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HSBC Holdings PLC (HSBA)

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Monday 30 July, 2012

HSBC Holdings PLC

HSBC Holdings plc 2012 Interim Results

RNS Number : 7523I
HSBC Holdings PLC
30 July 2012
 



HSBC HOLDINGS PLC

2012 INTERIM RESULTS - HIGHLIGHTS

 

Financial highlights*:

·    Reported profit before tax was US$12.7bn, 11% higher than in the first half of 2011, including US$4.3bn gains from disposals and US$2.2bn of adverse movements in the fair value of own debt

·    Underlying profit before tax down 3% to US$10.6bn

·    Underlying revenues up 4%, with particular increases in faster-growing regions of Hong Kong, Rest of Asia-Pacific and Latin America

·    Profit before tax in Hong Kong and Rest of Asia-Pacific rose US$1.3bn and accounted for almost two thirds of the total profit before tax worldwide

·    Further progress in reshaping HSBC; a total of 36 transactions to sell or dispose of non-strategic business announced since the start of 2011, with several major transactions now completed

·    Global Banking and Markets profit before tax of US$5.0bn, up 5% compared to 1H11

·    Commercial Banking increased underlying revenues from faster growing regions by 12%

·    Cost efficiency ratio broadly stable compared to 1H11 at 57.5%

·    Underlying costs US$1.9bn higher than in 1H11, reflecting notable items including UK customer redress provisions of US$1.3bn and US provisions for certain law enforcement and regulatory matters of US$0.7bn

·    Achieved sustainable cost savings of US$0.8bn, broadly reinvested in the business. Total sustainable cost savings since the start of 2011 now equivalent to US$2.7bn on an annualised basis

·    Return on average shareholders' equity 10.5%

·    Profit attributable to ordinary shareholders US$8.2bn, down 9% on 1H11, and earnings per share US$0.45, down 12%

·    Dividends declared in respect of 1H12 of US$0.18 per ordinary share, in line with 1H11

·    Continued capital strength: core tier 1 capital ratio 11.3%, up from 10.1% at the end of 2011, ratio of customer advances to customer accounts 76.3%

 

Stuart Gulliver, Group Chief Executive said:

"During the first six months of 2012 we have made substantial and encouraging progress in key areas, increasing revenues in faster-growing markets such as Asia, and continuing to reshape the organisation. The period has also seen close scrutiny of our conduct. We apologise for our past mistakes in relation to anti-money laundering controls, and it is a priority for senior management to build on steps already taken to manage risk and ensure compliance more effectively. This, together with the priorities set out at our investor day - to simplify further, restructure and grow - will be essential in positioning HSBC for future growth."

 

Key performance indicators:

Metric

1H11

2H11

1H12

Target/benchmark

Return on average ordinary shareholders' equity (%)

12.3

9.5

10.5

12-15

Cost efficiency ratio (%)

57.5

57.5

57.5

48-52

Earnings per share (US$)

0.51

0.41

0.45

-

Core tier 1 ratio (%)

10.8

10.1

11.3

9.5-10.5

*  All figures are given on a reported basis, unless otherwise stated.

 


HSBC HOLDINGS REPORTS PRE-TAX PROFIT OF US$12.7bn

 

HSBC made a profit before tax of US$12.7bn, an increase of US$1.3bn, or 11%, compared with the first half of 2011.

 

Profit attributable to ordinary shareholders was US$8.2bn, a decrease of US$777m or 9% compared with the first half of 2011.

 

Net interest income of US$19.4bn was US$859m, or 4%, lower than the first half of 2011.

 

Net operating income before loan impairment charges and other credit risk provisions of US$36.9bn was US$1.2bn, or 3%, higher than the first half of 2011.

 

Total operating expenses of US$21.2bn increased by US$694m, or 3%, compared with the first half of 2011. On an underlying basis, and expressed in terms of constant currency, operating expenses increased by 10%.

 

HSBC's cost efficiency ratio remained at 57.5%.

 

Loan impairment charges and other credit risk provisions were US$4.8bn in the first half of 2012, US$467m lower than the first half of 2011.

 

The Directors have declared a second interim dividend for 2012 of US$0.09 per ordinary share, a distribution of approximately US$1,643m.

 

The core tier 1 ratio and tier 1 ratio for the Group remained strong at 11.3% and 12.7%, respectively, at 30 June 2012.

 

The Group's total assets at 30 June 2012 were US$2,652bn, an increase of US$96.7bn, or 4%, since 31 December 2011.

 

 


Geographical distribution of results

 

Profit/(loss) before tax



Half-year to


30 June 2012


30 June 2011


31 December 2011


US$m


%


US$m


%


US$m


%













Europe

(667)


(5.2)


2,147


18.7


2,524


24.3

Hong Kong

3,761


29.5


3,081


26.9


2,742


26.4

Rest of Asia-Pacific

4,372


34.3


3,742


32.6


3,729


35.8

Middle East and North Africa

772


6.1


747


6.5


745


7.2

North America

3,354


26.3


606


5.3


(506)


(4.9)

Latin America

1,145


9.0


1,151


10.0


1,164


11.2














12,737


100.0


11,474


100.0


10,398


100.0













Tax expense

(3,629)




(1,712)




(2,216)















Profit for the period

9,108




9,762




8,182















Profit attributable to shareholders












   of the parent company

8,438




9,215




7,582















Profit attributable to












   non-controlling interests

670




547




600



 

 

Distribution of results by global business

 

Profit/(loss) before tax



Half-year to


30 June 2012


30 June 2011


31 December 2011


US$m


%


US$m


%


US$m


%













Retail Banking and Wealth Management

6,410


50.3


3,126


27.3


1,144


11.0

Commercial Banking

4,429


34.8


4,189


36.5


3,758


36.1

Global Banking and Markets

5,047


39.6


4,811


41.9


2,238


21.5

Global Private Banking

527


4.1


552


4.8


392


3.8

Other

(3,676)


(28.8)


(1,204)


(10.5)


2,866


27.6














12,737


100.0


11,474


100.0


10,398


100.0

 

 


 

Statement by Douglas Flint, Group Chairman

 

Against a backdrop of deteriorating economic conditions, HSBC delivered a successful financial performance in the first half of 2012 with underlying revenue growth driven by Global Banking and Markets and Commercial Banking. This was particularly notable in the faster-growing regions of Hong Kong, Rest of Asia-Pacific and Latin America. In addition, we continued to make good progress in delivering the strategic agenda set out by management and the Group Chief Executive's Business Review highlights the key elements of performance in the period. We also benefited from sizeable disposal gains, as already announced transactions within the strategic repositioning of the Group, notably in the United States, completed. Profit before tax for the six months amounted to US$12.7 billion, some US$1.3 billion ahead of the same period last year.

 

Capital strength was bolstered and the core tier 1 ratio improved to 11.3% versus 10.1% at the beginning of the year and 10.8% a year ago.

 

A second interim dividend of US$0.09 per ordinary share was declared by the Board on 30 July taking the total dividends declared in respect of the first half of 2012 to US$0.18 per ordinary share, as foreshadowed in last year's Annual Report and Accounts and in line with the previous year.

 

However, regulatory and compliance events in the first six months of the year overshadowed financial performance. And that has added further to public concern and distrust of the banking industry.

 

HSBC has made mistakes in the past, and for them I am very sorry. Candidly, in particular areas we fell short of the standards that I, my colleagues, our regulators, customers, and investors expect.

 

We cannot undo the mistakes but I can assure you that Stuart Gulliver and I are determined, and have made it our most important priority, to strengthen HSBC and reinforce our values. Our business practices and actions must stand up to scrutiny wherever we operate.

 

Over a year ago we set out a strategy designed to make HSBC the world's leading international bank. In order to make the firm more cohesive and better connected we reshaped our global business.

 

We created global functions with the necessary authority to manage the firm on a global basis with consistent policies, standards and processes.

 

We articulated a set of HSBC values to underpin and guide our behaviour. HSBC employs 271,500 people around the world and I believe the vast majority of my colleagues demonstrate the highest standards of integrity in their daily decisions and actions.

