Half-year Report (part 2 of 2)
|
Condensed financial statements |
Contents
|
34 |
Consolidated income statement |
|
35 |
Consolidated statement of comprehensive income |
|
36 |
Consolidated balance sheet |
|
37 |
Consolidated statement of changes in equity |
|
38 |
Consolidated statement of cash flows |
Consolidated income statement
|
|
|
Half-year to |
|
|
|
|
30 Jun |
30 Jun |
|
|
|
2023 |
2022 |
|
|
Notes |
£m |
£m |
|
Net interest income |
|
3,871 |
2,752 |
|
- interest income |
|
6,012 |
3,113 |
|
- interest expense |
|
(2,141) |
(361) |
|
Net fee income |
2 |
649 |
597 |
|
- fee income |
|
782 |
737 |
|
- fee expense |
|
(133) |
(140) |
|
Net income from financial instruments held for trading or managed on a fair value basis |
|
190 |
173 |
|
Change in fair value of other financial instruments mandatorily measured at fair value through profit or loss |
|
7 |
32 |
|
Gains less losses from financial investments |
|
36 |
21 |
|
Gain on acquisition of subsidiary1 |
|
1,240 |
- |
|
Other operating income |
|
11 |
21 |
|
Net operating income before change in expected credit losses and other credit impairment charges |
|
6,004 |
3,596 |
|
Change in expected credit losses and other credit impairment charges |
|
(337) |
(42) |
|
Net operating income |
|
5,667 |
3,554 |
|
Employee compensation and benefits |
|
(487) |
(498) |
|
General and administrative expenses |
|
(1,068) |
(1,063) |
|
Depreciation and impairment of property, plant and equipment and right-of-use assets |
|
(59) |
(94) |
|
Amortisation and impairment of intangible assets |
|
(151) |
(149) |
|
Total operating expenses |
|
(1,765) |
(1,804) |
|
Operating profit |
|
3,902 |
1,750 |
|
Profit before tax |
|
3,902 |
1,750 |
|
Tax expense |
4 |
(699) |
(281) |
|
Profit for the period |
|
3,203 |
1,469 |
|
Attributable to: |
|
|
|
|
- ordinary shareholders of the parent company |
|
3,200 |
1,466 |
|
- non-controlling interests |
|
3 |
3 |
|
Profit for the period |
|
3,203 |
1,469 |
1 Provisional gain of £1,240m recognised in respect of the acquisition of SVB UK.
The accompanying notes on pages 39 to 45, 'Profit /(loss) before tax and balance sheet data for the period' in the 'Financial summary' section on pages 8 to 11, and the following disclosures in the Risk section on pages 11 to 31 form an integral part of these condensed financial statements: 'Distribution of financial instruments to which the impairment requirements in IFRS 9 are applied, by credit quality and stage allocation' and 'Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers including loan commitments and financial guarantees'.
Consolidated statement of comprehensive income
|
|
Half-year to |
|
|
|
30 Jun |
30 Jun |
|
|
2023 |
2022 |
|
|
£m |
£m |
|
Profit for the period |
3,203 |
1,469 |
|
Other comprehensive income/(expense) |
|
|
|
Items that will be reclassified subsequently to profit or loss when specific conditions are met: |
|
|
|
Debt instruments at fair value through other comprehensive income |
19 |
(273) |
|
- fair value gains/(losses) |
61 |
(364) |
|
- fair value gains transferred to the income statement on disposal |
(37) |
(21) |
|
- expected credit recoveries recognised in the income statement |
- |
(1) |
|
- income taxes |
(5) |
113 |
|
Cash flow hedges |
(567) |
(609) |
|
- fair value losses |
(1,300) |
(815) |
|
- fair value (gains)/losses reclassified to the income statement |
513 |
(21) |
|
- income taxes |
220 |
227 |
|
Exchange differences |
7 |
(2) |
|
Items that will not be reclassified subsequently to profit or loss: |
|
|
|
Remeasurement of defined benefit asset/liability |
(16) |
(53) |
|
- before income taxes |
(20) |
(256) |
|
- income taxes1 |
4 |
203 |
|
Other comprehensive income/(expense) for the period, net of tax |
(557) |
(937) |
|
Total comprehensive income for the period |
2,646 |
532 |
|
Attributable to: |
|
|
|
- ordinary shareholders of the parent company |
2,643 |
529 |
|
- non-controlling interests |
3 |
3 |
|
Total comprehensive income for the period |
2,646 |
532 |
1 There is an income tax credit of £4m (1H22: credit £203m). 1H22 includes an income tax credit of £136m, arising upon the remeasurement of deferred tax following the substantive enactment of legislation to reduce the UK banking surcharge rate from 8% to 3% with effect from 1 April 2023.
