Interim Report - 4 of 28

RNS Number : 1861P

HSBC Holdings PLC

15 August 2014

 



Consolidated income statement

Summary income statement

	Half-year to
	30 June                2014		30 June                2013		31 December                2013
	US$m		US$m		US$m
Net interest income ........................................................................	17,405		17,819		17,720
Net fee income ...............................................................................	8,177		8,404		8,030
Net trading income .........................................................................	3,275		6,362		2,328
Net income/(expense) from financial instruments designated at fair value ..........................................................................................	1,660		(1,197)		1,965
Gains less losses from financial investments ....................................	946		1,856		156
Dividend income .............................................................................	88		107		215
Net earned insurance premiums .......................................................	6,137		6,226		5,714
Other operating income ..................................................................	538		946		1,686
Total operating income ...............................................................	38,226		40,523		37,814
Net insurance claims incurred and movement in liabilities to policyholders ..............................................................................	(7,059)		(6,151)		(7,541)
Net operating income before loan impairment charges and other credit risk provisions .........................................................................	31,167		34,372		30,273
Loan impairment charges and other credit risk provisions ..............	(1,841)		(3,116)		(2,733)
Net operating income .................................................................	29,326		31,256		27,540
Total operating expenses ................................................................	(18,266)		(18,399)		(20,157)
Operating profit ..........................................................................	11,060		12,857		7,383
Share of profit in associates and joint ventures ...............................	1,280		1,214		1,111
Profit before tax ..........................................................................	12,340		14,071		8,494
Tax expense ...................................................................................	(2,022)		(2,725)		(2,040)
Profit for the period ....................................................................	10,318		11,346		6,454
Profit attributable to shareholders of the parent company ..............	9,746		10,284		5,920
Profit attributable to non-controlling interests ...............................	572		1,062		534
Average foreign exchange translation rates to US$:
US$1: £ ..........................................................................................	0.599		0.648		0.632
US$1: € ..........................................................................................	0.730		0.761		0.745

Reported profit before tax of US$12.3bn in the first half of 2014 was US$1.7bn or 12% less than in the first half of 2013, primarily reflecting lower gains (net of losses) from disposals and reclassifications. Our results in the first half of 2013 included a US$1.1bn accounting gain arising from the reclassification of Industrial Bank as a financial investment following its issue of additional share capital to third parties. In addition, there were adverse fair value movements of US$0.2bn on own debt designated at fair value in the first half of 2014 compared with minimal movements in the first half of 2013.

On an underlying basis, profit before tax of US$12.6bn was 4% lower, primarily driven by reduced net operating income before loan impairment charges and other credit risk provisions ('revenue') which was partly offset by lower loan impairment charges and other credit risk provisions ('LIC's).

The following commentary is on an underlying basis and comparisons are with the first half of 2013, except where stated otherwise. The difference between reported and underlying results is explained and reconciled on page 23.

Revenue of US$31.4bn was US$1.4bn or 4% lower, reflecting the reduced effect of significant items in the first half of 2014. Revenue in the first half of 2014 included:

·       a gain of US$428m on the sale of our shareholding in Bank of Shanghai;

·       an adverse debit valuation adjustment ('DVA') of US$155m (compared with a favourable DVA of US$451m in the first half of 2013) on derivative contracts;

·       adverse fair value movements on non-qualifying hedges (see footnote 28) of US$322m compared with favourable movements of US$293m in the first half of 2013; and

·       a provision of US$367m arising from a review of compliance with the Consumer Credit Act in the UK.

In the first half of 2013, we reported the following items:

·       a net gain on completion of the Ping An disposal of US$553m; and

·       foreign exchange gains on sterling debt issued by HSBC Holdings of US$442m; partly offset by

·       a loss of US$279m recognised following the write-off of allocated goodwill relating to our GPB business in Monaco;

·       a loss of US$271m on sale of the non-real estate accounts in the US run-off portfolio in RBWM;

·       a loss of US$199m on early termination of cash flow hedges in the US run-off portfolio in RBWM; and

·       a loss on the sale of an HFC Bank UK secured loan portfolio in RBWM of US$138m.

Excluding these items, revenue was US$0.1bn lower:

·       in RBWM, revenue fell by US$0.4bn, reflecting reduced net interest income following the sale of real estate and non-real estate portfolios and lower average balances in the US run-off portfolio. In our Principal RBWM business (see footnote 55 on page 97), revenue was broadly unchanged, with a reduction in personal lending revenue mostly offset by higher income from current accounts, savings and deposits;

·       in GB&M, revenue was down by US$0.3bn or 3%, mainly driven by Markets (down by US$0.3bn or 7%),  reflecting decreased revenue in our Foreign Exchange business from lower market volatility and reduced client flows. In addition, in line with expectations, Balance Sheet Management revenue decreased reflecting lower gains on disposals of available-for-sale debt securities. By contrast, our Equities business grew and revenue was higher in Principal Investments and Credit, notably legacy credit, driven by price appreciation across certain classes in the asset-backed securities ('ABS's) market; and

·       in GPB, revenue was US$0.2bn lower, reflecting lower market volatility and a managed reduction in client assets as we continued to reposition the business.

These factors were partly offset by:

·       CMB, where revenue rose by US$0.4bn. This was due to higher net interest income driven by average lending and deposit growth in Asia and rising average deposit balances and wider lending spreads in the UK. In addition, revenue grew from higher net fee income driven by an increase in term lending fees in the UK.

LICs of US$1.8bn were US$1.1bn less than in the first half of 2013, primarily from reductions in Europe, North America and Latin America:

·       in Europe, LICs decreased by US$0.6bn, mainly driven by lower individually and collectively assessed impairments in CMB in the UK, reflecting the improved quality of the portfolio and the economic environment, together with higher net releases of credit risk provisions on available-for-sale ABSs in GB&M;

·       in North America, LICs decreased by US$0.3bn, reflecting reduced levels of delinquency and new impaired loans in the Consumer and Mortgage Lending ('CML') portfolio and lower lending balances from the continued run-off and loan sales, partly offset by lower favourable market value adjustments of the underlying properties as improvements in housing market conditions were less pronounced in the first half of 2014; and

·       in Latin America, LICs decreased by US$0.3bn, primarily in Brazil. This was driven by changes to the impairment model and revisions to the assumptions for restructured loan account portfolios made in 2013 in both RBWM and CMB. It was partly offset by refinements to the impairment model for non-restructured loan portfolios, primarily in RBWM, in the first half of 2014. In Mexico, LICs improved due to reduced specific provisions for CMB, in particular relating to homebuilders.

Operating expenses of US$18.2bn were 2% higher and included a number of significant items as follows.

The first half of 2014 included:

·       lower UK customer redress programme charges of US$234m compared with US$412m in the first half of 2013. Charges for the period included estimated redress for possible mis-selling in previous years in respect of Payment Protection Insurance ('PPI'); and

·       lower restructuring and other related costs of US$82m compared with US$238m in the first half of 2013.

In addition, the following significant items were recorded in the first half of 2013:

·       Madoff-related litigation costs in GB&M of US$298m;

·       regulatory investigation provisions in GPB of US$119m;

·       a customer remediation provision connected to our former Card and Retail Services ('CRS') business of US$100m; partly offset by

·       an accounting gain of US$430m relating to changes in delivering ill-health benefits to certain employees in the UK.