 

And since we know too well that the bad practice of a few can stain our reputation we were, and are, determined to take the appropriate measures to protect and enhance our reputation.

 

Whether we succeed in gaining the recognition we strive for depends ultimately on the actions we take and the judgement of others. They will judge our financial performance and capital strength but they will judge us too on our reputation for reliability, trustworthiness and integrity.

 

It is, therefore, extremely frustrating and infuriating when we discover areas where the behaviour of HSBC has fallen short of the standards we expect.

That is why we are embedding a new structure to help us reduce complexity and run the firm more effectively. But structure is not enough. And that is why we are formulating and implementing global standards to ensure our conduct matches our values. We are committed to doing this.

 

In practice this means we must adopt and enforce the highest standards throughout our global business.

 

It means enhancing risk management controls to prioritise behaviour and values, in particular around ethical sales practices.

 

It means that where we conclude that any customer or potential customer poses an unacceptable reputational risk (or otherwise does not meet our standards) we should exit or avoid the relationship.

 

We are committed to making the necessary investment in controls and training required to fulfil society's expectations of our industry.

 

This Group is made up of many legal entities around the world, all with their own traditions and heritage, but we have only one reputation. Each generation of leadership is entrusted, above all else, to guard it jealously. We take that responsibility very seriously.

 

You will have seen the reports of HSBC's appearance two weeks ago before the US Senate's Permanent Subcommittee on Investigations ('PSI'). The hearing related to an investigation by the PSI into risks to the US financial system from inadequate compliance with US regulations around money laundering and financial sanctions. HSBC was a case study.

 

We had previously disclosed the existence of these proceedings in our Annual Report and Accounts, but the PSI hearing was the first time that details have been disclosed. During the hearing we acknowledged and apologised for past mistakes.

 

Our compliance and operational controls should have been stronger and more effective, most particularly in Mexico as we integrated and expanded the bank we acquired in 2002. As a consequence, we failed to identify or deal adequately with unacceptable behaviour.

 

The PSI report acknowledges we fully co-operated with the inquiry. That is only as it should be and rightly we were held accountable for our failings.

 

As the PSI is purely an investigatory body we expect related enforcement actions from other US authorities over the coming months. We shall, of course, continue to co-operate with all the authorities.

 

We learn lessons continually. As those who seek to exploit the financial system constantly adapt their approach we need to be tireless and more innovative in our own efforts to stop them. And we must demonstrate that we have learned from earlier mistakes.

 

The banking industry is operating in a hostile climate so we must double our efforts to convince our regulators, customers and investors that we are striving for the highest possible standards. Only that way can we allay public fears and regain trust in our industry.

 

Last year Stuart and I set out our hopes and aspirations for HSBC. This year they remain the same: to make HSBC the world's leading international bank.

All this is taking place during a period of unprecedented transformation, transition and economic and political uncertainty. Never has the strain on management, our business and our customers been more evident.

 

The transformation required by the continuing regulatory reform agenda around capital, liquidity, central counterparty infrastructure, the ring-fencing of certain activities in the UK, preparation of recovery and resolution plans in multiple countries, addressing the extraterritorial reach of national legislation, understanding the impact of national discretions and exemptions, and addressing possible remuneration policy changes, to name but some of the areas of endeavour, is simply enormous.

 

The transition to a new regulatory architecture in the UK where the FSA is to be replaced with a Prudential Regulatory Authority and a Financial Conduct Authority, supplemented by a new Financial Policy Committee still defining its role and its macro-prudential tools within a Bank of England, itself about to transition to a new leadership and potentially a new governance model, adds further to the uncertain backdrop. The future influence and role of the European Banking Authority, to say nothing of what may come from a European Banking Union still in early stage design adds yet more complexity to planning for the future.

 

Alongside this industry introspection, we are focusing both for ourselves and with our clients to understand and address the risks, economic and financial, of a slowing global economy with a financial system increasingly domestically focused and with monetary and fiscal tools to stimulate growth all but exhausted in the developed world.

 

And finally, the political challenges in addressing society's expectations around social benefits, healthcare and pensions as well as addressing unsustainable fiscal positions in many countries, not least within Europe, command our attention as market sentiment around the likelihood of successful outcomes will hugely influence and shape the consumer and business confidence necessary to rebuild economic growth.

 

There is clearly much to do and our industry, and HSBC within it, has a critical role in supporting economic growth with well targeted, risk justified and properly priced credit, investment and related financial services.

 

We are eager to fulfil this role and, on the positive side, within the first half of 2012 our lending to business, including small businesses, grew. Importantly, given many weak domestic economies, trade finance and related services expanded as businesses reached out to new markets with our support. This is both consistent and clearly aligned with the efforts being made around the world by governments to facilitate economic growth.

 

However, on the other side of the equation, we closed the half year with close to US$150 billion deposited with central banks. While enormously supportive of HSBC's own balance sheet strength and liquidity, it is also symptomatic of a financial system that is failing to intermediate the funds it attracts to productive investment. The extent to which this reflects an underlying lack of demand for credit, an unjustified risk aversion, an inability to assess confidently risk/return dynamics or regulatory pressures to prioritise the build-up of capital and liquidity is subject to fierce debate; in reality all are factors.

 

Economic activity over the next six months and beyond will be planned against a backdrop of unusually difficult conditions in which to assess risks and uncertainties. Most critical will be the market's assessment of the feasibility of initiatives being designed to address the current eurozone banking and sovereign debt crises and the consequential impacts on the financial system and the global economy should these fail. On top of this, the multiple investigations around LIBOR and equivalent rate settings magnify uncertainty as the scale and depth of the issue is unknown at this stage. HSBC will also need to take concrete steps to resolve its own issues, particularly in the US.

 

While these issues will be a key focus to resolve as expeditiously as possible we must also continue to seek ways to support our customers in their pursuit of personal and corporate ambitions and objectives. We have the resources both human and financial to help our customers in these challenging times and we are committed to deploying them. And we have a clear strategy to which we are committed, which is being pursued actively by an energised management team and which we believe will build sustainable value for all our stakeholders.

 

Finally, this period has required ever greater efforts from our staff to deal simultaneously with the ongoing business needs of our customers as well as the regulatory reform and transition agenda, all in challenging economic conditions. I would like on behalf of the Board to express sincere appreciation for all their endeavour.


 

Review by Stuart Gulliver, Group Chief Executive

 

During the first six months of 2012, HSBC has recorded underlying revenue growth and continued to make substantial progress in certain key areas:

 

·    strong revenue growth in Hong Kong, Rest of Asia-Pacific and Latin America, the same regions currently driving world economic growth;

 

·    Global Banking and Markets has had a strong six months, during a period of uncertainty in the financial markets and macroeconomic environment; and

 

·    we have continued to make headway in delivering our strategy, helping us to control our costs and to achieve additional revenues from the closer integration of our four different global businesses.

 

Our performance, however, has been affected by provisions for UK customer redress programmes and certain US law enforcement and regulatory matters, and our conduct has come under close scrutiny. We recognise that in the past we have on occasions failed to live up to the expectations of regulators, customers, and the communities in which we operate.

 

It is right that we be held accountable and I apologise for our past shortcomings. We are profoundly sorry for our mistakes, and are committed to putting them right. With a new strategy and senior leadership team in place since the start of 2011, we are introducing new processes and structures to help us manage risk and ensure compliance more effectively in the future.

 

Under the new strategy, HSBC is now run and managed as a genuinely global firm, making it easier to set, monitor and enforce standards. We are implementing high global standards across the Group. This includes working to ensure that the highest standards required in any part of the business will apply to every part of the business. We are also requiring all HSBC affiliates to independently complete due diligence on other HSBC affiliates with which they have a correspondent banking relationship; and developing a sixth filter - a global risk filter - to sit alongside the five outlined in our strategy, which will standardise our approach to doing business. Our central compliance team, whose role in the past consisted primarily of giving advice, can now control and enforce these standards. And we are driving a change in culture so that our conduct matches our values. For example, we now judge senior leaders both on what they achieve and how they achieve it.

