Annual Financial Report - 39 of 44

RNS Number : 1597A

HSBC Holdings PLC

27 March 2012

25 Property, plant and equipment

	Freehold land and buildings	Long leasehold land and buildings	Short leasehold land and buildings¹	Equipment, fixtures and fittings²	Equipment on operating leases	Total³
	US$m	US$m	US$m	US$m	US$m	US$m
Cost or fair value
At 1 January 2011 ..............................................	3,952	1,673	4,004	12,529	53	22,211
Additions at cost⁴ ................................................	353	114	180	1,183	19	1,849
Fair value adjustments .........................................	(15)	44	89	-	-	118
Disposals .............................................................	(188)	(19)	(279)	(1,400)	-	(1,886)
Reclassified to held for sale .................................	(424)	(19)	(158)	(260)	-	(861)
Transfers ............................................................	(12)	(35)	25	10	-	(12)
Exchange differences ..........................................	(203)	1	15	(395)	(1)	(583)
Other changes .....................................................	74	41	(4)	(88)	-	23

At 31 December 2011 .........................................	3,537	1,800	3,872	11,579	71	20,859

Accumulated depreciation and impairment
At 1 January 2011 ..............................................	(586)	(307)	(1,268)	(8,506)	(23)	(10,690)
Depreciation charge for the year .........................	(88)	(51)	(211)	(1,157)	(9)	(1,516)
Disposals .............................................................	60	2	262	1,319	-	1,643
Reclassified to held for sale .................................	133	13	80	138	-	364
Transfers ............................................................	5	35	(34)	(6)	-	-
Impairment losses recognised ..............................	(13)	-	(16)	(25)	-	(54)
Exchange differences ..........................................	18	(1)	8	260	1	286
Other changes .....................................................	(73)	(23)	(2)	68	3	(27)

At 31 December 2011 .........................................	(544)	(332)	(1,181)	(7,909)	(28)	(9,994)

Net carrying amount at 31 December 2011 .........	2,993	1,468	2,691	3,670	43	10,865

Cost or fair value
At 1 January 2010 ..............................................	3,915	1,327	3,135	11,552	5,236	25,165
Additions at cost⁴ ................................................	349	76	632	1,456	65	2,578
Fair value adjustments .........................................	31	24	38	-	-	93
Disposals⁵ ...........................................................	(307)	(8)	(82)	(355)	(5,113)	(5,865)
Reclassified to held for sale .................................	(73)	(16)	(3)	(35)	-	(127)
Transfers ............................................................	(47)	(147)	199	(5)	-	-
Exchange differences ..........................................	(47)	(5)	(17)	(62)	(135)	(266)
Other changes .....................................................	131	422	102	(22)	-	633

At 31 December 2010 .........................................	3,952	1,673	4,004	12,529	53	22,211

Accumulated depreciation and impairment
At 1 January 2010 ..............................................	(450)	(229)	(1,065)	(7,743)	(1,876)	(11,363)
Depreciation charge for the year .........................	(91)	(46)	(203)	(1,178)	(150)	(1,668)
Disposals⁵ ...........................................................	31	-	68	344	1,956	2,399
Reclassified to held for sale .................................	24	-	1	26	-	51
Transfers ............................................................	23	20	(43)	-	-	-
Impairment losses recognised ..............................	(22)	-	1	(24)	-	(45)
Exchange differences ..........................................	5	2	5	54	45	111
Other changes .....................................................	(106)	(54)	(32)	15	2	(175)

At 31 December 2010 .........................................	(586)	(307)	(1,268)	(8,506)	(23)	(10,690)

Net carrying amount at 31 December 2010 .........	3,366	1,366	2,736	4,023	30	11,521

1 Including assets held on finance leases with a net book value of US$7m (2010: US$11m).

2 Including assets held on finance leases with a net book value of US$210m (2010: US$204m).

3 Including assets with a net book value of US$33m (2010: US$31m) pledged as security for liabilities.

4 At 31 December 2011, HSBC had US$517m (2010: US$593m) of contractual commitments to acquire property, plant and equipment.

5 The disposals included under 'Equipment on operating leases' relate to the sale of a subsidiary, Eversholt Rail Group.

Leasehold land and buildings

Leasehold land and buildings are considered to be held under finance lease contracts where the value of the land cannot reliably be separated from the value of the lease and the respective contracts do not meet the criteria for classification as operating leases. Included within 'Short leasehold land and buildings' are the following amounts in respect of assets classed as improvements to buildings, which are carried at depreciated historical cost:

Leasehold land and buildings

	2011		2010
	Cost	Accumulated depreciation	Cost	Accumulated depreciation
	US$m	US$m	US$m	US$m

At 1 January ......................................................................	1,944	(933)	1,824	(831)
Additions ...........................................................................	171	-	181	-
Disposals ............................................................................	(269)	262	(81)	54
Depreciation charge for the year ........................................	-	(139)	-	(133)
Impairment loss recognised ................................................	-	(15)	-	-
Exchange differences .........................................................	(13)	2	(16)	-
Reclassified as held for sale .................................................	(154)	73
Other changes ....................................................................	(10)	(1)	36	(23)

At 31 December .................................................................	1,669	(751)	1,944	(933)

Net carrying amount at 31 December .................................	918		1,011

Investment properties

Movement on the fair value of investment properties

	Freehold land and buildings	Long leasehold land and buildings	Short leasehold land and buildings	Total
	US$m	US$m	US$m	US$m
Fair value
At 1 January 2011 .............................................................	667	156	310	1,133
Additions at cost ................................................................	242	-	-	242
Fair value adjustments ........................................................	(15)	44	89	118
Disposals ............................................................................	(47)	(17)	-	(64)
Exchange differences .........................................................	(22)	1	1	(20)
Other changes ....................................................................	(80)	8	2	(70)

At 31 December 2011 ........................................................	745	192	402	1,339

Fair value
At 1 January 2010 .............................................................	640	184	237	1,061
Additions at cost ................................................................	240	-	-	240
Fair value adjustments ........................................................	31	24	38	93
Disposals ............................................................................	(216)	(2)	-	(218)
Transfers ...........................................................................	-	(42)	42	-
Exchange differences .........................................................	(34)	(1)	(1)	(36)
Other changes ....................................................................	6	(7)	(6)	(7)

At 31 December 2010 ........................................................	667	156	310	1,133

Investment properties are valued on a market value basis as at 31 December each year by independent professional valuers who have recent experience in the location and type of properties. Investment properties in Hong Kong, the Macau Special Administrative Region and mainland China, which represent more than 44% by value of HSBC's investment properties subject to revaluation, were valued by DTZ Debenham Tie Leung Limited whose valuers are members of the Hong Kong Institute of Surveyors. Properties in other countries, which represent 56% by value of HSBC's investment properties, were valued by different independent professionally qualified valuers.

HSBC Holdings had no investment properties at 31 December 2011 or 2010.

HSBC properties leased to customers

HSBC properties leased to customers included US$618m at 31 December 2011 (2010: US$441m) let under operating leases, net of accumulated depreciation of US$12m (2010: US$19m). None was held by HSBC Holdings.

At 31 December 2011, the classification of land and buildings in Hong Kong in accordance with Hong Kong Companies Ordinance requirements was freehold nil (2010: nil), long leasehold US$1,363m (2010: US$1,292m), medium leasehold US$1,484m (2010: US$1,436m) and short leasehold US$4m (2010: US$6m).

26 Investments in subsidiaries

Principal subsidiaries of HSBC Holdings

	At 31 December 2011
	Country of incorporation or registration	HSBC's interest in equity capital %	Issued equity capital	Share class
Europe
HSBC Asset Finance (UK) Limited ........................	England	100	£265m	Ordinary £1
HSBC Bank A.S. ....................................................	Turkey	100	TRL652m	A-Common TRL1 B-Common TRL1
HSBC Bank Malta p.l.c. .........................................	Malta	70.03	€88m	Ordinary €0.30
HSBC Bank plc ......................................................	England	100	£797m	Ordinary £1 Preferred Ordinary £1 Series 2 Third Dollar Preference US$0.01 Third Dollar Preference US$0.01
HSBC France .........................................................	France	99.99	€337m	Shares €5.00
HSBC Bank International Limited .........................	Jersey	100	£1m	Ordinary £1
HSBC Life (UK) Limited .......................................	England	100	£94m	Ordinary £1
HSBC Private Banking Holdings (Suisse) S.A. ........	Switzerland	100	CHF1,363m	Ordinary CHF1,000
HSBC Trinkaus & Burkhardt AG ...........................	Germany	80.40	€28m	Shares of no par value
Marks and Spencer Retail Financial Services Holdings Limited ...............................................	England	100	£67m	Ordinary £1

Hong Kong
Hang Seng Bank Limited¹ ......................................	Hong Kong	62.14	HK$9,559m	Ordinary HK$5.00
HSBC Insurance (Asia) Limited .............................	Hong Kong	100	HK$1,298m	Ordinary HK$1,000
HSBC Life (International) Limited ........................	Bermuda	100	HK$1,278m	Ordinary HK$1.00
The Hongkong and Shanghai Banking Corporation Limited ..............................................................	Hong Kong	100	HK$30,190m	Ordinary HK$2.50 CIP² US$1.00 CRP³ US$1.00 NIP⁴ US$1.00

