured entities
The amount of assets transferred to and income received from
such sponsored entities during 2018 and 2017 was not
significant.
20 Goodwill and intangible assets
--- -------------------------------
The group The bank
2018 2017 2018 2017
GBPm GBPm GBPm GBPm
----- ----- ---- -------
Goodwill(1,2) 1,323 4,559 84 369
Present value of in-force long-term
insurance business 651 572 - -
Other intangible assets(2,3) 652 805 416 679
At 31 Dec 2,626 5,936 500 1,048
----- ----- ---- -----
1 Impacted by the transfers to HSBC UK Bank plc under the
ring-fence implementation. For further information, see Note 35
'Discontinued operations'.
2 For 2018, the amortisation and impairment of intangible assets
totalled GBP171m for the group (GBPnil for goodwill and GBP171m for
other intangibles).
3 Included within the group's other intangible assets is
internally generated software with a net carrying value of GBP572m
(2017: GBP736m).
Movement analysis of goodwill
The group The bank
2018 2017 2018 2017
GBPm GBPm GBPm GBPm
------- ------ ----- ------
At 1 Jan 4,559 4,487 369 356
Transfer to HSBC UK Bank plc and its
subsidiaries (3,285) - (223) -
Exchange differences 45 149 - (6)
Other 4 (77) (62) 19
------ ----- ---- ---
At 31 Dec 1,323 4,559 84 369
------ ----- ---- ---
Impairment testing
The group's impairment test in respect of goodwill allocated to
each cash-generating unit ('CGU') is performed at 1 July each year,
with a review for indicators of impairment at 30 June and 31
December. At 31 December 2018, we reviewed the inputs used in our
most recent impairment test in the light of current economic and
market conditions. This review did not identify any indicators of
impairment.
As a result, no impairment tests have been performed at 31
December 2018. The annual test performed at 1 July remains the
latest impairment test and the disclosures given are at 1 July.
The testing at 1 July took into account the transfer of the
ring-fenced bank activities to HSBC UK Bank plc. The carrying
values of the CGUs at 1 July were established using risk-weighted
assets ('RWAs') attributed to each of the group's CGU at 1 July,
and compared to their recoverable amounts. The same RWAs were used
to calculate the goodwill transferred to the ring-fenced bank at 1
July. The testing resulted in no impairment of goodwill, but did
highlight that the Commercial Banking CGU had become sensitive.
Basis of the recoverable amount
The recoverable amount of all CGUs to which goodwill has been
allocated was equal to its value in use ('VIU') at each respective
testing date for 2017 and 2018.
For each CGU, the VIU is calculated by discounting management's
cash flow projections for the CGU.
Key assumptions in VIU calculation
Annual impairment test Annual impairment test
2018 2017
Nominal Nominal
growth growth
Goodwill rate beyond Goodwill rate beyond
at initial at initial
1 Jul Discount cash flow 1 Jul Discount cash flow
2018 rate projections 2017 rate projections
Cash-generating unit GBPm % % GBPm % %
------------- -------- ------------ -------- -------- ------------
RBWM 386 8.3 3.5 2,062 8.9 3.7
------------- --------
CMB 569 9.3 3.5 1,798 9.9 3.7
------------- -------- ------------ -------- -------- ------------
GPB 308 9.4 3.5 665 9.7 3.6
-------- ------------ -------- ------------
Total 1,263 4,525
------------- -------- ------------ -------- -------- ------------
Management's judgement in estimating the cash flows of a CGU:
the cash flow projections for each CGU are based on the latest
plans presented to the Board. For the goodwill impairment test
conducted at 1 July 2018, management's cash flow for the group post
ring-fencing projections until the end of 2022 were used.
Nominal long-term growth rate: the long-term growth rate is used
to extrapolate the cash flows in perpetuity. The growth rate
reflects GDP and inflation for the countries within which the CGU
operates or derives revenue from. The rates are based on 20-year
forecast growth rates, as they represent an objective estimate of
likely future trends.
Discount rate: the rate used to discount the cash flows is based
on the cost of capital assigned to each CGU, which is derived using
a capital asset pricing model ('CAPM'). CAPM depends on a number of
inputs reflecting financial and economic variables, including the
risk-free rate and a premium to reflect the inherent risk of the
business being evaluated. These variables are based on the market's
assessment of the economic variables and management's judgement.
The discount rates for each CGU are refined to reflect the rates of
inflation for the countries within which the CGU operates. In
addition, for the purposes of testing goodwill for impairment,
management supplements this process by comparing the discount rates
derived using the internally generated CAPM, with cost of capital
rates produced by external sources for businesses operating in
similar markets. In all periods, internal rates were adjusted to
reflect the uncertainty of the cash flows used in the test.
Sensitivities of key assumptions in calculating VIU
At 1 July 2018, the Commercial Banking CGU was sensitive to
reasonably possible changes in the key assumptions supporting the
recoverable amount.
In making an estimate of reasonably possible changes to
assumptions, management considers the available evidence in respect
of each input to the model. These include the external range of
observable discount rates, historical performance against forecast,
and risks attaching to the key assumptions underlying cash flow
projections.
The following table presents a summary of the key assumptions
underlying the most sensitive inputs to the model for Commercial
Banking, the key risks attaching to each, and details of a
reasonably possible change to assumptions where, in the opinion of
management, these could result in an impairment.
Reasonably possible changes in key assumptions
Reasonably possible
Input Key assumptions Associated risks change
Cash-generating unit
Commercial Cash flow
Banking projections * Level of interest rates and yield curves. * Uncertain regulatory environment. * Cash flow projections decrease by 10%.
* Competitors' positions within the market. * Customer remediation and regulatory actions.
* Level and change in unemployment rates.
Discount
rate * Discount rate used is a reasonable estimate of a * External evidence arises to suggest that the rate * Discount rate increases by 100 basis points.
suitable market rate for the profile of the business. used is not appropriate to the business.
Long-term
growth * Business growth will reflect GDP growth rates in the * Growth does not match GDP or there is a fall in GDP * Real GDP growth does not occur or is not reflected in
rates long term. forecasts. performance.
Sensitivity of VIU to reasonably possible changes in key assumptions
and changes to current assumptions to achieve nil headroom
Increase/(decrease)
Cash-generating Carrying Value in Discount Long-term
unit amount use rate Cash flows growth rate
--------- --------- -------- ---------- --------------
At 1 July 2018 GBPm GBPm bps % bps
--------- --------- -------- ---------- --------------
Commercial Banking 5,413 6,093 73 (11.2) (88)
Whilst there are no indicators of impairment at 31 December
2018, CMB's recoverable amount exceeds the carrying amount by only
GBP680m and sensitivity is high. The reasonably possible changes in
assumption detailed above would result in an impairment. Thus there
is a risk of impairment in the future should business performance
or economic factors diverge from forecasts.
Present value of in-force long-term insurance business
When calculating the present value of in-force ('PVIF')
insurance business, expected cash flows are projected after
adjusting for a variety of assumptions made by each insurance
operation to reflect local market conditions and management's
judgement of future trends, and uncertainty in the underlying
assumptions is reflected by applying margins (as opposed to a cost
of capital methodology). Variations in actual experience and
changes to assumptions can contribute to volatility in the results
of the insurance business.
Actuarial Control Committees of each key insurance entity meet
on a quarterly basis to review and approve PVIF assumptions. All
changes to non-economic assumptions, economic assumptions that are
not observable and model methodology must be approved by the
Actuarial Control Committee.
Movements in PVIF
2018 2017
GBPm GBPm
PVIF at 1 Jan 572 577
Change in PVIF of long-term insurance business 74 (23)
- value of new business written during the year 32 29
- expected return(1) (65) (65)
- assumption changes and experience variances(2) (see
below) 113 33
- other adjustments (6) (20)
---
Exchange differences 5 18
---
PVIF at 31 Dec 651 572
---
1 'Expected return' represents the unwinding of the discount
rate and reversal of expected cash flows for the period.
2 Represents the effect of changes in assumptions on expected
future profits and the difference between assumptions used in the
previous PVIF calculation and actual experience observed during the
year to the extent that this affects future profits. The gain of
GBP113m (2017: GBP33m) was driven by modelling methodology updates
in France and changes to product management in France and the
UK.
Key assumptions used in the computation of PVIF for main life
insurance operations
Economic assumptions are set in a way that is consistent with
observable market values. The valuation of PVIF is sensitive to
observed market movements and the impact of such changes is
included in the sensitivities presented below.
2018 2017
UK France(1) UK France(1)
% % % %
Weighted average risk-free rate 1.19 1.52 1.15 1.50
Weighted average risk discount rate 1.69 2.35 1.65 2.20
Expense inflation 3.49 1.70 4.55 1.48
---- ---------
1 For 2018, the calculation of France's PVIF assumes a risk
discount rate of 2.35% (2017: 2.20%) plus a risk margin of GBP85m
(2017: GBP59m).
Sensitivity to changes in economic assumptions
The group sets the risk discount rate applied to the PVIF
calculation by starting from a risk-free rate curve and adding
explicit allowances for risks not reflected in the best estimate
cash flow modelling. Where the insurance operations provide options
and guarantees to policyholders the cost of these options and
guarantees is an explicit reduction to PVIF, unless it is already
allowed for as an explicit addition to the technical provisions
required by regulators. See page 67 for further details of these
guarantees and the impact of changes in economic assumptions on our
insurance manufacturing subsidiaries.
Sensitivity to changes in non-economic assumptions
Policyholder liabilities and PVIF are determined by reference to
non-economic assumptions including mortality and/or morbidity,
lapse rates and expense rates. See page 68 for further details on
the impact of changes in non-economic assumptions on our insurance
manufacturing operations.
21 Prepayments, accrued income and other assets
--- ---------------------------------------------
The group The bank
2018 2017 2018 2017
GBPm GBPm GBPm GBPm
------ ------ --------
Prepayments and accrued income 1,683 2,047 863 1,131
------
Settlement accounts(1) 7,047 N/A 5,638 N/A
------ ------ ------ --------
Cash collateral and margin receivables(1) 21,823 N/A 18,502 N/A
------ ------ ------ --------
Assets held for sale 37 461 1 6
------ ------
Bullion 2,995 2,608 2,994 2,606
Endorsements and acceptances 115 210 81 171
Reinsurers' share of liabilities under
insurance contracts (Note 4) 179 336 - -
------ ------
Employee benefit assets (Note 6) 24 6,066 24 6,066
------ ------
Other accounts 2,475 2,276 2,263 1,945
Property, plant and equipment 1,119 2,022 122 933
At 31 Dec 37,497 16,026 30,488 12,858
1 Settlement accounts, cash collateral and margin receivables
included in 'Trading assets' (the group: GBP26,447m; the bank:
GBP22,772m), 'Loans and advances to banks' (the group: GBP573m; the
bank: GBP424m) and 'Loans and advances to customers' (the group:
GBP394m; the bank: GBP265m) at 31 December 2017 were reclassified
to 'Settlements accounts' and 'Cash collateral and margin
receivables' at 1 January 2018 in accordance with IFRS 9.
Comparative data was not restated. This reclassification was in
accordance with IFRS 9. Refer to Note 34 'Effects of
reclassifications upon adoption of IFRS 9' for further details. In
addition, intragroup trade receivables have been reclassified from
'Loans and advances to banks' and 'Loans and advances to customers'
to 'Cash collateral and margin receivables'.
Prepayments, accrued income and other assets include GBP32,826m
(2017: GBP4,738m) of financial assets, the majority of which are
measured at amortised cost.
Assets held for sale
The group The bank
2018 2017 2018 2017
GBPm GBPm GBPm GBPm
------ ---- ------- ------
Property, plant and equipment 36 15 - 6
Assets of disposal groups held for sale 1 446 1 -
Assets classified as held for sale at 31
Dec 37 461 1 6
------ -------
22 Trading liabilities
---
The group The bank
2018 2017 2018 2017
GBPm GBPm GBPm GBPm
------ ------- ------ --------
Deposits by banks(1, 2) 3,942 33,092 3,853 30,811
------ ------
Customer accounts(1, 2) 6,627 20,594 6,385 18,826
------
Other debt securities in issue(3) 1,095 19,374 50 15,155
------
Other liabilities - net short positions
in securities 37,850 33,436 17,013 12,511
------
At 31 Dec(4) 49,514 106,496 27,301 77,303
------
1 'Deposits by banks' and 'Customer accounts' include repos, stock lending and other amounts.
2 Settlement accounts, cash collateral and margin payables
included within 'Deposits by banks' and 'Customer accounts' (the
group: GBP30,755m; the bank: GBP26,999m) were reclassified from
'Trading liabilities' to 'Accruals, deferred income and other
liabilities' on 1 January 2018. This reclassification is to better
reflect the nature of these balances and ensure consistency of
presentation. Comparative data was not restated as the
reclassification is not significant in the context of other changes
to the balance sheet resulting from the adoption of IFRS 9. Refer
to Note 34 'Effects of reclassifications upon adoption of IFRS 9'
for further details.
3 'Other debt securities in issue' comprises structured notes
issued by the group for which market risks are actively managed as
part of trading portfolios.
4 We have considered market practices for the presentation of
certain financial liabilities which contain both deposit and
derivative components and were previously included in 'Trading
liabilities'. Such liabilities amounted to GBP17,958m (the group)
and GBP15,161m (the bank) at 31 December 2017. These liabilities
are classified as 'Financial liabilities designated at fair value'
from 1 January 2018. Comparative information has not been restated.
Refer to Note 34 'Effects of reclassifications upon adoption of
IFRS 9' for further details.
23 Financial liabilities designated at fair value
--- -----------------------------------------------
The group The bank
2018 2017 2018 2017
GBPm GBPm GBPm GBPm
Deposits by banks and customer accounts 169 108 93 -
Liabilities to customers under investment
contracts 611 547 - -
Debt securities in issue(1) 33,643 13,343 20,339 6,755
Subordinated liabilities (Note 26) 2,177 3,912 2,499 4,251
Preferred securities (Note 26) 322 339 - -
At 31 Dec 36,922 18,249 22,931 11,006
------ ------
1 We have considered market practices for the presentation of
certain financial liabilities which contain both deposit and
derivative components and were previously included in 'Trading
liabilities'. Such liabilities amounted to GBP17,958m (the group)
and GBP15,161m (the bank) at 31 December 2017. These liabilities
are classified as 'Debt securities in issue' from 1 January 2018.
Comparative information has not been restated. Refer to Note 34
'Effects of reclassifications upon adoption of IFRS 9' for further
details.
The group
The carrying amount of financial liabilities designated at fair
value was GBP9,438m less than the contractual amount at
maturity
(2017: GBP1,095m more). The cumulative amount of change in fair
value attributable to changes in credit risk was GBP(201)m (2017:
loss of GBP312m).
The bank
The carrying amount of financial liabilities designated at fair
value was GBP9,636m less than the contractual amount at maturity
(2017: GBP826m higher). The cumulative amount of change in fair
value attributable to changes in credit risk was GBP(113)m (2017:
loss of GBP204m).
24 Accruals, deferred income and other liabilities
--- ------------------------------------------------
The group The bank
2018 2017 2018 2017
GBPm GBPm GBPm GBPm
----- ------ -------
Accruals and deferred income 2,333 2,342 1,336 1,371
------
Settlement accounts(1) 5,814 N/A 5,443 N/A
------ ----- ------ -------
Cash collateral and margin payables(1) 29,747 N/A 26,642 N/A
------ ----- ------ -------
Endorsements and acceptances 115 208 82 171
------ ------
Employee benefit liabilities (Note 6) 332 338 95 123
------ ------
Liabilities of disposal groups held for
sale - 454 - -
------ ------
Amount due to investors in funds consolidated
by the group 598 636 - -
------ ------
Share-based payment liability to HSBC
Holdings 155 146 128 128
------ ------
Other liabilities 1,942 2,491 1,424 1,574
------
At 31 Dec 41,036 6,615 35,150 3,367
------
1 Settlement accounts, cash collateral and margin payables
included in 'Trading liabilities' (the group: GBP30,755m; the bank:
GBP26,999m), 'Deposits by banks' (the group: GBP570m; the bank:
GBP516m) and 'Customer accounts' (the group: GBP548m; the bank:
GBP344m) were reclassified to 'Settlement accounts' and 'Cash
collateral and margin payables' on 1 January 2018. This
reclassification is to better reflect the nature of these balances
and ensure consistency of presentation. Comparative data was not
restated as the reclassification is not significant in the context
of other changes to the balance sheet resulting from the adoption
of IFRS 9. Refer to Note 34 'Effects of reclassifications upon
adoption of IFRS 9' for further details. In addition, intragroup
trade payables have been reclassified from 'Deposits from banks'
and 'Customer accounts' to 'Cash collateral and margin
payables'.