 

Alongside this we continue to invest in people, processes and technology. We increased our spending on compliance to over US$400m last year.

 

Our customers and the communities in which we work expect us to carry out our business responsibly and to the highest ethical standards. Our shareholders, too, want us to match a strong economic performance with integrity, because both affect the value of their investment. With these steps, we believe we are heading in the right direction. This is a fundamental part of achieving our strategy and remains a top priority for the Board and senior management team.

 

Group performance headlines

 

·    Reported profit before tax was US$12.7bn, US$1.3bn higher than in the first half of 2011. This included US$4.3bn of gains from the disposals of businesses, notably from the sale of the Card and Retail Services business and from the sale of 138 non-strategic branches in the US. These results also included US$2.2bn of adverse movements in the fair value of our own debt attributable to credit spreads, compared with an adverse movement of US$143m in the first half of 2011.

 

·    Underlying profit before tax was US$10.6bn, down US$0.4bn, due to higher operating expenses, reflecting an increase in notable items, particularly provisions for customer redress and certain US law enforcement and regulatory matters. This was partly offset by higher revenue.

 

·    On an underlying basis, total revenues were 4% higher than in the first half of 2011, led by Global Banking and Markets with increased income across a number of businesses. Commercial Banking also experienced strong revenue growth, across most products and particularly in the faster-growing regions of Hong Kong, Rest of Asia-Pacific and Latin America - targeted as priorities in our strategy. This was somewhat offset by lower income in Retail Banking and Wealth Management due to the continued run-down of our consumer finance portfolios in the US.

 

·    We saw strong revenue growth from faster-growing regions. Underlying revenues grew in Hong Kong by 13%, in Rest of Asia-Pacific by 13% and in Latin America by 8%. Furthermore, we experienced double digit revenue growth in the priority markets of mainland China, India, Brazil and Argentina.

 

·    Underlying costs were US$1.9bn higher than in the first half of 2011 reflecting a number of notable items, including UK customer redress provisions of US$1.3bn, provisions for certain US law enforcement and regulatory matters of US$0.7bn and restructuring costs of US$0.6bn. Excluding these items operating expenses were marginally lower, reflecting the impact of sustainable cost saving initiatives which were partly offset by wage inflation, investment in compliance infrastructure and business expansion projects.

 

·    The reported cost efficiency ratio remained at 57.5%. On an underlying basis the cost efficiency ratio increased as a result of higher notable cost items.

 

·    Our ratio of customer advances to customer accounts remained strong at 76.3%.

 

·    Return on average ordinary shareholders' equity was 10.5%, down from 12.3% as a result of a higher tax charge.

 

·    The core tier 1 ratio increased during the period from 10.1% at the end of 2011 to 11.3%, driven by profit generation and a reduction in risk-weighted assets ('RWAs') following the business disposals.

 

Progress on strategy

 

We continue to execute our strategy, which is based on two key trends: the continuing growth of international trade and capital flows; and wealth creation, particularly in faster-growing markets. In May 2012, we updated investors on the significant progress made to date.

 

We have announced 36 disposals and closures since the beginning of 2011, exiting non-strategic markets and selling businesses and non-core investments, making HSBC easier to manage and control, and releasing around US$55bn in risk-weighted assets. Several of these transactions have now completed, including the sale of the Card and Retail Services business and 138 non-strategic branches in the US, the Private Client Services business in Canada, retail banking operations in Thailand and the general insurance manufacturing business in Argentina.

 

We have begun to simplify HSBC, removing layers of management, clarifying reporting lines and making the organisation easier to manage. The number of full-time equivalent employees is now 271,500 down from a peak of 299,000 at Q1 11. Our organisational effectiveness programme led to a decrease of more than 17,500, while business disposals accounted for the majority of the remaining reduction. Since May 2011, we have achieved US$1.7bn of sustainable cost savings, including US$0.8bn in the first half of 2012. This is equivalent to US$2.7bn on an annualised basis, and we are confident that we will deliver towards the upper end of our target range of US$2.5-3.5bn of sustainable savings by the end of 2013.

 

We have maintained our focus on the closer integration of our global businesses. This was illustrated by the collaboration between Global Banking and Markets and Commercial Banking, where we have increased revenues by 16% in the first half of 2012. Further opportunities for collaboration have been identified and initiatives are in progress in order to achieve our medium-term revenue targets.

 

Wealth Management revenue, however, fell in the first half of the year, primarily due to the non-recurrence of a 2011 gain arising from a refinement to asset valuation methodology. In addition, revenue from investment products decreased, primarily from lower volumes of securities trading by customers. This was partly offset by increased revenue from the sale of life insurance products and foreign exchange due to a rise in customer activity. We have a strong client base with around 4.3 million premier customers and remain committed to our medium-term targets. We have taken a number of actions in order to achieve them, including developing our infrastructure and capabilities.

 

The challenging macroeconomic context only serves to underline the importance of continuing to manage HSBC with proper discipline. In order to achieve this, we announced three immediate priorities at our strategy day in May. These are to simplify the business further, to continue to restructure and to grow the business. Focusing on these priorities will be essential in positioning HSBC for future growth.

 

Outlook

 

Economic conditions in Europe and other Western economies will continue to be subdued. Our assumption is that European leaders will take the necessary measures to preserve the euro but, even so, we expect the eurozone's economy to contract this year. In the US, we anticipate sub-par growth this year and next.

 

We continue to believe that emerging markets will grow at a reasonable pace. China will play an important role in this phenomenon as the world's second-largest economy and the main trading partner to other faster-growing economies. We remain confident of a 'soft landing' in China, where its leaders' readiness to use levers such as rate cuts to stimulate the economy means that growth is likely to hit or exceed 8% over the full year.

 

HSBC's expertise and geographic footprint across both developed and faster-growing economies mean that the Group is well-positioned to help our customers and shareholders benefit from the continued redrawing of the world's economic map. By delivering on our strategy, we are determined to help our customers make the most of the opportunities on offer.



Financial Overview





Half-year to



Half-year to

30 June



30 June


30 June


31 December

2012



2012


2011


2011

£m


HK$m



US$m


US$m


US$m















For the period






8,075


98,852


Profit before tax

12,737


11,474


10,398





Profit attributable to ordinary shareholders






5,350


65,487


   of the parent company

8,438


9,215


7,582

2,824


34,567


Dividends

4,454


4,006


3,495















At the period end






105,809


1,286,294


Total shareholders' equity

165,845


160,250


158,725

112,112


1,362,915


Total regulatory capital

175,724


173,784


170,334

894,503


10,874,238


Customer accounts and deposits by banks

1,402,042


1,444,466


1,366,747

1,692,189


20,571,503


Total assets

2,652,334


2,690,987


2,555,579

740,014


8,996,153


Risk-weighted assets

1,159,896


1,168,529


1,209,514





















£


HK$



US$


US$


US$





Per ordinary share






0.29


3.49


Basic earnings

0.45


0.51


0.41

0.29


3.49


Diluted earnings

0.45


0.50


0.41

0.15


1.79


Dividends1

0.23


0.21


0.18

5.57


67.71


Net assets per share

8.73


8.59


8.48

























Share information










US$0.50 ordinary shares in issue

18,164m


17,818m


17,868m





Market capitalisation

US$160bn


US$177bn


US$136bn





Closing market price per ordinary share

£5.61


£6.18


£4.91
















Over 1


Over 3


Over 5






year


years


Years





Total shareholder return to










   30 June 20122

96


127


90





Benchmarks:   FTSE 100

97


146


102





                         MSCI World

96


139


89





                         MSCI Banks

87


111


51

 

1  The dividend per ordinary share of US$0.23 shown in the accounts is the total of the dividends declared during the first half of 2012. This represents the fourth interim dividend for 2011 and the first interim dividend for 2012.