Consolidated balance sheet
|
|
|
At |
|
|
|
|
30 Jun |
31 Dec |
|
|
|
2023 |
2022 |
|
|
Notes |
£m |
£m |
|
Assets |
|
|
|
|
Cash and balances at central banks |
|
76,666 |
94,407 |
|
Items in the course of collection from other banks |
|
327 |
353 |
|
Financial assets mandatorily measured at fair value through profit or loss |
6 |
118 |
108 |
|
Derivatives |
|
422 |
546 |
|
Loans and advances to banks |
|
7,324 |
6,357 |
|
Loans and advances to customers |
|
209,566 |
204,143 |
|
Reverse repurchase agreements - non-trading |
|
6,781 |
7,406 |
|
Financial investments |
|
22,129 |
16,092 |
|
Prepayments, accrued income and other assets |
|
8,164 |
8,762 |
|
Interests in joint ventures |
|
8 |
9 |
|
Goodwill and intangible assets |
8 |
4,265 |
4,258 |
|
Total assets |
|
335,770 |
342,441 |
|
Liabilities and equity |
|
|
|
|
Liabilities |
|
|
|
|
Deposits by banks |
|
10,844 |
10,721 |
|
Customer accounts |
|
273,785 |
281,095 |
|
Repurchase agreements - non-trading |
|
7,659 |
9,333 |
|
Items in the course of transmission to other banks |
|
156 |
308 |
|
Derivatives |
|
206 |
304 |
|
Debt securities in issue |
|
1,257 |
1,299 |
|
Accruals, deferred income and other liabilities |
|
3,330 |
3,543 |
|
Current tax liabilities |
|
681 |
173 |
|
Provisions |
9 |
375 |
424 |
|
Deferred tax liabilities |
|
441 |
666 |
|
Subordinated liabilities |
|
13,066 |
12,349 |
|
Total liabilities |
|
311,800 |
320,215 |
|
Equity |
|
|
|
|
Called up share capital |
|
- |
- |
|
Share premium account |
|
9,015 |
9,015 |
|
Other equity instruments |
|
2,196 |
2,196 |
|
Other reserves |
|
5,580 |
6,121 |
|
Retained earnings |
|
7,119 |
4,834 |
|
Total shareholders' equity |
|
23,910 |
22,166 |
|
Non-controlling interests |
|
60 |
60 |
|
Total equity |
|
23,970 |
22,226 |
|
Total liabilities and equity |
|
335,770 |
342,441 |
Consolidated statement of changes in equity
|
|
Called up share capital and share premium |
Other equity instruments |
Retained earnings |
Financial assets at FVOCI reserve |
Cash flow hedging reserve |
Group re-organisation reserve2 |
Total share- holders' equity |
Non- controlling interests |
Total equity |
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
At 1 Jan 2023 |
9,015 |
2,196 |
4,834 |
(246) |
(1,324) |
7,691 |
22,166 |
60 |
22,226 |
|
Profit for the period |
- |
- |
3,200 |
- |
- |
- |
3,200 |
3 |
3,203 |
|
Other comprehensive income (net of tax) |
- |
- |
(16) |
26 |
(567) |
- |
(557) |
- |
(557) |
|
- debt instruments at fair value through other comprehensive income |
- |
- |
- |
19 |
- |
- |
19 |
- |
19 |
|
- cash flow hedges |
- |
- |
- |
- |
(567) |
- |
(567) |
- |
(567) |
|
- remeasurement of defined benefit asset/liability |
- |
- |
(16) |
- |
- |
- |
(16) |
- |
(16) |
|
- exchange differences |
- |
- |
- |
7 |
- |
- |
7 |
- |
7 |
|
Total comprehensive income for the period |
- |
- |
3,184 |
26 |
(567) |
- |
2,643 |
3 |
2,646 |
|
Dividends to shareholders |
- |
- |
(908) |
- |
- |
- |
(908) |
(3) |
(911) |
|
Other movements1 |
- |
- |
9 |
- |
- |
- |
9 |
- |
9 |
|
At 30 Jun 2023 |
9,015 |
2,196 |
7,119 |
(220) |
(1,891) |
7,691 |
23,910 |
60 |
23,970 |
|
|
|
|
|
|
|
|
|
|
|
|
At 1 Jan 2022 |
9,015 |
2,196 |
4,877 |
56 |
(90) |
7,691 |
23,745 |
60 |
23,805 |
|
Profit for the period |
- |
- |
1,466 |
- |
- |
- |
1,466 |
3 |
1,469 |
|
Other comprehensive income (net of tax) |
- |
- |
(53) |
(275) |
(609) |
- |
(937) |
- |
(937) |
|
- debt instruments at fair value through other comprehensive income |
- |
- |
- |
(273) |
- |
- |
(273) |
- |
(273) |
|
- cash flow hedges |
- |
- |
- |
- |
(609) |
- |
(609) |
- |
(609) |
|
- remeasurement of defined benefit asset/liability |
- |
- |
(53) |
- |
- |
- |
(53) |
- |
(53) |
|
- exchange differences |
- |
- |
- |
(2) |
- |
- |
(2) |
- |
(2) |
|
Total comprehensive income for the period |
- |
- |
1,413 |
(275) |
(609) |
- |
529 |
3 |
532 |
|
Dividends to shareholders |
- |
- |
(729) |
- |
- |
- |
(729) |
(3) |
(732) |
|
Other movements1 |
- |
- |
12 |
- |
- |
- |
12 |
- |
12 |
|
At 30 Jun 2022 |
9,015 |
2,196 |
5,573 |
(219) |
(699) |
7,691 |
23,557 |
60 |
23,617 |
1 Relates primarily to £6m of pension assets transferred from HSBC Global Services (UK) Limited and HSBC Bank plc (1H22: £8m).
2 The Group reorganisation reserve is an equity reserve which was used to recognise the contribution of equity reserves associated with the
ring-fenced businesses that were transferred from HSBC Bank plc.