For the group, accruals, deferred income and other liabilities
include GBP40,327m (2017: GBP5,728m), and for the bank
GBP34,740m(2017: GBP2,861m) of financial liabilities, the majority
of which are measured at amortised cost.
25 Provisions
--- -----------
Legal proceedings
Restructuring and regulatory Customer
costs matters remediation Other provisions(2) Total
The group GBPm GBPm GBPm GBPm GBPm
------------------- -------------- --------------------- --------
Provisions (excluding
contractual
commitments)
At 31 Dec 2017 94 406 1,065 176 1,741
---------- --- -------------- --- ---------- --------------- ---- -----
Additions 2 65 91 86 244
Amounts utilised (34) (138) (337) (66) (575)
Unused amounts reversed (29) (107) (47) (73) (256)
Unwinding of discounts - - - 4 4
Transfer to HSBC UK Bank plc
and its subsidiaries (2) (2) (742) (5) (751)
---------- -------------- ---------- --------------- --- -----
Exchange and other movements - 7 5 (1) 11
---------- --- -------------- --- ---------- --------------- --- -----
At 31 Dec 2018 31 231 35 121 418
---------- --- -------------- --- ---------- --------------- ---- -----
Contractual commitments(1)
--------------- ------------------- -------------- --------------------- --------
At 31 Dec 2017 55
--------------- ------------------- -------------- --------------------- -----
Impact on transition to IFRS
9 104
--------------- ------------------- -------------- --------------------- -----
Transfer to HSBC UK Bank plc (72)
--------------- ------------------- -------------- --------------------- -----
Net change in expected credit
loss provision and other
movements 33
--------------- ------------------- -------------- --------------------- -----
At 31 Dec 2018 120
--------------- ------------------- -------------- --------------------- -----
Total Provisions
--------------- ------------------- -------------- ---------------------
At 31 Dec 2017 1,796
--------------- ------------------- -------------- --------------------- -----
At 31 Dec 2018 538
-----
Legal proceedings
Restructuring and regulatory Customer Contractual
costs matters remediation commitments(1) Other provisions(2) Total
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- --------
At 1 Jan 2017 253 1,095 897 53 133 2,431
Additions 45 116 625 34 127 947
Amounts
utilised (127) (85) (412) (1) (37) (662)
Unused amounts
reversed (54) (653) (39) (26) (50) (822)
Exchange and
other
movements (23) (67) (6) (5) 3 (98)
At 31 Dec 2017 94 406 1,065 55 176 1,796
----------- -------------- ---------- --- -------------- ---- -----
1 The contractual commitments provision at 31 December 2017
represented IAS 37 provisions on off-balance sheet loan commitments
and guarantees, for which expected credit losses are provided
following transition to IFRS 9 on 1 January 2018. It further
includes provisions in respect of insurance contracts.
2 Other provisions includes GBP48m (2017: GBP106m) of vacant
space provisions of which there were unwinding of discounts of
GBP3m (2017: GBP5m).
Legal proceedings
Restructuring and regulatory Customer
costs matters remediation Other provisions(2) Total
The bank GBPm GBPm GBPm GBPm GBPm
--------------- ------------------- -------------- --------------------- --------
Provisions (excluding
contractual
commitments)
At 31 Dec 2017 37 355 850 119 1,361
---------- --- -------------- --- ---------- --------------- ---- -----
Additions - 60 57 39 156
Amounts utilised (9) (115) (226) (36) (386)
Unused amounts reversed (27) (92) (46) (49) (214)
Unwinding of discounts 1 - - 3 4
Transfer to HSBC UK Bank plc (2) - (615) (5) (622)
---------- -------------- --- ---------- --------------- --- -----
Exchange and other movements - 6 4 (1) 9
---------- --- -------------- --- ---------- --------------- --- -----
At 31 Dec 2018 - 214 24 70 308
---------- --- -------------- --- ---------- --------------- ---- -----
Contractual commitments(1)
--------------- ------------------- -------------- --------------------- --------
At 31 Dec 2017 33
--------------- ------------------- -------------- --------------------- -----
Impact on transition to IFRS
9 97
--------------- ------------------- -------------- --------------------- -----
Transfer to HSBC UK Bank plc (71)
--------------- ------------------- -------------- --------------------- -----
Net change in expected credit
loss provision and other
movements 33
--------------- ------------------- -------------- --------------------- -----
At 31 Dec 2018 92
--------------- ------------------- -------------- --------------------- -----
Total Provisions
--------------- ------------------- -------------- ---------------------
At 31 Dec 2017 1,394
--------------- ------------------- -------------- --------------------- -----
At 31 Dec 2018 400
-----
Legal proceedings
Restructuring and regulatory Customer Contractual
costs matters remediation commitments(1) Other provisions(2) Total
GBPm GBPm GBPm GBPm GBPm GBPm
At 1 Jan 2017 154 980 650 29 72 1,885
Additions 36 99 556 27 83 801
Amounts
utilised (107) (15) (315) (1) (11) (449)
Unused amounts
reversed (46) (649) (34) (21) (35) (785)
Exchange and
other
movements - (60) (7) (1) 10 (58)
At 31 Dec 2017 37 355 850 33 119 1,394
----------- -------------- --- ---------- ------------ --- ------------- ---- -----
1 The contractual commitments provision at 31 December 2017
represented IAS 37 provisions on off-balance sheet loan commitments
and guarantees, for which expected credit losses are provided
following transition to IFRS 9 on 1 January 2018. It further
includes provisions in respect of insurance contracts.
2 Other provisions includes GBP48m (2017: GBP106m) of vacant
space provisions of which there were unwinding of discounts of
GBP3m (2017: GBP5m).
Legal proceedings and regulatory matters
Further details of legal proceedings and regulatory matters are
set out in Note 32. Legal proceedings include civil court,
arbitration or tribunal proceedings brought against HSBC companies
(whether by way of claim or counterclaim), or civil disputes that
may, if not settled, result in court, arbitration or tribunal
proceedings. Regulatory matters refer to investigations, reviews
and other actions carried out by, or in response to the actions of,
regulatory or law enforcement agencies in connection with alleged
wrongdoing.
Customer remediation
Provisions include GBP35m (2017: GBP1.1bn) in respect of
customer redress programmes. The majority of the provisions
relating to the Payment Protection Insurance were transferred to
HSBC UK Bank plc under the ring-fence implementation. At 31
December 2018 HSBC Bank plc holds GBP5m in provisions in respect to
Payment Protection Insurance claims for Channel Island and Isle of
Man customers.
Contractual commitments
Refer to Note 34 for further information on the impact of IFRS 9
on undrawn loan commitments and financial guarantees, presented in
'Contractual commitments'. This provision results from the adoption
of IFRS 9 and has no comparatives. Further analysis of the movement
in the expected credit loss provision is disclosed within the
'Reconciliation of impairment allowances under IAS 39 and
provisions under IAS 37 to expected credit losses under IFRS 9'
table on page 45.
26 Subordinated liabilities
--- -------------------------
Subordinated liabilities
The group The bank
2018 2017 2018 2017
GBPm GBPm GBPm GBPm
At amortised cost 13,770 16,494 13,323 15,930
* subordinated liabilities 13,070 15,794 13,323 15,930
* preferred securities 700 700 - -
Designated at fair value (Note
23) 2,499 4,251 2,499 4,251
* subordinated liabilities 2,177 3,912 2,499 4,251
* preferred securities 322 339 - -
At 31 Dec 16,269 20,745 15,822 20,181
Subordinated liabilities rank behind senior obligations and
consist of capital instruments and other instruments. Capital
instruments generally count towards the capital base of the group
and may be called and redeemed by the group subject to prior
notification to the PRA and, where relevant, the consent of the
local banking regulator. If not redeemed at the first call date,
coupons payable may step up or become floating rate based on
interbank rates. On capital instruments other than floating rate
notes, interest is payable at fixed rates of up to 7.65%.
The balance sheet amounts disclosed below are presented on an
IFRS basis and do not reflect the amount that the instruments
contribute to regulatory capital due to the inclusion of issuance
costs, regulatory amortisation and regulatory eligibility limits
prescribed in the grandfathering provisions under CRD IV.
Subordinated liabilities of the group
Carrying amount
2018 2017
Footnotes GBPm GBPm
---------- ---------
Capital instruments
Additional tier 1 instruments guaranteed by the bank
5.862% Non-cumulative Step-up Perpetual Preferred
GBP300m Securities 1 322 339
5.844% Non-cumulative Step-up Perpetual Preferred
GBP700m Securities 2 700 700
--------
Tier 2 instruments
$450m Subordinated Floating Rate Notes 2021 352 333
$750m 3.43% Subordinated Loan 2022 10 585 568
--------
GBP350m 5% Callable Subordinated Notes 2023 4 - 367
--------
GBP300m 6.5% Subordinated Notes 2023 300 299
--------
EUR650m Floating Rate Subordinated Loan 2023 5 - 577
--------
EUR1,500m Floating Rate Subordinated Loan 2023 10 1,345 1,331
--------
$2,000m 3.5404% Subordinated Loan 2023 10 1,566 1,480
--------
EUR1,500m Floating Rate Subordinated Loan 2024 3 1,345 -
--------
EUR2,000m 1.728% Subordinated Loan 2024 3 1,794 -
--------
EUR2,000m 1.125% Subordinated Loan 2024 10 1,794 1,775
--------
$300m 7.65% Subordinated Notes 2025 235 277
--------
$1,400m Floating Rate Subordinated Loan 2025 5 - 1,036
--------
$1,300m Floating Rate Subordinated Loan 2026 5 - 962
--------
EUR300m Floating Rate Subordinated Loan 2027 269 266
--------
$750m 4.186% Subordinated Loan 2027 10 598 583
--------
EUR1,250m 1.4648% Subordinated Loan 2027 10 1,121 1,109
--------
EUR260m Floating Rate Subordinated Loan 2029 11 233 231
--------
GBP200m Floating Rate Subordinated Loan 2028 7 200 -
--------
EUR300m Floating Rate Subordinated Loan 2028 8 269 -
--------
5.375% Callable Subordinated Step-up Notes
GBP350m 2030 9 401 432
--------
GBP500m 5.375% Subordinated Notes 2033 593 675
--------
GBP225m 6.25% Subordinated Notes 2041 224 224
--------
GBP600m 4.75% Subordinated Notes 2046 594 594
--------
$750m Undated Floating Rate Primary Capital Notes 587 555
--------
$500m Undated Floating Rate Primary Capital Notes 392 370
--------
Undated Floating Rate Primary Capital Notes
$300m (Series 3) 235 222
--------
Other Tier 2 instruments each less than GBP100m 215 322
--------
Other instruments
Subordinated loan instruments not eligible for inclusion
in regulatory capital
EUR1,500m Floating Rate Subordinated Loan 2021 3 - 1,331
--------
EUR2,000m 0.6633% Subordinated Loan 2022 3 - 1,775
--------
GBP1,000m 2.6% Subordinated Loan 2026 6 - 1,012
--------
GBP1,000m 2.948% Subordinated Loan 2028 6 - 1,000
At 31 Dec 16,269 20,745
1 In April 2020, the distribution rate changes to six month sterling LIBOR plus 1.85%.
2 In November 2031, the distribution rate changes to six month sterling LIBOR plus 1.76%.
3 In December 2018, the bank repaid the EUR1,500m Floating Rate
Subordinated Loan 2021 and the EUR2,000m 0.6633% Subordinated Loan
2022 from HSBC Holdings plc and received the EUR1,500m Floating
Rate Subordinated Loan 2024 and the EUR2,000m 1.728% Subordinated
Loan 2024 from HSBC UK Holdings plc.
4 In March 2018 the bank repaid the GBP350m 5% Callable Subordinated Notes 2023.
5 In June 2018, the bank repaid the EUR650m Floating Rate
Subordinated Loan 2023, the US$1,400m Floating Rate Subordinated
Loan 2025 and the US$1,300m Floating Rate Subordinated Loan 2026
from HSBC Holdings plc.
6 In October 2018, the bank repaid the GBP1,000m 2.6%
Subordinated Loan 2026 and the GBP1,000m 2.948% Subordinated Loan
2028 from HSBC Holdings plc.
7 In May 2018, the bank received the GBP200m Floating Rate
Subordinated Loan 2028 from HSBC UK Holdings plc.
8 In June 2018, the bank received the EUR300m Floating Rate
Subordinated Loan 2028 from HSBC UK Holdings plc.
9 In November 2025, the interest rate changes to three month sterling LIBOR plus 1.50%.
10 These instruments were issued in 2017 in preparation to meet
the Minimum Requirement for Own Funds and Eligible Liabilities
(MREL) and did not previously qualify as regulatory capital.
However, they were converted to qualify as Tier 2 regulatory
capital in Q4 2018.
11 This instrument was issued by HSBC France to HSBC Holdings
plc in 2014. Starting in Q4 2018, it now qualifies as a Tier 2
regulatory capital instrument for HSBC France and HSBC Bank
plc.
Footnotes 1, 2, 4 and 9 all relate to instruments that are
redeemable at the option of the issuer on the date of the change in
the distribution or interest rate, and on subsequent rate reset and
payment dates in some cases, subject to prior notification to the
PRA.
27 Maturity analysis of assets, liabilities and off-balance sheet commitments
--- ---------------------------------------------------------------------------
Contractual maturity of financial liabilities
The balances in the table below do not agree directly with those
in our consolidated balance sheet as the table incorporates, on an
undiscounted basis, all cash flows relating to principal and future
coupon payments (except for trading liabilities and derivatives not
treated as hedging derivatives).
Undiscounted cash flows payable in relation to hedging
derivative liabilities are classified according to their
contractual maturities. Trading liabilities and derivatives not
treated as hedging derivatives are included in the 'On demand' time
bucket and not by contractual maturity.
In addition, loans and other credit-related commitments,
financial guarantees are generally not recognised on our balance
sheet. The undiscounted cash flows potentially payable under
financial guarantees are classified on the basis of the earliest
date they can be called.
Cash flows payable under financial liabilities by remaining contractual
maturities
Due between Due between
Due within 3 and 1 and Due after
On demand 3 months 12 months 5 years 5 years Total
The group GBPm GBPm GBPm GBPm GBPm GBPm
Deposits by banks 12,708 5,097 880 5,456 436 24,577
Customer accounts 149,093 25,396 6,141 214 66 180,910
Repurchase agreements
- non-trading - 45,804 847 - - 46,651
Trading liabilities(1) 49,514 - - - - 49,514
Financial liabilities
designated at fair
value(1) 123 1,130 2,822 22,285 29,909 56,269
Derivatives 139,021 44 242 518 340 140,165
Debt securities in
issue - 8,417 11,018 2,785 842 23,062
Subordinated liabilities - 115 205 4,798 11,057 16,175
Other financial
liabilities 37,545 1,644 534 96 773 40,592
388,004 87,647 22,689 36,152 43,423 577,915
Loan and other
credit-related
commitments 148,600 289 6 - - 148,895
Financial guarantees(2) 6,054 - - - - 6,054
At 31 Dec 2018 542,658 87,936 22,695 36,152 43,423 732,864
Deposits by banks 16,922 5,215 1,336 5,372 578 29,423
Customer accounts 326,674 43,742 9,143 1,347 793 381,699
Repurchase agreements
- non-trading 10,257 26,012 1,503 - - 37,772
Trading liabilities 106,496 - - - - 106,496
Financial liabilities
designated at fair
value 510 476 3,793 9,318 5,148 19,245
Derivatives 138,555 113 256 928 428 140,280
Debt securities in
issue 5 4,469 6,864 1,656 468 13,462
Subordinated liabilities 2 47 86 3,962 13,540 17,637
Other financial
liabilities 3,964 1,495 446 101 832 6,838
603,385 81,569 23,427 22,684 21,787 752,852
Loan and other
credit-related
commitments(3) 139,916 31,915 2,305 632 3 174,771
Financial guarantees(2,4) 8,301 - - - - 8,301
At 31 Dec 2017 751,602 113,484 25,732 23,316 21,790 935,924
1 Structured liabilities have moved from 'Trading liabilities'
to 'Financial liabilities designated at fair value'. Comparatives
have not been restated. See Note 34 for further details.