Excluding significant items, operating expenses were US$756m or 4% higher, primarily reflecting increased investment in the Risk function (including Compliance) and Global Standards and inflation, partly offset by cost saving initiatives.

Income from associates was 5% higher, driven by increased contributions from Bank of Communications ('BoCom') and The Saudi British Bank.

The effective tax rate for the first half of 2014 was 16.4% compared with 19.4% for the first half of 2013 as the former benefited from a current tax credit for prior years and a non-taxable gain on the disposal of Bank of Shanghai. The effective tax rate in the first half of 2013 was higher because the tax exempt gains associated with the reclassification of our shareholding in Industrial Bank as a financial investment and the disposal of our investment in Ping An were partly offset by a write-down of deferred tax assets recognised in Mexico following clarification of the tax law by the Mexican fiscal authority.

Significant revenue items

	Half-year to
	30 June		30 June		31 Dec
	2014		2013		2013
	US$m		US$m		US$m
Debit valuation adjustment on derivative contracts .......................................................	(155)		451		(346)
Fair value movement on non-qualifying hedges28 ..........................................................	(322)		293		218
Foreign exchange gains relating to the sterling debt issued by HSBC Holdings ................	-		442		-
Gain on sale of shareholding in Bank of Shanghai .........................................................	428		-		-
Loss on early termination of cash flow hedges in the US run-off portfolio ....................	-		(199)		-
Loss on sale of an HFC Bank UK secured loan portfolio ...............................................	-		(138)		(8)
Loss on sale of several tranches of real estate secured accounts in the US .....................	(15)		(1)		(122)
Loss on sale of the non-real estate portfolio in the US .................................................	-		(271)		-
Net gain on completion of Ping An disposal .................................................................	-		553		-
Provision arising from a review of compliance with the Consumer Credit Act in the UK ...................................................................................................................................	(367)		-		-
Write-off of allocated goodwill relating to the GPB Monaco business ...........................	-		(279)		-
	(431)		851		(258)

Significant cost items

	Half-year to
	30 June		30 June		31 Dec
	2014		2013		2013
	US$m		US$m		US$m
Accounting gain arising from change in basis of delivering ill-health benefits in the UK	-		(430)		-
Madoff-related litigation costs ......................................................................................	-		298		-
Regulatory investigation provisions in GPB ..................................................................	-		119		233
Restructuring and other related costs .............................................................................	82		238		245
UK bank levy ...............................................................................................................	(45)		9		907
UK customer redress programmes .................................................................................	234		412		823
US customer remediation provision relating to CRS ......................................................	-		100		-
	271		746		2,208

Group performance by income and expense item

Net interest income

	Half-year to
	30 June                2014		30 June                2013		31 December                2013
	US$m		US$m		US$m
Interest income ............................................................................................	25,435		25,740		25,452
Interest expense ...........................................................................................	(8,030)		(7,921)		(7,732)
Net interest income29 ...................................................................................	17,405		17,819		17,720
Average interest-earning assets .....................................................................	1,801,862		1,657,555		1,680,988
Gross interest yield30 .....................................................................................	2.85%		3.13%		3.00%
Cost of funds ................................................................................................	(1.03%)		(1.15%)		(1.05%)
Net interest spread31 .....................................................................................	1.82%		1.99%		1.95%
Net interest margin31 ....................................................................................	1.95%		2.17%		2.09%

For footnotes, see page 96.

The commentary in the following sections is on a constant currency basis and comparisons are with the first half of 2013, unless stated otherwise.

Reported net interest income of US$17.4bn decreased by US$414m compared with the first half of 2013. On a constant currency basis, net interest income decreased by US$179m. This was driven in part by a provision arising from a review of our compliance with the Consumer Credit Act ('CCA') in the UK and the impact of the disposals of non-strategic operations in Latin America, although these factors were partially offset by increased income in Asia.

On an underlying basis, which excludes the net interest income earned by the businesses sold during 2013 and the first half of 2014 from all periods presented (first half of 2014: US$27m; first half of 2013: US$223m) and currency translation movements of US$235m, net interest income was broadly unchanged.

On both reported and constant currency bases, net interest spread and margin fell, reflecting lower yields on customer lending in North America and Europe. In North America this was due to changes in the composition of the lending portfolios towards lower yielding secured assets, and to the run-off of the CML portfolio. In Europe, it was due to the CCA provision noted above. These factors were partially offset by a lower cost of funds. In addition, the benefit of net free funds fell, due to the decrease in non-interest bearing liabilities.

Interest income

On a constant currency basis, interest income was broadly unchanged. Interest on loans and advances to customers decreased, principally in North
America as a consequence of the disposal of the higher yielding non-real estate loan portfolio and the reduction in the CML portfolio from run off and sales. In addition, new lending to customers in RBWM and CMB was at lower yields in the current low rate environment, reflecting a shift in the portfolio towards higher levels of lower yielding first lien real estate secured loans. In Europe, interest income fell primarily due to the provision from a review of our compliance with the CCA. By contrast, we recorded increased interest income on customer lending in Asia, driven by growth in term lending and residential mortgages during the first half of 2014. This increase in balances was partially offset by compressed yields on customer lending. In Latin America, interest income on customer lending activity was broadly unchanged, as increases in Brazil and Argentina were largely offset by disposals of non-strategic businesses in 2013. In Brazil, term lending and mortgages grew during the first half of 2014, although yields on customer lending decreased, despite the rise in average interest rates. This reflected the shift in product and client mix to more secured, relationship-led lending. In Argentina, growth in interest income was driven by increased average balances and higher yields, as interest rates rose.

Interest income on short-term funds and financial investments increased in Asia and Latin America, as interest rates rose in certain countries in these regions, notably in Brazil, Argentina and mainland China. Average balances for both short-term funds and financial investments also grew in these regions. However, in Europe, interest income on short-term funds and financial investments fell as maturing positions were replaced by longer-term but lower-yielding bonds.

Interest expense

Interest expense increased in the first half of 2014 to a greater extent than interest income, primarily relating to customer accounts. In Latin America, interest expense increased as reductions in average balances were more than offset by the increase in the cost of funds due to interest rate rises. However, this was partly offset by the disposal of non-strategic operations. In Asia, the growth in the average balances of customer accounts drove the increase while the cost of funds was broadly unchanged. Conversely, in North America, interest expense on customer deposits declined as a result of business disposals leading to a fall in average outstanding balances, as well as a strategic decision to re-price deposits downwards. In addition, interest expense decreased due to a release of accrued interest associated with an uncertain tax position.

Interest expense on debt issued was broadly unchanged, as decreasing balances offset the increase in cost of funds. In North America, the effect of the business disposals led to a decline in our funding requirements. Cost of funds also fell as higher coupon debt matured and was repaid. In Europe, interest expense on debt decreased as average outstanding balances fell as a result of net redemptions. The cost of funds also decreased as issuance of new debt was at lower prevailing rates. By contrast, interest expense increased in Latin America, notably in Brazil, in line with interest rate rises and increased medium-term loan note balances.