Consolidated statement of cash flows
|
|
Half-year to |
|
|
|
30 Jun |
30 Jun |
|
|
2023 |
2022 |
|
|
£m |
£m |
|
Profit before tax |
3,902 |
1,750 |
|
Adjustments for non-cash items: |
|
|
|
Depreciation, amortisation and impairment |
210 |
243 |
|
Net gain from investing activities |
(23) |
(21) |
|
Gain on acquisition of SVB UK |
(1,240) |
- |
|
Change in expected credit losses gross of recoveries and other credit impairment charges |
367 |
86 |
|
Provisions including pensions |
(122) |
(27) |
|
Share-based payment expense |
9 |
7 |
|
Other non-cash items included in profit before tax |
(42) |
(6) |
|
Elimination of exchange differences1 |
438 |
955 |
|
Changes in operating assets |
1,372 |
(12,068) |
|
Changes in operating liabilities |
(17,239) |
2,968 |
|
Contributions paid to defined benefit plans |
(5) |
(11) |
|
Tax (paid) |
(119) |
(1,088) |
|
Net cash from operating activities |
(12,492) |
(7,212) |
|
Purchase of financial investments |
(6,825) |
(6,577) |
|
Proceeds from the sale and maturity of financial investments |
3,521 |
6,245 |
|
Net cash flows from the purchase and sale of property, plant and equipment |
49 |
(20) |
|
Net investment in intangible assets |
(158) |
(163) |
|
Net cash flow from acquisition of SVB UK |
1,023 |
- |
|
Net cash from investing activities |
(2,390) |
(515) |
|
Subordinated loan capital issued2 |
1,000 |
- |
|
Dividends paid to shareholders of the parent company and non-controlling interests |
(911) |
(732) |
|
Net cash from financing activities |
89 |
(732) |
|
Net decrease in cash and cash equivalents |
(14,793) |
(8,459) |
|
Cash and cash equivalents at the beginning of the period |
100,319 |
114,134 |
|
Exchange differences in respect of cash and cash equivalents |
(177) |
27 |
|
Cash and cash equivalents at the end of the period |
85,349 |
105,702 |
Interest received was £5,775m (1H 2022: £2,964m) and interest paid was £1,920m (1H 2022: £281m).
1 Adjustment to bring changes between opening and closing balance sheet amounts to average rates. This is not done on a line-by-line basis, as details cannot be determined without unreasonable expense.
2 Subordinated liabilities changes during the period are attributable to cash flows from issuance of securities £1,000m (2022: £nil) and repayments of £nil (2022: £nil). Non-cash changes during the period included foreign exchange gains/(losses) of £273m (2022: £(494)m).
|
Notes on the interim condensed financial statements |
Contents
|
39 |
1 |
Basis of preparation and material accounting policies |
|
42 |
9 |
Provisions |
|
40 |
2 |
Net fee income |
|
43 |
10 |
Contingent liabilities, contractual commitments, guarantees and contingent assets |
|
40 |
3 |
Post-employment benefit plans |
|
|||
|
41 |
4 |
Tax |
|
43 |
11 |
Legal proceedings and regulatory matters |
|
41 |
5 |
Dividends |
|
44 |
12 |
Transactions with related parties |
|
41 |
6 |
Fair values of financial instruments carried at fair value |
|
44 |
13 |
Business acquisitions |
|
42 |
7 |
Fair values of financial instruments not carried at fair value |
|
45 |
14 |
Events after the balance sheet date |
|
42 |
8 |
Goodwill |
|
45 |
15 |
Interim Report 2023 and statutory accounts |
|
1 |
Basis of preparation and material accounting policies |
(a) Compliance with International Financial Reporting Standards
The interim condensed consolidated financial statements of HSBC UK have been prepared in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the UK's Financial Conduct Authority and IAS 34 'Interim Financial Reporting', as issued by the International Accounting Standards Board ('IASB') and as adopted by the UK. Therefore, they include an explanation of events and transactions that are significant to an understanding of the changes in HSBC UK's financial position and performance since the end of 2022.
These financial statements should be read in conjunction with the Annual Report and Accounts 2022, which was prepared in accordance with UK-adopted international accounting standards in conformity with the requirements of the Companies Act 2006. These financial statements were also prepared in accordance with International Financial Reporting Standards ('IFRSs') as issued by the IASB, including interpretations issued by the IFRS Interpretations Committee.
At 30 June 2023, there were no unendorsed standards effective for the half-year to 30 June 2023 affecting these financial statements, and there was no difference between IFRSs as adopted by the UK and IFRSs issued by the IASB in terms of their application to HSBC UK.
Standards applied during the half-year to 30 June 2023
Amendments to IAS 12 'International Tax Reform - Pillar Two Model Rules'
On 23 May 2023, the IASB issued its amendments to IAS 12 'International Tax Reform - Pillar Two Model Rules', which became effective immediately with disclosure requirements effective for annual reporting periods beginning on or after 1 January 2023. On 20 June 2023, legislation was substantively enacted in the UK to introduce the OECD's Pillar Two global minimum tax rules and a UK qualified domestic minimum top-up tax, with effect from 1 January 2024. The group has applied the IAS 12 exception from recognising and disclosing information on associated deferred tax assets and liabilities.