2  Total shareholder return ('TSR') is as defined on page 100 of the Interim Report 2012.

 

 



Half-year to


30 June


30 June


31 December


2012


2011


2011


%


%


%







Performance ratios






Return on average invested capital1

9.9


11.4


8.9

Return on average ordinary shareholders' equity

10.5


12.3


9.5

Post-tax return on average total assets

0.7


0.7


0.6

Pre-tax return on average risk-weighted assets

2.1


2.0


1.7







Efficiency and revenue mix ratios






Cost efficiency ratio

57.5


57.5


57.5







As a percentage of total operating income:






- net interest income

44.4


47.8


49.6

- net fee income

19.0


20.8


20.3

- net trading income

10.3


11.4


4.1







Capital ratios






- Core tier 1 ratio

11.3


10.8


10.1

- Tier 1 ratio

12.7


12.2


11.5

- Total capital ratio

15.1


14.9


14.1

 

Average invested capital is measured as average total shareholders' equity after:

-   adding back the average balance of goodwill amortised before the transition to IFRSs or subsequently written off directly to reserves (less goodwill previously amortised in respect of the French regional banks sold in 2008);

-   deducting the average balance of HSBC's revaluation surplus relating to property held for own use. This reserve was generated when determining the deemed cost of such properties on transition to IFRSs and will run down as the properties are sold;

    -    deducting average preference shares and other equity instruments issued by HSBC Holdings; and

    -    deducting average reserves for unrealised gains/(losses) on effective cash flow hedges and available-for-sale securities.

 

 


Consolidated Income Statement





Half-year to



Half-year to

30 June



30 June


30 June


31 December

2012



2012


2011


2011

£m


HK$m



US$m


US$m


US$m











18,734


229,330


Interest income

29,549


31,046


31,959

(6,450)


(78,953)


Interest expense

(10,173)


(10,811)


(11,532)











12,284


150,377


Net interest income

19,376


20,235


20,427











6,519


79,791


Fee income

10,281


10,944


10,553

(1,252)


(15,320)


Fee expense

(1,974)


(2,137)


(2,200)











5,267


64,471


Net fee income

8,307


8,807


8,353















Trading income excluding net interest






1,987


24,323


   income

3,134


3,231


52

878


10,749


Net interest income on trading activities

1,385


1,581


1,642











2,865


35,072


Net trading income

4,519


4,812


1,694















Changes in fair value of long-term debt






(1,148)


(14,047)


   issued and related derivatives

(1,810)


(494)


4,655





Net income/(expense) from other financial






398


4,866


   instruments designated at fair value

627


394


(1,116)















Net income/(expense) from financial






(750)


(9,181)


   instruments designated at fair value

(1,183)


(100)


3,539











649


7,940


Gains less losses from financial investments

1,023


485


422

65


799


Dividend income

103


87


62

4,245


51,967


Net earned insurance premiums

6,696


6,700


6,172

3,063


37,493


Other operating income

4,831


1,285


481











27,688


338,938


Total operating income

43,672


42,311


41,150















Net insurance claims incurred and






(4,295)


(52,580)


   movement in liabilities to policyholders

(6,775)


(6,617)


(4,564)















Net operating income before loan










   impairment charges and other credit






23,393


286,358


   risk provisions

36,897


35,694


36,586





Loan impairment charges and other






(3,043)


(37,245)


   credit risk provisions

(4,799)


(5,266)


(6,861)











20,350


249,113


Net operating income

32,098


30,428


29,725











(6,914)


(84,634)


Employee compensation and benefits

(10,905)


(10,521)


(10,645)

(5,784)


(70,819)


General and administrative expenses

(9,125)


(8,419)


(9,040)





Depreciation and impairment of property,






(448)


(5,479)


   plant and equipment

(706)


(805)


(765)





Amortisation and impairment of






(297)


(3,632)


   intangible assets

(468)


(765)


(585)











(13,443)


(164,564)


Total operating expenses

(21,204)


(20,510)


(21,035)











6,907


84,549


Operating profit

10,894


9,918


8,690















Share of profit in associates and






1,168


14,303


   joint ventures

1,843


1,556


1,708











8,075


98,852


Profit before tax

12,737


11,474


10,398











(2,301)


(28,165)


Tax expense

(3,629)


(1,712)


(2,216)











5,774


70,687


Profit for the period

9,108


9,762


8,182















Profit attributable to shareholders






5,349


65,487


   of the parent company

8,438


9,215


7,582















Profit attributable to non-controlling






425


5,200


   interests

670


547


600

 


Consolidated Statement of Comprehensive Income




Half-year to


30 June


30 June


31 December


2012


2011


2011


US$m


US$m


US$m







Profit for the period

9,108


9,762


8,182







Other comprehensive income/(expense)






Available-for-sale investments:






- fair value gains

2,362


1,378


(99)

- fair value (gains)/losses transferred to income statement on disposal

(1,017)


(529)


(291)

- amounts transferred to the income statement in respect of impairment losses

450


287


296

- income taxes

(202)


-


(368)








1,593


1,136


(462)

Cash flow hedges:






- fair value gains/(losses)

(307)


231


(812)

- fair value gains/(losses) transferred to income statement

245


(196)


984

- income taxes

56


5


(25)








(6)


40


147







Actuarial gains/(losses) on defined benefit plans






- before income taxes

(619)


(18)


1,285

- income taxes

150


(1)


(257)








(469)


(19)


1,028







Share of other comprehensive income of associates and joint ventures

338


(146)


(564)

Exchange differences

(392)


4,404


(7,269)

Income tax attributable to exchange differences


165


-







Other comprehensive income/(expense) for the period, net of tax

1,064


5,580


(7,120)







Total comprehensive income for the period

10,172


15,342


1,062







Total comprehensive income for the period attributable to:






- shareholders of the parent company

9,515


14,728


638

- non-controlling interests

657


614


424








10,172


15,342


1,062

 

 


Consolidated Balance Sheet
  
 
 
 
At
 
 
At
 
At
 
 
 
 
 
30 June
 
30 June
   
31 December
At 30 June 2012
 
  
2012
 
2011
   
2011
£m
 
HK$m
 
 
US$m
 
US$m
 
US$m
 
 
 
 
 
  
 
ASSETS
 
 
 
 
 
94,367
 
1,147,198
 
Cash and balances at central banks
147,911
 
68,218
 
129,902
 
 
 
 
Items in the course of collection from
 
 
7,066
 
85,898
 
   other banks
11,075
 
15,058
 
8,208
 
 
 
 
Hong Kong Government certificates of
 
 
13,579
 
165,071
 
   indebtedness
21,283
 
19,745
 
20,922
249,695
 
3,035,473
 
Trading assets
391,371
 
474,950
 
330,451
20,614
 
250,596
 
Financial assets designated at fair value
32,310
 
39,565
 
30,856
227,086
 
2,760,624
 
Derivatives
355,934
 
260,672
 
346,379
116,238
 
1,413,073
 
Loans and advances to banks
182,191
 
226,043
 
180,987
622,040
 
7,561,984
 
Loans and advances to customers
974,985
 
1,037,888
 
940,429
251,203
 
3,053,818
 
Financial investments
393,736
 
416,857
 
400,044
7,900
 
96,043
 
Assets held for sale
12,383
 
1,599
 
39,558
30,059
 
365,424
 
Other assets
47,115
 
45,904
 
48,699
837
 
10,176
 
Current tax assets
1,312
 
1,487
 
1,061
6,212
 
75,512
  
Prepayments and accrued income
9,736
 
12,556
 
10,059
15,178
 
184,515
 
Interests in associates and joint ventures
23,790
 
18,882
 
20,399
18,448
 
224,272
 
Goodwill and intangible assets
28,916
 
32,028
 
29,034
6,790
 
82,539
 
Property, plant and equipment
10,642
 
11,594
 
10,865
4,877
 
59,287
 
Deferred tax assets
7,644
 
7,941
 
7,726
 
 
 
1,692,189
 
20,571,503
 
Total assets
2,652,334
 
2,690,987
 
2,555,579
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At
  
At
 
At
 
 
 
30 June
 
30 June
 
31 December
At 30 June 2012
 
 
2012
 
2011
 
2011
£m
 
HK$m
 
 
US$m
 
US$m
 
US$m
 
 
 
