Interim Report - 13 of 26

RNS Number : 1194M

HSBC Holdings PLC

12 August 2011

 



Other information

Funds under management and assets held in custody

	Half-year to
	30 June                2011		30 June                2010		31 December                2010
	US$bn		US$bn		US$bn
Funds under management
At beginning of period ...............................................................................	925		857		828
Net new money ..........................................................................................	16		25		17
Value change ..............................................................................................	3		(16)		49
Exchange and other ...................................................................................	4		(38)		31
At end of period .........................................................................................	948		828		925
Funds under management by business
HSBC Global Asset Management ................................................................   ...................................................................................................................	449		407		439
Global Private Banking ..............................................................................	297		245		277
Affiliates ....................................................................................................	3		3		3
Other .........................................................................................................	199		173		206
	948		828		925

Funds under management ('FuM') at 30 June 2011 amounted to US$948bn, an increase of 2% when compared with 31 December 2010. Both Global Asset Management and GPB fund holdings increased.

Global Asset Management funds, including emerging market funds, increased by 2% to US$449bn. The increase in FuM was primarily driven by favourable foreign exchange movements together with net inflows in Europe and Latin America. We remain one of the world's largest emerging market asset managers with FuM of US$135bn at 30 June 2011 in countries outside North America, Western Europe, Japan and Australia.

GPB FuM increased by 7% compared with 31 December 2010 to US$297bn, driven by strong net inflows, which benefited from cross-business referrals and the hiring of relationship managers, together with favourable foreign exchange movements. Client assets, which include FuM and cash deposits and provide an indicator of overall GPB volumes, increased by US$26bn to US$416bn due to the growth in FuM.

Other FuM decreased marginally to US$199bn primarily due to the disposal of real estate and infra-structure fund management activity during the year.

Assets held in custody and under administration

Custody is the safekeeping and servicing of securities and other financial assets on behalf of clients. At 30 June 2011, we held assets as custodian of US$5.9 trillion, 3% higher than the US$5.7 trillion held at 31 December 2010. This was mainly driven by favourable foreign exchange and market movements.

Our assets under administration business, which includes the provision of various support function activities including the valuation of portfolios of securities and other financial assets on behalf of clients, complements the custody business. At 30 June 2011, the value of assets held under administration by the Group amounted to US$2.8 trillion, an increase from US$2.7 trillion at 31 December 2010 primarily due to favourable foreign exchange movements.

Review of transactions with related parties

The Financial Services Authority's ('FSA') Disclosure Rules and Transparency Rules require the disclosure of related party transactions that have taken place in the first six months of the current financial year and any changes in the related party transactions described in the Annual Report and Accounts 2010, that have or could have materially affected the financial position or performance of HSBC. A fair review has been undertaken and any such related party transactions have been disclosed in the Notes on the Financial Statements.

Accounting for deferred bonus arrangements

Recent regulatory and best practice guidance has clarified the required structure and terms of deferred bonus arrangements awarded to employees, who now have a better understanding of the likely nature of awards to be granted in respect of a particular financial year. As a result, the vesting period in respect of deferred awards expected to be granted in March 2012 is therefore determined to have started on 1 January 2011. An additional expense of US$138m in respect of these deferred awards was recognised in 'Operating expenses' in the first half of 2011.

Footnotes to pages 2 to 80

Financial highlights

  1  Dividends recorded in the financial statements are dividends per ordinary share declared in the first six months of 2011 and are not dividends in respect of, or for, the period.

  2  Return on invested capital is based on the profit attributable to ordinary shareholders. Average invested capital is measured as average total shareholders' equity after adding back goodwill previously written-off directly to reserves, deducting average equity preference shares issued by HSBC Holdings and deducting/(adding) average reserves for unrealised gains/(losses) on effective cash flow hedges and available-for-sale securities. This measure reflects capital initially invested and subsequent profit.

  3  The return on average ordinary shareholders' equity is defined as profit attributable to shareholders of the parent company divided by average ordinary shareholders' equity.

  4  The cost efficiency ratio is defined as total operating expenses divided by net operating income before loan impairment charges and other credit risk provisions.