2 Excludes performance guarantee contracts to which the
impairment requirements in IFRS 9 are not applied.
3 31 December 2017 balances have been restated to include
GBP32.5bn of loan commitments (unsettled reverse repurchase
agreements) not previously identified for disclosure.
4 The undiscounted cash flows potentially payable under
financial guarantees are classified on the basis of the earliest
date they can be called. Application of this policy throughout the
group was improved in 2018, and therefore comparative information
has been represented.
Cash flows payable under financial liabilities by remaining contractual
maturities (continued)
Due
Due between Due
within 3 and between Due
On 3 12 1 and after
demand months months 5 years 5 years Total
The bank GBPm GBPm GBPm GBPm GBPm GBPm
Deposits by banks 11,327 5,105 1,476 276 - 18,184
Customer accounts 103,631 20,403 1,870 29 - 125,933
Repurchase agreements
- non-trading - 35,087 676 - - 35,763
Trading liabilities(1) 27,301 - - - - 27,301
Financial liabilities
designated at fair
value(1) 5 1,108 2,613 13,817 24,220 41,763
Derivatives 134,511 37 194 482 309 135,533
Debt securities in
issue - 6,952 9,028 2,848 601 19,429
Subordinated liabilities - 91 239 4,799 11,177 16,306
Other financial liabilities 33,166 1,528 89 - - 34,783
309,941 70,311 16,185 22,251 36,307 454,995
Loan and other
credit-related
commitments 65,669 269 - - - 65,938
Financial guarantees(2) 5,578 - - - - 5,578
At 31 Dec 2018 381,188 70,580 16,185 22,251 36,307 526,511
Deposits by banks 16,613 3,233 4,359 370 54 24,629
Customer accounts 275,845 38,670 4,878 891 359 320,643
Repurchase agreements
- non-trading 10,232 23,655 1,330 - - 35,217
Trading liabilities 77,303 - - - - 77,303
Financial liabilities
designated at fair
value 22 476 2,598 5,524 3,299 11,919
Derivatives 131,790 108 196 807 404 133,305
Debt securities in
issue 5 1,453 4,019 226 582 6,285
Subordinated liabilities - 46 40 3,780 13,176 17,042
Other financial liabilities 2,676 666 97 10 - 3,449
514,486 68,307 17,517 11,608 17,874 629,792
Loan and other
credit-related
commitments 98,319 476 982 34 3 99,814
Financial guarantees(3) 6,711 - - - - 6,711
At 31 Dec 2017 619,516 68,783 18,499 11,642 17,877 736,317
1 Structured liabilities have moved from 'Trading liabilities'
to 'Financial liabilities designated at fair value'. Comparatives
have not been restated. See Note 34 for further details.
2 Excludes performance guarantee contracts to which the
impairment requirements in IFRS 9 are not applied.
3 The undiscounted cash flows potentially payable under
financial guarantees are classified on the basis of the earliest
date they can be called. Application of this policy throughout the
group was improved in 2018, and therefore comparative information
has been represented.
Maturity analysis of financial assets and financial
liabilities
The following table provides an analysis of financial assets and
liabilities by residual contractual maturity at the balance sheet
date. These balances are included in the maturity analysis as
follows:
-- Financial assets and liabilities with no contractual maturity
(such as equity securities) are included in the 'Due after more
than one year' time bucket. Undated or perpetual instruments are
classified based on the contractual notice period which the
counterparty of the instrument is entitled to give. Where there is
no contractual notice period, undated or perpetual contracts are
included in the 'Due after more than one year' time bucket;
-- Financial instruments included within assets and liabilities
of disposal groups held for sale are classified on the basis of the
contractual maturity of the underlying instruments and not on the
basis of the disposal transaction;
-- Liabilities under investment contracts are classified in
accordance with their contractual maturity. Undated investment
contracts are included in the 'Due after more than one year' time
bucket, however, such contracts are subject to surrender and
transfer options by the policyholders.
Maturity analysis of financial assets and financial
liabilities
2018 2017
Due Due
after after
Due more Due more
within than within than
1 year 1 year Total 1 year 1 year Total
The group GBPm GBPm GBPm GBPm GBPm GBPm
Assets
Financial assets
designated
or otherwise
mandatorily
measured at fair
value 5,171 12,628 17,799 N/A N/A N/A
Financial assets
designated
at fair value N/A N/A N/A 67 9,199 9,266
Loans and advances
to banks 9,805 3,823 13,628 10,697 3,452 14,149
Loans and advances
to customers 55,481 56,483 111,964 93,239 187,163 280,402
------- ------- ------- ------- ------- -------
Reverse repurchase
agreement -
non-trading 79,739 363 80,102 45,383 425 45,808
Financial investments 9,677 37,595 47,272 10,832 47,168 58,000
Other financial
assets 32,481 345 32,826 2,475 306 2,781
------- ------- ------- ------- ------- -------
At 31 Dec 192,354 111,237 303,591 162,693 247,713 410,406
Liabilities
Deposits by banks 18,612 5,920 24,532 23,434 5,915 29,349
Customer accounts 180,544 292 180,836 379,463 2,083 381,546
Repurchase agreements
- non-trading 46,583 - 46,583 37,775 - 37,775
------- ------- ------- ------- ------- -------
Financial liabilities
designated at fair
value 3,857 33,065 36,922 3,768 14,481 18,249
Debt securities in
issue 19,552 3,169 22,721 11,188 2,098 13,286
Other financial
liabilities 39,108 880 39,988 2,900 703 3,603
Subordinated
liabilities 25 13,745 13,770 40 16,454 16,494
At 31 Dec 308,281 57,071 365,352 458,568 41,734 500,302
------- ------- ------- ------- ------- -------
The bank
Assets
Financial assets designated
or otherwise mandatorily
measured at fair value 4,799 946 5,745 N/A N/A N/A
Loans and advances
to banks 8,948 3,738 12,686 9,379 5,781 15,160
Loans and advances
to customers 39,844 18,939 58,783 74,941 145,509 220,450
Reverse repurchase
agreement - non-trading 56,357 138 56,495 36,201 426 36,627
Financial investments 5,506 21,193 26,699 6,023 25,359 31,382
Other financial assets 27,210 11 27,221 2,090 2 2,092
31 Dec 142,664 44,965 187,629 128,634 177,077 305,711
------- ------ ------- ------- ------- -------
Liabilities
Deposits by banks 17,882 266 18,148 24,202 424 24,626
Customer accounts 125,843 28 125,871 319,369 657 320,026
Repurchase agreements
- non-trading 35,693 - 35,693 35,220 - 35,220
Financial liabilities
designated at fair
value 3,516 19,415 22,931 2,435 8,571 11,006
Debt securities in
issue 15,859 3,226 19,085 5,457 651 6,108
Other financial liabilities 34,485 - 34,485 1,636 - 1,636
Subordinated liabilities - 13,323 13,323 - 15,930 15,930
31 Dec 233,278 36,258 269,536 388,319 26,233 414,552
------- ------ ------- ------- ------- -------
28 Offsetting of financial assets and financial liabilities
--- ---------------------------------------------------------
The 'Amounts not set off in the balance sheet' include
transactions where:
-- The counterparty has an offsetting exposure with the group
and a master netting or similar arrangement is in place with a
right of set off only in the event of default, insolvency or
bankruptcy, or the offset criteria are not otherwise satisfied.
-- In the case of derivatives and reverse repurchase/repurchase,
stock borrowing/lending and similar agreements, cash and non-cash
collateral has been received/pledged.
For risk management purposes, the net amounts of loans and
advances to customers are subject to limits, which are monitored
and the relevant customer agreements are subject to review and
updated, as necessary, to ensure that the legal right of offset
remains appropriate.
Amounts subject to enforceable netting
arrangements
Amounts not set
off in the balance
sheet
Amounts
Net not
amounts subject
in to
the enforceable
Gross Amounts balance Financial Non-cash Cash Net netting
amounts offset sheet instruments collateral collateral amount arrangements(5) Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Financial
assets
Derivatives
(Note
14)(1) 169,923 (26,692) 143,231 (104,948) (6,816) (29,081) 2,386 1,291 144,522
Reverse
repos, stock
borrowing and
similar
agreements
classified
as(2) :
- trading
assets 12,661 (619) 12,042 (975) (11,068) - (1) 597 12,639
- non-trading
assets 184,887 (107,441) 77,446 (17,084) (60,288) (73) 1 2,674 80,120
Loans and
advances
to
customers(3) 24,698 (7,744) 16,954 (12,040) - - 4,914 - 16,954
At 31 Dec 2018 392,169 (142,496) 249,673 (135,047) (78,172) (29,154) 7,300 4,562 254,235
Derivatives (Note
14)(1) 208,031 (66,736) 141,295 (105,613) (7,524) (26,037) 2,121 2,040 143,335
Reverse repos, stock
borrowing and similar
agreements classified
as(2) :
- trading assets 10,298 - 10,298 (319) (9,979) - - 878 11,176
- non-trading assets 100,249 (59,103) 41,146 (2,748) (38,368) (30) - 4,662 45,808
Loans and advances
to customers(3) 30,499 (7,716) 22,783 (19,073) - (134) 3,576 - 22,783
31 Dec 2017 349,077 (133,555) 215,522 (127,753) (55,871) (26,201) 5,697 7,580 223,102
Financial liabilities
Derivatives (Note
14)(1) 164,194 (26,692) 137,502 (104,948) (10,685) (20,914) 955 2,430 139,932
Repos, stock lending
and similar agreements
classified as(2) :
- trading liabilities 10,706 (619) 10,087 (975) (9,113) - (1) 101 10,188
- non-trading liabilities 153,926 (107,441) 46,485 (17,084) (29,271) (129) 1 98 46,583
Customer accounts(4) 23,364 (7,744) 15,620 (12,040) - - 3,580 8 15,628
At 31 Dec 2018 352,190 (142,496) 209,694 (135,047) (49,069) (21,043) 4,535 2,637 212,331
Derivatives (Note
14)(1) 205,836 (66,736) 139,100 (105,614) (10,164) (18,283) 5,039 970 140,070
Repos, stock lending
and similar agreements
classified as(2) :
- trading liabilities 22,291 - 22,291 (319) (21,972) - - 47 22,338
- non-trading liabilities 93,940 (59,103) 34,837 (2,747) (31,912) (178) - 2,938 37,775
Customer accounts(4) 30,382 (7,716) 22,666 (19,073) - (139) 3,454 117 22,783
31 Dec 2017 352,449 (133,555) 218,894 (127,753) (64,048) (18,600) 8,493 4,072 222,966
1 At 31 December 2018, the amount of cash margin received that
had been offset against the gross derivatives assets was GBP2,354m
(2017: GBP3,247m). The amount of cash margin paid that had been
offset against the gross derivatives liabilities was GBP4,269m
(2017: GBP3,428m).
2 For the amount of repos, reverse repos, stock lending, stock
borrowing and similar agreements recognised on the balance sheet
within 'Trading assets' GBP95,420m (2017: GBP145,725m) and 'Trading
liabilities' GBP49,514m (2017: GBP106,496m), see the 'Funding
sources and uses' table on page 62.
3 At 31 December 2018, the total amount of 'Loans and advances
to customers' recognised on the balance sheet was GBP111,964m
(2017: GBP280,402m) of which GBP16,954m (2017: GBP22,783m) was
subject to offsetting.
4 At 31 December 2018, the total amount of 'Customer accounts'
recognised on the balance sheet was GBP180,836m (2017: GBP381,546m)
of which GBP15,620m (2017: GBP22,666m) was subject to
offsetting.
5 These exposures continue to be secured by financial
collateral, but we may not have sought or been able to obtain a
legal opinion evidencing enforceability of the right of offset.
29 Called up share capital and other equity instruments
--- -----------------------------------------------------
Issued and fully paid
HSBC Bank plc GBP1.00 ordinary shares
2018 2017
Number GBPm Number GBPm
At 1 Jan 796,969,110 797 796,969,110 797
-----------
Re-designation of the GBP1.00
preferred
ordinary share 1 - - -
-----------------------------------
At 31 Dec 796,969,111 797 796,969,110 797
----------- ---- ----------- ----
HSBC Bank plc GBP1.00 preferred ordinary shares
2018 2017
Number GBP000 Number GBP000
At 1 Jan 1 - 1 -
Shares re-designated into ordinary
shares (1) - - -
At 31 Dec - - 1 -
At the Board's General Meeting held on 23 November 2018, a
resolution was passed to amend the rights of the one preferred
ordinary share of GBP1.00 in the capital of HSBC Bank plc, so it
has the same rights, is subject to the same restrictions, and ranks
pari passu in all respects with the ordinary shares of GBP1.00.
This resulted in the preferred ordinary share to be re-designated
as an ordinary share.
HSBC Bank plc $0.01 non-cumulative third dollar preference shares
2018 2017
Number GBP000 Number GBP000
At 1 Jan and 31 Dec 35,000,000 172 35,000,000 172
---------- ------
The bank has no obligation to redeem the preference shares but
may redeem them in part or in whole at any time, subject to prior
notification to the Prudential Regulation Authority. Dividends on
the preference shares in issue are paid annually at the sole and
absolute discretion of the Board of Directors. The Board of
Directors will not declare a dividend on the preference shares in
issue if payment of the dividend would cause the bank not to meet
the capital adequacy requirements of the Prudential Regulation
Authority or the profit of the bank, available for distribution as
dividends, is not sufficient to enable the bank to pay in full both
dividends on the preference shares in issue and dividends on any
other shares that are scheduled to be paid on the same date and
have an equal right to dividends or if payment of the dividend is
prohibited by the rights attached to any class of shares in the
capital of the bank, excluding ordinary shares.
The preference shares in issue carry no rights to conversion
into ordinary shares of the bank. Holders of the preference shares
in issue will be able to attend any general meetings of
shareholders of the bank and to vote on any resolution proposed to
vary or abrogate any of the rights attaching to the preference
shares or any resolution proposed to reduce the paid up capital of
the preference shares. If the dividend payable on the preference
shares in issue has not been paid in full for the most recent
dividend period or any resolution is proposed for the winding-up of
the bank or the sale of its entire business then, in such
circumstances, holders of preference shares will be entitled to
vote on all matters put to general meetings. In the case of unpaid
dividends the holders of preference shares in issue will be
entitled to attend and vote at any general meetings until such time
as dividends on the preference shares have been paid in full, or a
sum set aside for such payment in full, in respect of one dividend
period. All shares in issue are fully paid.