There were no other new standards or amendments to standards that had an effect on these interim condensed financial statements.
(b) Use of estimates and judgements
Management believes that our critical accounting estimates and judgements are those that relate to impairment of amortised cost and FVOCI debt financial assets, provisions for liabilities, impairment of goodwill and defined benefit pension obligations. Apart from estimates relating to ECL impairment there were no material changes in the current period to any of the other critical accounting estimates and judgements disclosed in 2022, which are stated on pages 87 to 94 of the Annual Report and Accounts 2022.
(c) Composition of the group
On 13 March 2023, HSBC UK acquired Silicon Valley Bank UK Limited which was subsequently renamed to HSBC Innovation Bank Limited. HSBC Innovation Bank Limited is a fully owned subsidiary of HSBC UK and is fully consolidated. There were no other material changes in the composition of the group in the half-year to 30 June 2023.
(d) Going concern
The financial statements are prepared on a going concern basis as the Directors are satisfied that the group and bank have the resources to continue in business for the foreseeable future. In making this assessment, the Directors have considered a wide range of information relating to present and future conditions, including future projections of profitability, cash flows, capital requirements and capital resources. These considerations include stressed scenarios as well as considering potential impacts from other top and emerging risks, and the related impact on profitability, capital and liquidity.
(e) Accounting policies
The accounting policies applied by the group for these interim condensed consolidated financial statements are consistent with those described on pages 87 to 94 of the Annual Report and Accounts 2022, as are the methods of computation, with the exception of those relating to amendments to IAS 12 and as described below.
New material accounting policies
Business combinations
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured at the fair value of the consideration, including contingent consideration, given at the date of exchange. Acquisition-related costs are recognised as an expense in the income statement in the period in which they are incurred. The acquired identifiable assets, liabilities and contingent liabilities are generally measured at their fair values at the date of acquisition.
Goodwill is measured as the excess of the aggregate of the consideration transferred, the amount of non-controlling interest and the fair value of HSBC UK's previously held equity interest, if any, over the net of the amounts of the identifiable assets acquired and the liabilities assumed. Any gain resulting from a bargain purchase is recognised in the income statement.
The amount of non-controlling interest is measured either at fair value or at the non-controlling interest's proportionate share of the acquiree's identifiable net assets. This election is made for each business combination.
|
2 |
Net fee income |
|
|
Half-year to |
|
|
|
30 Jun |
30 Jun |
|
|
2023 |
2022 |
|
Net fee income by product |
£m |
£m |
|
Account services |
137 |
132 |
|
Funds under management |
59 |
58 |
|
Cards |
290 |
278 |
|
Credit facilities |
69 |
67 |
|
Imports/exports |
15 |
15 |
|
Insurance agency commission |
5 |
12 |
|
Receivables finance |
44 |
49 |
|
Other |
163 |
126 |
|
Fee income |
782 |
737 |
|
Less: fee expense |
(133) |
(140) |
|
Net fee income |
649 |
597 |
|
Net fee income by global business |
|
|
|
Wealth and Personal Banking |
293 |
282 |
|
Commercial Banking |
464 |
422 |
|
Global Banking and Markets |
(108) |
(106) |
|
Corporate Centre |
- |
(1) |
|
3 |
Post-employment benefit plans |
We operate a pension plan for our employees called the HSBC Bank (UK) Pension Scheme ('the plan'). Details of the plan are explained on pages 96 and 97 of the Annual Report and Accounts 2022, and details of the policies and practices associated with the plan on page 58 of the Annual Report and Accounts 2022.
|
Net assets/(liabilities) under defined benefit pension plans |
|||
|
|
Fair value of plan assets |
Present value of defined benefit obligations |
Net defined benefit assets/(liabilities) |
|
|
£m |
£m |
£m |
|
At 30 Jun 2023 |
20,174 |
(14,815) |
5,359 |
|
At 31 Dec 2022 |
20,853 |
(15,596) |
5,257 |
Post-employment defined benefit plan actuarial financial assumptions
|
Key actuarial assumptions for the plan |
|||||
|
|
Discount rate |
Inflation rate (RPI) |
Inflation rate (CPI) |
Rate of increase for pensions |
Rate of pay increase |
|
|
% |
% |
% |
% |
% |
|
At 30 Jun 2023 |
5.40 |
3.44 |
3.01 |
3.32 |
3.51 |
|
At 31 Dec 2022 |
4.93 |
3.39 |
2.84 |
3.27 |
3.34 |
|
Mortality tables and average life expectancy at age 60 for the plan |
|||||
|
|
Mortality table |
Life expectancy at age 60 for a male member currently: |
Life expectancy at age 60 for a female member currently: |
||
|
|
Aged 60 |
Aged 40 |
Aged 60 |
Aged 40 |
|
|
At 30 Jun 2023 |
SAPS S31 |
26.8 |
28.3 |
28.0 |
29.6 |
|
At 31 Dec 2022 |
SAPS S31 |
27.1 |
28.6 |
28.4 |
29.9 |
1 Self-administered pension scheme ('SAPS') S3 table, with different tables and multipliers adopted based on gender, pension amount and member status, reflecting the Scheme's actual mortality experience. Improvements are projected in accordance with the Continuous Mortality Investigation's CMI 2022 core projection model with an initial addition to improvement of 0.25% per annum and a long-term rate of improvement of 1.25% per annum and a 25% weighting to 2022 mortality experience reflecting updated long-term view on mortality improvements post-pandemic.