  5  Each ADS represents five ordinary shares.

  6  Total shareholder return is defined on page 84 of the Annual Report and Accounts 2010.

  7  The Financial Times Stock Exchange 100 Index.

  8  The Morgan Stanley Capital International World Index and the Morgan Stanley Capital International World Banks Index.

Reconciliations of reported and underlying profit before tax

  9  These columns comprise the net increments or decrements in profits in the current half-year (compared with the previous half-years) which are attributable to acquisitions or disposals of subsidiaries, gains arising on the dilution of interests in associates and/or movements in fair value of own debt designated at fair value attributable to credit spread. The inclusion of acquisitions and disposals is determined in the light of events in each period.

10  'Currency translation' is the effect of translating the results of subsidiaries and associates for the previous half-years at the average rates of exchange applicable in the current half-year.

11  Excluding adjustments in the first half of 2010.

12  Positive numbers are favourable: negative numbers are unfavourable.

13  Changes in fair value due to movements in own credit spread on long-term debt issued. This does not include the fair value changes due to own credit spread on structured notes issued and other hybrid instruments included within trading liabilities.

14  Other income in this context comprises net trading income, net income/(expense) from other financial instruments designated at fair value, gains less losses from financial investments, dividend income, net earned insurance premiums and other operating income less net insurance claims incurred and movement in liabilities to policyholders.

15  Net operating income before loan impairment charges and other credit risk provisions.

16  With effect from 1 March 2011, our Global Asset Management business was moved from GB&M to RBWM. Comparative data have been adjusted accordingly.

17  Excluding adjustments and disposals in the second half of 2010.

Financial summary

18  Net interest income includes the cost of funding trading assets, while the related external revenues are reported in trading income. In HSBC's customer group results, the cost of funding trading assets is included within Global Banking and Markets' net trading income as an interest expense.

19  Gross interest yield is the average annualised interest rate earned on average interest-earning assets ('AIEA').

20  Net interest spread is the difference between the average annualised interest rate earned on AIEA, net of amortised premiums and loan fees, and the average annualised interest rate payable on average interest-bearing funds.

21  Net interest margin is net interest income expressed as an annualised percentage of AIEA.

22  The cost of internal funding of trading assets was US$516m (first half of 2010: US$294m; second half of 2010: US$608m) and is excluded from the reported 'Net trading income' line and included in 'Net interest income'. However, this cost is reinstated in 'Net trading income' in HSBC's customer group and global business reporting.

23  Net trading income includes an income of US$60m (first half of 2010: income of US$255m; second half of 2009: expense of US$232m) associated with changes in the fair value of issued structured notes and other hybrid instrument liabilities derived from movements in HSBC issuance spreads.

24  The change in fair value related to movements in the Group's credit spread on long-term debt resulted in an expense of US$143m in the first half of 2011 (first half of 2010: income of US$1.1bn; second half of 2010: expense of US$1.1bn).

25  Includes gains and losses arising from changes in the fair value of derivatives that are managed in conjunction with HSBC's long-term debt issued.

26  Discretionary participation features.

27  The calculation of the PVIF asset was refined during the period to bring greater comparability and consistency across the Group's insurance operations. This was achieved by incorporating explicit margins and allowances for certain risks and uncertainties in place of implicit adjustments to the discount rate. The change in calculation reflected explicit risk margins for non-economic risks in the projection assumptions, and explicit allowances for financial options and guarantees using stochastic methods. Discount rates have been reduced as a result of removing the implicit adjustments. In certain circumstances, the implicit adjustments were different from the explicit amounts, resulting in a gain of US$243m which was included in 'Other operating income'.

28  Net insurance claims incurred and movement in liabilities to policyholders arise from both life and non-life insurance business. For non-life business, amounts reported represent the cost of claims paid during the year and the estimated cost of notified claims. For life business, the main element of claims is the liability to policyholders created on the initial underwriting of the policy and any subsequent movement in the liability that arises, primarily from the attribution of investment performance to savings-related policies. Consequently, claims rise in line with increases in sales of savings-related business and with investment market growth.

Consolidated balance sheet

29  Net of impairment allowances.

30  The calculation of capital resources, capital ratios and risk-weighted assets is on a Basel II basis.

31  Capital resources are total regulatory capital, the calculation of which is set out on page 161.

32  Includes perpetual preferred securities.

33  The definition of net asset value per share is total shareholders' equity, less non-cumulative preference shares and capital securities, divided by the number of ordinary shares in issue.

34  'Currency translation' is the effect of translating the assets and liabilities of subsidiaries and associates for the previous year-end at the rates of exchange applicable at the current period-end.