Other equity instruments
HSBC Bank plc additional tier 1 instruments
2018 2017
GBPm GBPm
Undated Subordinated Additional Tier 1 instrument
GBP1,096m issued 2014 (Callable December 2019 onwards) - 1,096
Undated Subordinated Additional Tier 1 instrument
GBP1,100m issued 2014 (Callable December 2024 onwards) - 1,100
Undated Subordinated Resettable Additional Tier
GBP555m 1 instrument 2018 (Callable March 2023 onwards) 555 -
----- -----
Undated Subordinated Resettable Additional Tier
1 instrument issued 2015 (Callable December 2020
EUR1,900m onwards) 1,388 1,388
Undated Subordinated Resettable Additional Tier
1 instrument issued 2016 (Callable January 2022
EUR235m onwards) 197 197
----- -----
Undated Subordinated Resettable Additional Tier
EUR300m 1 instrument 2018 (Callable March 2023 onwards) 263 -
At 31
Dec 2,403 3,781
The bank has issued capital instruments that are included in the
group's capital base as fully CRD IV compliant additional tier 1
capital. During March 2018, the bank issued two new Undated
Subordinated Additional Tier 1 Instruments.
With effect from 1 July 2018, under the ring-fencing transfer
scheme, all rights and obligations in respect of the existing
GBP1,096m Undated Subordinated Additional Tier 1 Instrument issued
2014 (Callable December 2019 onwards) and GBP1,100m Undated
Subordinated Additional Tier 1 Instrument issued 2014 (Callable
December 2024 onwards) issued by HSBC Bank plc were transferred to
HSBC UK Bank plc.
Interest on these instruments will be due and payable only at
the sole discretion of the bank, and the bank has sole and absolute
discretion at all times and for any reason to cancel (in whole or
in part) any interest payment that would otherwise be payable on
any date. There are limitations on the payment of principal,
interest or other amounts if such payments are prohibited under UK
banking regulations, or other requirements, if the bank has
insufficient distributable reserves or if the bank fails to satisfy
the solvency condition as defined in the instruments terms.
The instruments are undated and are repayable, at the option of
the bank, in whole at the initial call date, or on any Interest
Payment Date after the initial call date. In addition, the
instruments are repayable at the option of the bank in whole for
certain regulatory or tax reasons. Any repayments require the prior
consent of the Prudential Regulation Authority. These instruments
rank pari passu with the bank's most senior class or classes of
issued preference shares and therefore ahead of ordinary shares.
These instruments will be written down in whole, together with any
accrued but unpaid interest if either the group's solo or
consolidated Common Equity Tier 1 Capital Ratio falls below
7.00%.
30 Contingent liabilities, contractual commitments and guarantees
--- ---------------------------------------------------------------
The group The bank
2018 2017 2018 2017
GBPm GBPm GBPm GBPm
Guarantees and other contingent liabilities:
- financial guarantees(1) 6,054 8,301 5,578 6,711
- performance and other guarantees(2) 17,244 16,591 10,323 11,657
* other contingent liabilities 590 353 588 351
At 31 Dec 23,888 25,245 16,489 18,719
Commitments:
- documentary credits and short-term trade-related
transactions 2,186 2,877 963 1,933
- forward asset purchases and forward deposits
placed(2) 50,116 32,734 1,526 -
- standby facilities, credit lines and
other commitments to lend 96,593 139,160 63,449 97,881
At 31 Dec 148,895 174,771 65,938 99,814
1 'Financial guarantees' to which the impairment requirements in
IFRS 9 are applied have been presented separately from other
guarantees to align with credit risk disclosures. Comparatives have
been re-presented accordingly.
2 For the group, 31 December 2017 balances have been restated to
include GBP32.5bn of loan commitments (unsettled reverse repurchase
agreements) and GBP2.3bn of performance and other guarantees not
previously identified for disclosure.
The above table discloses the nominal principal amounts, which
represent the maximum amounts at risk should the contracts be fully
drawn upon and clients default. As a significant portion of
guarantees and commitments is expected to expire without being
drawn upon, the total of the nominal principal amounts is not
indicative of future liquidity requirements.
UK branches of HSBC overseas entities
In December 2017, HM Revenue & Customs ('HMRC') challenged
the VAT status of certain UK branches of HSBC overseas entities.
HMRC has also issued notices of assessment covering the period from
1 October 2013 to 31 December 2017 totalling GBP262m, with interest
to be determined. No provision has been recognised in respect of
these notices. Contingent liabilities arising from legal
proceedings, regulatory and other matters against group companies
are disclosed at Note 32.
In March 2018, HSBC requested that HMRC reconsider its
assessment. In January 2019, HMRC reaffirmed its assessment that
the UK branches are ineligible to be members of the UK VAT group.
In February 2019, HSBC paid HMRC the sum of GBP262m and filed an
appeal which remains pending. The payment of GBP262m will be
recorded as an asset on HSBC's balance sheet in 2019.
Since January 2018, HSBC's returns have been prepared on the
basis that the UK branches are not in the UK VAT group. In the
event that HSBC's appeal is successful, HSBC will also be entitled
to a refund of this VAT.
Financial Services Compensation Scheme
The Financial Services Compensation Scheme ('FSCS') has provided
compensation to consumers following the collapse of a number of
deposit takers. The compensation paid out to consumers was funded
through loans from HM Treasury which has now been repaid (2017:
GBP4.7bn). The bank could be liable to pay a proportion of any
future amounts that the FSCS borrows from HM Treasury. The ultimate
FSCS levy to the industry as a result of a collapse cannot
currently be estimated reliably, as it is dependent on various
uncertain factors, including the potential recoveries of assets by
the FSCS and changes in the level of protected deposits and the
population of FSCS members at the time.
Guarantees
The group The bank
2018 2017 2018 2017
By the By the
group group By the
in in bank in By the
In favour In favour In favour In bank in
favour of other favour of other favour of other favour favour
of HSBC of HSBC of HSBC of of other
third Group third Group third Group third HSBC Group
parties entities parties entities parties entities parties entities
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Financial
guarantees(1,2) 5,457 597 7,659 642 2,698 2,880 4,666 2,045
Performance
and other
guarantees(3) 16,243 1,001 15,476 1,115 9,238 1,085 9,571 2,086
Total 21,700 1,598 23,135 1,757 11,936 3,965 14,237 4,131
------- --------
1 Financial guarantees contracts are contracts that require the
issuer to make specified payments to reimburse the holder for a
loss incurred because a specified debtor fails to make payment when
due, in accordance with the original or modified terms of a debt
instrument. The amounts in the above table are nominal principal
amounts.
2 'Financial guarantees' to which the impairment requirements in
IFRS 9 are applied have been presented separately from other
guarantees to align with credit risk disclosures. Comparatives have
been re-presented accordingly.
3 31 December 2017 balances have been restated to include
GBP2.3bn of of performance and other guarantees not previously
identified for disclosure.
The group provides guarantees and similar undertakings on behalf
of both third-party customers and other entities within HSBC Group.
These guarantees are generally provided in the normal course of the
group's banking businesses. Guarantees with terms of more than one
year are subject to the group's annual credit review process.
31 Lease commitments
--- ------------------
Operating lease commitments
At 31 December 2018, future minimum lease payments under
non-cancellable operating leases for land, buildings and equipment
were
GBP608m (2017: GBP1,206m).
Finance lease receivables
The group leases a variety of assets to third parties under
finance leases, including transport assets (such as aircraft),
property and general plant and machinery. At the end of lease
terms, assets may be sold to third parties or leased for further
terms. Rentals are calculated to recover the cost of assets less
their residual value, and earn finance income.
2018 2017
Total Total
future Unearned future Unearned
minimum finance Present minimum finance Present
payments income value payments income Value
GBPm GBPm GBPm GBPm GBPm GBPm
Lease
receivables(1) :
No later than one
year 290 (23) 267 1,891 (156) 1,735
Later than one
year and no
later than five
years 1,348 (82) 1,266 3,634 (294) 3,340
Later than five
years 837 (45) 792 1,283 (151) 1,132
At 31 Dec 2,475 (150) 2,325 6,808 (601) 6,207
1 Impacted by the transfers to HSBC UK Bank plc under the
ring-fence implementation. For further information see Note 35
Discontinued operations.
32 Legal proceedings and regulatory matters
--- -----------------------------------------
The group is party to legal proceedings and regulatory matters
in a number of jurisdictions arising out of its normal business
operations. Apart from the matters described below, the group
considers that none of these matters are material. The recognition
of provisions is determined in accordance with the accounting
policies set out in Note 1 of the Annual Report and Accounts 2018.
While the outcome of legal proceedings and regulatory matters is
inherently uncertain, management believes that, based on the
information available to it, appropriate provisions have been made
in respect of these matters as at 31 December 2018 (see Note 25).
Where an individual provision is material, the fact that a
provision has been made is stated and quantified, except to the
extent that doing so would be seriously prejudicial. Any provision
recognised does not constitute an admission of wrongdoing or legal
liability. It is not practicable to provide an aggregate estimate
of potential liability for our legal proceedings and regulatory
matters as a class of contingent liabilities.
Bernard L. Madoff Investment Securities LLC
Bernard L. Madoff ('Madoff') was arrested in December 2008 and
later pleaded guilty to running a Ponzi scheme. His firm, Bernard
L. Madoff Investment Securities LLC ('Madoff Securities'), is being
liquidated in the US by a trustee (the 'Trustee').
Various non-US HSBC companies provided custodial, administration
and similar services to a number of funds incorporated outside the
US whose assets were invested with Madoff Securities. Based on
information provided by Madoff Securities as at 30 November 2008,
the purported aggregate value of these funds was $8.4bn, including
fictitious profits reported by Madoff.
Based on information available to HSBC, the funds' actual
transfers to Madoff Securities minus their actual withdrawals from
Madoff Securities during the time HSBC serviced the funds are
estimated to have totalled approximately $4bn. Various HSBC
companies have been named as defendants in lawsuits arising out of
Madoff Securities' fraud.
US litigation: The Trustee has brought lawsuits against various
HSBC companies and others in the US Bankruptcy Court, seeking
recovery of transfers from Madoff Securities to HSBC in an amount
not yet pleaded or determined. HSBC and other parties to the
actions have moved to dismiss the Trustee's claims. The US
Bankruptcy Court granted HSBC's motion to dismiss with respect to
certain of the Trustee's claims in November 2016. In September
2017, the Trustee appealed the US Bankruptcy Court's decision, and
the case remains pending before the US Court of Appeals for the
Second Circuit (the 'Second Circuit Court of Appeals').
Fairfield Sentry Limited, Fairfield Sigma Limited and Fairfield
Lambda Limited (together, 'Fairfield') (in liquidation since July
2009) have brought a lawsuit in the US against fund shareholders,
including HSBC companies that acted as nominees for clients,
seeking restitution of redemption payments. In December 2018, the
US Bankruptcy Court issued an opinion, which ruled in favour of the
defendants' motion to dismiss in respect of certain claims by the
liquidators for Fairfield and granted a motion by the liquidators
for Fairfield to file amended complaints.
In December 2014, SPV Optimal SUS Ltd ('SPV OSUS'), the
purported assignee of the Madoff-invested company, Optimal
Strategic US Equity Ltd, filed a lawsuit in New York State Court
against various HSBC companies and others, seeking damages on
various alleged grounds, including breach of fiduciary duty and
breach of trust. In April 2018, HSBC transferred the case to the US
District Court for the Southern District of New York (the 'New York
District Court'). In February 2019, SPV OSUS withdrew its action
with prejudice against HSBC.
UK litigation: The Trustee has filed a claim against various
HSBC companies in the High Court of England and Wales, seeking
recovery of transfers from Madoff Securities to HSBC in an amount
not yet pleaded or determined. The deadline for service of the
claim has been extended to September 2019 for UK-based defendants
and November 2019 for all other defendants.
Cayman Islands litigation: In February 2013, Primeo Fund Limited
('Primeo') (in liquidation since April 2009) brought an action
against HSBC Securities Services Luxembourg ('HSSL') and Bank of
Bermuda (Cayman) Limited, alleging breach of contract and breach of
fiduciary duty and claiming damages and equitable compensation. The
trial concluded in February 2017 and, in August 2017, the court
dismissed all claims against the defendants. In September 2017,
Primeo appealed to the Court of Appeal of the Cayman Islands, and
the defendants cross-appealed in respect of certain of the trial
court's findings. The appeals are pending before the court for a
decision.
Luxembourg litigation: In April 2009, Herald Fund SPC ('Herald')
(in liquidation since July 2013) brought an action against HSSL
before the Luxembourg District Court, seeking restitution of cash
and securities that Herald purportedly lost because of Madoff
Securities' fraud, or money damages. The Luxembourg District Court
dismissed Herald's securities restitution claim, but reserved
Herald's cash restitution claim and its claim for money damages.
Herald has appealed this judgment to the Luxembourg Court of
Appeal, where the matter is pending. In late 2018, Herald brought
additional claims against HSSL and HSBC Bank plc before the
Luxembourg District Court, seeking further restitution and
damages.
In October 2009, Alpha Prime Fund Limited ('Alpha Prime')
brought an action against HSSL before the Luxembourg District
Court, seeking the restitution of securities, or the cash
equivalent, or money damages. This action has been temporarily
suspended at the plaintiffs' request. In December 2018, Alpha Prime
brought additional claims before the Luxembourg District Court
seeking damages against various HSBC companies.
In December 2014, Senator Fund SPC ('Senator') brought an action
against HSSL before the Luxembourg District Court, seeking
restitution of securities, or the cash equivalent, or money
damages. In April 2015, Senator commenced a separate action against
the Luxembourg branch of HSBC Bank plc asserting identical claims
before the Luxembourg District Court. In December 2018, Senator
brought additional claims against HSSL and HSBC Bank plc Luxembourg
branch before the Luxembourg District Court, seeking restitution of
Senator's securities or money damages.
HSSL has also been named as a defendant in various actions by
shareholders in Primeo Select Fund, Herald, Herald (Lux) SICAV and
Hermes International Fund Limited. Most of these actions have been
dismissed, suspended or postponed.
Ireland litigation: In November 2013, Defender Limited brought
an action against HSBC Institutional Trust Services (Ireland)
Limited ('HTIE') and others, based on allegations of breach of
contract and claiming damages and indemnification for fund losses.
The trial commenced in October 2018. In December 2018, the Irish
High Court issued a judgment in HTIE's favour on a preliminary
issue, holding that Defender Limited had no effective claim against
HTIE. This judgment concluded the trial without further issues in
dispute being heard. In February 2019, Defender Limited appealed
the judgment.
In December 2014, SPV OSUS filed an action against HTIE and HSBC
Securities Services (Ireland) Limited alleging breach of contract
and claiming damages and indemnification for fund losses, which was
dismissed on the basis of a preliminary issue by the Irish High
Court in October 2015. In July 2018, following further appeals by
SPV OSUS, the Irish Supreme Court affirmed the dismissal on a final
basis.
There are many factors that may affect the range of possible
outcomes, and the resulting financial impact, of the various
Madoff-related proceedings described above, including but not
limited to the multiple jurisdictions in which the proceedings have
been brought. Based upon the information currently available,
management's estimate of the possible aggregate damages that might
arise as a result of all claims in the various Madoff-related
proceedings is up to or exceeding $500m, excluding costs and
interest. Due to uncertainties and limitations of this estimate,
the ultimate damages could differ significantly from this
amount.
Anti-money laundering and sanctions-related matters
In 2010, HSBC Bank USA N.A. ('HSBC Bank USA') entered into a
consent cease-and-desist order with the Office of the Comptroller
of the Currency ('OCC'), and HSBC North America Holdings Inc.
('HNAH') entered into a consent cease-and-desist order with the
Federal Reserve Board ('FRB'). In 2012, HSBC Bank USA further
entered into an enterprise-wide compliance consent order with the
OCC (each an 'Order' and together, the 'Orders'). These Orders
required improvements to establish an effective compliance risk
management programme across HSBC's US businesses, including risk
management related to the Bank Secrecy Act ('BSA') and anti-money
laundering ('AML') compliance. In 2012, an additional consent order
was entered into with the OCC that required HSBC Bank USA to
correct the circumstances noted in the OCC's report and imposed
restrictions on HSBC Bank USA acquiring control of, or holding an
interest in, any new financial subsidiary, or commencing a new
activity in its existing financial subsidiary, without the OCC's
approval. Between June and September 2018, following implementation
of the required remediation actions by HNAH and HSBC Bank USA, the
FRB and OCC terminated each of these orders.