Rest of Asia-Pacific
HSBC Bank Australia Limited ................................	Australia	100	A$751m	Shares of no par value
HSBC Bank (China) Company Limited ..................	PRC⁵	100	RMB10,800m	Ordinary CNY1.00
HSBC Bank Malaysia Berhad .................................	Malaysia	100	RM115m	Ordinary RM0.50

Middle East and North Africa
HSBC Bank Middle East Limited ...........................	Jersey	100	US$931m	Ordinary US$1.00 CRP³ US$1.00
HSBC Bank Egypt S.A.E. ......................................	Egypt	94.53	EGP1,511m	Ordinary EGP84.00

North America
HSBC Bank Bermuda Limited ................................	Bermuda	100	US$30m	Common BMD1.00
HSBC Bank Canada ...............................................	Canada	100	C$1,571m	Class 1 Pref of NPV⁶ Class 2 Pref of NPV⁶ Common of NPV
HSBC Bank USA, N.A. ..........................................	United States	100	US$2m	Common US$100
HSBC Finance Corporation ...................................	United States	100	-⁷	Common US$0.01
HSBC Securities (USA) Inc. ...................................	United States	100	-⁷	Common US$0.05

Latin America
HSBC Bank Argentina S.A. ....................................	Argentina	99.99	ARS1,244m	Ordinary-A ARS1.00 Ordinary-B ARS1.00
HSBC Bank Brasil S.A. - Banco Múltiplo ..............	Brazil	100	BRL5,569m	Shares of no par value
HSBC Mexico, S.A., Institución de Banca Múltiple, Grupo Financiero HSBC .....................................	Mexico	99.99	MXN5,261m	Ordinary MXN2.00
HSBC Bank (Panama) S.A. ....................................	Panama	100	US$10m	Ordinary PAB 1.00

1 Listed in Hong Kong.		5 People's Republic of China.
2 Cumulative Irredeemable Preference shares.		6 Preference shares of nil par value.
3 Cumulative Redeemable Preference shares.		7 Issued equity capital is less than US$1m.
4 Non-cumulative Irredeemable Preference shares.

Details of the debt, subordinated debt and preference shares issued by the principal subsidiaries to parties external to the Group are included in the Notes 30 'Debt securities in issue', 34 'Subordinated liabilities' and 38 'Non-controlling interests', respectively.

All the above subsidiaries are included in the HSBC consolidated financial statements.

Details of all HSBC subsidiaries will be annexed to the next Annual Return of HSBC Holdings filed with the UK Registrar of Companies.

All the above make their financial statements up to 31 December except for HSBC Bank Argentina S.A., whose financial statements are made up to 30 June annually.

The principal countries of operation are the same as the countries of incorporation except for HSBC Bank Middle East Limited which operates mainly in the Middle East and North Africa and HSBC Life (International) Limited which operates mainly in Hong Kong.

During 2011 and 2010, none of the Group's subsidiaries experienced significant restrictions on paying dividends or repaying loans and advances.

SPEs consolidated by HSBC where HSBC owns less than 50% of the voting rights

	Carrying value of total consolidated assets		Nature of SPE
	2011	2010
	US$bn	US$bn

Barion Funding Limited .......................................................	3.8	4.5	Structured investment conduit
Bryant Park Funding LLC ...................................................	2.8	3.0	Conduit
HSBC Affinity Corporation I ..............................................	-	4.2	Securitisation
HSBC Funding Inc V ............................................................	-	5.4	Securitisation
HSBC Home Equity Loan Corporation I ..............................	2.1	2.8	Securitisation
HSBC Home Equity Loan Corporation II ............................	2.4	2.8	Securitisation
HSBC Receivables Funding, Inc. I ........................................	-	3.7	Securitisation
HSBC Receivables Funding, Inc. II .......................................	1.9	2.0	Securitisation
Malachite Funding Limited ..................................................	3.6	3.9	Structured investment conduit
Mazarin Funding Limited .....................................................	8.0	10.3	Structured investment conduit
Metrix Funding Ltd .............................................................	0.7	1.4	Securitisation
Metrix Securities plc ............................................................	0.4	1.0	Securitisation
Regency Assets Limited .......................................................	7.5	6.3	Conduit
Solitaire Funding Ltd ...........................................................	12.5	13.5	Conduit

In addition to the above, HSBC consolidates a number of individually insignificant SPEs with total assets of US$14.1bn. For further details, see 'Special purpose entities' on page 401.

In each of the above cases, HSBC has less than 50% of the voting rights, but consolidates because it has the majority of risks and rewards of ownership of the SPE, or the substance of the relationship with the SPE is such that its activities are conducted on behalf of HSBC according to its specific business needs so that HSBC obtains benefit from the SPE's operation. The consolidation of SPEs sponsored by HSBC is discussed on page 292.

27 Assets held for sale and other assets

Assets held for sale

	2011	2010
	US$m	US$m

Disposal groups .......................................................................................................................	38,903	530
Non-current assets held for sale:	655	1,461
- property, plant and equipment .............................................................................................	589	1,333
- other ....................................................................................................................................	66	128


	39,558	1,991

Disposal groups

At 31 December 2011, the majority of disposal groups held for sale related to the sale of the US Cards and Retail Services business, the sale of 195 US branches, the sale of the private banking business in Japan, the sale of banking operations in Costa Rica, El Salvador and Honduras, the sale of the RBWM business in Thailand and the sale of a majority interest in the Middle East private equity fund management business.

The major classes of assets and associated liabilities of disposal groups held for sale were as follows:

	31 December 2011
	Costa Rica, El Salvador and Honduras	US branches	US Card and Retail Services		Other	Total
	US$m	US$m	US$m		US$m	US$m
Assets of disposal groups held for sale
Trading assets ...................................	3	-	-		295	298
Loans and advances to banks ............	548	-	-		6	554
Loans and advances to customers .....	2,506	2,441	29,137		1,021	35,105
Financial investments .......................	482	-	-		-	482
Prepayments and accrued income .....	28	10	582		6	626
Goodwill and intangible assets ...........	256	10	318		1	585
Other assets of disposal groups .........	512	60	621		60	1,253

Total assets ......................................	4,335	2,521	30,658		1,389	38,903

Liabilities of disposal groups held for sale (Note 31)
Deposits by banks .............................	206	-	-		-	206
Customer accounts ...........................	2,828	15,144	-		2,166	20,138
Trading liabilities ..............................	-	-	-		803	803
Debt securities in issue ......................	152	-	-		149	301
Other liabilities of disposal groups ....	196	12	470		74	752

Total liabilities .................................	3,382	15,156	470		3,192	22,200

Net unrealised gains/(losses) recognised in 'other operating income' after reclassification to held for sale ..............................	-	-	-		(7)	(7)

Expected date of completion ............	Q4 2012	Q3 2012	Q2 2012
Operating segment............................	Latin America	North America	North America	N

Property, plant and equipment

The property, plant and equipment classified as held for sale is the result of repossession of property that had been pledged as collateral by customers. Substantially all of these assets are disposed of within 12 months of acquisition. The majority arose within the North America operating segment.

Neither a gain nor loss was recognised on reclassifying the disposal groups or non-current assets as held for sale during the year.

Other assets

	2011	2010
	US$m	US$m

Bullion ....................................................................................................................................	19,824	18,446
Reinsurers' share of liabilities under insurance contracts (Note 32) ..........................................	1,801	1,865
Endorsements and acceptances ................................................................................................	11,010	10,116
Retirement benefit assets ........................................................................................................	2,497	43
Other accounts ........................................................................................................................	13,567	10,790

	48,699	41,260

28 Trading liabilities

	2011 US$m	2010 US$m

Deposits by banks ...................................................................................................................	47,506	38,678
Customer accounts ..................................................................................................................	123,344	125,684
Other debt securities in issue (Note 30) ...................................................................................	29,987	33,726
Other liabilities - net short positions in securities ...................................................................	64,355	102,615

	265,192	300,703

At 31 December 2011, the cumulative amount of change in fair value attributable to changes in HSBC credit risk was a gain of US$599m (2010: gain of US$142m).

29 Financial liabilities designated at fair value

HSBC

	2011	2010
	US$m	US$m

Deposits by banks and customer accounts ................................................................................	517	6,527
Liabilities to customers under investment contracts ................................................................	11,399	11,700
Debt securities in issue (Note 30) ............................................................................................	52,197	46,091
Subordinated liabilities (Note 34) .............................................................................................	17,503	19,395
Preferred securities (Note 34) .................................................................................................	4,108	4,420

	85,724	88,133

The carrying amount at 31 December 2011 of financial liabilities designated at fair value was US$1,377m more than the contractual amount at maturity (2010: US$1,631m more). The cumulative amount of the change in fair value attributable to changes in credit risk was a gain of US$5,118m (2010: gain of US$1,279m).

HSBC Holdings

	2011	2010
	US$m	US$m
Debt securities in issue (Note 30):
- owed to third parties .........................................................................................................	5,753	-
Subordinated liabilities (Note 34):
- owed to third parties .........................................................................................................	11,443	12,029
- owed to HSBC undertakings ..............................................................................................	3,955	4,259

	21,151	16,288

The carrying amount at 31 December 2011 of financial liabilities designated at fair value was US$722m more than the contractual amount at maturity (2010: US$855m more). The cumulative amount of the change in fair value attributable to changes in credit risk was a gain of US$2,096m (2010: gain of US$439m).