 
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 
 
 
Liabilities
 
 
13,579
 
165,071
 
Hong Kong currency notes in circulation
21,283
 
19,745
 
20,922
78,827
 
958,277
 
Deposits by banks
123,553
 
125,479
 
112,822
815,676
 
9,915,961
 
Customer accounts
1,278,489
 
1,318,987
 
1,253,925
 
 
 
 
Items in the course of transmission to
 
7,223
 
87,806
 
   other banks
11,321
 
16,317
 
8,745
196,864
 
2,393,222
 
Trading liabilities
308,564
 
385,824
 
265,192
55,884
 
679,371
 
Financial liabilities designated at fair value
87,593
 
98,280
 
85,724
227,097
 
2,760,764
 
Derivatives
355,952
 
257,025
 
345,380
80,096
 
973,711
 
Debt securities in issue
125,543
 
149,803
 
131,013
8,038
 
97,718
 
Liabilities of disposal groups held for sale
12,599
 
41
 
22,200
22,406
 
272,383
 
Other liabilities
35,119
 
31,542
 
27,967
2,209
 
26,851
 
Current tax liabilities
3,462
 
2,629
 
2,117
40,105
 
487,550
 
Liabilities under insurance contracts
62,861
 
64,451
 
61,259
7,482
 
90,955
 
Accruals and deferred income
11,727
 
13,432
 
13,106
3,355
 
40,789
 
Provisions
5,259
 
3,027
 
3,324
1,011
 
12,293
 
Deferred tax liabilities
1,585
 
1,157
 
1,518
2,528
 
30,729
 
Retirement benefit liabilities
3,962
 
2,958
 
3,666
18,946
 
230,322
 
Subordinated liabilities
29,696
 
32,753
 
30,606
 
 
 
1,581,326
 
19,223,773
 
Total liabilities
2,478,568
 
2,523,450
 
2,389,486
 
 
 
 
 
 
Equity
 
5,794
 
70,432
 
Called up share capital
9,081
 
8,909
 
8,934
6,279
 
76,327
 
Share premium account
9,841
 
8,401
 
8,457
3,733
 
45,380
 
Other equity instruments
5,851
 
5,851
 
5,851
15,825
 
192,398
 
Other reserves
24,806
 
31,085
 
23,615
74,178
 
901,758
 
Retained earnings
116,266
 
106,004
 
111,868
 
 
105,809
 
1,286,295
 
Total shareholders' equity
165,845
 
160,250
 
158,725
5,054
 
61,435
 
Non-controlling interests
7,921
 
7,287
 
7,368
 
 
110,863
 
1,347,730
 
Total equity
173,766
 
167,537
 
166,093
 
 
1,692,189
 
20,571,503
 
Total equity and liabilities
2,652,334
 
2,690,987
 
2,555,579
 

 

 


 

 


Consolidated Statement of Cash Flows




Half-year to


30 June


30 June


31 December


2012


2011


2011


US$m


US$m


US$m







Cash flows from operating activities






Profit before tax

12,737


11,474


10,398







Adjustments for:






- net gain from investing activities

   (1,481)


(544)


(652)

- share of profit in associates and joint ventures

   (1,843)


(1,556)


(1,708)

- gain on sale of US branches and card business

    (3,809)


-


-

- other non-cash items included in profit before tax

10,420


8,825


11,053

- change in operating assets

(47,658)


(92,560)


85,148

- change in operating liabilities

40,766


130,301


(86,289)

- elimination of exchange differences

3,504


(16,046)


26,886

- dividends received from associates

     278


246


58

- contributions paid to defined benefit plans

 (437)


(588)


(589)

- tax paid

   (2,304)


(1,709)


(2,386)







Net cash generated from operating activities

10,173


37,843


41,919







Cash flows from investing activities






Purchase of financial investments

  (177,427)


(156,596)


(162,412)

Proceeds from the sale and maturity of financial investments

   188,242


153,407


158,295

Purchase of property, plant and equipment

   (683)


(665)


(840)

Proceeds from the sale of property, plant and equipment

76


194


106

Net purchase of intangible assets

   (507)


(893)


(678)

Net cash inflow from disposal of US branch network and cards business

  23,484


-


-

Net cash inflow/(outflow) from disposal of other subsidiaries and businesses

   (1,537)


5


211

Net cash outflow from acquisition of or increase in stake of associates

  (13)


(39)


(51)

Proceeds from disposal of associates and joint ventures

  288


11


14







Net cash used in investing activities

31,923


(4,576)


(5,355)







Cash flows from financing activities






Issue of ordinary share capital

  263


13


83

Net sales of own shares for market-making and investment purposes

   25


27


(252)

(Purchases)/sales of own shares to meet share awards and share option awards

  -


(27)


(109)

Subordinated loan capital issued

   -


-


7

Subordinated loan capital repaid

  (1,453)


(2,574)


(1,203)

Net cash outflow from the changes in stake in subsidiaries

    -


-


104

Dividends paid to ordinary shareholders of the parent company

  (3,161)


(2,192)


(2,822)

Dividends paid to non-controlling interests

  (325)


(321)


(247)

Dividends paid to holders of other equity instruments

    (286)


(286)


(287)







Net cash generated from/(used in) financing activities

(4,937)


(5,360)


(4,726)







Net increase/(decrease) in cash and cash equivalents

37,159


27,907


31,838







Cash and cash equivalents at beginning of period

325,449


274,076


312,351

Exchange differences in respect of cash and cash equivalents

(3,601)


10,368


(18,740)







Cash and cash equivalents at end of period

 359,007


312,351


325,449

 

 


Consolidated Statement of Changes in Equity




Half-year to


30 June


30 June


31 December


2012


2011


2011


US$m


US$m


US$m







Called up share capital






At beginning of period

8,934


8,843


8,909

Shares issued under employee share plans

84


1


5

Shares issued in lieu of dividends and amounts arising thereon

63


65


20







At end of period

9,081


8,909


8,934







Share premium






At beginning of period

8,457


8,454


8,401

Shares issued under employee share plans

1,447


12


78

Shares issued in lieu of dividends and amounts arising thereon

(63)


(65)


(22)







At end of period

9,841


8,401


8,457







Other equity instruments






At beginning of period

5,851


5,851


5,851







At end of period

5,851


5,851


5,851







Retained earnings






At beginning of period

111,868


99,105


106,004

Shares issued under employee share plans

(1,268)


-


-

Shares issued in lieu of dividends and amounts arising thereon

1,007


1,334


898

Dividends to shareholders

(4,454)


(4,006)


(3,495)

Tax credits on distributions

59


64


64

Own shares adjustment

32


(225)


(136)

Cost of share-based payment arrangements

541


588


566

Income taxes on share-based payments

(5)


36


(15)

Other movements

119


37


(112)

Change in ownership interest in subsidiaries that did not result
in loss of control

43


-


-

Total comprehensive income for the period

8,324


9,071


8,094







At end of period

116,266


106,004


111,868







Other reserves






Available-for-sale fair value reserve






   At beginning of period

(3,361)


(4,077)


(2,917)

   Other movements

-


14


(14)

   Total comprehensive income for the period

1,562


1,146


(430)







   At end of period

(1,799)


(2,917)


(3,361)







Cash flow hedging reserve






   At beginning of period

(95)


(285)


(245)

   Total comprehensive income for the period

(7)


40


150







   At end of period

(102)


(245)


(95)







Foreign exchange reserve






   At beginning of period

(237)


2,468


6,939

   Total comprehensive income for the period

(364)


4,471


(7,176)







   At end of period

(601)


6,939


(237)

 



Half-year to


30 June


30 June


31 December


2012


2011


2011


US$m


US$m


US$m







Merger reserve






   At beginning of period

27,308


27,308


27,308







At end of period

27,308


27,308


27,308







Total shareholders' equity






At beginning of period

158,725


147,667


160,250

Shares issued under employee share plans

263


13


83

Shares issued in lieu of dividends and amounts arising thereon

1,007


1,334


896

Dividends to shareholders

(4,454)


(4,006)


(3,495)

Tax credits on distributions

59


64


64

Own shares adjustment

32


(225)


(136)