In December 2012, among other agreements, HSBC Holdings plc
('HSBC Holdings') agreed to an undertaking with the UK Financial
Conduct Authority ('FCA') and consented to a cease-and-desist order
with the FRB, both of which contained certain forward-looking AML
and sanctions-related obligations. HSBC also agreed to retain an
independent compliance monitor (who is, for FCA purposes, a
'Skilled Person' under section 166 of the Financial Services and
Markets Act and, for FRB purposes, an 'Independent Consultant') to
produce periodic assessments of the HSBC Group's AML and sanctions
compliance programme (the 'Skilled Person/Independent Consultant').
In December 2012, HSBC Holdings also entered into an agreement with
the Office of Foreign Assets Control ('OFAC') regarding historical
transactions involving parties subject to OFAC sanctions. The
Skilled Person/Independent Consultant will continue to conduct
country reviews and provide periodic reports for a period of time
at the FCA's and FRB's discretion. The role of the Skilled
Person/Independent Consultant is discussed on page 33.
Through the Skilled Person/Independent Consultant's
country-level reviews, as well as internal reviews conducted by
HSBC, certain potential AML and sanctions compliance issues have
been identified that HSBC is reviewing further with the FRB, FCA
and/or OFAC. The Financial Crimes Enforcement Network of the US
Treasury Department, as well as the Civil Division of the US
Attorney's Office for the Southern District of New York, are
investigating the collection and transmittal of third-party
originator information in certain payments instructed over HSBC's
proprietary payment systems. The FCA is also conducting an
investigation into HSBC Bank plc's compliance with UK money
laundering regulations and financial crime systems and controls
requirements. HSBC is cooperating with all of these
investigations.
Since November 2014, a number of lawsuits have been filed in
federal courts in the US against various HSBC companies and others
on behalf of plaintiffs who are, or are related to, victims of
terrorist attacks in Iraq. In each case, it is alleged that the
defendants aided and abetted the unlawful conduct of various
sanctioned parties in violation of the US Anti-Terrorism Act. Seven
actions against HSBC Bank plc are currently pending in federal
court in New York. In July 2018, in one case, the magistrate judge
issued a recommendation that the New York District Court should
deny the defendants' motion to dismiss. A motion to dismiss remains
pending in one other case in the New York District Court. An action
that was pending in federal court in Florida was dismissed by the
court in October 2018 without prejudice. In December 2018, three
new cases and two cases relating to existing actions were filed in
the New York District Court. These new actions are at a very early
stage.
Based on the facts currently known, it is not practicable at
this time for HSBC to predict the resolution of these matters,
including the timing or any possible impact on HSBC, which could be
significant.
London interbank offered rates, European interbank offered rates
and other benchmark interest rate investigations and litigation
In December 2016, the European Commission (the 'EC') issued a
decision finding that HSBC, among other banks, engaged in
anti-competitive practices in connection with the pricing of euro
interest rate derivatives in early 2007. The EC imposed a fine on
HSBC based on a one-month infringement. HSBC has appealed the
decision.
US dollar Libor: Beginning in 2011, HSBC and other panel banks
have been named as defendants in a number of private lawsuits filed
in the US with respect to the setting of US dollar Libor. The
complaints assert claims under various US laws, including US
antitrust and racketeering laws, the US Commodity Exchange Act ('US
CEA') and state law. The lawsuits include individual and putative
class actions, most of which have been transferred and/or
consolidated for pre-trial purposes before the New York District
Court.
In 2017 and 2018, HSBC reached agreements with plaintiffs to
resolve putative class actions brought on behalf of the following
five groups of plaintiffs: persons who purchased US dollar
Libor-indexed bonds; persons who purchased US Libor-indexed
exchange-traded instruments; US-based lending institutions that
made or purchased US dollar Libor-indexed loans (the 'Lender
class'); persons who purchased US dollar Libor-indexed interest
rate swaps and other instruments directly from the defendant banks
and their affiliates (the 'OTC class'); and persons who purchased
US dollar Libor-indexed interest rate swaps and other instruments
from certain financial institutions that are not the defendant
banks or their affiliates. During 2018, the New York District Court
granted final approval of the settlements with the OTC and Lender
classes. The remaining settlements are subject to final court
approval. Additionally, a number of other US dollar Libor-related
actions remain pending against HSBC in the New York District Court
and the Second Circuit Court of Appeals.
Intercontinental Exchange ('ICE') Libor: In January 2019, HSBC
and other panel banks were named as defendants in a putative class
action filed in the New York District Court on behalf of persons
who purchased over-the-counter instruments paying interest indexed
to ICE Libor from a panel bank. The complaint alleges, among other
things, misconduct related to the suppression of this benchmark
rate in violation of US antitrust and state law. This matter is at
a very early stage.
There are many factors that may affect the range of outcomes,
and the resulting financial impact, of these matters, which could
be significant.
Foreign exchange-related investigations and litigation
Various regulators and competition authorities around the world,
including in the EU, Switzerland, Brazil and South Africa, are
conducting investigations and reviews into trading by HSBC and
others on the foreign exchange markets. HSBC is cooperating with
these investigations and reviews.
In January 2018, HSBC Holdings entered into a three-year
deferred prosecution agreement with the Criminal Division of the
DoJ (the 'FX DPA'), regarding fraudulent conduct in connection with
two particular transactions in 2010 and 2011. This concluded the
DoJ's investigation into HSBC's historical foreign exchange
activities. Under the terms of the FX DPA, HSBC has a number of
ongoing obligations, including implementing enhancements to its
internal controls and procedures in its Global Markets business,
which will be the subject of annual reports to the DoJ. In
addition, HSBC agreed to pay a financial penalty and
restitution.
In December 2016, Brazil's Administrative Council of Economic
Defense ('CADE') publicly announced that it is initiating an
investigation into the onshore foreign exchange market and has
identified a number of banks, including HSBC, as subjects of its
investigation.
In February 2017, the Competition Commission of South Africa
referred a complaint for proceedings before the South African
Competition Tribunal against 18 financial institutions, including
HSBC Bank plc, for alleged misconduct related to the foreign
exchange market in violation of South African antitrust laws. In
April 2017, HSBC Bank plc filed an exception to the complaint based
on a lack of jurisdiction and statute of limitations. These
proceedings are at an early stage.
In October 2018, HSBC Holdings and HSBC Bank plc received an
information request from the EC concerning potential coordination
in foreign exchange options trading. This matter is at an early
stage.
In late 2013 and early 2014, various HSBC companies and other
banks were named as defendants in various putative class actions
consolidated in the New York District Court. The consolidated
complaint alleged, among other things, that the defendants
conspired to manipulate the WM/Reuters foreign exchange benchmark
rates. In September 2015, HSBC reached an agreement with plaintiffs
to resolve the consolidated action, and the court granted final
approval of the settlement in August 2018.
A putative class action complaint making similar allegations on
behalf of retail customers of foreign exchange products was filed
in the US District Court for the Northern District of California in
2015, and was subsequently transferred to the New York District
Court where it remains pending. In 2017, putative class action
complaints making similar allegations on behalf of purported
'indirect' purchasers of foreign exchange products were filed in
New York and were subsequently consolidated in the New York
District Court, where they remain pending.
In September 2018, various HSBC companies and other banks were
named as defendants in a class action complaint filed in Israel
that alleges foreign exchange-related misconduct and, in November
and December 2018, complaints alleging foreign exchange-related
misconduct were filed in the New York District Court and the High
Court of England and Wales against HSBC and other defendants, by
certain plaintiffs that opted out of the US class action
settlement. In February 2019, various HSBC companies were named as
defendants in a claim issued in the High Court of England and Wales
that alleges foreign exchange-related misconduct. These matters are
at an early stage. It is possible that additional actions will be
initiated against HSBC in relation to its historical foreign
exchange activities.
As at 31 December 2018, the bank has recognised a provision for
these and similar matters in the amount of GBP168m. There are many
factors that may affect the range of outcomes, and the resulting
financial impact, of these matters. Due to uncertainties and
limitations of these estimates, the ultimate penalties could differ
significantly from the amount provided.
Precious metals fix-related investigations and litigation
In November 2014, the Antitrust Division and Criminal Fraud
Section of the DoJ issued a document request to HSBC Holdings,
seeking the voluntary production of certain documents in connection
with a criminal investigation that the DoJ is conducting of alleged
anti-competitive and manipulative conduct in precious metals
trading. In January 2019, the DoJ closed its investigation without
taking any action against HSBC.
Gold: Beginning in March 2014, numerous putative class actions
were filed in the New York District Court and the US District
Courts for the District of New Jersey and the Northern District of
California, naming HSBC and other members of The London Gold Market
Fixing Limited as defendants. The complaints allege that, from
January 2004 to June 2013, the defendants conspired to manipulate
the price of gold and gold derivatives for their collective benefit
in violation of US antitrust laws, the US CEA and New York state
law. The actions were consolidated in the New York District Court.
The defendants' motion to dismiss the consolidated action was
granted in part and denied in part in October 2016. In June 2017,
the court granted the plaintiffs leave to file a third amended
complaint, naming a new defendant. The court has denied the
pre-existing defendants' request for leave to file a joint motion
to dismiss, and discovery is proceeding.
Beginning in December 2015, numerous putative class actions
under Canadian law were filed in the Ontario and Quebec Superior
Courts of Justice against various HSBC companies and other
financial institutions. The plaintiffs allege that, among other
things, from January 2004 to March 2014, the defendants conspired
to manipulate the price of gold and gold derivatives in violation
of the Canadian Competition Act and common law. These actions are
at an early stage.
Silver: Beginning in July 2014, numerous putative class actions
were filed in the US District Courts for the Southern and Eastern
Districts of New York, naming HSBC and other members of The London
Silver Market Fixing Ltd as defendants. The complaints allege that,
from January 2007 to December 2013, the defendants conspired to
manipulate the price of silver and silver derivatives for their
collective benefit in violation of US antitrust laws, the US CEA
and New York state law. The actions were consolidated in the New
York District Court. The defendants' motion to dismiss the
consolidated action was granted in part and denied in part in
October 2016. In June 2017, the court granted the plaintiffs leave
to file a third amended complaint, which names several new
defendants. The court has denied the pre-existing defendants'
request for leave to file a joint motion to dismiss, and discovery
is proceeding.
In April 2016, two putative class actions under Canadian law
were filed in the Ontario and Quebec Superior Courts of Justice
against various HSBC companies and other financial institutions.
The plaintiffs in both actions allege that, from January 1999 to
August 2014, the defendants conspired to manipulate the price of
silver and silver derivatives in violation of the Canadian
Competition Act and common law. The Ontario action is at an early
stage. The Quebec action has been temporarily stayed.
Platinum and palladium: Between late 2014 and early 2015,
numerous putative class actions were filed in the New York District
Court, naming HSBC and other members of The London Platinum and
Palladium Fixing Company Limited as defendants. The complaints
allege that, from January 2008 to November 2014, the defendants
conspired to manipulate the price of platinum group metals ('PGM')
and PGM-based financial products for their collective benefit in
violation of US antitrust laws and the US CEA. In March 2017, the
defendants' motion to dismiss the second amended consolidated
complaint was granted in part and denied in part. In June 2017, the
plaintiffs filed a third amended complaint. The defendants filed a
joint motion to dismiss, which remains pending.
Based on the facts currently known, it is not practicable at
this time for HSBC to predict the resolution of these matters,
including the timing or any possible impact on HSBC, which could be
significant.
Other regulatory investigations, reviews and litigation
HSBC Bank plc and/or certain of its affiliates are subject to a
number of other investigations and reviews by various regulators
and competition and law enforcement authorities, as well as
litigation, in connection with various matters relating to the
firm's businesses and operations, including:
-- an investigation by the Swiss Competition Commission in
connection with the setting of Euribor and Japanese yen Libor;
-- an information request from the UK Competition and Markets
Authority concerning the financial services sector;
-- putative individual and class actions brought in the New York
District Court relating to the Canadian dealer offered rate, the
credit default swap market and the Mexican government bond market,
and putative class actions brought in the New York District Court
and in the Superior and Federal Courts in Canada relating to the
market for US dollar-denominated supranational sovereign and agency
bonds; and
-- putative class actions brought in the US District Court for
the Northern District of Texas and a claim issued in the High Court
of England and Wales in connection with HSBC Bank plc's role as a
correspondent bank to Stanford International Bank Ltd from 2003 to
2009.
There are many factors that may affect the range of outcomes,
and the resulting financial impact, of these matters, which could
be significant.
33 Related party transactions
---
The immediate parent company of the group is HSBC UK Holdings
Limited and the ultimate parent company is HSBC Holdings plc, both
of which are incorporated in England.
Copies of the Group financial statements may be obtained from
the following address:
HSBC Holdings plc
8 Canada Square
London E14 5HQ
IAS 24 'Related party disclosures' defines related parties as
including the parent, fellow subsidiaries, associates, joint
ventures, post-employment benefit plans for HSBC employees, Key
Management Personnel ('KMP') of the group and its ultimate parent
company, close family members of the KMP and entities which are
controlled, jointly controlled or significantly influenced by the
KMP or their close family members.
Particulars of transactions between the group and the related
parties are tabulated below. The disclosure of the year-end balance
and the highest amounts outstanding during the year are considered
to be the most meaningful information to represent the amount of
the transactions and outstanding balances during the year.
Key Management Personnel
The KMP of the bank are defined as those persons having
authority and responsibility for planning, directing and
controlling the activities of the bank. They include the Directors
of HSBC Bank plc, and Directors and certain Group Managing
Directors of HSBC Holdings plc, to the extent they have a role in
directing the affairs of the bank.
A number of the bank's KMP are not Directors of the group, but
are Directors or Group Managing Directors of HSBC Holdings plc. The
emoluments of these KMP are paid by other members of the Group who
make no recharge to the bank. It is not possible to make a
reasonable apportionment of their emoluments in respect of the
bank. Accordingly, no emoluments in respect of these KMP are
included in the following disclosure.
The tables below represent the compensation for Directors of the
bank in exchange for services rendered to the bank for the period
they served during the year.
Compensation of Key Management Personnel
2018 2017
GBP000 GBP000
Short-term employee benefits 3,115 3,816
Post-employment benefits 4 10
Other long-term employee benefits 136 441
Share-based payments 801 1,359
------
Year ended 31 Dec 4,056 5,626
---------------------------------------------- ------
Transactions and balances during the year with Key Management Personnel
of the bank
2018 (4) 2017 (5)
Highest Highest
amounts amounts
Balance outstanding outstanding
at 31 during Balance during
Dec(2) year(3) at 31 Dec year
GBPm GBPm GBPm GBPm
Key Management
Personnel(1)
Advances and
credits(2) 2 4 19 24
----------- -----------
Guarantees - - - -
---------- ------------
Deposits 29 60 27 53
1 Includes close family members and entities which are
controlled or jointly controlled by KMP of the bank or their close
family members.
2 Exchange rate applied for non-GBP amounts is at 31 December 2018.
3 Exchange rate applied for non-GBP amounts is the average for the year.
4 2018 excludes the qualifying components of the bank's RBWM UK,
CMB UK and GPB UK businesses following ring-fencing in July
2018.
5 The 2017 amounts have been restated to just include
transactions and balances between the KMP and the group.
The above transactions were made in the ordinary course of
business and on substantially the same terms, including interest
rates and security, as for comparable transactions with persons of
a similar standing or, where applicable, with other employees. The
transactions did not involve more than the normal risk of repayment
or present other unfavourable features.
In addition to the requirements of IAS 24, particulars of
advances (loans and quasi-loans), credits and guarantees entered
into by the group with Directors of HSBC Bank plc are required to
be disclosed pursuant to section 413 of the Companies Act 2006.
Under the Companies Act, there is no requirement to disclose
transactions with KMP of the bank's ultimate parent company, HSBC
Holdings plc.