30 Debt securities in issue

	2011	2010
	US$m	US$m

Bonds and medium-term notes ................................................................................................	151,367	162,948
Other debt securities in issue ....................................................................................................	61,830	62,270

	213,197	225,218
Of which debt securities in issue reported as:
- trading liabilities (Note 28) ...............................................................................................	(29,987)	(33,726)
- financial liabilities designated at fair value (Note 29) ........................................................	(52,197)	(46,091)

	131,013	145,401

Certain debt securities in issue are managed on a fair value basis as part of HSBC's interest rate risk management policies. The hedged portion of these debt securities is presented within the balance sheet caption 'Financial liabilities designated at fair value', with the remaining portion included within 'Trading liabilities'. The following table analyses the carrying amount of bonds and medium-term notes in issue at 31 December with original maturities greater than one year:

Bonds and medium-term notes

HSBC

	2011	2010
	US$m	US$m
Fixed rate
Secured financing:
0.01% to 3.99%: until 2056 ................................................................................................	8,259	6,875
4.00% to 4.99%: until 2013 ................................................................................................	1,307	1,956
5.00% to 5.99%: until 2019 ................................................................................................	332	387
8.00% to 9.99%: until 2028 ................................................................................................	276	394
Other fixed rate senior debt:
0.01% to 3.99%: until 2026 ................................................................................................	38,346	39,596
4.00% to 4.99%: until 2046 ................................................................................................	15,515	12,854
5.00% to 5.99%: until 2041 ................................................................................................	17,525	19,011
6.00% to 6.99%: until 2046 ................................................................................................	7,056	11,008
7.00% to 7.99%: until 2026 ................................................................................................	3,083	3,124
8.00% to 9.99%: until 2036 ................................................................................................	379	254
10.00% or higher: until 2025 ..............................................................................................	437	337

	92,515	95,796

Variable interest rate
Secured financings - 0.01% to 13.99%: until 2068 ..................................................................	7,279	8,448
FHLB advances - 0.01% to 0.99%: until 2036 ........................................................................	1,000	1,000
Other variable interest rate senior debt - 0.01% to 12.99%: until 2057 ..................................	47,393	53,301

	55,672	62,749

Structured notes
Interest rate linked ..................................................................................................................	-	4
Equity, equity index or credit-linked ........................................................................................	3,180	4,399

	3,180	4,403

	151,367	162,948

HSBC Holdings

	2011	2010
	US$m	US$m

Debt securities .....................................................................................................................	8,366	2,668
Of which debt securities in issue reported as:
- financial liabilities designated at fair value (Note 29) .......................................................	(5,753)	-

	2,613	2,668
Fixed rate senior debt, unsecured:
3.00% to 3.99%: until 2016 ................................................................................................	1,177	-
4.00% to 4.99%: until 2022 ................................................................................................	2,573	1,664
5.00% to 5.99%: until 2021 ................................................................................................	2,730	-
6.00% to 6.99%: until 2042 ................................................................................................	1,886	1,004

	8,366	2,668

31 Liabilities of disposal groups held for sale and other liabilities

Liabilities of disposal groups held for sale

	HSBC
	2011	2010
	US$m	US$m

Liabilities of disposal groups held for sale¹ ...............................................................................	22,200	86

1 An analysis of liabilities of disposal groups held for sale is provided on page 380.

Other liabilities

	HSBC		HSBC Holdings
	2011	2010	2011	2010
	US$m	US$m	US$m	US$m

Amounts due to investors in funds consolidated by HSBC ...	720	840	-	-
Obligations under finance leases (Note 42) .........................	428	454	-	-
Dividend declared and payable by HSBC Holdings (Note 11) .......................................................................................	885	1,203	885	1,203
Endorsements and acceptances ...........................................	11,009	10,123	-	-
Other liabilities ..................................................................	14,925	15,344	26	29

	27,967	27,964	911	1,232

32 Liabilities under insurance contracts

	Gross	Reinsurers' share	Net
	US$m	US$m	US$m
At 31 December 2011
Non-life insurance liabilities
Unearned premium provision .......................................................................	621	(112)	509
Notified claims .............................................................................................	510	(91)	419
Claims incurred but not reported ...................................................................	449	(51)	398
Other ...........................................................................................................	55	4	59

	1,635	(250)	1,385

Life insurance liabilities to policyholders
Life (non-linked) ..........................................................................................	26,926	(649)	26,277
Investment contracts with discretionary participation features¹ ....................	21,488	-	21,488
Life (linked) .................................................................................................	11,210	(903)	10,307

	59,624	(1,552)	58,072

	61,259	(1,802)	59,457

At 31 December 2010
Non-life insurance liabilities
Unearned premium provision .......................................................................	727	(129)	598
Notified claims .............................................................................................	879	(230)	649
Claims incurred but not reported ...................................................................	745	(75)	670
Other ...........................................................................................................	105	2	107

	2,456	(432)	2,024

Life insurance liabilities to policyholders
Life (non-linked) ..........................................................................................	23,583	(673)	22,910
Investment contracts with discretionary participation features¹ ....................	22,074	-	22,074
Life (linked) .................................................................................................	10,496	(760)	9,736

	56,153	(1,433)	54,720

	58,609	(1,865)	56,744

1 Though investment contracts with discretionary participation features are financial instruments, HSBC continues to treat them as insurance contracts as permitted by IFRS 4.

Movement on non-life insurance liabilities

	Gross	Reinsurers' share	Net
	US$m	US$m	US$m
2011
Unearned premium reserve ('UPR')
At 1 January .................................................................................................	727	(129)	598
Changes in UPR recognised as (income)/expense ..........................................	31	(2)	29
Gross written premiums ............................................................................	1,175	(182)	993
Gross earned premiums .............................................................................	(1,144)	180	(964)

Exchange differences and other movements .................................................	(137)	19	(118)

At 31 December ...........................................................................................	621	(112)	509

Notified and incurred but not reported claims
At 1 January .................................................................................................	1,624	(305)	1,319
Notified claims .........................................................................................	879	(230)	649
Claims incurred but not reported ...............................................................	745	(75)	670

Claims paid in current year ...........................................................................	(631)	81	(550)
Claims incurred in respect of current year .....................................................	481	(99)	382
Claims incurred in respect of prior years .......................................................	(46)	14	(32)
Exchange differences and other movements .................................................	(469)	167	(302)

At 31 December ...........................................................................................	959	(142)	817
Notified claims .........................................................................................	510	(91)	419
Claims incurred but not reported ...............................................................	449	(51)	398

Other ...........................................................................................................	55	4	59

Total non-life insurance liabilities ................................................................	1,635	(250)	1,385

2010
Unearned premium reserve ('UPR')
At 1 January .................................................................................................	833	(135)	698
Changes in UPR recognised as (income)/expense ..........................................	(83)	(12)	(95)
Gross written premiums ............................................................................	1,192	(172)	1,020
Gross earned premiums .............................................................................	(1,275)	160	(1,115)

Exchange differences and other movements .................................................	(23)	18	(5)

At 31 December ...........................................................................................	727	(129)	598

Notified and incurred but not reported claims
At 1 January .................................................................................................	1,717	(327)	1,390
Notified claims .........................................................................................	1,032	(245)	787
Claims incurred but not reported ...............................................................	685	(82)	603

Claims paid in current year ...........................................................................	(815)	114	(701)
Claims incurred in respect of current year .....................................................	519	(111)	408
Claims incurred in respect of prior years .......................................................	106	11	117
Exchange differences and other movements .................................................	97	8	105

At 31 December ...........................................................................................	1,624	(305)	1,319
Notified claims .........................................................................................	879	(230)	649
Claims incurred but not reported ...............................................................	745	(75)	670

Other ...........................................................................................................	105	2	107

Total non-life insurance liabilities ................................................................	2,456	(432)	2,024

Life insurance liabilities to policyholders

	Gross	Reinsurers' share	Net
	US$m	US$m	US$m
2011
Life (non-linked)
At 1 January .................................................................................................	23,583	(673)	22,910
Benefits paid ................................................................................................	(1,793)	164	(1,629)
Increase in liabilities to policyholders ...........................................................	5,729	(254)	5,475
Exchange differences and other movements .................................................	(593)	114	(479)

At 31 December ...........................................................................................	26,926	(649)	26,277

Investment contracts with discretionary participation features
At 1 January .................................................................................................	22,074	-	22,074
Benefits paid ................................................................................................	(2,628)	-	(2,628)
Increase in liabilities to policyholders ...........................................................	3,005	-	3,005
Exchange differences and other movements¹ ................................................	(963)	-	(963)

At 31 December ...........................................................................................	21,488	-	21,488

Life (linked)
At 1 January .................................................................................................	10,496	(760)	9,736
Benefits paid ................................................................................................	(1,129)	56	(1,073)
Increase in liabilities to policyholders ...........................................................	2,462	(111)	2,351
Exchange differences and other movements² ................................................	(619)	(88)	(707)

At 31 December ...........................................................................................	11,210	(903)	10,307

Total liabilities to policyholders ...................................................................	59,624	(1,552)	58,072

2010
Life (non-linked)
At 1 January .................................................................................................	20,979	(771)	20,208
Benefits paid ................................................................................................	(1,355)	143	(1,212)
Increase in liabilities to policyholders ...........................................................	5,108	(201)	4,907
Exchange differences and other movements .................................................	(1,149)	156	(993)

At 31 December ...........................................................................................	23,583	(673)	22,910

Investment contracts with discretionary participation features
At 1 January .................................................................................................	21,014	-	21,014
Benefits paid ................................................................................................	(2,023)	-	(2,023)
Increase in liabilities to policyholders ...........................................................	3,716	-	3,716
Exchange differences and other movements¹ ................................................	(633)	-	(633)

At 31 December ...........................................................................................	22,074	-	22,074

Life (linked)
At 1 January .................................................................................................	8,986	(831)	8,155
Benefits paid ................................................................................................	(507)	45	(462)
Increase in liabilities to policyholders ...........................................................	2,520	99	2,619
Exchange differences and other movements² ................................................	(503)	(73)	(576)

At 31 December ...........................................................................................	10,496	(760)	9,736

Total liabilities to policyholders ...................................................................	56,153	(1,433)	54,720

1 Includes movement in liabilities relating to discretionary profit participation benefits due to policyholders arising from net unrealised investment gains recognised in other comprehensive income.