|
4 |
Tax |
Tax charge
The effective tax rate is 17.9% (1H22: 16.1%). The effective tax rate is reduced by 8.5% due to non-taxable provisional gain arising on the acquisition of SVB UK in the period. The effective tax rate excluding this item is 26.4% and reflects the statutory blended tax rate of 27.75% (post main rate of UK corporation tax increasing from 19% to 25% and surcharge rate decreasing from 8% to 3% as of 1 April 2023), tax relief on AT1 coupon payments and a tax credit from the release of provisions for uncertain tax positions. The effective tax rate for 1H22 was reduced by 9.8% by a credit arising from the remeasurement of the group's deferred tax balances following the substantive enactment of legislation to reduce the UK banking surcharge rate from 8% to 3%. The effective tax rate excluding this item in 1H22 was 25.9%.
|
5 |
Dividends |
On 19 July, 2023, the Directors resolved to pay an interim dividend of £948m to the ordinary shareholder of the parent company in respect of the financial year ending 31 December 2023. No liability is recognised in the financial statements in respect of this dividend.
|
Dividends to the shareholder of the parent company |
||||
|
|
Half-year to |
|||
|
|
30 Jun 2023 |
30 Jun 2022 |
||
|
|
£ per share |
£m |
£ per share |
£m |
|
Dividends paid on ordinary shares |
|
|
|
|
|
Interim dividend in respect of the previous year |
10,780 |
539 |
9,820 |
491 |
|
Interim dividend in respect of the current year |
5,360 |
268 |
3,500 |
175 |
|
Total |
16,140 |
807 |
13,320 |
666 |
|
Total coupons on capital securities classified as equity |
|||
|
|
|
Half-year to |
|
|
|
|
30 Jun 2023 |
30 Jun 2022 |
|
|
First call date |
£m |
£m |
|
Undated Subordinated Additional Tier 1 instruments |
|
|
|
|
- £1,096m |
Dec 2019 |
50 |
31 |
|
- £1,100m |
Dec 2024 |
51 |
32 |
|
Total |
|
101 |
63 |
|
6 |
Fair values of financial instruments carried at fair value |
The accounting policies, control framework and the hierarchy used to determine fair values are consistent with those applied for the Annual Report and Accounts 2022.
|
Financial instruments carried at fair value and bases of valuation |
||||||||
|
|
At 30 Jun 2023 |
At 31 Dec 2022 |
||||||
|
|
Valuation techniques |
Valuation techniques |
||||||
|
|
Quoted market price |
Using observable inputs |
With significant unobservable input |
|
Quoted market price |
Using observable inputs |
With significant unobservable input |
|
|
|
Level 1 |
Level 2 |
Level 3 |
Total |
Level 1 |
Level 2 |
Level 3 |
Total |
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
Recurring fair value measurements |
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
Financial assets mandatorily measured at fair value through profit or loss |
85 |
- |
33 |
118 |
72 |
- |
36 |
108 |
|
Derivatives |
- |
422 |
- |
422 |
14 |
532 |
- |
546 |
|
Financial investments |
13,788 |
587 |
- |
14,375 |
10,757 |
175 |
- |
10,932 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
Derivatives |
- |
206 |
- |
206 |
- |
304 |
- |
304 |
Transfers between levels of the fair value hierarchy are deemed to occur at the end of each quarterly reporting period. Transfers into and out of levels of the fair value hierarchy are primarily attributable to observability of valuation inputs and price transparency. There were no transfers between Level 1 and Level 2 during 2023 and 2022.
|
7 |
Fair values of financial instruments not carried at fair value |
The bases for measuring the fair values of loans and advances to banks and customers, deposits by banks, customer accounts, debt securities in issue, subordinated liabilities, non-trading repurchase and reverse repurchase agreements and financial investments are explained on pages 103 and 104 of the Annual Report and Accounts 2022.
|
Fair values of financial instruments not carried at fair value and bases of valuation |
||||
|
|
At 30 Jun 2023 |
At 31 Dec 2022 |
||
|
|
Carrying amount |
Fair value |
Carrying amount |
Fair value |
|
|
£m |
£m |
£m |
£m |
|
Assets |
|
|
|
|
|
Loans and advances to banks |
7,324 |
7,324 |
6,357 |
6,357 |
|
Loans and advances to customers |
209,566 |
204,896 |
204,143 |
199,957 |
|
Reverse repurchase agreements - non-trading |
6,781 |
6,781 |
7,406 |
7,406 |
|
Financial investments - at amortised cost |
7,754 |
7,134 |
5,160 |
4,772 |
|
Liabilities |
|
|
|
|
|
Deposits by banks |
10,844 |
10,844 |
10,721 |
10,721 |
|
Customer accounts |
273,785 |
273,785 |
281,095 |
281,095 |
|
Repurchase agreements - non-trading |
7,659 |
7,659 |
9,333 |
9,333 |
|
Debt securities in issue |
1,257 |
1,243 |
1,299 |
1,279 |
|
Subordinated liabilities |
13,066 |
13,050 |
12,349 |
11,765 |
Other financial instruments not carried at fair value are typically short term in nature and repriced to current market rates frequently. Accordingly, their carrying amount is a reasonable approximation of fair value. They include cash and balances at central banks and items in the course of collection from and transmission to other banks, all of which are measured at amortised cost.