Transactions with Directors: advances, credits and guarantees (Companies
Act 2006)
2018 2017
Balance
Balance at 31
at 31 Dec Dec
GBP000 GBP000
Directors
Loans 265 1,564
Guarantees - -
----------------------------------------------------------------------------- ----------
Other related parties
Transactions and balances during the year with KMP of the bank's
ultimate parent company
During the course of 2017 and 2018, there were no transactions
and balances between KMP of the bank's ultimate parent company, who
were not considered KMP of the bank, in respect of Advances and
Credits, Guarantees and Deposits.
Transactions and balances during the year with associates and joint
ventures
2018 2017
Highest Highest
balance Balance balance
during at during Balance
the year 31 Dec the year at 31 Dec
GBPm GBPm GBPm GBPm
Unsubordinated amounts due from
joint
ventures(1) 102 - 102 88
--------- ----------
Subordinated amounts due from
associates - - 304 304
--------- -------
Guarantees and commitments(1) 610 - 480 480
1 Impacted by the transfers to HSBC UK Bank plc under the
ring-fence implementation. For further information see Note 35
Discontinued operations.
The group provides certain banking and financial services to
associates and joint ventures, including loans, overdrafts,
interest and non-interest bearing deposits and current accounts.
Details of the interests in associates and joint ventures are given
in Notes 17 and 37.
The group's transactions and balances during the year with HSBC Holdings
plc and subsidiaries of HSBC Holdings plc
2018 2017
Due to/from Due to/from
Due to/from subsidiaries Due to/from subsidiaries
HSBC Holdings of HSBC Holdings HSBC Holdings of HSBC Holdings
plc plc plc plc
Highest Highest Highest Highest
balance balance Balance balance balance Balance
during during at 31 during during at 31
the year 31 Dec the year Dec the year 31 Dec the year Dec
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Assets
Trading assets 351 24 4,725 276 888 351 13,367 4,725
Derivatives 2,651 1,685 20,224 18,135 - - 29,439 18,993
------
Financial assets
designated
at fair value 15 7 201 198 20 15 4 2
Loans and advances
to banks - - 6,703 2,780 - - 13,450 3,958
------
Loans and advances
to customers 924 - 3,610 539 1,500 924 4,366 3,610
Financial investments 238 229 28 - 250 238 29 28
Total related party
assets at 31 Dec 4,179 1,945 35,491 21,928 2,658 1,528 60,655 31,316
------
Liabilities
Trading liabilities 968 303 18,634 1,114 2,650 968 28,316 18,634
------
Financial liabilities
designated at fair
value 2,167 1,183 68 66 2,161 2,161 - -
Deposits by banks - - 8,647 2,859 1 - 5,460 4,901
Customer accounts 15,024 2,708 5,095 1,716 26,291 15,001 7,316 5,095
Derivatives 770 559 21,145 17,594 - - 24,693 18,923
------
Subordinated
liabilities 13,444 6,060 4,230 4,230 13,279 13,279 222 -
Total related party
liabilities at 31
Dec 32,373 10,813 57,819 27,579 44,382 31,409 66,007 47,553
------
Guarantees and
commitments - - 482 397 - - 503 472
Due to/from
Due to/from subsidiaries
HSBC Holdings of HSBC Holdings
plc plc
2018 2017 2018 2017
GBPm GBPm GBPm GBPm
Income statement
Interest income 6 - 119 53
Interest expense 448 481 141 81
Fee income 13 17 95 98
Dividend income - - - -
Fee expense - - 387 377
Trading income - 16 5 212
Trading expense 3 - 125 -
Other operating income 97 276 316 383
General and administrative expenses 67 45 2,719 3,997
The above outstanding balances arose in the ordinary course of
business and on substantially the same terms, including interest
rates and security, as for comparable transactions with third-party
counterparties.
The bank's transactions and balances during the year with HSBC Bank
plc subsidiaries, HSBC Holdings plc and subsidiaries of HSBC Holdings
plc
2018 2017
Due to/from Due to/from Due to/from Due to/from
subsidiaries subsidiaries subsidiaries subsidiaries
of HSBC Due to/from of HSBC of HSBC Due to/from of HSBC
Bank plc HSBC Holdings Holdings Bank plc HSBC Holdings Holdings
subsidiaries plc plc subsidiaries plc plc
Highest Highest Highest Highest Highest Highest
balance Balance balance Balance balance Balance balance Balance balance Balance balance Balance
during at during at during at during at during at during at
the 31 the 31 the 31 the 31 the 31 the 31
year Dec year Dec year Dec year Dec year Dec year Dec
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Assets
Trading
assets 3,547 1,051 351 24 4,403 276 8,463 3,547 888 351 13,053 4,403
Derivatives 11,668 11,557 2,651 1,685 29,257 17,329 13,269 10,989 - - 41,702 29,257
Loans and
advances
to banks 7,491 4,142 - - 6,570 2,650 6,331 5,786 - - 8,922 3,570
Loans and
advances
to customers 15,422 7,444 911 - 3,594 539 15,644 14,467 1,496 911 4,350 3,594
Financial
investments 820 185 - - - - 1,329 820 - - - -
Total related
party assets
at
31 Dec 38,948 24,379 3,913 1,709 43,824 20,794 45,036 35,609 2,384 1,262 68,027 40,824
Liabilities
Trading
liabilities 679 - 968 303 18,543 1,114 8,246 679 2,650 968 27,925 18,543
Deposits by
banks 4,777 2,542 - - 8,164 2,104 14,162 4,777 - - 5,061 4,666
Customer
accounts 1,410 922 15,024 2,708 4,997 1,705 3,075 1,410 26,282 14,984 7,209 4,997
Derivatives 12,444 12,309 770 559 34,043 16,709 15,603 12,332 - - 42,337 34,043
Subordinated
liabilities 700 700 13,137 5,827 4,230 4,230 700 696 12,970 12,970 - -
Total related
party
liabilities
at 31 Dec 20,010 16,473 29,899 9,397 69,977 25,862 41,786 19,894 41,902 28,922 82,532 62,249
Guarantees
and
commitments 1,502 1,475 - - 361 273 1,498 1,498 - - 359 359
The above outstanding balances arose in the ordinary course of
business and on substantially the same terms, including interest
rates and security, as for comparable transactions with third-party
counterparties.
Post-employment benefit plans
The HSBC Bank (UK) Pension Scheme (the 'Scheme') entered into
swap transactions with the bank to manage the inflation and
interest rate sensitivity of the liabilities. At 31 December 2018,
the gross notional value of the swaps was GBP8,250m (2017:
GBP8,345m), the swaps had a negative fair value of GBP810m to the
bank (2017: negative fair value of GBP745m) and the bank had
delivered collateral of GBP801m (2017: GBP745m) to the Scheme in
respect of these swaps. All swaps were executed at prevailing
market rates and within standard market bid/offer spreads.
34 Effects of reclassifications upon adoption of IFRS 9
--- -----------------------------------------------------
Reconciliation of consolidated balance sheet at 31 December 2017 and
1 January 2018
IFRS 9 reclassification
to
IAS
39
carrying Fair Fair IFRS IFRS
amount value value 9 remeasurement 9 carrying
at Other through through Carrying including amount
31 changes profit other amount expected at 1
Dec in and comprehensive Amortised post credit Jan
2017 classification loss income cost reclassification losses 2018
IAS 39 IFRS 9
measurement measurement
Footnotes category category GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Assets
---------
Cash and
balances
at central Amortised Amortised
banks cost cost 97,601 - - - - 97,601 (1) 97,600
Items in
the course
of collection
from other Amortised Amortised
banks cost cost 2,023 - - - - 2,023 - 2,023
Trading 1,
assets 2 FVPL FVPL 145,725 (156) - - (26,447) 119,122 - 119,122
-------
Financial
assets designated
and otherwise
mandatorily
measured
at fair
value through
profit or
loss 2,3 FVPL FVPL 9,266 156 5,567 - - 14,989 6 14,995
Derivatives FVPL FVPL 143,335 - - - - 143,335 - 143,335
---------
Loans and
advances 1, Amortised Amortised
to banks 3 cost cost 14,149 (731) (193) - - 13,225 (6) 13,219
Loans and 1,
advances 3, Amortised Amortised
to customers 4 cost cost 280,402 (3,277) (2,514) - - 274,611 (652) 273,959
Reverse
repurchase
agreements Amortised Amortised
- non-trading cost cost 45,808 - - - - 45,808 - 45,808
FVOCI
(Available-for-sale
Financial - debt
investments 5 instruments) FVOCI 57,338 - (2,287) - (6) 55,045 - 55,045
FVOCI
(Available-for-sale
- equity
6 instruments) FVOCI 662 - (573) - - 89 - 89
Amortised Amortised
5 cost cost - - - - 6 6 - 6
Prepayments,
accrued
income and Amortised Amortised
other assets 1 cost cost 16,026 4,008 - - 26,447 46,481 (1) 46,480
Current
tax assets N/A N/A 140 - - - - 140 - 140
------ ---- --- -------
Interests
in associates
and joint
ventures N/A N/A 327 - - - - 327 - 327
Goodwill
and intangible
assets N/A N/A 5,936 - - - - 5,936 - 5,936
------ ---- --- -------
Deferred
tax assets N/A N/A 130 - - - - 130 34 164
--------- ------ ---- --- -------
Total assets 818,868 - - - - 818,868 (620) 818,248
--------- ------ ---- --- ------
For footnotes, see page 161.
Reconciliation of consolidated balance sheet at 31 December 2017 and 1 January 2018 (continued)
IFRS 9 reclassification
to
IAS
39 Fair IFRS IFRS
carrying value Fair value 9 re-measurement 9 carrying
amount Other through through Carrying including amount
at 31 changes profit other amount expected at 1
Dec in and comprehensive Amortised post credit Jan
2017 classification loss income cost reclassification losses 2018
IFRS 9
measurement
Footnotes category GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Liabilities
Deposits Amortised
by banks 1 cost 29,349 (178) - - - 29,171 - 29,171
Customer Amortised
accounts 1 cost 381,546 (3,240) - - - 378,306 - 378,306
Repurchase
agreements Amortised
- non-trading cost 37,775 - - - - 37,775 - 37,775
Items in
the course
of transmission
to other Amortised
banks cost 1,089 - - - - 1,089 - 1,089
1,
Trading liabilities 8 FVPL 106,496 (48,713) - - - 57,783 - 57,783
Financial
liabilities
designated 7,
at fair value 8 FVPL 18,249 17,958 - - (274) 35,933 - 35,933
Derivatives FVPL 140,070 - - - - 140,070 - 140,070
Debt securities Amortised
in issue cost 13,286 - - - - 13,286 - 13,286
Accruals,
deferred
income and Amortised
other liabilities 1 cost 6,615 34,173 - - - 40,788 - 40,788
Current tax
liabilities N/A 88 - - - - 88 - 88
Liabilities
under insurance
contracts N/A 21,033 - - - - 21,033 - 21,033
Provisions 4 N/A 1,796 - - - - 1,796 104 1,900
Deferred
tax liabilities N/A 933 - - - - 933 (140) 793
Subordinated Amortised
liabilities 7 cost 16,494 - - - 274 16,768 (52) 16,716
Total liabilities 774,819 - - - - 774,819 (88) 774,731
--------- ----------- -------- ------ ------------- ------ ---------------- --------
For footnotes, see page 161.
Reconciliation of consolidated balance sheet at 31 December 2017 and
1 January 2018 (continued)
IAS 39
carrying IFRS 9
amount remeasurement Carrying
at Carrying including amount at
31 Dec IFRS 9 amount post expected 1 January
2017 reclassification reclassification credit losses 2018
Footnotes GBPm GBPm GBPm GBPm GBPm
Equity
Called up share
capital 797 - 797 - 797
Other equity instruments 3,781 - 3,781 - 3,781
Other reserves 9 2,744 (192) 2,552 (57) 2,495
-----
Retained earnings 9 36,140 192 36,332 (475) 35,857
---------
Total Shareholders'
equity 43,462 - 43,462 (532) 42,930
--------------------------- --------- -----
Non-controlling
interests 587 - 587 - 587
--------- ------
Total equity 44,049 - 44,049 (532) 43,517
--------- -----
For footnotes, see page 161.
Reconciliation of impairment allowances under IAS 39 and provisions
under IAS 37 to expected credit losses under IFRS 9
Reclassification to Remeasurement
Fair Fair value
value through Stage
through other 1 &
profit comprehensive Amortised Stage Stage
or loss income cost 3 2 Total
IAS 39
measurement
category GBPm GBPm GBPm GBPm GBPm GBPm
Financial assets
at amortised cost
IAS 39 impairment
allowances at
31 Dec 2017 2,243
Amortised
cost
Cash and balances (Loans and
at central banks receivables) - - - - 1 1
Items in the course Amortised
of collection cost
from other banks (Loans and
receivables) - - - - - -
Amortised
cost
Loans and advances (Loans and
to banks receivables) - - - - 6 6
Amortised
cost
Loans and advances (Loans and
to customers receivables) - - - 187 465 652
Reverse repurchase Amortised
agreements - non-trading cost
(Loans and
receivables) - - - - - -
Amortised
Prepayments, accrued cost
income and other (Loans and
assets receivables) - - - - 1 1
Expected credit
loss allowances
at 1 Jan 2018 2,903
Loan commitments
and financial
guarantee contracts
IAS 37 provisions
at 31 Dec 2017 55
Provisions (loan
commitments and
financial guarantees) N/A N/A N/A N/A 30 74 104
Expected credit
loss provisions
at 1 Jan 2018 159
The pre-tax net asset impact of additional impairment allowances
on adoption of IFRS 9 is GBP764m; GBP660m in respect of financial
assets at amortised cost and GBP104m related to loan commitments
and financial guarantee contracts. The total expected credit loss
allowance at 1 January 2018 is GBP2,903m in respect of financial
assets at amortised cost and GBP159m related to loan commitments
and financial guarantee contracts.
Effects of reclassification upon adoption of IFRS 9
Assuming no
reclassification
Fair value
Fair Fair value gains
Carrying value gains recognised
amount at 31 recognised in other Interest
at 31 Dec in profit comprehensive revenue/(expense)
Dec 2018 2018 or loss income recognised
Footnotes GBPm GBPm GBPm GBPm GBPm
Reclassified from
available-for-sale
to amortised cost
-----------------------------
Other financial assets held
at amortised cost 5 5 N/A - N/A
Reclassified from fair value
through profit and loss to
amortised cost or fair value
though other comprehensive
income
Subordinated liabilities 10 235 279 27 5 (23)
------
For footnotes, see page 161.
Footnotes to Effects of reclassifications upon adoption of IFRS 9
1 Cash collateral, margin and settlement accounts of GBP26,447m have
been reclassified from 'Trading assets' to 'Prepayments, accrued income
and other assets' as a result of the assessment of business models
in accordance with IFRS 9. Cash collateral, margin and settlement
accounts previously presented as 'Loans and advances to banks' of
GBP573m and 'Loans and advances to customers' of GBP394m have been
represented in 'Prepayments, accrued income and other assets' to ensure
consistent presentation of all such balances. Cash collateral, margin
and settlement accounts previously presented as 'Trading liabilities'
of GBP30,755m, 'Deposits by banks' of GBP570m, and 'Customer accounts'
of GBP548m have been represented in 'Accruals, deferred income and
other liabilities'. This change in presentation for financial liabilities
is considered to provide more relevant information, given the change
in presentation for the financial assets. In addition, intragroup
trade receivables have been reclassified from 'Loans and advances
to banks' and 'Loans and advances to customers' to 'Prepayments, accrued
income and other assets' and intragroup trade payables have been reclassified
from 'Deposits from banks' and 'Customer accounts' to 'Accruals, deferred
income and other liabilities'.