2 Includes amounts arising under reinsurance agreements.

The increase in liabilities to policyholders represents the aggregate of all events giving rise to additional liabilities to policyholders in the year. The key factors contributing to the movement in liabilities to policyholders include 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.

33 Provisions

	Restruc- turing costs	Contingent liabilities and contractual commitments	Legal proceedings and regulatory matters	Customer remediation	Other provisions	Total
	US$m	US$m	US$m	US$m	US$m	US$m

At 1 January 2011 ........................	21	405	969	442	301	2,138
Additional provisions/increase in provisions .............................	221	14	896	1,078	184	2,393
Provisions utilised ........................	(58)	(5)	(367)	(386)	(71)	(887)
Amounts reversed .........................	(14)	(41)	(28)	(87)	(86)	(256)
Unwinding of discounts .................	-	1	56	-	5	62
Exchange differences and other movements ...............................	(1)	(168)	(53)	20	76	(126)
					-
At 31 December 2011 ................	169	206	1,473	1,067	409	3,324

At 1 January 2010 ........................	25	449	744	401	346	1,965
Additional provisions/increase in provisions .............................	31	46	294	196	197	764
Provisions utilised ........................	(28)	(29)	(202)	(94)	(211)	(564)
Amounts reversed .........................	(8)	(8)	(35)	-	(81)	(132)
Unwinding of discounts .................	-	-	38	-	10	48
Exchange differences and other movements ...............................	1	(53)	130	(61)	40	57

At 31 December 2010 ..................	21	405	969	442	301	2,138

Further details of legal proceedings and regulatory matters are set out in Note 44. Legal proceedings include civil court, arbitration or tribunal proceedings brought against HSBC companies (whether by way of claim or counterclaim) or civil disputes that may, if not settled, result in court, arbitration or tribunal proceedings. Regulatory matters refer to investigations, reviews and other actions carried out by, or in response to the actions of, regulators or law enforcement agencies in connection with alleged wrongdoing by HSBC.

Customer remediation refers to activities carried out by HSBC to compensate customers for losses or damages associated with a failure to comply with regulations. Customer remediation is initiated by HSBC in response to customer complaints, and not specifically initiated by regulatory action.

Additional provisions include US$257m for the US mortgage foreclosure practices review (see Note 44 for further details), and US$785m in relation to the review of sales of payment protection insurance ('PPI') in the UK.

Payment Protection Insurance

Following the High Court judgement on the Judicial Review application on 20 April 2011, HSBC has been working with the FSA and the Financial Ombudsman Service in order to ensure all PPI complaints are handled and, where appropriate, redressed in accordance with the FSA's Policy Statement PS 10/12.

PS 10/12 sets out the process to be followed and the issues to be considered when reviewing individual complaints. It also requires firms to ensure that root cause analysis is undertaken and, if any systemic issues are identified in the way in which PPI was sold, this may require proactive contact exercises to be undertaken for certain categories of non-complainants who purchased PPI at various times.

The key assumptions relevant to calculating the potential liability in respect of PPI sales are likely to evolve over time as root cause analysis is completed and more experience is available regarding actual complaint volumes received. The main assumptions currently in use are the number of customer complaints expected to be received, and for how long a period; the number of non-complainant customers who will have to be contacted if systemic issues are identified following root cause analysis; the response rate from customers who are contacted pro-actively; and the expected uphold rate for complaints and the amount of redress payable in upheld cases.

In addition to these factors and assumptions, the extent of the required redress will also depend on the facts and circumstances of each individual customer's case. For these reasons, there is currently a high degree of uncertainty as to the eventual costs of redress for this matter. There is a provision of US$506m as at 31 December 2011 (2010: US$37m) in respect of the estimated liability for redress in respect of the possible mis-selling of PPI policies in previous years.

34 Subordinated liabilities

HSBC

	2011	2010
	US$m	US$m
Subordinated liabilities
At amortised cost ................................................................................................................	30,606	33,387
- subordinated liabilities ......................................................................................................	25,543	28,309
- preferred securities ..........................................................................................................	5,063	5,078

Designated at fair value (Note 29) .......................................................................................	21,611	23,815
- subordinated liabilities ......................................................................................................	17,503	19,395
- preferred securities ..........................................................................................................	4,108	4,420


	52,217	57,202

Subordinated liabilities
HSBC Holdings ....................................................................................................................	21,456	22,878
Other HSBC ........................................................................................................................	30,761	34,324

	52,217	57,202

HSBC's subordinated liabilities

		2011	2010
		US$m	US$m

Amounts owed to third parties by HSBC Holdings (see page 390) ..................................		21,456	22,878

Other HSBC subordinated liabilities
Step-up perpetual preferred securities guaranteed by HSBC Holdings¹
US$1,250m	4.61% non-cumulative step-up perpetual preferred securities .........................	1,163	1,185
US$900m	10.176% non-cumulative step-up perpetual preferred securities, Series 2 .......	891	891
€1,400m	5.3687% non-cumulative step-up perpetual preferred securities .....................	1,693	1,843
€750m	5.13% non-cumulative step-up perpetual preferred securities .........................	872	958
€600m	8.03% non-cumulative step-up perpetual preferred securities .........................	776	801
£500m	8.208% non-cumulative step-up perpetual preferred securities .......................	771	772

		6,166	6,450
Step-up perpetual preferred securities guaranteed by HSBC Bank plc²
£700m	5.844% non-cumulative step-up perpetual preferred securities .......................	1,084	1,087
£300m	5.862% non-cumulative step-up perpetual preferred securities .......................	378	434

		1,462	1,521
HSBC Bank plc and subsidiaries
£350m	Callable subordinated variable coupon notes 2017³.........................................	550	562
£500m	4.75% callable subordinated notes 2020⁴........................................................	759	774
€500m	Callable subordinated floating rate notes 2020⁵..............................................	550	592
£350m	5.00% callable subordinated notes 2023⁶........................................................	533	547
£300m	6.5% subordinated notes 2023 .......................................................................	463	462
US$300m	7.65% subordinated notes 2025 .....................................................................	374	342
£350m	5.375% callable subordinated step-up notes 2030⁷..........................................	493	510
£500m	5.375% subordinated notes 2033 ...................................................................	678	729
£225m	6.25% subordinated notes 2041 .....................................................................	346	347
£600m	4.75% subordinated notes 2046 .....................................................................	917	919
US$750m	Undated floating rate primary capital notes ...................................................	750	750
US$500m	Undated floating rate primary capital notes ...................................................	500	500
US$300m	Undated floating rate primary capital notes, Series 3 .....................................	300	300
€800m	Callable subordinated floating rate notes 2016⁸..............................................	-	1,070
€600m	4.25% callable subordinated notes 2016⁸........................................................	-	823
US$300m	6.95% subordinated notes 2011 .....................................................................	-	310
	Other subordinated liabilities each less than US$200m ...................................	617	662

		7,830	10,199

HSBC's subordinated liabilities (continued)

		2011	2010
		US$m	US$m
The Hongkong and Shanghai Banking Corporation Ltd and subsidiaries
US$300m	Callable subordinated floating rate notes 2017⁹ ..............................................	300	300
AUD200m	Callable subordinated floating rate notes 2020 ...............................................	203	204
US$400m	Primary capital undated floating rate notes ....................................................	406	407
US$400m	Primary capital undated floating rate notes (second series) ............................	403	403
US$400m	Primary capital undated floating rate notes (third series) ...............................	400	400
US$450m	Callable subordinated floating rate notes 2016¹⁰ .............................................	-	450
AUD200m	Callable subordinated floating rate notes 2016¹¹ .............................................	-	204
	Other subordinated liabilities each less than US$200m ...................................	362	368