|
8 |
Goodwill |
Impairment testing
As described on page 109 of the Annual Report and Accounts 2022, we test goodwill for impairment at 1 October each year and whenever there is an indication that goodwill may be impaired. At 30 June 2023, we reviewed the inputs used in our most recent impairment test in the light of current economic and market conditions and there was no indication of goodwill impairment.
|
9 |
Provisions |
|
|
Restructuring |
Legal proceedings and regulatory matters |
Customer remediation |
Other provisions |
Total |
|
|
£m |
£m |
£m |
£m |
£m |
|
Provisions (excluding contractual commitments) |
|
|
|
|
|
|
At 1 Jan 2023 |
63 |
32 |
142 |
82 |
319 |
|
Additions |
22 |
1 |
6 |
5 |
34 |
|
Amounts utilised |
(16) |
(2) |
(22) |
(2) |
(42) |
|
Unused amounts reversed |
(13) |
- |
(23) |
(9) |
(45) |
|
Exchange and other movements |
5 |
- |
- |
(5) |
- |
|
At 30 Jun 2023 |
61 |
31 |
103 |
71 |
266 |
|
Contractual commitments1 |
|
|
|
|
|
|
At 1 Jan 2023 |
|
|
|
|
105 |
|
Net change in expected credit loss provision |
|
|
|
|
4 |
|
At 30 Jun 2023 |
|
|
|
|
109 |
|
Total provisions |
|
|
|
|
|
|
At 1 Jan 2023 |
|
|
|
|
424 |
|
At 30 Jun 2023 |
|
|
|
|
375 |
1 Contractual commitments include the provision for contingent liabilities measured under IFRS 9 Financial Instruments in respect of financial guarantees and the expected credit loss provision on off-balance sheet guarantees and commitments.
2 Restructuring costs include charges received from HSBC Global Services (UK) Limited, which do not form part of the balance sheet provision movement.
Customer remediation
Customer remediation refers to HSBC UK's activities to compensate customers for losses or damages associated with a failure to comply with regulations or to treat customers fairly. Customer remediation is often initiated by HSBC UK in response to customer complaints and/or industry developments in sales practices, and is not necessarily initiated by regulatory action.
Restructuring costs
The restructuring costs provision is for costs associated with the group's restructuring programmes.
Legal proceedings and regulatory matters
Further details of 'Legal proceedings and regulatory matters' are set out in Note 11. Legal proceedings include civil court, arbitration or tribunal proceedings brought against the group (whether by way of claim or counterclaim), or civil disputes that may, if not settled, result in court, arbitration or tribunal proceedings. Regulatory matters refer to investigations, reviews and other actions carried out by, or in response to the actions of, regulatory or law enforcement agencies in connection with alleged wrongdoing.
|
10 |
Contingent liabilities, contractual commitments, guarantees and contingent assets |
|
|
At |
|
|
|
30 Jun |
31 Dec |
|
|
2023 |
2022 |
|
|
£m |
£m |
|
Guarantees and other contingent liabilities: |
|
|
|
- financial guarantees:1 |
1,076 |
1,148 |
|
- performance and other guarantees |
2,419 |
2,530 |
|
At the end of the period |
3,495 |
3,678 |
|
Commitments:2 |
|
|
|
- documentary credits and short-term trade-related transactions |
65 |
52 |
|
- forward asset purchases and forward deposits placed |
330 |
327 |
|
- standby facilities, credit lines and other commitments to lend |
73,294 |
70,104 |
|
At the end of the period |
73,689 |
70,483 |
1 Financial guarantees contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss incurred because a specified debtor fails to make payment when due, in accordance with the original or modified terms of a debt instrument. The amounts in the above table are nominal principal amounts.
2 Includes £71bn of commitments at 30 June 2023 (31 December 2022: £68bn), to which the impairment requirements in IFRS 9 are applied where HSBC UK has become party to an irrevocable commitment.
The preceding table discloses the nominal principal amounts of off-balance sheet liabilities and commitments for the group, which represents the maximum amounts at risk should the contracts be fully drawn upon and clients default. As a significant portion of guarantees and commitments are expected to expire without being drawn upon, the total of the nominal principal amounts is not indicative of future liquidity requirements. The expected credit loss provision relating to guarantees and commitments under IFRS 9 is disclosed in Note 9. The majority of the guarantees have a term of less than one year, while guarantees with terms of more than one year are subject to the group's annual credit review process.
Contingent liabilities arising from legal proceedings and regulatory and other matters against group companies are excluded from this note but are disclosed in Note 11.
Financial Services Compensation Scheme
The FSCS provides compensation, up to certain limits, to eligible customers of financial services firms that are unable, or likely to be unable, to pay claims against them. The FSCS may impose a further levy on HSBC UK to the extent the industry levies imposed to date are not sufficient to cover the compensation due to customers in any future possible collapse. The ultimate FSCS levy to the industry as a result of a collapse cannot be estimated reliably. It is dependent on various uncertain factors including the potential recovery of assets by the FSCS, changes in the level of protected products (including deposits and investments) and the population of FSCS members at the time. The FCA is currently reviewing the FSCS Framework with the intention to consult on any changes in 2023/24. The FCA's goal is to ensure that the compensation framework continues to provide appropriate and proportionate consumer protection, with costs distributed across industry levy payers in a fair and sustainable way. Focus points of the review will include, the compensation limits, the funding class threshold and improving the FCA's understanding of how the scheme impacts consumer and firm behaviour.