2 Default fund contributions of GBP156m have been reclassified from
'Trading assets' to 'Financial assets designated and otherwise mandatorily
measured at fair value through profit or loss', as contrary to the
assets mentioned in footnote 1 above, they did not meet the 'solely
payments of principal and interest' ('SPPI') requirement for amortised
cost classification under IFRS 9.
3 'Loans and advances to customers' of GBP2,514m and 'Loans and advances
to banks' of GBP193m did not meet the SPPI requirement for amortised
cost classification under IFRS 9. As a result, these financial assets
were reclassified to 'Financial assets designated and otherwise mandatorily
measured at fair value through profit or loss'. This resulted in a
GBP6m upward remeasurement of the financial assets now measured at
fair value.
4 IFRS 9 expected credit losses have decreased net assets by GBP764m,
principally comprising of a GBP652m reduction in the carrying value
of assets classified as 'Loans and advances to customers' and a GBP104m
increase in 'Provisions' relating to expected credit losses on loan
commitments and financial guarantee contracts.
5 Debt instruments of GBP2,287m, previously classified as available-for-sale
under IAS 39, did not meet the SPPI requirement for FVOCI classification.
As a result, these financial assets were classified as 'Financial
assets designated and otherwise mandatorily measured at fair value
through profit or loss' upon adoption of IFRS 9. Debt instruments
of GBP6m, previously classified as available-for-sale under IAS 39,
have been reclassified to amortised cost as a result of a 'hold to
collect' business model classification under IFRS 9.
6 GBP573m of available-for-sale non-traded equity instruments have been
reclassified as 'Financial assets designated and otherwise mandatorily
measured at fair value through profit or loss' in accordance with
IFRS 9. The group has elected to apply the FVOCI option under IFRS
9 for the remaining GBP89m.
7 As required by IFRS 9, the fair value designation of subordinated
liabilities of GBP274m has been revoked since an accounting mismatch
no longer exists. This resulted in these liabilities now being measured
at amortised cost, decreasing 'Subordinated liabilities' by GBP52m.
8 We have considered market practices for the presentation of GBP17,958m
of financial liabilities which contain both deposit and derivative
components. We have concluded that a change in accounting policy and
presentation from 'Trading liabilities' would be appropriate, since
it would better align with the presentation of similar financial instruments
by peers and therefore provide more relevant information about the
effect of these financial liabilities on our financial position and
performance. As a result, rather than being classified as held for
trading, these liabilities are classified as 'Financial liabilities
designated at fair value' from 1 January 2018.
9 While IFRS 9 expected credit losses have no effect on the carrying
value of FVOCI debt instruments, which remain measured at fair value,
the adoption of IFRS 9 resulted in a transfer of GBP57m between the
FVOCI reserve (formerly AFS reserve) and 'Retained earnings' to reflect
the difference between the cumulative impairment recognised in profit
or loss in accordance with IFRS 9 and the cumulative impairment losses
previously recognised in profit or loss under IAS 39. The resulting
cumulative expected credit losses recognised in 'Retained earnings'
on financial assets measured at FVOCI on adoption of IFRS 9 is GBP166m.
In addition, the cumulative AFS reserve relating to financial investments
reclassified to 'Financial assets designated and otherwise mandatorily
measured at fair value through profit or loss' in accordance with
IFRS 9 has been transferred to 'Retained earnings'.
10 The effective interest rate on subordinated liabilities reclassified
at 1 January 2018 was 7.69%.
35 Discontinued operations
To meet HSBC Holdings plc's UK ring-fencing obligations in
accordance with the UK Banking Reform Act, on 1 July 2018, HSBC
Bank plc's UK Retail Banking and Wealth Management (RBWM),
Commercial Banking (CMB) and Global Private Banking (GPB), were
legally separated into a ring-fenced bank, HSBC UK Bank plc. This
legal separation resulted in the demerger of the ring-fenced
businesses in accordance with the application made to the High
Court. The transfer of the various assets and liabilities making up
the ring-fenced bank followed a variety of legal mechanisms (the
most significant mechanism being a transfer under Part VII of the
Financial Services and Markets Act 2000).
The establishment of HSBC UK Bank plc was accounted for as a
group restructuring. The series of transactions that comprised UK
ring fencing were not designed to deliver economic benefits from
changes in business activities, but represent a re-arrangement of
the organisation of business activities across legal entities under
the common control of HSBC Holdings plc in its capacity as the
ultimate shareholder in order to be compliant with the relevant
regulations.
HSBC's accounting policy required that assets and liabilities
were recognised at their existing carrying amounts. The transfers
to HSBC UK Bank plc were therefore at the 1 July 2018 carrying
value of HSBC Bank plc. Equity reserves were not recycled through
profit or loss, and were transferred to, and accounted for on the
same basis by HSBC UK Bank plc. HSBC Bank plc reports the
transferred business as discontinued operations. There was no gain
or loss on disposal.
The 2018 results represent the six months to 30 June 2018, and
the 2017 results are for the year ended 31 December 2017.
Discontinued operations income statement
2018 2017
GBPm GBPm
Net operating income(1, 2) 3,037 5,767
Total operating expenses (2,3) (1,894) (4,635)
Operating profit 1,143 1,132
Profit before tax 1,143 1,132
Tax expense (323) (330)
Profit for the year 820 802
Profit from discontinued operations attributable to
shareholders of the parent company 820 802
Profit/(loss) for the year attributable to non-controlling -
interests -
1 Includes operating income for RBWM, CMB and GPB, adjusted to
exclude CMB operating income for customers not transferred to HSBC
UK Bank plc.
2 Includes a portion of Global Foreign Exchange (GFX) and 50% of
BSM operating income and operating expenses for 2017 and the first
four months of 2018; until the establishment of separate BSM and
GFX functions for HSBC UK Bank plc.
3 Includes 100% of costs to establish the UK ring-fenced bank of
GBP251m in 2017 and an apportionment of the costs to achieve not
assigned to a specific global business. Costs of establishment
apportioned to HSBC UK Bank plc are on the basis that they were
incurred to launch HSBC UK Bank plc retail and commercial business
in the UK, in order to meet regulatory requirements on
ring-fencing.
Statement of other comprehensive income from discontinued
operations
2018 2017
GBPm GBPm
Available-for-sale investments(1) N/A -
Debt instruments at fair value through other comprehensive
income 5 N/A
Foreign exchange reserve (3) -
Cash flow hedges(2) (30) (75)
Remeasurement of defined benefit asset/liability(3) 178 1,791
Other comprehensive loss, net of tax 150 1,716
1 Nil available-for-sale reserve was assigned to discontinued
operations as no available-for-sale reserve was transferred to HSBC
UK Bank plc on 1 July 2018.
2 The 2017 portion of cash flow hedging reserve was assigned
based on currency and maturity because the separate BSM functions
were not established until the second quarter
of 2018.
3 The remeasurement of defined benefit asset/liability was
recognised entirely in discontinued operations.
Cash flows from discontinued operations
2018 2017
Cash flows from discontinued operations(1) GBPm GBPm
Net cash from operating activities 7,258 6,770
Net cash from investing activities (1,296) (624)
Net cash from financing activities (946) (2,809)
Net cash flows for the year 5,016 3,337
1 Net cash flows were approximated by summarising the movements
from the ring-fenced bank balance sheets for December 2016 and
December 2017 and the opening balance sheet at 1 July 2018. The
2016 and 2017 balance sheets were compiled by separating the
qualifying components of HSBC Bank plc from the consolidated
balance sheet including;
i) HSBC Bank plc's UK RBWM, CMB and GPB businesses;
ii) the qualifying subsidiaries most notably Marks and Spencer
Financial Services plc, HSBC Private Bank (UK) Limited and a number
of asset finance entities; and
iii) the transfer of HSBC Bank plc's excess reserves to HSBC UK
Bank plc via a capital contribution.
The assumptions applied in preparing these balance sheets
include:
a) other third party assets and liabilities and provisions were
apportioned to the ring-fenced bank based on the underlying
businesses to which the balances related;
b) derivative assets and liabilities included in the balance
sheets related solely to hedging instruments used to hedge the
ring-fenced bank's own risk;
c) no current tax was included in the balance sheets;
d) deferred tax was apportioned according to the related assets being transferred;
e) the surplus on the UK principal defined benefit plan has been
recognised entirely within the ring-fenced bank balance sheet;
f) the balance sheets were prepared as though the capital
injection and transfer of reserves had occurred as at the
respective reporting dates;
g) intergroup payables and receivables created on separation
were not included in the balance sheets at which time these were
eliminated on consolidation; and
h) the approximated split of cash and financial investments were
apportioned based on the actual split at 1 July 2018.
36 Events after the balance sheet date
--- ------------------------------------
A second interim dividend for 2018 of GBP406m to the shareholder
of the parent company was declared on 12 February 2019 by the
Directors and will be payable on 26 February 2019. A special
dividend of GBP674m was declared after 31 December 2018 on the
ordinary share capital of HSBC Bank plc in respect of 2018 and will
be payable on 26 February 2019.
On 1 February 2019, the activities of HSBC Bank plc's branches
in Belgium, the Netherlands, Spain, Italy, Ireland and Czech
Republic were transferred to new branches of HSBC France in those
countries.
In its assessment of events after the balance sheet date, HSBC
considered, among others, the events related to the process of the
UK's withdrawal from the European Union that occurred between 31
December 2018 and the date when the financial statements were
authorised for issue, and concluded that no adjustments to the
financial statements were required.
37 HSBC Bank plc's subsidiaries, joint ventures and associates
--- ------------------------------------------------------------
In accordance with section 409 of the Companies Act 2006 a list
of HSBC Bank plc subsidiaries, joint ventures and associates, the
registered office address and the effective percentage of equity
owned at 31 December 2018 is disclosed below.
Unless otherwise stated, the share capital comprises ordinary or
common shares which are held by HSBC Bank plc subsidiaries. The
ownership percentage is provided for each undertaking. The
undertakings below are consolidated by HSBC Bank plc unless
otherwise indicated.
Subsidiaries
The undertakings below are consolidated by the group.
% of share
class held
by immediate
parent
company
(or by
HSBC Bank
plc where
Subsidiaries this varies) Footnotes
Assetfinance December
(H) Limited 100.00 15
Assetfinance December
(M) Limited 100.00 15
Assetfinance December 2,
(P) Limited 100.00 15
Assetfinance December
(R) Limited 100.00 15
Assetfinance June (A)
Limited 100.00 15
Assetfinance Limited 100.00 15
Assetfinance March
(B) Limited 100.00 16
Assetfinance March
(F) Limited 100.00 15
Assetfinance September
(F) Limited 100.00 15
Banco Nominees (Guernsey)
Limited 100.00 17
Banco Nominees 2 (Guernsey)
Limited 100.00 17
Beau Soleil Limited 7,
Partnership n/a 18
Billingsgate Nominees 2,
Limited 100.00 15
---------
Canada Crescent Nominees 2,
(UK) Limited 100.00 15
---------
Canada Water Nominees 2,
(UK) Limited (in liquidation) 100.00 15
CCF & Partners Asset
Management Limited 99.99 15
---------
CCF Charterhouse GmbH
& Co Asset Leasing 7,
KG (in liquidation) n/a 19
CCF Charterhouse GmbH 4,
(in liquidation) 100.00 (99.99) 19
---------
CCF Holding (LIBAN) 1,
S.A.L. (in liquidation) 74.99 20
---------
Charterhouse Administrators
(D.T.) Limited 100.00 (99.99) 15
---------
Charterhouse Development
Limited (in liquidation) 100.00 21
Charterhouse Management
Services Limited 100.00 (99.99) 15
---------
Charterhouse Pensions 2,
Limited 100.00 15
---------
CL Residential Limited
(in liquidation) 100.00 21
---------
2,
7,
COIF Nominees Limited n/a 15
---------
Corsair IV Financial 7,
Services Capital Partners n/a 73
---------
4,
Dem 5 100.00 (99.99) 22
---------
4,
Dem 9 100.00 (99.99) 22
---------
4,
Dempar 1 100.00 (99.99) 23
---------
4,
Dempar 4 100.00 (99.99) 23
---------
11,
Elysees GmbH (in liquidation) 100.00 (99.99) 19
---------
4,
Elysées Immo Invest 100.00 (99.99) 24
---------
Equator Holdings Limited 2,
(in liquidation) 100.00 15
---------
Eton Corporate Services
Limited 100.00 17
---------
4,
Fdm 5 SAS 100.00 (99.99) 22
---------
4,
Finanpar 2 100.00 (99.99) 24
---------
4,
Finanpar 7 100.00 (99.99) 24
---------
1,
Flandres Contentieux 4,
S.A. 100.00 (99.99) 25
---------
4,
Foncière Elysées 100.00 (99.99) 23
---------
Forward Trust Rail
Services Limited (in
liquidation) 100.00 15
Griffin International
Limited 100.00 15
---------
Grundstuecksgesellschaft 7,
Trinkausstrasse Kommanditgesellschaft n/a 26
Hg Janus A Co-Invest 7,
L.P. n/a 74
---------
HITG Administration 2,
GmbH 100.00 27
---------
Hongkong International
Trade Finance (Holdings) 2,
Limited (in liquidation) 100.00 15
HSBC (BGF) Investments 2,
Limited 100.00 15
---------
HSBC Alpha Funding 2,
(UK) Holdings LP (in 7,
liquidation) n/a 28
HSBC Asset Finance 2,
(UK) Limited 100.00 15
---------
HSBC Asset Finance
Holdings Limited (in 2,
liquidation) 100.00 15
HSBC Asset Finance
M.O.G. Holdings (UK) 2,
Limited 100.00 15
HSBC Assurances Vie 4,
(France) 100.00 (99.99) 25
---------
HSBC Bank (General 2,
Partner) Limited 100.00 29
---------
HSBC Bank (RR) (Limited 13,
Liability Company) 100.00 30
---------
HSBC Bank Armenia cjsc 70.00 31
---------
HSBC Bank Capital Funding 7,
(Sterling 1) LP n/a 29
---------
HSBC Bank Capital Funding 7,
(Sterling 2) LP n/a 29
---------
HSBC Bank Malta p.l.c. 70.03 32
---------
HSBC Bank Nominee (Jersey) 2,
Limited 100.00 33
---------
HSBC Bank Pension Trust 2,
(UK) Limited 100.00 15
---------
% of share
class held
by immediate
parent
company
(or by
HSBC Bank
plc where
Subsidiaries this varies) Footnotes
3,
HSBC Bank Polska S.A. 100.00 34
HSBC City Funding Holdings 100.00 15
---------
HSBC Client Holdings 2,
Nominee (UK) Limited 100.00 15
---------
HSBC Corporate Trustee 2,
Company (UK) Limited 100.00 15
HSBC Custody Services
(Guernsey) Limited 100.00 17
---------
HSBC Enterprise Investment 2,
Company (UK) Limited 100.00 15
HSBC Epargne Entreprise 4,
(France) 100.00 (99.99) 25
---------
HSBC Equator (UK) Limited
(in liquidation) 100.00 15
---------
2,
HSBC Equity (UK) Limited 100.00 15
---------
HSBC Europe B.V. 100.00 15
---------
4,
HSBC Factoring (France) 100.00 (99.99) 23
---------
2,
4,
HSBC France 99.99 23
---------
HSBC Funding (UK) Holdings
(active proposal to
strike off) 100.00 15
HSBC Germany Holdings 2,
GmbH 100.00 26
---------
HSBC Global Asset Management
(Deutschland) GmbH 100.00 (80.67) 26
HSBC Global Asset Management 4,
(France) 100.00 (99.99) 35
---------
HSBC Global Asset Management
(International) Limited 2,
(in liquidation) 100.00 36
HSBC Global Asset Management
(Malta) Limited 100.00 (70.03) 37
HSBC Global Asset Management 6,
(Oesterreich) GmbH 100.00 (80.67) 38
HSBC Global Asset Management 4,
(Switzerland) AG 100.00 (90.33) 39
HSBC Global Custody 2,
Nominee (UK) Limited 100.00 15
---------
HSBC Global Custody
Proprietary Nominee 2,
(UK) Limited 100.00 15
HSBC Global Shared
Services (India) Private
Limited (in liquidation) 100.00 (99.99) 40
HSBC Infrastructure
Limited 100.00 15
---------
HSBC INKA Investment-AG 9,
TGV 100.00 (80.67) 41
---------
HSBC Institutional
Trust Services (Ireland)
DAC 100.00 (99.99) 42
---------
HSBC Insurance Management
Services Limited (in
liquidation) 100.00 43
HSBC Insurance Services 2,
Holdings Limited 100.00 15
---------
HSBC International
Holdings (Jersey) Limited
(in liquidation) 100.00 33
HSBC International
Limited (in liquidation) 100.00 33
---------
HSBC International
Trade Finance Limited
(in liquidation) 100.00 15
HSBC Investment Bank 2,
Holdings Limited 100.00 15
---------
HSBC Issuer Services
Common Depositary Nominee 2,
(UK) Limited 100.00 15
HSBC Issuer Services
Depositary Nominee 2,
(UK) Limited 100.00 15
4,
HSBC Leasing (France) 100.00 (99.99) 22
---------
2,
HSBC Life (UK) Limited 100.00 15
---------
HSBC Life Assurance
(Malta) Limited 100.00 (70.03) 37
---------
HSBC Lodge Funding
(UK) Holdings (active
proposal to strike
off) 100.00 15
2,
HSBC LU Nominees Limited 100.00 15
---------
HSBC Marking Name Nominee 2,
(UK) Limited 100.00 15
---------
HSBC Middle East Leasing 7,
Partnership n/a 44
---------
HSBC Operational Services 7,
GmbH n/a 45
---------
HSBC Overseas Nominee 2,
(UK) Limited 100.00 15
---------
HSBC PB Corporate Services
1 Limited 100.00 46
---------
HSBC Pension Trust 2,
(Ireland) DAC 100.00 42
---------
HSBC PI Holdings (Mauritius)
Limited 100.00 47
---------
HSBC Preferential LP 2,
(UK) 100.00 15
---------
HSBC Private Bank (C.I.) 2,
Limited 100.00 17
---------
HSBC Private Banking
Nominee 3 (Jersey)
Limited 100.00 46
HSBC Private Equity
Investments (UK) Limited 100.00 15
---------
HSBC Property Funds
(Holding) Limited 100.00 15
---------
HSBC Rail (UK) Limited
(in liquidation) 100.00 15
---------
HSBC Real Estate Leasing 4,
(France) 99.99 25
4,
HSBC REIM (France) 100.00 (99.99) 25
HSBC Representative 2,
Office (Nigeria) Limited 100.00 48
HSBC Securities (South 2,
Africa) (Pty) Limited 100.00 50
HSBC Securities Services
(Guernsey) Limited 100.00 17
HSBC Securities Services
(Ireland) DAC 100.00 42
HSBC Securities Services 2,
(Luxembourg) S.A. 100.00 51
HSBC Securities Services
Holdings (Ireland)
DAC 100.00 42
4,
HSBC Services (France) 99.99 23
4,
HSBC SFH (France) 99.99 25
HSBC Specialist Investments 5,
Limited 100.00 15
HSBC Transaction Services 6,
GmbH 100.00 (80.67) 52
HSBC Trinkaus & Burkhardt
(International) S.A. 100.00 (80.67) 51
HSBC Trinkaus & Burkhardt 9,
AG 80.67 26
HSBC Trinkaus & Burkhardt
Gesellschaft fur Bankbeteiligungen
mbH 100.00 (80.67) 26
HSBC Trinkaus Europa
Immobilien-Fonds Nr.