Repos and reverse repos

During the final quarter of 2013, GB&M changed the way it managed reverse repurchase ('reverse repo') and repurchase ('repo') activities. This had the effect of reducing the net interest margin as average interest earning assets and interest bearing liabilities increased significantly. These reverse repo and repo agreements have a lower gross yield and cost of funds, respectively, than the remainder of our portfolio.

'Net interest income' includes the expense of internally funded trading assets, while related revenue is reported in 'Net trading income'. The internal cost of funding these assets increased, as average trading liability balances fell to a greater extent than trading assets. In reporting our global business results, this cost is included within 'Net trading income'.

Net fee income

	Half-year to
	30 June 2014 US$m		30 June 2013 US$m		31 December 2013              US$m
Account services ..........................................................................................	1,734		1,701		1,880
Funds under management ..............................................................................	1,283		1,347		1,326
Cards ............................................................................................................	1,210		1,304		1,151
Credit facilities .............................................................................................	963		930		977
Broking income ............................................................................................	664		734		654
Imports/exports ...........................................................................................	558		580		577
Underwriting ................................................................................................	536		518		348
Unit trusts ....................................................................................................	518		481		410
Remittances .................................................................................................	411		415		434
Global custody ..............................................................................................	359		364		334
Insurance ......................................................................................................	302		280		271
Other ...........................................................................................................	1,493		1,494		1,463
Fee income ...................................................................................................	10,031		10,148		9,825
Less: fee expense ..........................................................................................	(1,854)		(1,744)		(1,795)
Net fee income .............................................................................................	8,177		8,404		8,030

Net fee income fell by US$227m on a reported basis and by US$183m on a constant currency basis.

Account services and cards fees declined in aggregate, mainly in Europe due to lower current account charges in the UK following a reduction in overdraft fees, and also from a managed reduction of client assets in our GPB business in Switzerland as we continued to reposition the business. In Mexico,
lower fees from a reduction in customer numbers also reflected repositioning.

Fees from funds under management reduced, mainly in Asia due to higher net fund outflows reflecting lower sales as a result of changes to customer investment appetite, and in Latin America partly reflecting a change in product mix. Broking fee income also fell, mainly in RBWM in Hong

Kong from lower Wealth Management sales volumes and in Europe reflecting the managed reduction in client assets in GPB referred to above.

Other fee income was affected by the expiry of the Transition Servicing Agreements we entered into with the buyer of the CRS business in North America. In addition, higher fee expense reflected adverse adjustments to mortgage servicing rights valuations in North America due to mortgage interest rate decreases in the first half of 2014, and higher fees payable under partnership agreements in the UK.

These factors were partly offset by increased fee income in credit facilities, mainly in Asia and Europe and, to a lesser extent, in North America reflecting increased new business volumes.

Net trading income

	Half-year to
	30 June                2014              US$m		30 June                2013               US$m		31 December                2013               US$m
Trading activities .........................................................................................	2,666		5,766		1,155
Ping An contingent forward sale contract32 ..................................................	-		(682)		-
Net interest income on trading activities ......................................................	913		1,132		915
Gain/(loss) on termination of hedges ............................................................	(4)		(200)		6
Other trading income/(expense) - hedge ineffectiveness:
- on cash flow hedges ...............................................................................	15		7		15
- on fair value hedges ...............................................................................	22		46		19
Non-qualifying hedges ..................................................................................	(337)		293		218
Net trading income33,34 .................................................................................	3,275		6,362		2,328

Significant items included in net trading income

	Half-year to
	30 June                2014		30 June                2013		31 December                2013
	US$m		US$m		US$m
Included within trading activities:
- debit valuation adjustment .....................................................................	(155)		451		(346)
- foreign exchange gains on sterling debt issued by HSBC Holdings ...........	-		442		-
Other significant items:
- Ping An contingent forward sale contract32 ...........................................	-		(682)		-
- loss on termination of cash flow hedges in CML ....................................	-		(199)		-
- non-qualifying hedges28 ..........................................................................	(322)		293		218
	(477)		305		(128)

For footnotes, see page 96.

Reported net trading income of US$3.3bn was US$3.1bn lower, mainly in Europe. On a constant currency basis, income reduced by US$3.2bn or 50%. This was partly the effect of various significant items, as noted in the table above.

Excluding significant items, net trading income from trading activities decreased, notably driven by adverse foreign exchange movements on assets held as economic hedges of foreign currency debt designated at fair value, compared with favourable movements in the first half of 2013. These movements offset fair value movements on the foreign currency debt which are reported in 'Net income from financial instruments designated at fair value'.

In Markets, income from trading activities decreased, mainly driven by a fall in our Foreign Exchange business, reflecting lower market volatility and reduced client flows. By contrast, Rates revenue was broadly in line with the first half of 2013 as higher revenue in Latin America, in part driven by increased client activity, was offset by the effect of subdued client flows and lower market volatility, mainly in Europe. However, we recorded higher income in secondary Credit and revenue growth in Equities, notwithstanding the revaluation gains reported in the first half of 2013. The growth in our Equities business was driven by successful positioning of the business to capture increased client activity.

Net interest income from trading activities also fell due to lower average balances, notably relating to reverse repos and repos, in line with the change in the way GB&M manages them. The net interest income from these activities is now recorded in 'Net interest income'.

Net income/(expense) from financial instruments designated at fair value

	Half-year to
	30 June 2014 US$m		30 June 2013 US$m		31 December 2013 US$m
Net income/(expense) arising from:
-. financial assets held to meet liabilities under insurance and investment contracts ............................................................................	1,396		717		2,453
-. liabilities to customers under investment contracts ...............................	(231)		(506)		(731)
-. HSBC's long-term debt issued and related derivatives ............................	438		(1,419)		191
Change in own credit spread on long-term debt35 ...............................	(215)		(19)		(1,227)
Other changes in fair value36 .............................................................	653		(1,400)		1,418
-. other instruments designated at fair value and related derivatives ..........	57		11		52
Net income/(expense) from financial instruments designated at fair value ....	1,660		(1,197)		1,965

Assets and liabilities from which net income/(expense) from financial instruments designated at fair value arose

	At
	30 June		30 June		31 December
	2014 US$m		2013 US$m		2013 US$m
Financial assets designated at fair value at period-end ...................................	31,823		35,318		38,430
Financial liabilities designated at fair value at period-end ..............................	82,968		84,254		89,084
Including:
Financial assets held to meet liabilities under:
- insurance contracts and investment contracts with DPF37 ......................	11,906		10,017		10,717
- unit-linked insurance and other insurance and investment contracts .......	16,927		23,365		25,423
Long-term debt issues designated at fair value ...............................................	75,740		71,456		75,278

For footnotes, see page 96.

The majority of the financial liabilities designated at fair value is fixed-rate long-term debt issued and managed in conjunction with interest rate swaps as part of our interest rate management strategy. These liabilities are discussed further on page 57 of the Annual Report and Accounts 2013.

Net income from financial instruments designated at fair value was US$1.7bn in the first half of 2014, compared with net expense of US$1.2bn in the first half of 2013 on a reported basis, and US$1.3bn on a constant currency basis. The former included adverse movements in the fair value of our own long-term debt of US$215m due to credit spread movements, compared with minimal fair value movements in the first half of 2013.