		2,074	2,736
HSBC USA Inc., HSBC Bank USA, N.A. and HSBC Finance Corporation
US$1,000m	4.625% subordinated notes 2014 ...................................................................	1,009	1,009
US$500m	6.00% subordinated notes 2017......................................................................	505	526
US$1,250m	4.875% subordinated notes 2020 ...................................................................	1,259	1,252
US$750m	5.00% subordinated notes 2020 .....................................................................	744	747
US$2,939m	6.676% senior subordinated notes 2021¹² .......................................................	2,177	2,174
US$200m	7.808% capital securities 2026 ......................................................................	200	200
US$200m	8.38% capital securities 2027 ........................................................................	200	200
US$1,000m	5.875% subordinated notes 2034 ...................................................................	951	971
US$1,000m	5.911% trust preferred securities 2035¹³ ........................................................	994	994
US$750m	5.625% subordinated notes 2035 ...................................................................	712	728
US$700m	7.00% subordinated notes 2039 .....................................................................	681	694
US$250m	7.20% subordinated debentures 2097 ..............................................................	214	213
	Other subordinated liabilities each less than US$200m ...................................	698	780

		10,344	10,488
Other HSBC subsidiaries
BRL383m	Subordinated certificates of deposit 2015 .......................................................	206	231
BRL500m	Subordinated certificates of deposit 2016 .......................................................	268	301
US$250m	Non-convertible subordinated obligations 2019 ..............................................	232	248
CAD200m	4.94% subordinated debentures 2021 ..............................................................	195	200
CAD400m	4.80% subordinated notes 2022 .....................................................................	417	417
	Other subordinated liabilities each less than US$200m ...................................	1,567	1,533

		2,885	2,930

		52,217	57,202

Subordinated loan capital is repayable at par on maturity, but some is repayable prior to maturity at the option of the borrower, generally subject to prior notification to the FSA and, where relevant, the consent of the local banking regulator, and in certain cases at a premium over par. Interest rates on the floating rate loan capital are related to interbank offered rates. On the remaining subordinated loan capital, interest is payable at fixed rates of up to 10.176%.

1 See page 389, paragraph (a).

2 See page 389, paragraph (b).

3 The interest rate on the callable subordinated variable coupon notes 2017 is fixed at 5.75% until June 2012. Thereafter, the rate per annum is the sum of the gross redemption yield of the then prevailing five-year UK gilt plus 1.70%.

4 The interest rate on the 4.75% callable subordinated notes 2020 changes in September 2015 to three-month sterling LIBOR plus 0.82%.

5 The interest margin on the callable subordinated floating rate notes 2020 increases by 0.5% from September 2015.

6 The interest rate on the 5.00% callable subordinated notes 2023 changes in March 2018 to become the rate per annum which is the sum of the gross redemption yield of the then prevailing five-year UK gilt plus 1.80%.

7 The interest rate on the 5.375% callable subordinated step-up notes 2030 changes in November 2025 to three-month sterling LIBOR plus 1.50%.

8 In March 2011, HSBC redeemed its €800m callable subordinated floating rate notes 2016 and its €600m 4.25% callable subordinated notes 2016 at par.

9 The interest margin on the callable subordinated floating rate notes 2017 increases by 0.5% from July 2012.

10 In July 2011, HSBC redeemed its callable subordinated floating rate notes 2016 at par.

11 In May 2011, HSBC redeemed its callable subordinated floating rate notes 2016 at par.

12 Approximately 25% of the 6.676% senior subordinated notes 2021 is held by HSBC Holdings.

13 The distributions on the trust preferred securities 2035 change in November 2015 to three-month dollar LIBOR plus 1.926%.

Footnotes 3 to 7, 9 and 13 relate to notes that are repayable at the option of the borrower on the date of the change of the interest rate, and at subsequent interest rate reset dates and interest payment dates in some cases, subject to prior notification to the Financial Services Authority and, where relevant, the consent of the local banking regulator.

Step-up perpetual preferred securities

(a) Guaranteed by HSBC Holdings

The six issues of non-cumulative step-up perpetual preferred securities were made by Jersey limited partnerships and are guaranteed, on a subordinated basis, by HSBC Holdings. The proceeds of the issues were on-lent to HSBC Holdings by the limited partnerships by issue of subordinated notes. The preferred securities qualify as tier 1 hybrid capital for HSBC. The preferred securities, together with the guarantee, are intended to provide investors with rights to income and capital distributions and distributions upon liquidation of HSBC Holdings that are equivalent to the rights that they would have had if they had purchased non-cumulative perpetual preference shares of HSBC Holdings.

The preferred securities are perpetual, but redeemable in 2013, 2030, 2014, 2016, 2012 and 2015, respectively, at the option of the general partner of the limited partnerships. If not redeemed, the distributions payable step-up and become floating rate or, for the sterling issue, for each successive five-year period the sum of the then five-year benchmark UK gilt plus a margin. There are limitations on the payment of distributions if prohibited under UK banking regulations or other requirements, if a payment would cause a breach of HSBC's capital adequacy requirements, or if HSBC Holdings has insufficient distributable reserves (as defined).

HSBC Holdings has covenanted that if it is prevented under certain circumstances from paying distributions on the preferred securities in full, it will not pay dividends or other distributions in respect of its ordinary shares, or effect repurchase or redemption of its ordinary shares, until after a distribution has been paid in full.

If (i) HSBC's total capital ratio falls below the regulatory minimum ratio required, or (ii) the Directors expect that, in view of the deteriorating financial condition of HSBC Holdings, the former will occur in the near term, then the preferred securities will be substituted by preference shares of HSBC Holdings having economic terms which are in all material respects equivalent to those of the preferred securities and the guarantee taken together.

(b) Guaranteed by HSBC Bank

The two issues of non-cumulative step-up perpetual preferred securities were made by Jersey limited partnerships and are guaranteed, on a subordinated basis, by HSBC Bank. The proceeds of the issues were on-lent to HSBC Bank by the limited partnerships by issue of subordinated notes. The preferred securities qualify as tier 1 hybrid capital for HSBC and for HSBC Bank on a solo and consolidated basis and, together with the guarantee, are intended to provide investors with rights to income and capital distributions and distributions upon liquidation of HSBC Bank that are equivalent to the rights they would have had if they had purchased non-cumulative perpetual preference shares of HSBC Bank.

The two issues of preferred securities are perpetual, but redeemable in 2031 and 2020, respectively, at the option of the general partner of the limited partnerships. If not redeemed, the distributions payable step-up and become floating rate. The same limitations on the payment of distributions apply to HSBC Bank as to HSBC Holdings, as described above. HSBC Bank has provided a similar covenant to that provided by HSBC Holdings, also as described above.

If (i) any of the two issues of preferred securities are outstanding in November 2048 or April 2049, respectively, or (ii) the total capital ratio of HSBC Bank on a solo and consolidated basis falls below the regulatory minimum ratio required, or (iii) in view of the deteriorating financial condition of HSBC Bank, the Directors expect (ii) to occur in the near term, then the preferred securities will be substituted by preference shares of HSBC Bank having economic terms which are in all material respects equivalent to those of the preferred securities and the guarantee taken together.

HSBC Holdings

	2011	2010
	US$m	US$m
Subordinated liabilities:
-. at amortised cost .............................................................................................................	12,450	13,313
-. designated at fair value (Note 29) ....................................................................................	15,398	16,288

	27,848	29,601

HSBC Holdings' subordinated liabilities

		2011 US$m	2010 US$m
Amounts owed to third parties
US$1,400m	5.25% subordinated notes 2012 .....................................................................	1,438	1,492
€1,000m	5.375% subordinated notes 2012 ...................................................................	1,327	1,405
€1,600m	6.25% subordinated notes 2018 .....................................................................	2,073	2,142
£250m	9.875% callable subordinated bonds 2018¹ .....................................................	445	467
€1,750m	6.0% subordinated notes 2019 .......................................................................	2,388	2,578
€700m	3.625% callable subordinated notes 2020² ......................................................	869	928
£900m	6.375% callable subordinated notes 2022³ ......................................................	1,416	1,493
£650m	5.75% subordinated notes 2027 .....................................................................	926	971
£650m	6.75% subordinated notes 2028 .....................................................................	997	1,000
US$488m	7.625% subordinated notes 2032 ...................................................................	578	582
US$222m	7.35% subordinated notes 2032 .....................................................................	257	258
US$2,000m	6.5% subordinated notes 2036 .......................................................................	2,048	2,050
US$2,500m	6.5% subordinated notes 2037 .......................................................................	2,634	2,695
£750m	7.0% subordinated notes 2038 .......................................................................	1,205	1,210
US$1,500m	6.8% subordinated notes 2038 .......................................................................	1,486	1,485
£900m	6.0% subordinated notes 2040 .......................................................................	1,369	1,372
US$750m	Callable subordinated floating rate notes 2016⁴ ..............................................	-	750

		21,456	22,878

Amounts owed to HSBC undertakings
US$1,250m	4.61% fixed/floating subordinated notes 2043 - HSBC Capital Funding (Dollar 2) LP ..........................................................	1,223	1,274
US$900m	10.176% subordinated step-up cumulative notes 2040 - HSBC Capital Funding (Dollar 1) LP ..........................................................	891	891
€1,400m	5.3687% fixed/floating subordinated notes 2043 - HSBC Capital Funding (Euro 2) LP ............................................................	1,791	1,957
€750m	5.13% fixed/floating subordinated notes 2044 - HSBC Capital Funding (Euro 3) LP ............................................................	941	1,028
€600m	8.03% subordinated step-up cumulative notes 2040 - HSBC Capital Funding (Euro 1) LP ............................................................	775	801
£500m	8.208% subordinated step-up cumulative notes 2040 - HSBC Capital Funding (Sterling 1) LP ........................................................	771	772

		6,392	6,723

		27,848	29,601

1 The interest rate on the 9.875% subordinated bonds 2018 changes in April 2013 to become the higher of (i) 9.875% or (ii) the sum of the yield on the relevant benchmark treasury stock plus 2.5%. The bonds may be redeemed in April 2013 at par and redemption has also been allowed from April 1998, subject to the prior notification to the FSA, for an amount based on the redemption yields of the relevant benchmark treasury stocks.