5 GmbH 100.00 (80.67) 26
HSBC Trinkaus Family 6,
Office GmbH 100.00 (80.67) 26
HSBC Trinkaus Immobilien
Beteiligungs KG 100.00 (80.67) 26
HSBC Trinkaus Real 6,
Estate GmbH 100.00 (80.67) 26
HSBC Trustee (C.I.) 2,
Limited 100.00 46
HSBC Trustee (Guernsey) 2,
Limited 100.00 17
HSIL Investments Limited 100.00 15
InfraRed NF China Real
Estate Investments 7,
LP n/a 75
INKA Internationale
Kapitalanlagegesellschaft
mbH 100.00 (80.67) 52
IRERE Property Investments
(French Offices) Sarl
(in liquidation) 100.00 53
2,
James Capel & Co. Limited 100.00 15
James Capel (Channel
Islands) Nominees Limited
(in liquidation) 100.00 36
James Capel (Nominees) 2,
Limited 100.00 15
James Capel (Second
Nominees) Limited (in 2,
liquidation) 100.00 21
James Capel (Taiwan) 2,
Nominees Limited 100.00 15
Keyser Ullmann Limited 100.00 (99.99) 15
Legend Estates Limited
(in liquidation) 100.00 15
Marks and Spencer Retail
Financial Services
Holdings Limited (in 2,
liquidation) 100.00 54
2,
Midcorp Limited 100.00 15
MIL (Jersey) Limited 100.00 46
Prudential Client HSBC 2,
GIS Nominee (UK) Limited 100.00 15
2,
Republic Nominees Limited 100.00 17
RLUKREF Nominees (UK) 2,
One Limited 100.00 15
RLUKREF Nominees (UK) 2,
Two Limited 100.00 15
11,
S.A.P.C. - Ufipro Recouvrement 99.97 22
4,
Saf Baiyun 100.00 (99.99) 24
4,
Saf Chang Jiang 100.00 (99.99) 24
4,
Saf Guangzhou 100.00 (99.99) 24
4,
Saf Zhu Jiang 100.00 (99.99) 24
4,
Saf Zhu Jiang Jiu 100.00 (99.99) 24
4,
Saf Zhu Jiang Shi Ba 100.00 (99.99) 24
4,
Saf Zhu Jiang Shi Er 100.00 (99.99) 24
4,
Saf Zhu Jiang Shi Jiu 100.00 (99.99) 24
4,
Saf Zhu Jiang Shi Liu 100.00 (99.99) 24
4,
Saf Zhu Jiang Shi Qi 100.00 (99.99) 24
4,
Saf Zhu Jiang Shi Wu 100.00 (99.99) 24
4,
SAS Bosquet -Audrain 100.00 (94.90) 55
4,
SAS Cyatheas Pasteur 100.00 (94.93) 22
1,
4,
SAS Orona 100.00 (94.92) 56
SCI HSBC Assurances 11,
Immo 100.00 (99.99) 25
4,
SFM 99.99 23
SFSS Nominees (Pty)
Limited 100.00 50
1,
11,
SNC Dorique 100.00 (99.99) 57
11,
SNC Kerouan 100.00 (99.99) 24
1,
11,
SNC Les Mercuriales 100.00 (99.99) 24
11,
SNC Les Oliviers D'Antibes 60.00 25
1,
11,
SNC Makala 100.00 (99.99) 24
1,
11,
SNC Nuku-Hiva Bail 100.00 (99.99) 24
1,
4,
SNCB/M6 - 2008 A 100.00 (99.99) 24
1,
4,
SNCB/M6-2007 A 100.00 (99.99) 24
1,
4,
SNCB/M6-2007 B 100.00 (99.99) 24
Societe CCF Finance
Moyen-Orient S.A.L. 1,
(in liquidation) 99.64 (99.08) 20
Société Française 4,
et Suisse 100.00 (99.99) 24
Somers Dublin DAC 100.00 (99.99) 42
4,
Sopingest 100.00 (99.99) 24
South Yorkshire Light
Rail Limited 100.00 15
Swan National Leasing
(Commercials) Limited 100.00 15
Swan National Limited 100.00 15
4,
Thasosfin 100.00 (99.99) 25
The Venture Catalysts 2,
Limited 100.00 15
Trinkaus Australien
Immobilien Fonds Nr.
1 Brisbane GmbH & Co.
KG 100.00 (80.67) 26
Trinkaus Australien
Immobilien-Fonds Nr. 6,
1 Treuhand-GmbH 100.00 (80.67) 26
Trinkaus Europa Immobilien-Fonds
Nr.3 Objekt Utrecht
Verwaltungs-GmbH 100.00 (80.67) 26
Trinkaus Immobilien-Fonds 6,
Geschaeftsfuehrungs-GmbH 100.00 (80.67) 26
Trinkaus Immobilien-Fonds 6,
Verwaltungs-GmbH 100.00 (80.67) 26
Trinkaus Private Equity
Management GmbH 100.00 (80.67) 26
Trinkaus Private Equity 6,
Verwaltungs GmbH 100.00 (80.67) 26
Valeurs Mobilières 4,
Elysées 100.00 (99.99) 58
Joint ventures
The undertakings below are joint ventures and equity
accounted.
% of share
class held
by immediate
parent company
or by HSBC
Bank plc
where this
Joint Ventures varies) Footnotes
HCM Holdings Limited 50.99 21
Sino AG 24.94 (20.11) 71
1,
2,
The London Silver Market 7,
Fixing Limited n/a 72
Associates
The undertakings below are associates and equity accounted.
% of share
class held
by immediate
parent company
(or by HSBC
Bank plc
where this
Associates varies) Footnotes
BGF Group PLC 24.48 59
3,
14,
Bud Financial Limited 8.02 60
---------
1,
2,
CFAC Payment Scheme 3,
Limited 33.33 61
---------
Chemi & Cotex (Rwanda) 1,
Limited 99.98 (33.99) 62
---------
Chemi & Cotex Kenya 1,
Limited 99.99 (33.99) 63
---------
Chemi and Cotex Industries 1,
Limited 100.00 (33.99) 64
HSBC Mortgage Limited 2,
Liability Partnership 7,
(in liquidation) n/a 66
Jeppe Star Limited 100.00 (33.99) 67
Novo Star Limited 33.99 68
14,
Quantexa Limited 10.51 69
4,
14,
Services Epargne Entreprise 14.35 49
14,
Vizolution Limited 17.95 65
We Trade Innovation
Designated Activity 14,
Company 8.52 70
Footnotes
1 Management has determined that
these undertakings are excluded
from consolidation in the group
accounts as these entities do
not meet the definition of subsidiaries
in accordance with IFRS. HSBC's
consolidation policy is described
in Note 1.2(a).
2 Directly held by HSBC Bank plc
Description of shares
3 Preference Shares
-----
4 Actions
5 Redeemable Preference Shares
6 GmbH Anteil
This undertaking is a partnership
7 and does not have share capital
8 Liquidating Share Class
9 Stückaktien
10 Non-Participating Voting Shares
11 Parts
12 Registered Capital Shares
Russian Limited Liability Company
13 Shares
HSBC Bank plc exercises control
or significant influence over
this undertakings notwithstanding
14 its equity interest
Registered offices
8 Canada Square, London, United
15 Kingdom, E14 5HQ
5 Donegal Square South, Belfast,
16 Northern Ireland, BT1 5JP
Arnold House, St Julians Avenue,
17 St Peter Port, Guernsey, GY1 3NF
HSBC Main Building, 1 Queen's
18 Road Central, Hong Kong
Unsoeldstrasse 2, Munich, Germany,
19 80538
Solidere - Rue Saad Zaghloul Immeuble
- 170 Marfaa, PO Box 17 5476 Mar
20 Michael 11042040, Beyrouth, Lebanon
Hill House, 1 Little New Street,
21 London, United Kingdom, EC4A 3TR
39, rue de Bassano, Paris, France,
22 75008
103, avenue des Champs-Elysées,
23 Paris, France, 75008
64, rue Galilée, Paris, France,
24 75008
15, rue Vernet, Paris, France,
25 75008
Königsallee 21/23, Düsseldorf,
26 Germany, 40212
11-17 Ludwig-Erhard-Str., Hamburg,
27 Germany, 20459
PO Box 513, HSBC House, 68 West
Bay Road, George Town, Grand Cayman,
28 Cayman Islands, KY1-1102
HSBC House Esplanade, St. Helier,
29 Jersey, JE4 8UB
2 Paveletskaya Square, Building
2, Moscow, Russian Federation,
30 115054
66 Teryan Street, Yerevan, Armenia,
31 0009
116 Archbishop Street, Valletta,
32 Malta
HSBC House Esplanade, St. Helier,
33 Jersey, JE1 1HS
34 Rondo ONZ 1, Warsaw, Poland, 00-124
Immeuble Coeur Défense 110,
Esplanade du Général
de Gaulle- La défense 4,
35 Courbevoie, France, 92400
HSBC House Esplanade, St. Helier,
36 Jersey, JE4 8WP
80 Mill Street, Qormi, Malta,
37 QRM 3101
Herrengasse 1-3, Wien, Austria,
38 1010
39 Gartenstrasse 26, Zurich, Switzerland
52/60 M G Road, Fort, Mumbai,
40 India, 400 001
Breite Str. 29/31, Düsseldorf,
41 Germany, 40213
1 Grand Canal Square, Grand Canal
42 Harbour, Dublin 2, D02 P820, Ireland
1 More London Place, London, United
43 Kingdom, SE1 2AF
Precinct Building 4, Level 3 Dubai
International Financial Centre,
Dubai, United Arab Emirates, PO
44 BOX 506553
21-23 Yorckstraße, Düsseldorf,
Nordrhein-Westfalen, Germany,
45 40476
HSBC House Esplanade, St. Helier,
46 Jersey, JE1 1GT
HSBC Centre Eighteen, Cybercity,
47 Ebene, Mauritius
St Nicholas House, 10th Floor
48 Catholic Mission St Lagos, Nigeria
32 Rue du Champ de Tir, 44300
49 Nantes
2 Exchange Square, 85 Maude Street,
Sandown, Sandton, South Africa,
50 2196
16 Boulevard d'Avranches, Luxembourg,
51 L-1160
Yorckstraße 21 - 23 40476,
52 Duesseldorf, Germany
53 6, rue Adolphe, Luxembourg, L-1116
Kings Meadow Chester Business
Park, Chester, United Kingdom,
54 CH99 9FB
15 rue Guynemer BP 412, Noumea,
55 98845
10, rue Jean Jaurès BP Q5,
56 Noumea, New Caledonia, 98845
43 rue de Paris, Saint Denis,
57 97400
109 avenue des Champs-Elysees,
58 Paris, France, 75008
-----
13 - 15 York Buildings, London,
59 United Kingdom, WC2N 6JU
207 First Floor The Bower, 207
Old Street, England, United Kingdom,
60 EC1V 9NR
6th Floor, 65 Gresham Street,
61 London, United Kingdom, EC2V 7NQ
62 Kacyiru BP 3094, Kigali, Rwanda
LR No. 1758/13 Grevella Grove
Road, Kalamu House PO Box 47323-00100,
63 Nairobi, Kenya
Plot No. 89-90 Mbezi Industrial
64 Area, Box 347, Dar es Salaam City
Office Block A, Bay Studios Business
Park, Fabian Way, Swansea, SA1
65 8QB, Wales, United Kingdom
40a Station Road, Upminster, United
66 Kingdom, RM14 2TR
c/o Trident Trust Company, Trident
Chambers, PO Box 146, Tortola,
67 British Virgin Islands
Jayla Place Wickhams Cay I, PO
Box 3190, Road Town, British Virgin
68 Islands
75 Park Lane, Croydon, Surrey,
69 United Kingdom, CR9 1XS
10 Earlsfort Terrace, Dublin,
70 Ireland, D02 T380
Ernst-Schneider-Platz 1, Duesseldorf,
71 Germany, 40212
C/O Hackwood Secretaries Limited,
One Silk Street, London, EC2Y
72 8HQ
c/o Maples Corporate Services
Limited, Ugland House, PO Box
309, Grand Cayman, KY1-1104, Cayman
73 Islands
1 Royal Plaza, Royal Avenue, St
Peter Port, Guernsey, Channel
74 Islands, GY1 2HL
Regency Court, Glategny Esplanade,
75 St. Peter Port, Guernsey GY1 1WW
-----
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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February 20, 2019 07:03 ET (12:03 GMT)
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