UK branches of HSBC overseas entities
In December 2017, HMRC challenged the VAT status of certain UK branches of HSBC overseas entities. In Q1 2019, HMRC reaffirmed its assessment that the UK branches are ineligible to be members of the UK VAT group and HSBC filed appeals. In February 2022, the Upper Tribunal issued a judgment addressing several preliminary legal issues, which was partially in favour of HMRC and partially in favour of HSBC. The case will now return to the First Tier Tax Tribunal for full trial and we await confirmation of the trial window. Since January 2018, HSBC's returns have been prepared on the basis that the UK branches are not in the UK VAT group. In the event that HSBC is successful, HSBC will seek a refund of this VAT, of which £170m is estimated to be attributable to HSBC UK Bank plc.
|
11 |
Legal proceedings and regulatory matters |
The group is party to legal proceedings and regulatory matters arising out of its normal business operations. Apart from the matters described below, the group considers that none of these matters are material:
- litigation in respect of historic PPI sales notwithstanding the FCA deadline for bringing PPI complaints has passed;
- claims issued by two separate investor groups against HSBC UK (as successor to HSBC Private Bank (UK) Limited ('PBGB')) in the High Court of England and Wales in connection with PBGB's role in the development of Eclipse film finance schemes;
- an investigation by the FCA in connection with collections and recoveries operations in the UK;
- an investigation by the PRA in connection with depositor protection arrangements in the UK; and
- a lawsuit brought in the US District Court for the Northern District of California, by First-Citizens Bank & Trust Company ('First Citizens') against various HSBC companies and seven HSBC US employees who had previously worked for Silicon Valley Bank ('SVB') alleging, among other things, that HSBC conspired with the individual defendants to solicit employees from First Citizens and that the individual defendants took confidential information belonging to SVB and/or First Citizens.
There are many factors that may affect the range of outcomes, and the resulting financial impact, of the pending matters, which could be significant.
The recognition of provisions is determined in accordance with the accounting policies set out in Note 1 of the Annual Report and Accounts 2022. While the outcomes of legal proceedings and regulatory matters are inherently uncertain, management believes that, based on the information available to it, appropriate provisions have been made in respect of these matters at 30 June 2023. Where an individual provision is material, the fact that a provision has been made is stated and quantified. Any provision recognised does not constitute an admission of wrongdoing or legal liability. It is not practicable to provide an aggregate estimate of potential liability for our legal proceedings and regulatory matters as a class of contingent liabilities.
|
12 |
Transactions with related parties |
There were no changes to the related party transactions described in the Annual Report and Accounts 2022 that have had a material effect on the financial position or performance of the group in the half-year to 30 June 2023. All other related party transactions that took place in the half-year to 30 June 2023 were similar in nature to those disclosed in the Annual Report and Accounts 2022.
|
13 |
Business acquisitions |
Silicon Valley Bank UK Limited (now HSBC Innovation Bank Limited)
On 13 March 2023, HSBC UK acquired SVB UK for £1, acquiring 100% of the equity and thereby obtaining control. The acquisition was funded from existing resources and brought the staff, assets and liabilities of SVB UK into the HSBC UK portfolio.
The acquisition of SVB UK made strategic sense for our business. We expect the acquisition to strengthen our commercial banking franchise and enhance our ability to serve innovative and fast-growing firms. The acquisition accelerates our future innovation sector plans by 3 to 4 years by bringing in capabilities immediately, such as the deep industry sector knowledge and the depth of embedded industry ecosystem relationships with founders and funders.
On acquisition, we performed a preliminary assessment of the fair value of the assets and liabilities purchased. We established a provisional opening balance sheet on 13 March 2023 and applied the result of the fair value assessment, which resulted in a reduction in net assets of £207m. The provisional gain on acquisition of £1,240m represents the difference between the consideration paid of £1 and the net assets acquired. This gain could change as further due diligence is performed within 12 months of the acquisition, as allowed by IFRS 3 'Business Combinations'.
HSBC Innovation Bank Limited contributed £119m of revenue and £54m to the consolidated profit of HSBC UK for the period from 13 March 2023 to 30 June 2023. As per the disclosure requirements set out in IFRS 3 (Business Combinations), if HSBC Innovation Bank Limited had been acquired on 1 January 2023, management estimates that for the six months to 30 June 2023 consolidated revenue would have been £6,124m and consolidated profit after tax £3,266m. In determining these amounts, management has assumed that the fair value adjustments, determined previously, that arose on acquisition would have been the same if the acquisition had occurred on 1 January 2023.