Economic profit

35  Expressed as a percentage of average invested capital.

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

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

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

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

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

37  Return on invested capital is based on the profit attributable to ordinary shareholders of the parent company.

Analyses by customer group and global business and by geographical region

38  The main items reported under 'Other' are certain property activities, unallocated investment activities, centrally held investment companies, gains arising from the dilution of interests in associates, movements in the fair value of own debt designated at fair value (the remainder of the Group's gain on own debt is included in GB&M), and HSBC's holding company and financing operations. The results also include net interest earned on free capital held centrally, operating costs incurred by the Group Management Office operations in providing stewardship and central management services to HSBC, and costs incurred by the Group Service Centres and Shared Service Organisations and associated recoveries.

39  Assets by geographical region and customer group include intra-HSBC items. These items are eliminated, where appropriate, under the headings 'Intra-HSBC items' or 'Inter-segment elimination'.

40  RWAs from associates have been reallocated in order to properly align with the classification of income. RWAs from Global Asset Management have been reallocated to RBWM, principally from GB&M. Both items represent a reclassification from the basis used in HSBC's 2010 Pillar 3 disclosures. Comparative data have been adjusted accordingly.

41  Net operating income before loan impairment charges and other credit risk provisions.

42  Loan impairment charges and other credit risk provisions.

43  Share of profit in associates and joint ventures.

44  Pre-tax return on average risk-weighted assets.

45  In the analysis of customer groups and global businesses, net trading income comprises all gains and losses from changes in the fair value of financial assets and financial liabilities classified as held for trading, related external and internal interest income and interest expense, and dividends received; in the statutory presentation internal interest income and expense are eliminated.

46  In the first half of 2011, Global Markets included a favourable fair value movement of US$60m on the widening of credit spreads on structured liabilities (first half of 2010: favourable fair value movement of US$255m; second half of 2010: adverse fair value movement of US$232m).

47  Total income earned on Securities Services products in the Group amounted to US$0.9bn (first half of 2010: US$0.7bn; second half of 2010: US$0.8bn), of which US$0.9bn was in GB&M (first half of 2010: US$0.7bn; second half of 2010: US$0.8bn) and US$19m was in CMB (first half of 2010: US$11m; second half of 2010: US$18m).

48  Total income earned on Payments and Cash Management products in the Group amounted to US$2.6bn (first half of 2010: US$2.1bn; second half of 2010: US$2.3bn), of which US$1.9bn was in CMB (first half of 2010: US$1.6bn; second half of 2010: US$1.7bn) and US$0.7bn was in GB&M (first half of 2010: US$0.5bn; second half of 2010: US$0.6bn).

49  Total income earned on other transaction services in the Group amounted to US$1.3bn (first half of 2010: US$1.1bn; second half of 2010: US$1.2bn). Of this US$1.0bn was in CMB relating to trade and supply chain (first half of 2010: US$0.8bn; second half of 2010: US$0.8bn) and US$0.3bn was in GB&M of which US$0.3bn related to trade and supply chain (first half of 2010: US$0.3bn; second half of 2010: US$0.2bn) and US$20m related to banknotes and other (first half of 2010: US$71m; second half of 2010: US$42m).

50  'Other' in GB&M includes net interest earned on free capital held in the global business not assigned to products. 

51  The foreign exchange effect is not eliminated on an underlying basis as the reporting currency of the principal business within GPB is US dollars.

52  Inter-segment elimination comprises (i) the costs of shared services and Group Service Centres included within 'Other' which are recovered from customer groups, and (ii) the intra-segment funding costs of trading activities undertaken within GB&M. HSBC's Balance Sheet Management business, reported within GB&M, provides funding to the trading businesses. To report GB&M's net trading income on a fully funded basis, 'Net interest income/(expense)' and 'Net interest income/(expense) on trading activities' are grossed up to reflect internal funding transactions prior to their elimination in the inter-segment column.

53  Net insurance claims incurred and movement in liabilities to policyholders.

54  'Employee expenses' comprises costs directly incurred by each customer group. The reallocation and recharging of employee and other expenses directly incurred in the 'Other' customer group is shown in 'Other operating expenses'.

55  RWAs are non-additive across geographical regions due to market risk diversification effects within the Group.

56  France primarily comprises the domestic operations of HSBC France, HSBC Assurances Vie and the Paris branch of HSBC Bank plc.

 

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