Net income arising from financial assets held to meet liabilities under insurance and investment contracts of US$1.4bn was US$643m higher on a constant currency basis. This was driven by improved equity market performance in Hong Kong, higher net income on the bonds portfolio in Brazil and higher fair value gains in France, partly offset by weaker UK equity market performance. The investment gains or losses result in a corresponding movement in liabilities to customers (see page 57 of the Annual Report and Accounts 2013 for details of the treatment of the movement in these liabilities).

'Other changes in fair value' mainly reflects fair value movements on foreign currency debt designated at fair value and issued as part of our overall funding strategy. In the first half of 2014, these movements were favourable, following adverse movements in the first half of 2013. An offset from assets held as economic hedges was reported in 'Net trading income'.

Gains less losses from financial investments

	Half-year to
	30 June 2014 US$m		30 June 2013 US$m		31 December 2013 US$m
Net gains/(losses) from disposal of:
-. debt securities .......................................................................................	185		416		75
-. Ping An equity securities classified as available-for-sale32 ......................	-		1,235		-
-. other equity securities ...........................................................................	782		253		209
-. other financial investments ..................................................................	2		(2)		1
	969		1,902		285
Impairment of available-for-sale equity securities .........................................	(23)		(46)		(129)
Gains less losses from financial investments .................................................	946		1,856		156

For footnote, see page 96.

In the first half of 2014, gains less losses from financial investments decreased by US$910m on a reported basis and by US$926m on a constant currency basis, driven by the effect of significant items as follows:

·     in the first half of 2013, we reported a US$1.2bn gain on disposal of available-for-sale equity securities in Asia, following the sale of our investment in Ping An; and

·     in the first half of 2014, we reported a US$428m gain on disposal of available-for-sale equity securities relating to the sale of our shareholding in the Bank of Shanghai.

Excluding these items, gains less losses from financial investments decreased, primarily driven by a reduction in net gains on the disposal of debt securities. The first half of 2013 included gains on disposal of available-for-sale government debt securities in Balance Sheet Management in Europe and North America, as part of a continuing strategy to re-balance the securities portfolio for risk management purposes.

Net earned insurance premiums

	Half-year to
	30 June 2014 US$m		30 June 2013 US$m		31 December 2013              US$m
Gross insurance premium income ..................................................................	6,358		6,451		5,947
Reinsurance premiums ..................................................................................	(221)		(225)		(233)
Net earned insurance premiums ....................................................................	6,137		6,226		5,714

Net earned insurance premiums decreased on both reported and constant currency bases, as lower net earned premiums in Europe were mostly offset by an increase in Hong Kong.

In Europe, net earned premiums decreased, mainly in the UK, reflecting lower sales following the withdrawal of external independent financial adviser distribution channels for certain linked insurance contracts in the second half of 2013. In
addition, decreases in France reflected lower sales of investment contracts with discretionary participation features ('DPF').

In Hong Kong, premium income increased due to increased new business from deferred annuity, universal life and endowment contracts, coupled with higher renewals. This was partly offset by lower new business from unit-linked contracts.

Other operating income

	Half-year to
	30 June 2014 US$m		30 June 2013 US$m		31 December 2013              US$m
Rent received ...............................................................................................	82		77		78
Gains/(losses) recognised on assets held for sale ............................................	10		(481)		(248)
Gains on investment properties ....................................................................	71		110		3
Gains on disposal of property, plant and equipment, intangible assets and non-financial investments ..................................................................	3		14		164
Gains/(losses) arising from dilution of interest in Industrial Bank and other associates and joint ventures .....................................................................	(32)		1,089		(38)
Gains on disposal of HSBC Bank (Panama) S.A. ...........................................	-		-		1,107
Change in present value of in-force long-term insurance business .................	200		100		425
Other ...........................................................................................................	204		37		195
Other operating income ...............................................................................	538		946		1,686

Change in present value of in-force long-term insurance business

	Half-year to
	30 June 2014 US$m		30 June 2013 US$m		31 December 2013              US$m
Value of new business ....................................................................................	479		517		407
Expected return ............................................................................................	(286)		(249)		(256)
Assumption changes and experience variances ..............................................	(3)		(127)		215
Other adjustments ........................................................................................	10		(41)		59
Change in present value of in-force long-term insurance business .................	200		100		425

Other operating income of US$538m decreased by US$408m on a reported basis and by US$380m on a constant currency basis.

Reported other operating income included the effects of the disposals and the reclassifications listed on page 22 of US$14m, compared with net gains of US$1.1bn which largely related to an accounting gain arising from the reclassification of Industrial Bank as a financial investment.

On an underlying basis, which excludes the effects of disposals noted on page 22, the results of disposed of operations and the effects of foreign currency translation, other operating income increased. This was primarily driven by the following significant items in the first half of 2013;

·     loss of US$271m on the sale of our CML non-real estate personal loan portfolio in April 2013;

·     write-off of goodwill relating to our GPB business in Monaco of US$279m; and

·    
a loss of US$138m on the sale of an HFC Bank UK secured loan portfolio in RBWM.

Excluding significant items, other operating income rose, reflecting gains from legacy credit in GB&M in the UK due to price appreciation across certain asset classes in the ABS market and increased favourable movements in the present value of in-force ('PVIF') long-term insurance business. This was mainly in Brazil due to the non-recurrence of adverse experience variances resulting from higher lapse rates and adverse interest rate movements in the first half of 2013, while favourable movements in Asia reflected market condition updates and a rise in the value of new business. This was partly offset in France by adverse movements due to investment and market conditions.

These gains were partly offset by lower disposal and revaluation gains on investment properties in Hong Kong than in the first half of 2013.

Net insurance claims incurred and movement in liabilities to policyholders

	Half-year to
	30 June 2014 US$m		30 June 2013 US$m		31 December 2013              US$m
Insurance claims incurred and movement in liabilities to policyholders:
- gross .....................................................................................................	7,212		6,239		7,709
- reinsurers' share ....................................................................................	(153)		(88)		(168)
- net38 .....................................................................................................	7,059		6,151		7,541

For footnote, see page 96.

Net insurance claims incurred and movement in liabilities to policyholders increased by US$908m on a reported basis and by US$889m on a constant currency basis.

Movements in claims resulting from investment returns on the assets held to support policyholder contracts where the policyholder bears investment risk increased, reflecting higher investment income in Hong Kong as a result of favourable equity market movements, and higher net income on the bond portfolio in Brazil, partly offset by weaker equity market performance in the UK. The gains or losses recognised on the financial assets designated at fair value held to support these insurance and investment contract liabilities are reported in 'Net income from financial instruments designated at fair value'.

Reductions in claims resulting from a decrease in new business written in Europe were mostly offset by increases in Hong Kong as explained under 'Net earned insurance premiums'.

Loan impairment charges and other credit risk provisions

	Half-year to
	30 June 2014 US$m		30 June 2013 US$m		31 December 2013 US$m
Loan impairment charges
New allowances net of allowance releases ..................................................	2,581		3,828		3,516
Recoveries of amounts previously written off ...........................................	(556)		(639)		(657)
	2,025		3,189		2,859
Individually assessed allowances ....................................................................	558		1,121		1,199
Collectively assessed allowances ...................................................................	1,467		2,068		1,660
Releases of impairment of available-for-sale debt securities ..........................	(214)		(82)		(129)
Other credit risk provisions ..........................................................................	30		9		3
Loan impairment charges and other credit risk provisions ............................	1,841		3,116		2,733
	%		%		%
Impairment charges on loans and advances to customers as a percentage of average gross loans and advances to customers (annualised) ..................	0.4		0.7		0.6

On a reported basis, LICs of US$1.8bn were US$1.3bn lower, primarily in Europe, Latin America and North America. Underlying LICs decreased by US$1.1bn.