Cost of share-based payment arrangements

541


588


566

Income taxes on share-based payments

(5)


36


(15)

Other movements

119


51


(126)

Changes in ownership interests in subsidiaries that did not result
in loss of control

43


-


-

Total comprehensive income for the period

9,515


14,728


638







At end of period

165,845


160,250


158,725







Non-controlling interests






At beginning of period

7,368


7,248


7,287

Dividends to shareholders

(398)


(413)


(402)

Other movements

(11)


1


27

Acquisition and disposals of subsidiaries

376


(261)


9

Changes in ownership interests in subsidiaries that did not result
in loss of control

(71)


98


23

Total comprehensive income for the period

657


614


424







At end of period

7,921


7,287


7,368







Total equity






At beginning of period

166,093


154,915


167,537

Shares issued under employee share plans

263


13


83

Shares issued in lieu of dividends and amounts arising thereon

1,007


1,334


896

Dividends to shareholders

(4,852)


(4,419)


(3,897)

Tax credits on distributions

59


64


64

Own shares adjustment

32


(225)


(136)

Cost of share-based payment arrangements

541


588


566

Income taxes on share-based payments

(5)


36


(15)

Other movements

108


52


(99)

Acquisition and disposal of subsidiaries

376


(261)


9

Changes in ownership interests in subsidiaries that did not result
in loss of control

(28)


98


23

Total comprehensive income for the period

10,172


15,342


1,062







At end of period

173,766


167,537


166,093

 

 


Additional Information

 

1. Basis of preparation

 

The basis of preparation applicable to the interim consolidated financial statements of HSBC can be found in Note 1 of the Interim Report 2012.

 

The interim consolidated financial statements of HSBC have been prepared in accordance with the Disclosure Rules and Transparency Rules of the Financial Services Authority and IAS 34 'Interim Financial Reporting' ('IAS 34') as issued by the International Accounting Standards Board ('IASB') and as endorsed by the European Union ('EU').

 

The consolidated financial statements of HSBC at 31 December 2011 were prepared in accordance with International Financial Reporting Standards ('IFRSs') as issued by the IASB and as endorsed by the EU. EU-endorsed IFRSs may differ from IFRSs as issued by the IASB if, at any point in time, new or amended IFRSs have not been endorsed by the EU. At 31 December 2011, there were no unendorsed standards effective for the year ended 31 December 2011 affecting the consolidated financial statements at that date, and there was no difference between IFRSs endorsed by the EU and IFRSs issued by the IASB in terms of their application to HSBC. Accordingly, HSBC's financial statements for the year ended 31 December 2011 were prepared in accordance with IFRSs as issued by the IASB.

 

On 20 December 2010, the IASB issued 'Deferred tax: Recovery of Underlying Assets (amendments to IAS 12)' which is effective for periods beginning on or after 1 January 2012 but has not yet been endorsed by the EU. The effect of the application of the amendment is not significant to HSBC.

 

At 30 June 2012, there were no other unendorsed standards effective for the period ended 30 June 2012 affecting these interim consolidated financial statements, and there was no significant difference between IFRSs endorsed by the EU and IFRSs issued by the IASB in terms of their application to HSBC.

 

IFRSs comprise accounting standards issued by the IASB and its predecessor body as well as interpretations issued by the IFRS Interpretations Committee ('IFRIC') and its predecessor body.

 

During the half-year ended 30 June 2012, HSBC also adopted amendments to standards which had an insignificant effect on the interim consolidated financial statements.

 

 

2. Dividends

 

The Directors have declared after the end of the period a second interim dividend in respect of the financial year ending 31 December 2012 of US$0.09 per ordinary share, a distribution of approximately US$1,643m, which will be payable on 4 October 2012 to holders of record on 16 August 2012 on the Hong Kong Overseas Branch Register and 17 August 2012 on the Principal Register in the United Kingdom or the Bermuda Overseas Branch Register.

 

The dividend will be payable in cash, in US dollars, sterling or Hong Kong dollars, or a combination of these currencies, at the forward exchange rates quoted by HSBC Bank plc in London at or about 11.00 am on 24 September 2012, and with a scrip dividend alternative. Particulars of these arrangements will be sent to shareholders on or about 29 August 2012 and elections must be received by 19 September 2012. As this dividend was declared after the balance sheet date, it has not been included in 'Other liabilities' at 30 June 2012.

 

The dividend will be payable on ordinary shares held through Euroclear France, the settlement and central depositary system for Euronext Paris, on 4 October 2012 to the holders of record on 17 August 2012. The dividend will be payable by Euroclear France in cash, in euros, at the forward exchange rate quoted by HSBC France on 24 September 2012, or as a scrip dividend. Particulars of these arrangements will be announced through Euronext Paris on 13 August 2012 and 22 August 2012.

 

The dividend will be payable on American Depositary Shares ('ADSs'), each of which represents five ordinary shares, on 4 October 2012 to holders of record on 17 August 2012. The dividend of US$0.45 per ADS will be payable by the depositary in cash in US dollars or as a scrip dividend of new ADSs. Elections must be received by the depositary on or before 13 September 2012. Alternatively, the cash dividend may be invested in additional ADSs for participants in the dividend reinvestment plan operated by the depositary.

 

Ordinary shares will be quoted ex-dividend in London, Hong Kong, Paris and Bermuda on 15 August 2012. The ADSs will be quoted ex-dividend in New York on 15 August 2012.

 

Any person who has acquired ordinary shares registered on the Hong Kong Overseas Branch Register but who has not lodged the share transfer with the Hong Kong Overseas Branch Registrar should do so before 4.00pm on 16 August 2012 in order to receive the dividend.

 

Any person who has acquired ordinary shares registered on the Principal Register in the United Kingdom or on the Bermuda Overseas Branch Register but who has not lodged the share transfer with the Principal Registrar or the Bermuda Overseas Branch Registrar respectively, should do so before 4.00pm on 17 August 2012 in order to receive the dividend.

 

Removals of ordinary shares may not be made to or from the Hong Kong Overseas Branch Register on 17 August 2012. Accordingly any person who wishes to remove ordinary shares to the Hong Kong Overseas Branch Register must lodge the removal request with the Principal Registrar in the United Kingdom or the Bermuda Branch Registrar by 4.00pm on 15 August 2012; any person who wishes to remove ordinary shares from the Hong Kong Overseas Branch Register must lodge the removal request with the Hong Kong Branch Registrar by 4.00pm on 16 August 2012.

 

Transfers of ADSs should be lodged with the depositary by 12 noon on 17 August 2012 in order to receive the dividend.

 

 

Dividends paid to shareholders of HSBC Holdings plc during the period were as follows:

 


Half-year to


30 June 2012


30 June 2011


31 December 2011


Per




Settled


Per




Settled


Per




Settled


share 


Total


in scrip


share


Total


in scrip


share


Total


in scrip


US$


US$m


US$m


US$


US$m


US$m


US$


US$m


US$m



















Dividends declared on


















   ordinary shares


















In respect of previous year:


















- fourth interim dividend

0.14


2,535


259


0.12


2,119


1,130


-


-


-

In respect of current year:


















- first interim dividend

0.09


1,633


748


0.09


1,601


204


-


-


-

- second interim dividend

-


-


-


-


-


-


0.09


1,603


178

- third interim dividend

-


-


-


-


-


-


0.09


1,605


720




















0.23


4,168


1,007


0.21


3,720


1,334


0.18


3,208


898



















Quarterly dividends on


















   preference shares classified


















   as equity


















March dividend

15.50


22




15.50


22




-


-



June dividend

15.50


23




15.50


23




-


-



September dividend

-


-




-


-




15.50


22



December dividend

-


-




-


-




15.50


23






















31.00


45




31.00


45




31.00


45





















Quarterly coupons on capital


















   securities classified as equity


















January coupon

0.508


44




0.508


44




-


-



March coupon

0.500


76




0.500


76




-


-



April coupon

0.508


45




0.508


45




-


-



June coupon

0.500


76




0.500


76




-


-



July coupon

-


-




-


-




0.508


45



September coupon

-


-




-


-




0.500


76



October coupon

-


-




-


-




0.508


45



December coupon

-


-




-


-




0.500


76






















2.016


241




2.016


241




2.016


242



 

 

On 16 July 2012, HSBC paid a further coupon on the capital securities of US$0.508 per security, a distribution of US$45m. No liability is recorded in the financial statements in respect of this coupon payment.