2 The interest rate on the 3.625% callable subordinated notes 2020 changes in June 2015 to become three-month EURIBOR plus 0.93%. The notes may be redeemed at par from June 2015 at the option of the borrower, subject to the prior notification to the FSA.

3 The interest rate on the 6.375% callable subordinated notes 2022 changes in October 2017 to become three-month sterling LIBOR plus 1.3%. The notes may be redeemed at par from October 2017 at the option of the borrower, subject to the prior notification to the FSA.

4 In October 2011, HSBC Holdings redeemed its US$750m callable subordinated floating rate notes 2016 at par.

35 Maturity analysis of assets and liabilities

The following is an analysis, by remaining contractual maturities at the reporting date, of asset and liability line items that combine amounts within one year, and after one year. Trading assets and liabilities are excluded because they are not held for collection or settlement over the period of contractual maturity.

Maturity analysis of assets and liabilities

HSBC

	At 31 December 2011			At 31 December 2010
	Due within one year	Due after more than one year	Total	Due within one year	Due after more than one year	Total
	US$m	US$m	US$m	US$m	US$m	US$m
Assets
Financial assets designated at fair value ........	2,581	28,275	30,856	3,030	33,981	37,011
Loans and advances to banks .......................	171,132	9,855	180,987	200,098	8,173	208,271
Loans and advances to customers ................	409,935	530,494	940,429	424,713	533,653	958,366
Financial investments ..................................	152,095	247,949	400,044	149,954	250,801	400,755
Assets held for sale ......................................	20,936	15,919	36,855	-	-	-
Other financial assets ..................................	22,878	5,557	28,435	19,417	5,519	24,936

	779,557	838,049	1,617,606	797,212	832,127	1,629,339

Liabilities
Deposits by banks ........................................	101,371	11,451	112,822	105,462	5,122	110,584
Customer accounts ......................................	1,214,190	39,735	1,253,925	1,181,095	46,630	1,227,725
Financial liabilities designated at fair value ...	9,260	76,464	85,724	10,141	77,992	88,133
Debt securities in issue .................................	74,129	56,884	131,013	86,096	59,305	145,401
Liabilities of disposal groups held for sale ....	20,063	1,033	21,096	-	-	-
Other financial liabilities .............................	25,177	6,304	31,481	24,865	4,792	29,657
Subordinated liabilities .................................	810	29,796	30,606	791	32,596	33,387

	1,445,000	221,667	1,666,667	1,408,450	226,437	1,634,887

HSBC Holdings

	At 31 December 2011			At 31 December 2010
	Due within one year	Due after more than one year	Total	Due within one year	Due after more than one year	Total
	US$m	US$m	US$m	US$m	US$m	US$m
Assets
Loans and advances to HSBC undertakings ..	11,826	16,222	28,048	13,691	7,547	21,238
Financial investments ..................................	-	1,078	1,078	-	2,025	2,025
Other financial assets ..................................	1	-	1	1	-	1

	11,827	17,300	29,127	13,692	9,572	23,264

Liabilities
Amounts owed to HSBC undertakings ..........	1,165	1,314	2,479	1,480	1,452	2,932
Financial liabilities designated at fair value ...	2,765	18,386	21,151	-	16,288	16,288
Debt securities in issue .................................	-	2,613	2,613	-	2,668	2,668
Other financial liabilities .............................	1,460	-	1,460	1,782	-	1,782
Subordinated liabilities .................................	-	12,450	12,450	-	13,313	13,313

	5,390	34,763	40,153	3,262	33,721	36,983

36 Foreign exchange exposures

Structural foreign exchange exposures

HSBC's structural foreign exchange exposures are represented by the net asset value of its foreign exchange equity and subordinated debt investments in subsidiaries, branches, joint ventures and associates with non-US dollar functional currencies. Gains or losses on structural foreign exchange exposures are recognised in other comprehensive income. HSBC's management of its structural foreign exchange exposures is discussed in the 'Appendix - Risk policies and practices' on page 201.

In its separate financial statements, HSBC Holdings recognises its foreign exchange gains and losses on structural foreign exchange exposures in the income statement.

Net structural foreign exchange exposures

	2011	2010
	US$m	US$m
Currency of structural exposure
Pound sterling .........................................................................................................................	22,668	23,247
Euro ........................................................................................................................................	22,400	23,222
Chinese renminbi ....................................................................................................................	21,234	17,454
Brazilian reais .........................................................................................................................	6,097	6,004
Mexican pesos ........................................................................................................................	5,319	5,991
Canadian dollars ......................................................................................................................	4,848	4,012
Hong Kong dollars ..................................................................................................................	4,828	2,659
Indian rupees ...........................................................................................................................	3,967	4,754
UAE dirhams ..........................................................................................................................	2,650	2,469
Swiss francs¹ ............................................................................................................................	2,133	3,357
Saudi riyals ..............................................................................................................................	1,965	907
Malaysian ringgit ....................................................................................................................	1,829	1,619
Turkish lira .............................................................................................................................	1,565	1,854
Taiwanese dollars ....................................................................................................................	1,457	1,429
Australian dollars ....................................................................................................................	1,455	1,381
Korean won ............................................................................................................................	1,411	1,456
Indonesian rupiah ....................................................................................................................	1,235	1,190
Argentine pesos ......................................................................................................................	984	881
Egyptian pounds .....................................................................................................................	692	642
Vietnamese dong .....................................................................................................................	686	621
Singapore dollars .....................................................................................................................	670	596
Philippine pesos ......................................................................................................................	663	635
Qatari rial ...............................................................................................................................	608	510
Others, each less than US$500m .............................................................................................	4,651	4,413

Total ......................................................................................................................................	116,015	111,303

1 During 2011, we entered into a forward foreign exchange contract amounting to US$700m (2010: nil) in order to manage the foreign exchange risk of our investments. This resulted in a decrease of our structural foreign exchange exposure to Swiss francs as at 31 December 2011.

Shareholders' equity would decrease by US$2,146m (2010: US$2,213m) if euro and sterling foreign currency exchange rates weakened by 5% relative to the US dollar.

37 Assets charged as security for liabilities and collateral accepted as security for assets

Financial assets pledged to secure liabilities

	Assets pledged at 31 December
	2011	2010
	US$m	US$m

Treasury bills and other eligible securities ................................................................................	5,185	5,859
Loans and advances to banks ...................................................................................................	19,247	11,773
Loans and advances to customers ............................................................................................	81,570	60,500
Debt securities .........................................................................................................................	210,255	214,126
Equity shares ...........................................................................................................................	6,916	7,216
Other ......................................................................................................................................	1,003	931

	324,176	300,405

% of total assets encumbered ...................................................................................................	12.7%	12.2%

The financial assets above represent the Group's encumbered assets on an IFRSs basis. For further details refer to 'Liquidity and funding risk' on page 160. Of the financial assets pledged to secure liabilities, the most significant amounts are located in the following geographical regions:

	Assets pledged at 31 December
	2011	2010
	US$m	US$m

North America ........................................................................................................................	58,086	53,472
Europe ....................................................................................................................................	245,171	227,177

	303,257	280,649

These transactions are conducted under terms that are usual and customary to collateralised transactions, including, where relevant, standard securities lending and repurchase agreements.

Collateral accepted as security for assets

The fair value of assets accepted as collateral that HSBC is permitted to sell or repledge in the absence of default is US$302,285m (2010: US$333,921m). The fair value of any such collateral that has been sold or repledged was US$188,682m (2010: US$205,470m). HSBC is obliged to return equivalent securities.

These transactions are conducted under terms that are usual and customary to standard securities borrowing and reverse repurchase agreements.

38 Non-controlling interests

	2011	2010
	US$m	US$m

Non-controlling interests attributable to holders of ordinary shares in subsidiaries ...................	4,656	4,522
Preference shares issued by subsidiaries ....................................................................................	2,712	2,726

	7,368	7,248

Preference shares issued by subsidiaries

		2011	2010
		US$m	US$m

HSBC USA Inc. and HSBC Finance Corporation
US$575m	6.36% non-cumulative preferred stock, Series B¹ ...........................................	559	559
US$518m	Floating rate non-cumulative preferred stock, Series F² ..................................	518	518
US$374m	Floating rate non-cumulative preferred stock, Series G³ .................................	374	374
US$374m	6.50% non-cumulative preferred stock, Series H³ ...........................................	374	374
US$150m	Depositary shares each representing 25% interest in a share of adjustable-rate cumulative preferred stock, Series D⁴ ......................................	150	150
US$150m	Cumulative preferred stock⁵ ...........................................................................	150	150

Other HSBC subsidiaries
CAD250m	Non-cumulative 5 year rate reset class 1 preferred shares, Series E⁶ ...............	245	251
CAD175m	Non-cumulative redeemable class 1 preferred shares, Series C⁷ .......................	171	175
CAD175m	Non-cumulative class 1 preferred shares, Series D⁷ .........................................	171	175

		2,712	2,726

1 The Series B preferred stock has been redeemable at the option of HSBC Finance Corporation, in whole or in part, from 24 June 2010 at par.