On a reported basis, the percentage of impairment charges to average gross loans and advances fell to 0.4% at 30 June 2014 from 0.7% at 30 June 2013.

On a constant currency basis, LICs fell by US$1.2bn, a reduction of 39%. This was driven by a reduction in both individually assessed and collectively assessed loan impairment charges.

Individually assessed charges improved by US$590m, primarily in Europe, but also in Latin America and North America. In Europe, they were lower, mainly in CMB, reflecting improved quality in the portfolio and economic environment. In Latin America, the reduction was primarily in CMB, in particular in Mexico where impairments relating to homebuilders from a change in public housing policy were lower than in the first half of 2013. Individually assessed charges were also lower in North America, mainly in Canada in CMB.

Collectively assessed charges decreased by US$473m, primarily due to reductions in North

America and Latin America. In North America, the improvement was mainly in RBWM, reflecting lower levels of new impaired loans and reduced balances in the US run-off portfolio, though this was partly offset by lower favourable market value adjustments of the underlying properties as improvements in housing market conditions were less pronounced in the first half of 2014. In addition, collectively assessed charges in CMB and GB&M were adversely affected as we revised certain estimates used in our corporate loan impairment calculation. In Latin America, the reduction reflected the adverse effect of changes to the impairment model and assumption revisions for restructured loan portfolios in Brazil which occurred in the first half of 2013, both in RBWM and CMB, though this was partly offset by an increase due to refinements to the impairment model for non-restructured loan portfolios, primarily in RBWM, in the first half of 2014. In addition, collectively assessed charges were lower due to reduced Business Banking provisions reflecting improved delinquency rates, and the effect of the disposal of non-strategic businesses.

Net releases of credit risk provisions were US$127m higher, primarily on available-for-sale ABSs in GB&M in Europe.

Operating expenses

	Half-year to
	30 June 2014		30 June 2013		31 December 2013
	US$m		US$m		US$m
Employee compensation and benefits ...........................................................	9,978		9,496		9,700
Premises and equipment (excluding depreciation and impairment) ................	2,092		2,008		2,175
General and administrative expenses .............................................................	5,035		5,719		7,163
Administrative expenses ...............................................................................	17,105		17,223		19,038
Depreciation and impairment of property, plant and equipment ...................	712		699		665
Amortisation and impairment of intangible assets ........................................	449		477		454
Operating expenses ......................................................................................	18,266		18,399		20,157

Staff numbers (full-time equivalent)

	At
	30 June 2014		30 June 2013		31 December 2013
Geographical regions
Europe .........................................................................................................	69,642		69,599		68,334
Asia11 ...........................................................................................................	115,111		113,631		113,701
Middle East and North Africa .......................................................................	8,530		8,667		8,618
North America .............................................................................................	20,649		21,454		20,871
Latin America ..............................................................................................	42,157		46,046		42,542
Staff numbers ...............................................................................................	256,089		259,397		254,066

For footnote, see page 96.

Reported operating expenses of US$18.3bn were US$133m or 1% lower. On an underlying basis, costs increased by 2%.

On a constant currency basis, operating expenses in the first half of 2014 were in line with the comparable period in 2013. A number of significant items recorded in the first half of 2013 did not recur, mainly:

·     Madoff-related litigation cost in GB&M of US$298m;

·     regulatory investigation provisions in GPB of US$119m; and

·    
a customer remediation provision connected to our former CRS business of US$100m; partly offset by

·     an accounting gain of US$430m relating to changes in delivering ill-health benefits to certain employees in the UK.

In addition, the first half of 2014 included:

·     US$178m lower UK customer redress programme charges (from US$412m in the first half of 2013 to US$234m in the first half of 2014). Charges for the period included estimated redress for possible mis-selling in previous years in respect of PPI of US$194m; and

·    

·     US$156m lower restructuring and related costs (from US$238m in the first half of 2013 to US$82m in the first half of 2014).

Excluding significant items and business disposals which were primarily in Latin America, operating expenses were US$756m higher, reflecting:

·     increased investment in the Risk function (including Compliance) and Global Standards of US$326m;

·     inflationary pressures, including wage inflation;

·     business growth in CMB, primarily in Asia; and

·    
the Financial Services Compensation Scheme ('FSCS') levy in the UK, as a result of the timing of recognition.

During the first half of 2014, we generated further sustainable cost savings of US$0.5bn which were primarily driven by re-engineering our back office processes and which in part offset the investments listed above and inflation. These programmes, together with business disposals, contributed to a fall of 2% in average staff numbers.

Performance-related costs also fell, mainly in GB&M reflecting lower revenue.

Cost efficiency ratios²

	Half-year to
	30 June 2014		30 June 2013		31 December 2013
	%		%		%
HSBC .........................................................................................................	58.6		53.5		66.6
Geographical regions
Europe .........................................................................................................	76.8		68.5		102.7
Asia11 ...........................................................................................................	41.4		36.2		46.0
Middle East and North Africa .......................................................................	47.4		49.2		53.8
North America .............................................................................................	69.8		70.7		75.3
Latin America ..............................................................................................	67.8		61.9		51.0
Global businesses
Retail Banking and Wealth Management ......................................................	67.1		63.6		65.4
Commercial Banking ....................................................................................	44.2		42.4		43.7
Global Banking and Markets .........................................................................	50.6		47.0		58.2
Global Private Banking .................................................................................	70.6		89.9		92.7

For footnote, see page 96.

Share of profit in associates and joint ventures

	Half-year to
	30 June 2014 US$m		30 June 2013 US$m		31 December 2013              US$m
Associates
Bank of Communications Co., Limited .....................................................	978		941		937
The Saudi British Bank .............................................................................	239		208		195
Other ........................................................................................................	37		43		(38)
Share of profit in associates ..........................................................................	1,254		1,192		1,094
Share of profit in joint ventures ...................................................................	26		22		17
Share of profit in associates and joint ventures .............................................	1,280		1,214		1,111

HSBC's share of profit in associates and joint ventures was US$1.3bn, an increase of 5% on a reported basis. On a constant currency basis, it increased by 4%, driven by higher contributions from BoCom and The Saudi British Bank.

Our share of profit from BoCom rose as a result of higher trading and fee income, as well as balance
sheet growth, partly offset by higher operating expenses and a rise in loan impairment charges.

At 30 June 2014, we performed an impairment review of our investment in BoCom and concluded that it was not impaired, based on our value in use calculation (see Note 21 on the Financial Statements for further details).

In future periods, the value in use may increase or decrease depending on whether the combined effect of changes to the current calculation assumptions is favourable or unfavourable. However, it is expected that the carrying amount will increase in the second half of 2014 due to retained profits earned by BoCom. At the point where the carrying amount exceeds the value in use, HSBC would continue to recognise its share of BoCom's profit or loss, but the carrying amount would be reduced to equal the value in use, with a corresponding reduction in income, unless the market value has increased to a level above the carrying amount.

