Interim Report - 3 of 21

RNS Number : 3056X

HSBC Holdings PLC

14 August 2009

 



Principal activities 

HSBC is one of the largest banking and financial services organisations in the world, with a market capitalisation of US$141 billion at 30 June 2009.

Through its subsidiaries and associates, HSBC provides a comprehensive range of banking and related financial services. Headquartered in London, HSBC operates through long-established businesses and has an international network of some 8,500 offices in 86 countries and territories in six geographical regions: Europe; Hong Kong; Rest of Asia-Pacific; the Middle East, including Africa; North America; and Latin America. Previously, the Middle East was reported as part of Rest of Asia-Pacific. Within these regions, a comprehensive range of financial services is offered to personal, commercial, corporate, institutional, investment and private banking clients. Services are delivered primarily by domestic or regional banks, typically with large retail deposit bases, and by consumer finance operations.

Strategic direction

HSBC's strategic direction reflects its position as 'The world's local bank', combining the largest global developing markets banking business and a uniquely cosmopolitan customer base with an extensive international network and substantial financial strength.

The Group's strategy is aligned with the key trends which are shaping the global economy. In particular, HSBC recognises that, over the long term, developing markets are growing faster than the mature economies, world trade is expanding at a greater rate than gross domestic product and life expectancy is lengthening virtually everywhere. HSBC's strategy is focused on delivering superior growth and earnings over time by building on the Group's heritage and skills. Its origins in trade in Asia have had a considerable influence over the development of the Group and, as a consequence, HSBC has an established and longstanding presence in many countries. The combination of local knowledge and international breadth is supported by a substantial financial capability founded on balance sheet strength, largely attributable to the scale and stability of the Group's retail deposit bases.

HSBC is, therefore, continuing to direct incremental investment primarily to the faster growing markets and, in the more developed markets, is focusing on businesses and customer segments which have international connectivity. A policy of maintaining HSBC's capital strength and strong liquidity position remains complementary to these reshaping activities. 

The Group has identified three main business models for its customer groups and global businesses that embody HSBC's areas of natural advantage: 

• businesses with international customers for whom developing markets connectivity is crucial - Global Banking and Markets, Private Banking, the large business segment of Commercial Banking and the mass affluent segment of Personal Financial Services; 

• businesses with local customers where efficiency can be enhanced through global scale - the small business segment of Commercial Banking and the mass market segment of Personal Financial Services; and 

• products where global scale is possible through building efficiency, expertise and brand - global product platforms such as cards and direct banking.

The means of executing the strategy, and further utilising the linkages within the Group, are clear: 

• the HSBC brand and global networks will be leveraged to reach new customers and offer further services to existing clients; 

• efficiency will be enhanced by taking full advantage of local, regional and global economies of scale, in particular by adopting a common systems architecture wherever possible; and 

• objectives and incentives will be aligned to motivate and reward staff for being fully engaged in delivering the strategy.

Risks and uncertainties 

A detailed account of HSBC's risks and uncertainties is provided on pages 12 to 17 of the Annual Report and Accounts 2008. Further comments on expected risks and uncertainties are made throughout this Interim Management Report, particularly in the sections on Market Turmoil and Risk.

Fair presentation of rights issue

The interim consolidated financial statements of HSBC have been prepared in accordance with IAS 34 'Interim Financial Reporting' ('IAS 34') as issued by the International Accounting Standards Board ('IASB') and as endorsed by the EU. In order to present fairly the financial position, financial performance and cash flows of the Group, as required by IAS 1 'Presentation of Financial Statements', and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group as required by section 393 of the Companies Act 2006, HSBC has departed from the requirements of IAS 32 'Financial Instruments: Presentation' ('IAS 32') in so far as this standard requires the offer of rights by HSBC to its shareholders in March 2009 to be classified as a derivative financial liability. Further details of this departure including its financial effect are provided in Note 19 on the Financial Statements. The Directors have concluded that the interim consolidated financial statements prepared on this basis present fairly, and give a true and fair view of, the Group's financial position, financial performance and cash flows.

The requirement to classify the offer of rights as a derivative financial liability was disclosed in the Rights Issue Prospectus in March 2009 and the effect on the income statement of this accounting treatment was disclosed in the HSBC's Interim Management Statement in May 2009. As a result of representations from a number of corporate entities, the accounting treatment of rights issues was discussed at the International Financial Reporting Interpretations Committee and the IASB in July 2009. The Directors gave further consideration to the question of whether they would be able to approve interim consolidated financial statements which complied with the requirements of IAS 32 in respect of the offer of rights, and meet their obligation under IFRSs and the Companies Act to approve interim consolidated financial statements which present fairly, and give a true and fair view of, the Group's financial performance. The Directors concluded that it was necessary to depart from the requirements of IAS 32 as discussed above in order to present fairly, and give a true and fair view of, the Group's financial position, financial performance and cash flows.

Reconciliation of reported and underlying profit before tax

HSBC measures its performance internally on a like-for-like basis by eliminating the effects of foreign currency translation differences and acquisitions and disposals of subsidiaries and businesses, which distort period-on-period comparisons. HSBC refers to this as its underlying performance.