2 The Series F preferred stock has been redeemable at par at the option of HSBC USA, Inc., in whole or in part, on any dividend payment date from 7 April 2010.

3 The Series G and Series H preferred stock have been redeemable at par at the option of HSBC USA, Inc., in whole or in part, at any time from 1 January 2011 and 1 July 2011, respectively.

4 The preferred stock has been redeemable at the option of HSBC USA, Inc., in whole or in part, from 1 July 1999 at par.

5 The preferred stock has been redeemable at the option of HSBC USA, Inc., in whole or in part, from 1 October 2007 at par.

6 The Series E preferred shares are redeemable at par at the option of HSBC Bank Canada, in whole or in part commencing 30 June 2014 and on 30 June every five years thereafter.

7 The Series C and Series D preferred shares have been redeemable at a declining premium above par at the option of HSBC Bank Canada, in whole or in part, from 30 June 2010 and 31 December 2010, respectively.

All redemptions are subject to prior notification to the FSA and, where relevant, the local banking regulator.

39 Called up share capital and other equity instruments

Issued and fully paid

	2011	2010
	US$m	US$m

HSBC Holdings ordinary shares¹ ..............................................................................................	8,934	8,843

	Number	US$m
HSBC Holdings ordinary shares of US$0.50 each
At 1 January 2011 ..................................................................................................................	17,686,155,902	8,843
Shares issued under HSBC employee share plans ......................................................................	11,354,577	6
Shares issued in lieu of dividends ..............................................................................................	170,575,167	85

At 31 December 2011 .............................................................................................................	17,868,085,646	8,934

At 1 January 2010 ..................................................................................................................	17,408,206,768	8,705
Shares issued under HSBC employee share plans ......................................................................	25,001,734	12
Shares issued in lieu of dividends ..............................................................................................	252,947,400	126

At 31 December 2010 .............................................................................................................	17,686,155,902	8,843

1 All ordinary shares in issue confer identical rights in respect of capital, dividends, voting and otherwise.

	Number	US$m
HSBC Holdings non-cumulative preference shares of US$0.01 each

At 1 January 2011 and 31 December 2011 ..............................................................................	1,450,000	-

At 1 January 2010 and 31 December 2010 ..............................................................................	1,450,000	-

Dividends on the HSBC Holdings non-cumulative dollar preference shares ('Dollar Preference Shares') in issue are paid quarterly at the sole and absolute discretion of the Board of Directors. The Board of Directors will not declare a dividend on the Dollar Preference Shares in issue if payment of the dividend would cause HSBC Holdings not to meet the applicable capital adequacy requirements of the FSA or the profit of HSBC Holdings available for distribution as dividends is not sufficient to enable HSBC Holdings to pay in full both dividends on the Dollar Preference Shares in issue and dividends on any other shares that are scheduled to be paid on the same date and that have an equal right to dividends. HSBC Holdings may not declare or pay dividends on any class of its shares ranking lower in the right to dividends than the Dollar Preference Shares in issue nor redeem nor purchase in any manner any of its other shares ranking equal with or lower than the Dollar Preference Shares in issue unless it has paid in full, or set aside an amount to provide for payment in full, the dividends on the Dollar Preference Shares in issue for the then-current dividend period. The Dollar Preference Shares in issue carry no rights to conversion into ordinary shares of HSBC Holdings. Holders of the Dollar Preference Shares in issue will only be entitled to attend and vote at general meetings of shareholders of HSBC Holdings if the dividend payable on the Dollar Preference Shares in issue has not been paid in full for four consecutive dividend payment dates. In such circumstances, holders of the Dollar Preference Shares in issue will be entitled to vote on all matters put to general meetings until such time as HSBC Holdings has paid a full dividend on the Dollar Preference Shares in issue. HSBC Holdings may redeem the Dollar Preference Shares in issue in whole at any time on or after 16 December 2010, subject to prior notification to the FSA.

HSBC Holdings non-cumulative preference shares of £0.01 each

The one non-cumulative sterling preference share of £0.01 ('Sterling Preference Share') was in issue from 29 December 2010 and throughout 2011 and is held by a subsidiary of HSBC Holdings. Dividends on the Sterling Preference Share in issue are paid quarterly at the sole and absolute discretion of the Board. The Sterling Preference Share in issue carries no rights to conversion into ordinary shares of HSBC Holdings and no rights to attend and vote at general meetings of shareholders of HSBC Holdings. HSBC Holdings may redeem it in whole at any time at the option of the Company.

Other equity instruments

On 9 April 2008, HSBC Holdings issued, in bearer form, 88m 8.125% Perpetual Subordinated Capital Securities ('Capital Securities'), each with a par value of US$25 and with an aggregate nominal value of US$2,200m. The Capital Securities were issued at par value, raising US$2,133m, net of issuance costs. The Capital Securities were issued to support the development of and to strengthen further HSBC's capital base. Coupon payments on the Capital Securities are paid quarterly in arrears from 15 July 2008 and may be deferred at the discretion of HSBC Holdings. The Capital Securities have no fixed maturity and are redeemable at HSBC's option on or after 15 April 2013 at their principal amounts together with any accrued, unpaid and deferred coupon payments. While any coupon payments are unpaid or deferred, HSBC Holdings will not declare, pay dividends or make distributions or similar periodic payments in respect of, or repurchase, redeem or otherwise acquire any securities of lower or equal rank. At HSBC Holdings' discretion, and subject to certain conditions being satisfied, the Capital Securities may be exchanged on any coupon payment date for non-cumulative preference shares to be issued by HSBC Holdings and which would rank pari passu with the dollar and sterling preference shares in issue. The preference shares will be issued at a nominal value of US$0.01 per share and a premium of US$24.99 per share, with both such amounts being subscribed and fully paid.

During June 2010, HSBC Holdings issued, in bearer form, 152m 8.00% of Perpetual Subordinated Capital Securities, Series 2 ('Capital Securities, Series 2'), each with a par value of US$25 and with an aggregate nominal value of US$3,800m. The Capital Securities, Series 2 were issued at par value, raising US$3,718m, net of issuance costs. These securities were issued on substantially the same terms as the Capital Securities issued in 2008. Coupon payments on the Capital Securities, Series 2 are paid quarterly in arrears from 15 September 2010 and may be deferred at the discretion of HSBC Holdings. The Capital Securities, Series 2 have no fixed maturity and are redeemable at HSBC's option on or after 15 December 2015 at their principal amounts together with any accrued, unpaid and deferred coupon payments. At HSBC Holdings' discretion, and subject to certain conditions being satisfied, the Capital Securities, Series 2 may be exchanged on any coupon payment date for non-cumulative preference shares to be issued by HSBC Holdings and which would rank pari passu with the dollar and sterling preference shares in issue. The preference shares will be issued at a nominal value of US$0.01 per share and a premium of US$24.99 per share, with both such amounts being subscribed and fully paid.

Shares under option

Details of the options outstanding to subscribe for HSBC Holdings ordinary shares under the HSBC Holdings Group Share Option Plan, the HSBC Share Plan and HSBC Holdings savings-related share option plans are given in Note 9.

Aggregate options outstanding under these plans

	Number of HSBC Holdings ordinary shares	Period of exercise	Exercise price

31 December 2011 .........................................	215,992,204	2012 to 2017	£3.3116 - 7.9911
	45,422,511	2012 to 2017	HK$37.8797 - 94.5057
	3,176,265	2012 to 2017	€3.6361 - 9.5912
	9,752,066	2012 to 2017	US$4.8876 - 12.0958

31 December 2010 ...........................................	249,242,968	2011 to 2016	£3.3116 - 8.4024
	47,428,892	2011 to 2016	HK$37.8797 - 94.5057
	3,128,508	2011 to 2016	€3.6361 - 9.5912
	10,899,415	2011 to 2016	US$4.8876 - 12.0958

31 December 2009¹ ..........................................	270,742,989	2010 to 2015	£3.3116 - 8.4024
	50,938,242	2010 to 2015	HK$37.8797 - 94.5057
	3,283,710	2010 to 2015	€3.6361 - 9.5912
	12,073,216	2010 to 2015	US$4.8876 - 12.0958

1 During 2009, the number and prices of unexercised share options were adjusted for the rights issue.

HSBC France and subsidiary company plans

When it was acquired in 2000, HSBC France and certain of its subsidiary companies, including HSBC Private Bank France, operated employee share option plans under which options could be granted over their respective shares.

HSBC Private Bank France plan

There were outstanding options over the shares of HSBC Private Bank France, a subsidiary of HSBC France. On exercise of those options, the HSBC Private Bank France shares were exchangeable for HSBC Holdings ordinary shares at the ratio of 2.099984 HSBC Holdings ordinary shares for each HSBC Private Bank France share.