Profits from The Saudi British Bank rose, reflecting strong balance sheet growth.

Tax expense

	Half-year to
	30 June		30 June		31 December
	2014 US$m		2013 US$m		2013 US$m
Profit before tax ..........................................................................................	12,340		14,071		8,494
Tax expense .................................................................................................	(2,022)		(2,725)		(2,040)
Profit after tax .............................................................................................	10,318		11,346		6,454
Effective tax rate .........................................................................................	16.4%		19.4%		24.0%

The effective tax rate for the first half of the year of 16.4% was lower than the UK corporation tax rate of 21.5%. The results for the first half of 2014 included exempt income and gains, the post tax profits of associates and joint ventures and a current tax credit
for prior years. The effective tax rate for the first half of 2013 also included tax exempt income and gains and the post tax profits of associates and joint ventures offset by the write down of a deferred tax asset.

Consolidated balance sheet

Summary consolidated balance sheet

	At 30 June 2014 US$m		At 30 June 2013 US$m		At 31 December 2013 US$m
ASSETS
Cash and balances at central banks ................................................................	132,137		148,285		166,599
Trading assets ...............................................................................................	347,106		432,601		303,192
Financial assets designated at fair value .........................................................	31,823		35,318		38,430
Derivative assets ..........................................................................................	269,839		299,213		282,265
Loans and advances to banks3 .......................................................................	127,387		127,810		120,046
Loans and advances to customers3,39..............................................................	1,047,241		938,294		992,089
Reverse repurchase agreements - non-trading3 .............................................	198,301		88,400		179,690
Financial investments ...................................................................................	423,710		404,214		425,925
Assets held for sale .......................................................................................	10,248		20,377		4,050
Other assets ..................................................................................................	165,801		150,804		159,032
Total assets ..................................................................................................	2,753,593		2,645,316		2,671,318
LIABILITIES AND EQUITY
Liabilities
Deposits by banks3 .......................................................................................	92,764		92,709		86,507
Customer accounts3 ......................................................................................	1,415,705		1,266,905		1,361,297
Repurchase agreements - non-trading3 .........................................................	165,506		66,591		164,220
Trading liabilities ..........................................................................................	228,135		342,432		207,025
Financial liabilities designated at fair value ....................................................	82,968		84,254		89,084
Derivative liabilities .....................................................................................	263,494		293,669		274,284
Debt securities in issue ..................................................................................	96,397		109,389		104,080
Liabilities under insurance contracts .............................................................	75,223		69,771		74,181
Liabilities of disposal groups held for sale .....................................................	12,361		19,519		2,804
Other liabilities .............................................................................................	122,318		117,716		117,377
Total liabilities .............................................................................................	2,554,871		2,462,955		2,480,859
Equity
Total shareholders' equity ............................................................................	190,281		174,070		181,871
Non-controlling interests .............................................................................	8,441		8,291		8,588
Total equity .................................................................................................	198,722		182,361		190,459
Total equity and liabilities ............................................................................	2,753,593		2,645,316		2,671,318
Selected financial information
Called up share capital ..................................................................................	9,535		9,313		9,415
Capital resources40,41 .....................................................................................	192,834		183,450		194,009
Undated subordinated loan capital .................................................................	2,777		2,777		2,777
Preferred securities and dated subordinated loan capital42 ..............................	49,644		44,539		48,114
Risk-weighted assets - CRD IV basis .............................................................	1,248,572		n/a		1,214,939
Risk-weighted assets - Basel 2.5 basis ...........................................................	n/a		1,104,764		1,092,653
	%		%		%
Financial statistics
Loans and advances to customers as a percentage of customer accounts3 ......	74.0		74.1		72.9
Average total shareholders' equity to average total assets .............................	6.9		6.4		6.6
Net asset value per ordinary share at period-end43 (US$) ..............................	9.64		8.96		9.27
Number of US$0.50 ordinary shares in issue (millions) .................................	19,071		18,627		18,830
Closing foreign exchange translation rates to US$:
US$1: £ ........................................................................................................	0.586		0.657		0.605
US$1: € ........................................................................................................	0.732		0.767		0.726

For footnotes, see page 96.

A more detailed consolidated balance sheet is contained in the Financial Statements on page 208.

Movement from 31 December 2013 to 30 June 2014

Total reported assets were US$2.8 trillion, 3% higher than at 31 December 2013. On a constant currency basis, total assets were US$50bn or 2% higher.

Our balance sheet remains strong with a ratio of customer advances to customer accounts of 74%. Customer advances grew by US$41bn, mainly driven by a rise in term lending in Asia. Customer accounts grew by US$38bn, mainly in Asia and Europe.

The following commentary is on a constant currency basis.

Assets

Cash and balances at central banksdecreased by US$37bn, notably in Europe, in part reflecting net redemptions of debt and reductions in repurchase agreements.

Trading assets increased by 13%, mainly driven by a rise in settlement accounts, notably in Europe. These balances vary according to customer trading activity, which is typically lower at the end of the year. There were increased holdings of debt securities in Asia. In Europe, holdings of equity securities also increased, reflecting growth in our Equities business, although we recorded a reduction in reverse repos held for trading.

Financial assets designated at fair value decreased by US$7.3bn, notably in Europe, largely from the transfer to 'Assets held for sale' of balances relating to the UK Pension business of HSBC Life (UK) Limited.

Derivative assets decreased by 6%, notably in Europe relating to interest rate contracts reflecting movements in yield curves. In Asia, foreign exchange derivative contracts also decreased, in part due to maturities.

Loans and advances to banks increased by US$6.8bn, mainly from higher placements with financial institutions in Europe, the Middle East and North Africa and Latin America.

Loans and advances to customers increased by US$41bn or 4%, largely from growth in Asia and, to a lesser extent, in Europe. In Asia, term lending to CMB and GB&M customers grew, with the latter notably relating to our Capital Financing business. Mortgage balances also increased, mainly in Hong Kong, mainland China and Taiwan. In Europe, there was a rise in corporate overdraft balances, mainly in GB&M, in accounts which are structured to allow customer corporate treasury functions to benefit from net interest arrangements but where net settlement is not intended to occur, together with a corresponding rise in current accounts, as noted below. In addition, there was an increase from our Capital Financing business. Lending in North America was broadly unchanged, as growth in balances with CMB and GB&M customers was offset by a decline in RBWM, reflecting the continued reduction in the US run-off portfolio and the transfer to 'Assets held for sale' of US first lien mortgage balances.

Assets held for sale increased by US$6.2bn driven by the transfer of balances relating to the UK Pension business of HSBC Life (UK) Limited, and the transfer of US first lien mortgage balances.

Liabilities

Customer accounts increased by US$38bn or 3% notably in Asia and Europe. In Asia, customer account balances increased, reflecting growth in our Payments and Cash Management business in GB&M and CMB together with a rise in RBWM, in part reflecting new Premier customers. In Europe, balances increased in RBWM reflecting customers' continued preference for holding balances in current and savings accounts. In addition, current accounts grew mainly in GB&M, in line with the increase in corporate overdraft balances as noted above in 'Loans and advances to customers', and in part from growth in Payments and Cash Management.