 

 

3. Earnings and dividends per ordinary share

 


Half-year to


30 June


30 June


31 December


2012


2011


2011


US$


US$


US$







Basic earnings per ordinary share

0.45


0.51


0.41

Diluted earnings per ordinary share

0.45


0.50


0.41

Dividends per ordinary share

0.23


0.21


0.18

Net asset value per share at period end

8.73


8.59


8.48







Dividend pay out ratio1

51.1%


41.2%


43.9%

 

1  Dividends per ordinary share expressed as a percentage of basic earnings per ordinary share.

 


Basic earnings per ordinary share were calculated by dividing the profit attributable to ordinary shareholders of the parent company by the weighted average number of ordinary shares outstanding, excluding own shares held. Diluted earnings per ordinary share were calculated by dividing the basic earnings, which require no adjustment for the effects of dilutive potential ordinary shares, by the weighted average number of ordinary shares outstanding, excluding own shares held, plus the weighted average number of ordinary shares that would be issued on conversion of dilutive potential ordinary shares.

 


Half-year to


30 June


30 June


31 December


2012


2011


2011


US$m


US$m


US$m







Profit attributable to shareholders of the parent company

8,438


9,215


7,582

Dividend payable on preference shares classified as equity

(45)


(45)


(45)

Coupon payable on capital securities classified as equity

(241)


(241)


(242)







Profit attributable to ordinary shareholders of the parent company

8,152


8,929


7,295

 

 

4. Tax expense

 


Half-year to


30 June


30 June


31 December


2012


2011


2011


US$m


US$m


US$m







UK corporation tax charge

100


230


590

Overseas tax

3,549


1,694


2,561







Current tax

3,649


1,924


3151

Deferred tax

(20)


(212)


(935)







Tax expense

3,629


1,712


2,216







Effective tax rate

28.5%


14.9%


21.3%

 

The effective UK corporation tax rate applying to HSBC was 24.5% (2011: 26.5%). Overseas tax included Hong Kong profits tax of US$476m (first half of 2011: US$453m; second half of 2011: US$544m). Subsidiaries in Hong Kong provided for Hong Kong profits tax at the rate of 16.5% (2011: 16.5%) on the profits for the period assessable in Hong Kong. Other overseas subsidiaries and overseas branches provided for taxation at the appropriate rates in the countries in which they operate.

 

The higher effective tax rate in the first half of 2012 reflects the impact of higher taxed profits arising on the disposal of the US branch network and cards business combined with the non deductible provision in respect of certain US regulatory matters. The lower effective tax rate in the first half of 2011 included the benefit of deferred tax of US$0.9bn eligible to be recognised in respect of foreign tax credits in the US.

 

Analysis of overall tax expense:

 


Half-year to


30 June


30 June


31 December


2012


2011


2011


US$m


US$m


US$m







Taxation at UK corporation tax rate of 24.5% (2011: 26.5%)

3,122


3,041


2,755

Effect of differently taxed overseas profits

265


(275)


(217)

Adjustments in respect of prior period liabilities

479


522


(27)

Deferred tax temporary differences not recognised/
(previously not recognised)

2


(1,008)


85

Effect of profit in associates and joint ventures

(459)


(412)


(453)

Non taxable income and gains

(280)


(184)


(359)

Permanent disallowables

405


95


372

Other items

95


(67)


60







Overall tax expense

3,629


1,712


2,216

 

 

5. Analysis of net fee income

 


Half-year to


30 June


30 June


31 December


2012


2011


2011


US$m


US$m


US$m







Account services

1,755


1,846


1,824

Cards

1,716


1,977


1,978

Funds under management

1,242


1,414


1,339

Credit facilities

867


849


900

Broking income

707


933


778

Imports/Exports

606


552


551

Insurance

425


545


507

Remittances

399


371


399

Underwriting

377


332


246

Global custody

375


391


360

Unit trusts

344


374


283

Corporate finance

230


235


206

Trust income

141


148


146

Investment contracts

71


65


71

Mortgage servicing

47


56


53

Other

979


856


912







Total fee income

10,281


10,944


10,553

Less: fee expense

(1,974)


(2,137)


(2,200)







Net fee income

8,307


8,807


8,353

 



6. Loan impairment charge

 


Half-year to


30 June


30 June


31 December


2012


2011


2011


US$m


US$m


US$m







Individually assessed impairment allowances:






   - Net new allowances

1,187


743


1,363

   - Recoveries

(84)


(105)


(86)








1,103


638


1,277







Collectively assessed impairment allowances:






   - Net new allowances

3,906


4,960


5,865

   - Recoveries

(484)


(625)


(610)








3,422


4,335


5,255







Total charge for impairment losses

4,525


4,973


6,532







Banks

1


1


(17)

Customers

4,524


4,972


6,549

 


7. Capital resources

 


At


At


At


30 June


30 June


31 December


2012


2011


2011


US$m


US$m


US$m







Composition of regulatory capital






Tier 1 capital






Shareholders' equity

160,606


154,652


154,148

Shareholders' equity per balance sheet

165,845


160,250


158,725

Preference share premium

(1,405)


(1,405)


(1,405)

Other equity instruments

(5,851)


(5,851)


(5,851)

Deconsolidation of special purpose entities

2,017


1,658


2,679







Non-controlling interests

4,451


3,871


3,963

Non-controlling interests per balance sheet

7,921


7,287


7,368

Preference share non-controlling interests

(2,412)


(2,445)


(2,412)

Non-controlling interest transferred to tier 2 capital

(496)


(507)


(496)

Non-controlling interest in deconsolidated subsidiaries

(562)


(464)


(497)







Regulatory adjustments to the accounting basis

(3,308)


888


(4,331)

Unrealised losses on available-for-sale debt securities

1,208


3,290


2,228

Own credit spread

(2,115)


(773)


(3,608)

Defined benefit pension fund adjustment

(116)


1,211


(368)

Reserves arising from revaluation of property and unrealised gains on






   available-for-sale equities

(2,387)


(3,085)


(2,678)

Cash flow hedging reserve

102


245


95







Deductions          

(31,080)


(33,649)


(31,284)

Goodwill capitalised and intangible assets

(26,650)


(29,375)


(27,419)

50% of securitisation positions

(1,364)


(1,274)


(1,207)

50% of tax credit adjustment for expected losses

145


126


188

50% of excess of expected losses over impairment allowances

(3,211)


(3,126)


(2,846)













Core tier 1 capital

130,669


125,762


122,496







Other tier 1 capital before deductions

17,110


18,339


17,939

Preference share premium

1,405


1,405


1,405

Preference share non-controlling interests

2,412


2,445


2,412

Hybrid capital securities

13,293


14,489


14,122







Deductions

(845)


(988)


(845)

Unconsolidated investments

(990)


(1,114)


(1,033)

50% of tax credit adjustment for expected losses

145


126


188













Tier 1 capital

146,934


143,113


139,590







Tier 2 capital






Total qualifying tier 2 capital before deductions

47,205


50,544


48,676

Reserves arising from revaluation of property and unrealised gains on






   available-for-sale equities

2,387


3,085


2,678

Collective impairment allowances

2,551


2,772


2,660

Perpetual subordinated debt

2,778


2,782


2,780

Term subordinated debt

39,189


41,605


40,258

Non-controlling interest in tier 2 capital

300


300


300







Total deductions other than from tier 1 capital

(18,415)


(19,873)


(17,932)

Unconsolidated investments

(13,834)


(15,471)


(13,868)

50% of securitisation positions

(1,364)


(1,274)


(1,207)

50% of excess of expected losses over impairment allowances

(3,211)


(3,126)


(2,846)

Other deductions

(6)


(2)


(11)













Total regulatory capital

175,724


173,784


170,334


 