Constant currency

Constant currency comparatives for the half-years to 30 June 2008 and 31 December 2008, used in the 2009 commentaries, are computed by retranslating into US dollars:

the income statements for the half-years to 30 June 2008 and 31 December 2008 of non-US dollar branches, subsidiaries, joint ventures and associates at the average rates of exchange for the half-year to 30 June 2009; and

the balance sheets at 30 June 2008 and 31 December 2008 for non-US dollar branches, subsidiaries, joint ventures and associates at the rates of exchange ruling at 30 June 2009.

No adjustment has been made to the exchange rates used to translate foreign currency denominated assets and liabilities into the functional currencies of any HSBC branches, subsidiaries, joint ventures or associates. 

When reference is made to 'constant currency' or 'constant exchange rates' in tables or commentaries, comparative data reported in the functional currencies of HSBC's operations have been translated at the appropriate exchange rates applied in the current period on the basis described above.

Underlying performance

The tables below compare the underlying performance of HSBC for the half-year to 30 June 2009 with the half-years to 30 June 2008 and 31 December 2008. Equivalent tables are provided for each of HSBC's customer groups and geographical segments in their respective sections below.

The foreign currency translation differences reflect the general strengthening of the US dollar compared with its value throughout 2008, and were most significant in Europe due to the size of HSBC's operations in the UK. The Group's reported profit before tax for the first half of 2009 decreased by 51 per cent compared with the first half of 2008. On an underlying basis the decline was 9 percentage points smaller. Reported profit before tax improved compared with the second half of 2008, by 634 per cent or 217 per cent on an underlying basis.

The following acquisitions and disposals affected these comparisons:

• the sale of HSBC's UK merchant acquiring business to a joint venture 49 per cent owned by the Group in June 2008 and the subsequent sale of the Group's share in this joint venture to the Group's partner in the venture in June 2009; and

• the disposal of seven French regional banking subsidiaries in July 2008.

 

Reconciliation of reported and underlying profit before tax

	Half-year to 30 June 2009 (‘1H09’) compared with half-year to 30 June 2008 (‘1H08’)
HSBC	1H08 as reported US$m	1H08 acquisitions and disposals1 US$m			Currency translation2 US$m		1H08 at 1H09 exchange rates3 US$m	1H09 acquisitions and  disposals1 US$m			Under-lying change US$m		1H09 as reported US$m		Re- ported change4 %		Under-lying change4 %
Net interest income	21,178		(65)		(1,841)		19,272		–		1,266		20,538		(3)		7
Net fee income	10,991		(58)		(1,181)		9,752		–		(1,324)		8,428		(23)		(14)
Changes in fair value5	577		–		36		613		–		(2,913)		(2,300)		(499)		(475)
Other income6	6,729		(514)		(1,511)		4,704		280		3,091		8,075		20		66
Net operating income7	39,475		(637)		(4,497)		34,341		280		120		34,741		(12)		–
Loan impairment charges and other credit risk provisions	(10,058)		6		592		(9,460)		–		(4,471)		(13,931)		(39)		(47)
Net operating income	29,417		(631)		(3,905)		24,881		280		(4,351)		20,810		(29)		(17)
Operating expenses (excluding goodwill impairment)	(19,613)		68		2,376		(17,169)		–		511		(16,658)		15		3
Goodwill impairment	(527)		–		–		(527)		–		527		–		100		100
Operating profit	9,277		(563)		(1,529)		7,185		280		(3,313)		4,152		(55)		(46)
Income from associates	970		–		26		996		–		(129)		867		(11)		(13)
Profit before tax	10,247		(563)		(1,503)		8,181		280		(3,442)		5,019		(51)		(42)

 

	Half-year to 30 June 2009 (‘1H09’) compared with half-year to 31 December 2008 (‘2H08’)
HSBC	2H08 as reported US$m	2H08 acquisitions and  disposals1 US$m			Currency translation2 US$m		2H08 at 1H09 exchage rates8 US$m	1H09 acquisitions and  disposals1 US$m			Under-lying change US$m		1H09 as reported US$m		Re-ported change4 %		Under-lying change4 %
Net interest income	21,385		–		(1,093)		20,292		–		246		20,538		(4)		1
Net fee income	9,033		–		(558)		8,475		–		(47)		8,428		(7)		(1)
Changes in fair value5	6,102		–		(100)		6,002		–		(8,302)		(2,300)		(138)		(138)
Gain on disposal of French regional banks	2,445		(2,445)		–		–		–		–		–		–		–
Other income6	3,242		(166)		(577)		2,499		280		5,296		8,075		149		212
Net operating income7	42,207		(2,611)		(2,328)		37,268		280		(2,807)		34,741		(18)		(8)
Loan impairment charges and other credit risk provisions	(14,879)		–		520		(14,359)		–		428		(13,931)		6		3
Net operating income	27,328		(2,611)		(1,808)		22,909		280		(2,379)		20,810		(24)		(10)
Operating expenses (excluding goodwill impairment)	(18,922)		–		1,315		(17,607)		–		949		(16,658)		12		5
Goodwill impairment	(10,037)		–		–		(10,037)		–		10,037		–		100		100
Operating profit/(loss)	(1,631)		(2,611)		(493)		(4,735)		280		8,607		4,152		355		182
Income from associates	691		–		(2)		689		–		178		867		25		26
Profit/(loss) before tax	(940)		(2,611)		(495)		(4,046)		280		8,785		5,019		634		217

For footnotes, see page 94.

 

 

 

END

 

 

MSCUUUKRKARWARR