Trading liabilities rose by 9%, notably in Europe where an increase in settlement accounts reflected client activity levels, and in Asia, where there were increased positions, partly offset by a reduction in repurchase agreements held for trading.

Financial liabilities designated at fair value reduced by 8%, mainly in Europe from the transfer to 'Liabilities held for sale' of balances relating to the UK Pension business of HSBC Life (UK) Limited.

The reduction in derivative liabilities was in line with that of 'Derivative assets' as the underlying risk is broadly matched.

Debt securities in issue decreased by 9%, mainly in Europe driven by maturing debt that was not replaced.

Liabilities for disposal groups held for sale increased by US$9.5bn, mainly from the transfer of balances relating to the UK Pension business of HSBC Life (UK) Limited.

Equity

Total shareholders' equity rose by 4%, driven by profits generated in the period which were partly offset by dividends paid. In addition, the available-for-sale fair value reserve increased by US$917m on a reported basis in the period as fair value gains recognised were partly offset by previously unrecognised fair value gains transferred to the income statement, notably relating to the disposal of our shareholding in the Bank of Shanghai.

Reconciliation of reported and constant currency assets and liabilities

	30 June 2014 compared with 31 December 2013
	31 Dec 13 as reported           US$m		Currency translation44               US$m		31 Dec 13 at 30 Jun 14    exchange            rates          US$m		30 Jun 14 as reported           US$m		Reported         change                  %		Constant      currency         change                  %
HSBC
Cash and balances at central banks ..................................	166,599		2,988		169,587		132,137		(21)		(22)
Trading assets ........................	303,192		4,496		307,688		347,106		14		13
Financial assets designated at fair value ............................	38,430		670		39,100		31,823		(17)		(19)
Derivative assets ....................	282,265		4,623		286,888		269,839		(4)		(6)
Loans and advances to banks3	120,046		524		120,570		127,387		6		6
Loans and advances to customers3 ..........................	992,089		13,803		1,005,892		1,047,241		6		4
Reverse repurchase agreements - non-trading3 .......................	179,690		2,317		182,007		198,301		10		9
Financial investments ............	425,925		2,955		428,880		423,710		(1)		(1)
Assets held for sale .................	4,050		23		4,073		10,248		153		152
Other assets ...........................	159,032		(297)		158,735		165,801		4		4
Total assets ............................	2,671,318		32,102		2,703,420		2,753,593		3		2
Deposits by banks3 .................	86,507		1,130		87,637		92,764		7		6
Customer accounts3 ................	1,361,297		16,739		1,378,036		1,415,705		4		3
Repurchase agreements - non-trading3 .......................	164,220		2,090		166,310		165,506		1		-
Trading liabilities ...................	207,025		2,353		209,378		228,135		10		9
Financial liabilities designated at fair value ............................	89,084		1,123		90,207		82,968		(7)		(8)
Derivative liabilities ...............	274,284		4,693		278,977		263,494		(4)		(6)
Debt securities in issue ............	104,080		1,968		106,048		96,397		(7)		(9)
Liabilities under insurance contracts ............................	74,181		218		74,399		75,223		1		1
Liabilities of disposal groups held for sale ........................	2,804		15		2,819		12,361
Other liabilities ......................	117,377		1,032		118,409		122,318		4		3
Total liabilities .......................	2,480,859		31,361		2,512,220		2,554,871		3		2
Total shareholders' equity ......	181,871		722		182,593		190,281		5		4
Non-controlling interests .......	8,588		19		8,607		8,441		(2)		(2)
Total equity ...........................	190,459		741		191,200		198,722		4		4
Total equity and liabilities ......	2,671,318		32,102		2,703,420		2,753,593		3		2

For footnotes, see page 96.

In the second half of 2013, GB&M changed the way it managed repo and reverse repo activities in the Credit and Rates businesses. Previously, they were managed in the trading environment; during the second half of 2013, they were organised into trading and non-trading portfolios, with separate risk management procedures. This resulted in an increase in the amount of 'Non-trading reverse repos' and a decline in the amount classified as 'Trading assets', and an increase in the amount of 'Non-trading repos' and a decline in the amount classified as 'Trading liabilities' at 31 December 2013 compared with previous period-ends.

From 1 January 2014, non-trading reverse repos and repos are presented as separate lines in the balance sheet to align disclosure with market practice and provide more meaningful information in relation to loans and advances. Previously, non-trading reverse repos were included within 'Loans and advances to banks' and 'Loans and advances to customers' and non-trading repos were included within 'Deposits by banks' and 'Customer accounts'. Comparative data have been re-presented accordingly.

The effect of repos and reverse repos on the balance sheet is set out in the table below. The table also provides a combined view of customer lending and customer deposits which, by taking into account loans and advances to customers and customer account balances reported as held for sale, more accurately reflects the overall size of our lending and deposit books.

Combined view of customer lending and customer deposits³

	At     30 June     2014		At     30 June     2013		Change		At     30 June     2014		At       31 December     2013		Change
	US$m		US$m		%		US$m		US$m		%
Customers - amortised cost
Loans and advances to customers .	1,047,241		938,294		12		1,047,241		992,089		6
Loans and advances to customers reported as held for sale45 .........	1,658		13,808		(88)		1,658		1,703		(3)
Reverse repurchase agreements -  non-trading ...........................	80,710		31,088		160		80,710		88,215		(9)
Combined customer lending ..........	1,129,609		983,190		15		1,129,609		1,082,007		4
Customer accounts .......................	1,415,705		1,266,905		12		1,415,705		1,361,297		4
Customer accounts reported in 'Liabilities of disposal groups held for sale' .............................	4,880		17,280		(72)		4,880		2,187		123
Repurchase agreements -  non-trading ...........................	104,902		49,277		113		104,902		121,515		(14)
Combined customer deposits .........	1,525,487		1,333,462		14		1,525,487		1,484,999		3
Banks - amortised cost
Loans and advances to banks ........	127,387		127,810		-		127,387		120,046		6
Reverse repurchase agreements -  non-trading ...........................	117,591		57,312		105		117,591		91,475		29
Combined bank lending .................	244,978		185,122		32		244,978		211,521		16
Deposits by banks .........................	92,764		92,709		-		92,764		86,507		7
Repurchase agreements -  non-trading ...........................	60,604		17,314		250		60,604		42,705		42
Combined bank deposits ...............	153,368		110,023		39		153,368		129,212		19
Customers and banks - fair value
Trading assets - reverse repos ......	4,485		104,273		(96)		4,485		10,120		(56)
-  loans and advances to customers .............................	3,945		53,044		(93)		3,945		7,180		(45)
-  loans and advances to banks ..	540		51,229		(99)		540		2,940		(82)
Trading liabilities - repos .............	5,189		134,506		(96)		5,189		17,421		(70)
-  customer accounts ................	1,365		100,100		(99)		1,365		9,611		(86)
-  deposits by banks ..................	3,824		34,406		(89)		3,824		7,810		(51)

For footnotes, see page 96.