At


At


At


30 June


30 June


31 December


2012


2011


2011


US$m


US$m


US$m







Risk-weighted assets






Credit risk

931,724


947,525


958,189

Counterparty credit risk

49,535


52,985


53,792

Market risk

54,281


44,456


73,177

Operational risk

124,356


123,563


124,356







Total      

1,159,896


1,168,529


1,209,514








%


%


%

Capital ratios






Core tier 1 ratio

11.3


10.8


10.1

Tier 1 ratio

12.7


12.2


11.5

Total capital ratio

15.1


14.9


14.1

 

 

8. Notes on the statement of cash flows

 


Half-year to


30 June


30 June


31 December


2012


2011


2011


US$m


US$m


US$m







Other non-cash items included in profit before tax






Depreciation, amortisation and impairment

1,221


1,631


1,504

Gains arising from dilution of interests in associates

-


(181)


(27)

Revaluations on investment property

                 (43)


(38)


(80)

Share-based payment expense

541


588


574

Loan impairment losses gross of recoveries and other credit risk provisions

5,124


6,011


7,542

Provisions

2,703


937


1,262

Impairment of financial investments

353


339


469

Charge/(credit) for defined benefit plans

233


(321)


181

Accretion of discounts and amortisation of premiums

288


(141)


(372)








10,420


8,825


11,053







Change in operating assets






Change in prepayments and accrued income

323


(590)


2,497

Change in net trading securities and net derivatives

14,436


7,079


19,979

Change in loans and advances to banks

(21,188)


(6,738)


9,356

Change in loans and advances to customers

(42,516)


(85,132)


54,279

Change in financial assets designated at fair value

(147)


(2,480)


1,897

Change in other assets

1,434


(4,699)


(2,860)








(47,658)


(92,560)


85,148







Change in operating liabilities






Change in accruals and deferred income

(1,379)


(474)


(326)

Change in deposits by banks

10,731


14,895


(12,657)

Change in customer accounts

27,312


91,262


(42,861)

Change in debt securities in issue

(5,470)


4,402


(18,790)

Change in financial liabilities designated at fair value

2,423


11,285


(5,817)

Change in other liabilities

7,149


8,931


(5,838)








40,766


130,301


(86,289)

 


 


Half-year to


30 June


30 June


31 December


2012


2011


2011


US$m


US$m


US$m

Interest and dividends






Interest paid

   (10,967)


(12,644)


(10,481)

Interest received

     32,441


33,578


33,156

Dividends received

          446


376


226








At


At


At


30 June


30 June


31 December


2012


2011


2011


US$m


US$m


US$m







Cash and cash equivalents






Cash and balances at central banks

   147,911


68,218


129,902

Items in the course of collection from other banks

     11,075


15,058


8,208

Loans and advances to banks of one month or less

   184,337


215,381


169,858

Treasury bills, other bills and certificates of deposit less than three months

     27,005


30,011


26,226

Less: items in the course of transmission to other banks

   (11,321)


(16,317)


(8,745)








   359,007


312,351


325,449







 

 


9. Segmental analysis

 


Europe


Hong Kong


Rest of

Asia-

Pacific


Middle East and North Africa


North

America


Latin

America


Intra-HSBC

items


Total


US$m


US$m


US$m


US$m


US$m


US$m


US$m


US$m

















Net operating income
















Half-year to:
















30 June 2012

8,630


6,101


5,649


1,102


7,817


4,429


(1,630)


32,098

30 June 2011

10,167


5,389


5,248


1,137


5,191


4,863


(1,567)


30,428

31 December 2011

11,567


5,137


5,198


1,177


3,793


4,707


(1,854)


29,725

 

Profit/(loss) before tax

Half-year to:
















30 June 2012

(667)


3,761


4,372


772


3,354


1,145


-


12,737

30 June 2011

2,147


3,081


3,742


747


606


1,151


-


11,474

31 December 2011

2,524


2,742


3,729


745


(506)


1,164


-


10,398

 

Total assets
















At 30 June 2012

1,375,553


486,608


334,978


62,881


500,590


138,968


(247,244)


2,652,334

At 30 June 2011

1,379,308


474,044


298,590


58,038


529,386


163,611


(211,990)


2,690,987

At 31 December 2011

1,281,945


473,024


317,816


57,464


504,302


144,889


(223,861)


2,555,579

 

 


10. Reconciliation of reported and constant currency profit before tax

 


Half-year to 30 June 2012 ('1H12') compared with
half-year to 30 June 2011 ('1H11')

HSBC

1H11 as
reported
US$m


Currency

translation

US$m


1H11

at 1H12

exchange

rates

US$m


1H12 as

reported

US$m


Reported

change

%


Constant

currency

change

%













Net interest income

20,235


(669)


19,566


19,376


(4)


(1)

Net fee income

8,807


(265)


8,542


8,307


(6)


(3)

Changes in fair value

(143)



(143)


(2,170)


(1,417)


(1,417)

Gains on disposal of US branch network and cards business




3,809





Other income

6,795


(268)


6,527


7,575


11


16













Net operating income

35,694


(1,202)


34,492


36,897


3


7













Loan impairment charges and other
credit risk provisions

(5,266)


138


(5,128)


(4,799)


9


6













Net operating income

30,428


(1,064)


29,364


32,098


5


9













Operating expenses

(20,510)


746


(19,764)


(21,204)


(3)


(7)













Operating profit

9,918


(318)


9,600


10,894


10


13













Share of profit in associates
and joint ventures

1,556


40


1,596


1,843


18


15













Profit before tax

11,474


(278)


11,196


12,737


11


14













By global business
























Retail Banking and Wealth Management

3,126


(55)


3,071


6,410


105


109

Commercial Banking

4,189


(105)


4,084


4,429


6


8

Global Banking and Markets

4,811


(131)


4,680


5,047


5


8

Global Private Banking

552


(5)


547


527


(5)


(4)

Other

(1,204)


18


(1,186)


(3,676)


(205)


(210)













Profit before tax

11,474


(278)


11,196


12,737


11


14













By geographical region
























Europe

2,147


(111)


2,036


(667)





Hong Kong

3,081


9


3,090


3,761


22


22

Rest of Asia-Pacific

3,742


(38)


3,704


4,372


17


18

Middle East and North Africa

747


(3)


744


772


3


4

North America

606


(16)


590


3,354


453


468

Latin America

1,151


(119)


1,032


1,145


(1)


11













Profit before tax

11,474


(278)


11,196


12,737


11


14

 

 



Half-year to 30 June 2012 ('1H12') compared with
half-year to 31 December 2011 ('2H11')

HSBC

2H11 as
reported
US$m


Currency

translation

US$m


2H11

at 1H12

exchange

rates

US$m


1H12 as

reported

US$m


Reported

change

%


Constant

currency

change

%













Net interest income

20,427


(334)


20,093


19,376


(5)


(4)

Net fee income

8,353


(134)


8,219


8,307


(1)


1

Changes in fair value

4,076


(38)


4,038


(2,170)





Gains on disposal of US branch network and cards business

-


-


-


3,809





Other income

3,730


(91)


3,639


7,575


103


108

 

 












Net operating income

36,586


(597)


35,989


36,897


1


3













Loan impairment charges and
other credit risk provisions                

(6,861)


95


(6,766)


(4,799)


30


29













Net operating income

29,725


(502)


29,223


32,098


8


10













Operating expenses

(21,035)


372


(20,663)


(21,204)


(1)


(3)













Operating profit

8,690


(130)


8,560


10,894


25


27













Share of profit in associates
and joint ventures

1,708


17


1,725


1,843


8


7













Profit before tax

10,398


(113)


10,285


12,737


22


24













By global business
























Retail Banking and Wealth Management

1,144


(17)


1,127


6,410


460


469

Commercial Banking

3,758


(47)


3,711


4,429


18


19

Global Banking and Markets

2,238


(29)


2,209


5,047


126


128

Global Private Banking

392


(3)


389


527


34


35

Other

2,866


(17)


2,849


(3,676)

















Profit before tax

10,398


(113)


10,285


12,737


22


24













By geographical region