On 31 October 2011, HSBC Private Bank France merged with HSBC France. Options held over shares of HSBC Private Bank France were converted into options over shares of HSBC France, at an exchange ratio 7 HSBC France shares for 45 HSBC Private Bank France shares. The options outstanding at 31 October 2011 have been adjusted to reflect the option exchange ratio. On exercise of these options, HSBC France shares will be exchanged for HSBC Holdings ordinary shares in the ratio of 13.499897 HSBC Holdings ordinary shares for each HSBC France share.

Before 31 October 2011, no (2010: 4,420) HSBC Private Bank France shares were issued and no (2010: 9,281) shares were exchanged for HSBC Holdings ordinary shares. During 2011, 141,525 options over HSBC Private Bank France shares lapsed (2010: nil).

From 31 October 2011, no employee share options were exercised and no HSBC France shares were issued and exchanged for HSBC Holdings ordinary shares.

At 31 December 2011, The CCF Employee Benefit Trust 2001 (Private Banking France) held 989,502 (2010: 989,502) HSBC Holdings ordinary shares which will be exchanged for HSBC France shares received following the exercise of these options.

HSBC France options effectively outstanding over HSBC Holdings ordinary shares

	Number of HSBC France shares exchangeable for HSBC Holdings ordinary shares	Period of exercise	Exercise price

31 December 2011¹ ..............................................	22,645	2012	€142.84
31 December 2010 .................................................	287,100	2011 to 2012	€20.80 - 22.22
31 December 2009 .................................................	291,520	2010 to 2012	€12.44 - 22.22

1 These options replaced the options over shares in HSBC Private Bank France which were outstanding on 31 October 2011 prior to the merger taking place.

HSBC Finance

Upon the acquisition of HSBC Finance in 2003, all outstanding options over, and rights to receive, HSBC Finance common shares were converted into options over, and rights to receive, HSBC Holdings ordinary shares in the same ratio as the share exchange offer for the acquisition of HSBC Finance (2.675 HSBC Holdings ordinary shares for each HSBC Finance common share). The exercise price payable for each option was adjusted using the same exchange ratio. During 2011, no options (2010: 306,964) over HSBC Holdings ordinary shares were exercised and no (2010: 306,964) HSBC Holdings ordinary shares were delivered from The HSBC (Household) Employee Benefit Trust 2003. During 2011, options over 8,688,288 (2010: 6,681,169) HSBC Holdings ordinary shares lapsed. At 31 December 2011, The HSBC (Household) Employee Benefit Trust 2003 held a total of 2,335,315 (2010: 2,335,315) HSBC Holdings ordinary shares and 1,455 (2010: 1,455) ADSs, which may be used to satisfy the exercise of employee share options. Each ADS represents five HSBC Holdings ordinary shares.

Options outstanding over HSBC Holdings ordinary shares under the HSBC Finance share plan

	Number of HSBC Holdings ordinary shares	Period of exercise	Exercise price

31 December 2011 ...............................................	2,429,538	2012	US$9.29
31 December 2010 .................................................	11,117,826	2011 to 2012	US$9.29 - 18.62
31 December 2009¹ ................................................	18,105,959	2010 to 2012	US$9.29 - 18.62

1 During 2009, the number and prices of unexercised share options were adjusted for the rights issue.

HSBC Bank Bermuda plans

Upon the acquisition of HSBC Bank Bermuda in 2004, all outstanding share options over HSBC Bank Bermuda shares were converted into options to acquire HSBC Holdings ordinary shares using an exchange ratio calculated by dividing US$40 (being the consideration paid for each HSBC Bank Bermuda Share) by the average price of HSBC Holdings ordinary shares over the 5 day period to the completion of the acquisition. The exercise price payable for each option was adjusted using the same exchange ratio. During 2011, no (2010: 4,781) options over HSBC Holdings ordinary shares were exercised and no shares were delivered from the HSBC (Bank of Bermuda) Employee Benefit Trust 2004. During 2011, options over 1,308,126 (2010: 137,888) HSBC Holdings ordinary shares lapsed. At 31 December 2011, the HSBC (Bank of Bermuda) Employee Benefit Trust 2004 held 2,108,830 (2010: 2,108,830) HSBC Holdings ordinary shares which may be used to satisfy the exercise of employee options.

Options outstanding over HSBC Holdings ordinary shares under the HSBC Bank Bermuda share plan

	Number of HSBC Holdings ordinary shares	Period of exercise	Exercise price

31 December 2011 ...............................................	1,030,907	2012 to 2013	US$9.32 - 15.99
31 December 2010 .................................................	2,339,033	2011 to 2013	US$9.32 - 15.99
31 December 2009¹.................................................	2,481,702	2010 to 2013	US$6.13 - 15.99

1 During 2009, the number and prices of unexercised share options were adjusted for the rights issue.

Maximum obligation to deliver HSBC Holdings ordinary shares

At 31 December 2011, the maximum obligation to deliver HSBC Holdings ordinary shares under all of the above option arrangements, together with GPSP awards and Restricted Shares granted under the HSBC Share Plan and/or the HSBC Share Plan 2011, was 538,265,410 (2010: 558,187,326). The total number of shares at 31 December 2011 held by employee benefit trusts that may be used to satisfy such obligations to deliver HSBC Holdings ordinary shares was 31,840,893 (2010: 79,541,700).

40 Notes on the statement of cash flows

Other non-cash items included in profit before tax

	HSBC			HSBC Holdings
	2011	2010	2009	2011	2010
	US$m	US$m	US$m	US$m	US$m

Depreciation, amortisation and impairment ............	3,135	2,801	2,538	1	2
Gains arising from dilution of interests in associates	(208)	(188)	-	-	-
Revaluations on investment property .....................	(118)	(93)	24	-	-
Share-based payment expense .................................	1,162	812	683	57	28
Loan impairment losses gross of recoveries and other credit risk provisions .................................	13,553	15,059	27,378	-	-
Provisions ..............................................................	2,199	680	669	-	-
Impairment of financial investments ......................	808	105	358	-	113
Charge/(credit) for defined benefit plans .................	(140)	526	192	-	-
Accretion of discounts and amortisation of premiums ............................................................................	(513)	(815)	(458)	19	42

	19,878	18,887	31,384	77	185

Change in operating assets

	HSBC			HSBC Holdings
	2011	2010	2009	2011	2010
	US$m	US$m	US$m	US$m	US$m

Change in loans to HSBC undertakings ....................	-	-	-	(4,548)	1,974
Change in prepayments and accrued income ............	1,907	457	3,198	96	(5)
Change in net trading securities and net derivatives .	27,058	60,337	15,388	(1,001)	1,119
Change in loans and advances to banks ....................	2,618	5,213	(30,354)	-	-
Change in loans and advances to customers .............	(30,853)	(79,283)	6,149	-	-
Change in financial assets designated at fair value ....	(583)	154	(8,911)	-	-
Change in other assets .............................................	(7,559)	(145)	(6,273)	(36)	3

	(7,412)	(13,267)	(20,803)	(5,489)	3,091

Change in operating liabilities

	HSBC			HSBC Holdings
	2011	2010	2009	2011	2010
	US$m	US$m	US$m	US$m	US$m

Change in accruals and deferred income ...................	(800)	716	(2,258)	258	147
Change in deposits by banks ....................................	2,238	(14,288)	(5,216)	-	-
Change in customer accounts ...................................	48,401	68,691	41,983	-	-
Change in debt securities in issue ..............................	(14,388)	(1,495)	(32,797)	(45)	(171)
Change in financial liabilities designated at fair value .............................................................................	5,468	5,659	7,430	(475)	(621)
Change in other liabilities ........................................	3,093	(17,011)	5,503	(152)	(1,109)

	44,012	42,272	14,645	(414)	(1,754)

Cash and cash equivalents

	HSBC			HSBC Holdings
	2011	2010	2009	2011	2010
	US$m	US$m	US$m	US$m	US$m

Cash at bank with HSBC undertakings ......................	-	-	-	316	459
Cash and balances at central banks ...........................	129,902	57,383	60,655	-	-
Items in the course of collection from other banks ..	8,208	6,072	6,395	-	-
Loans and advances to banks of one month or less ..	169,858	189,197	160,673	-	-
Treasury bills, other bills and certificates of deposit less than three months .........................................	26,226	28,087	28,777	-	-
Less: items in the course of transmission to other banks ..........................................................	(8,745)	(6,663)	(5,734)	-	-

	325,449	274,076	250,766	316	459

Interest and dividends

	HSBC			HSBC Holdings
	2011	2010	2009	2011	2010
	US$m	US$m	US$m	US$m	US$m

Interest paid ............................................................	(23,125)	(21,405)	(29,030)	(2,392)	(2,363)
Interest received ......................................................	66,734	63,696	74,062	1,559	1,405
Dividends received ...................................................	602	563	1,023	6,874	7,008

The amount of cash and cash equivalents not available for use by HSBC at 31 December 2011 was US$39,345m (2010: US$37,413m), of which US$25,819m (2010: US$28,780m) related to mandatory deposits at central banks.

This information is provided by RNS

The company news service from the London Stock Exchange

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