Customer accounts by country³

	At 30 June 2014 US$m		At 30 June 2013              US$m		At 31 December 2013              US$m
Europe ........................................................................................................	614,776		520,984		581,933
UK ...............................................................................................................	499,295		410,971		462,796
France46 ........................................................................................................	47,347		43,246		45,149
Germany ......................................................................................................	15,912		17,251		16,615
Malta ...........................................................................................................	6,216		5,797		6,222
Switzerland ...................................................................................................	11,073		18,779		16,796
Turkey .........................................................................................................	8,492		7,537		7,795
Other ...........................................................................................................	26,441		17,403		26,560
Asia11 ..........................................................................................................	570,221		516,616		548,483
Hong Kong ...................................................................................................	381,058		342,632		365,905
Australia .......................................................................................................	20,803		18,240		19,812
India .............................................................................................................	12,155		9,852		11,549
Indonesia ......................................................................................................	5,979		6,559		5,865
Mainland China ............................................................................................	41,198		37,843		40,579
Malaysia .......................................................................................................	17,570		16,899		17,093
Singapore .....................................................................................................	45,885		44,145		43,988
Taiwan .........................................................................................................	14,609		12,053		12,758
Other ...........................................................................................................	30,964		28,393		30,934
Middle East and North Africa
(excluding Saudi Arabia) ................................................................................	40,082		41,142		38,683
Egypt ...........................................................................................................	6,945		7,158		7,401
Qatar ............................................................................................................	3,236		4,065		2,861
UAE .............................................................................................................	19,840		18,822		18,433
Other ...........................................................................................................	10,061		11,097		9,988
North America ...........................................................................................	136,774		136,693		140,809
US ................................................................................................................	79,536		80,340		80,037
Canada .........................................................................................................	46,197		45,455		47,872
Bermuda .......................................................................................................	11,041		10,898		12,900
Latin America ...........................................................................................	53,852		51,470		51,389
Argentina .....................................................................................................	4,168		4,940		4,468
Brazil ...........................................................................................................	27,068		25,515		23,999
Mexico .........................................................................................................	20,112		19,327		21,529
Other ...........................................................................................................	2,504		1,688		1,393
	1,415,705		1,266,905		1,361,297

For footnotes, see page 96.

Financial investments

	At 30 June 2014						At 30 June 2013						At 31 December 2013
	Securities						Securities						Securities
	Equity		Debt		Total		Equity		Debt		Total		Equity		Debt		Total
	US$bn		US$bn		US$bn		US$bn		US$bn		US$bn		US$bn		US$bn		US$bn
-.
Balance Sheet Management ....	-		311.3		311.3		-		279.1		279.1		-		314.4		314.4
Insurance entities ...................	-		48.4		48.4		-		44.0		44.0		-		46.4		46.4
Structured entities ...................	0.1		18.5		18.6		0.1		23.5		23.6		0.1		22.6		22.7
Principal Investments ............	2.4		-		2.4		2.9		-		2.9		2.7		-		2.7
Other .....................................	6.2		36.8		43.0		6.4		48.2		54.6		6.3		33.4		39.7
-.
	8.7		415.0		423.7		9.4		394.8		404.2		9.1		416.8		425.9

The table above analyses the Group's holdings of financial investments by business activity. Further information can be found in the following sections:

·     'Balance Sheet Management' (page 161) for a description of the activities and an analysis of third-party assets in balance sheet management.

·     'Risk management of insurance operations' (page 169) includes an analysis of the financial investments within our insurance operations by the type of contractual liabilities that they back.

·     'Structured entities' (page 550 of the Annual Report and Accounts 2013) for further information about the nature of securities investment conduits in which the above financial investments are held.

·     'Equity securities classified as available for sale' (page 161) includes private equity holdings and other strategic investments.

·     'Other' represents financial investments held in certain locally managed treasury portfolios and other GB&M portfolios held for specific business activities.

Reconciliation of RoRWA measures

Performance Management

We target a return on average ordinary shareholders' equity of 12% to 15%. For internal management purposes we monitor global businesses and geographical regions by pre-tax return on RWAs, a metric which combines return on equity and regulatory capital efficiency objectives.

In addition to measuring return on average risk- weighted assets ('RoRWA'), we measure our performance internally using underlying RoRWA, which is underlying pre-tax return and reported average RWAs at constant currency and adjusted for the effects of business disposals. Underlying RoRWA adjusts performance for certain items which distort year-on-year performance as explained on page 22. RoRWAs are calculated using average RWAs based on a Basel 2.5 basis for all periods up to and including 31 December 2013 and on a CRD IV end point basis for 31 March 2014 and 30 June 2014.

Legacy credit in GB&M includes securitisation positions that were previously deducted from capital and are now included as RWAs, risk-weighted at 1,250% under the CRD IV end point basis.

We also present underlying RoRWA adjusted for the effect of operations which are not regarded as contributing to the longer-term performance of the Group. These include the run-off portfolios and the CRS business which was sold in May 2012.

The CRS average RWAs in the table below represent the average of the associated operational risk RWAs that were not immediately released on disposal and have not already been adjusted as part of the underlying RoRWA calculation. The pre-tax loss for CRS in the table below relates to litigation expenses that occurred after the sale of the business that have not been adjusted as part of the underlying RoRWA calculation.

Reconciliation of underlying RoRWA (excluding run-off portfolios and Card and Retail Services)

	Half-year to 30 June 2014
	Pre-tax        return		Average       RWAs47		RoRWA             47,48
	US$m		US$bn		%
Reported ...................................................................................................................	12,340		1,200		2.1
Underlying48 ..............................................................................................................	12,560		1,197		2.1
Run-off portfolios .....................................................................................................	343		122		0.6
Legacy credit in GB&M .........................................................................................	307		48		1.3
US CML and other49 ..............................................................................................	36		74		0.1
Card and Retail Services ............................................................................................	-		1		-
Underlying (excluding run-off portfolios and Card and Retail Services) ......................	12,217		1,074		2.3

 

	Half-year to 30 June 2013						Half-year to 31 December 2013
	Pre-tax          return		Average        RWAs47		RoRWA             47,48		Pre-tax          return		Average        RWAs47		RoRWA             47,48
	US$m		US$bn		%		US$m		US$bn		%
Reported ...................................................	14,071		1,109		2.6		8,494		1,099		1.5
Underlying48 .............................................	13,017		1,084		2.4		8,627		1,093		1.6
Run-off portfolios ....................................	7		135		-		67		113		0.1
Legacy credit in GB&M ........................	157		36		0.9		33		30		0.2
US CML and other49 ..............................	(150)		99		(0.3)		34		83		0.1
..................................................................
Card and Retail Services ............................	-		5		-		-		2		-
Underlying (excluding run-off portfolios and Card and Retail Services) .................	13,010		944		2.8		8,560		978		1.7

For footnotes, see page 96.

Reconciliation of reported and underlying average risk-weighted assets

	Half-year to
	30 Jun           2014		30 Jun           2013		Change		30 Jun           2014		31 Dec           2013		Change
	US$bn		US$bn		%		US$bn		US$bn		%
Average reported RWAs47 .........................	1,200		1,109		8		1,200		1,099		9
Currency translation adjustment44 .............	-		2				-		4
Acquisitions, disposals and dilutions ..........	(3)		(27)				(3)		(10)
Average underlying RWAs ........................	1,197		1,084		10		1,197		1,093		10

For footnotes, see page 96.

 

END

 

 

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