The details of the business combination as follows:
|
|
£m |
|
|
|
Fair value of consideration transferred |
- |
|
|
|
Recognised fair value of identifiable assets acquired and liabilities assumed at the acquisition date |
|
|
|
|
Assets |
|
|
|
|
Cash and balances at central banks |
589 |
|
|
|
Items in course of collection from other banks |
302 |
|
|
|
Loans and advances to banks |
147 |
|
|
|
Loans and advances to customers |
5,369 |
|
|
|
Financial investments |
2,540 |
|
|
|
Other assets |
344 |
|
|
|
Total assets |
9,291 |
|
|
|
Liabilities |
|
|
|
|
Customer accounts |
7,400 |
|
|
|
Repurchase agreements |
403 |
|
|
|
Other liabilities |
248 |
|
|
|
Total liabilities |
8,051 |
|
|
|
Fair value of identifiable net assets acquired |
1,240 |
|
|
|
Provisional gain on acquisition |
1,240 |
|
|
|
Consideration transferred settled in cash |
- |
|
|
|
Cash and cash equivalents acquired |
1,023 |
|
|
|
Net cash inflow on acquisition |
1,023 |
|
|
|
Acquisition costs charged to expenses |
6 |
|
|
|
14 |
Events after the balance sheet date |
||
In its assessment of events after the balance sheet date, HSBC UK has considered and concluded that no material events have occurred resulting in adjustments to the financial statements.
On 19 July 2023, the Directors resolved to pay an interim dividend to the ordinary shareholder of the parent company of £948m in respect of the financial year ending 31 December 2023. No liability is recognised in the financial statements in respect of this dividend as described in Note 5.
|
15 |
Interim Report 2023 and statutory accounts |
The information in this Interim Report 2023 is unaudited and does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. The Interim Report 2023 was approved by the Board of Directors on 31 July 2023. The statutory accounts of HSBC UK Bank plc for the year ended 31 December 2022 have been delivered to the Registrar of Companies in England and Wales in accordance with section 447 of the Companies Act 2006. The group's auditor, PricewaterhouseCoopers LLP, has reported on those accounts. Its report was unqualified, did not include a reference to any matters to which PwC drew attention by way of emphasis without qualifying their report and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.
Reconciliation of alternative performance measures
Return on equity and return on tangible equity
RoTE is computed as reported profit, divided by average reported equity adjusted for goodwill and intangibles impairment for the period. The adjustment to reported results and reported equity excludes amounts attributable to non-controlling interests. We provide RoTE in addition to RoE as a way of assessing our performance, which is closely aligned to our capital position. The measures are calculated in US dollars in line with the standard HSBC Group-wide calculation methodology.
The following table details the adjustments made to the reported results and equity:
|
Return on Equity and Return on Tangible Equity |
||
|
|
Half-year to |
|
|
|
30 Jun |
30 Jun |
|
|
2023 |
2022 |
|
|
$m |
$m |
|
Profit |
|
|
|
Profit attributable to the ordinary shareholders of the parent company |
3,801 |
1,827 |
|
Profit attributable to the ordinary shareholders, excluding goodwill and other intangible assets impairment |
3,801 |
1,827 |
|
Impact of provisional gain on acquisition of SVB UK |
(1,582) |
- |
|
Profit attributable to the ordinary shareholders, excluding goodwill, other intangible assets impairment and acquisition of SVB UK |
2,219 |
1,827 |
|
Equity |
|
|
|
Average total shareholders' equity |
29,064 |
30,755 |
|
Effect of average preference shares, additional Tier 1 and other equity instruments |
(2,719) |
(2,842) |
|
Average ordinary shareholders' equity |
26,345 |
27,913 |
|
Effect of goodwill and other intangibles (net of deferred tax) |
(5,291) |
(5,463) |
|
Average tangible ordinary shareholders' equity |
21,054 |
22,450 |
|
Average impact of acquisition of SVB UK |
(1,177) |
- |
|
Average tangible ordinary shareholders' equity excluding acquisition of SVB UK |
19,877 |
22,450 |
|
Ratio |
% |
% |
|
Return on equity (annualised) |
29.1 |
13.2 |
|
Return on average tangible equity (annualised)1 |
36.4 |
16.4 |
|
Return on average tangible equity excluding the acquisition of SVB UK (annualised)1 |
22.5 |
16.4 |
1 Under IAS 19, HSBC UK holds a pension fund surplus, and records pension income in the Income Statement. The IAS 19 pension fund surplus increases Tangible Equity but not CET1. In the event that the IAS 19 Pension fund surplus was zero, RoTE would be 42.4% (1H22: 16.7%), we refer to this as Pension Adjusted RoTE. Pension Adjusted RoTE excluding the acquisition of SVB UK would be 25.8% (1H22: 16.7%).
Abbreviations
|
Currencies |
|
|
£ |
British pound sterling |
|
$ |
United States dollar |
|
Abbreviations |
|
|
1H23 |
First half of 2023 |
|
1H22 |
First half of 2022 |
|
4Q24 |
Fourth quarter of 2024 |
|
2Q23 |
Second quarter of 2023 |
|
A |
|
|
AI |
Artificial Intelligence |
|
AIEA |
Average interest-earning assets |
|
ALCO |
Asset and Liability Management Committee |
|
AT1 |
Additional tier 1 |
|
B |
|
|
BACS |
Bankers' Automated Clearing System |
|
Basel |
Basel Committee on Banking Supervision |
|
Basel III |
Basel Committee's reforms to strengthen global capital and liquidity rules |
|
BB |
Business Banking |
|
BoE |
Bank of England |
|
C |
|
|
CBDC |
Central Bank Digital Currency |
|
CET1 |
Common equity tier 1 |
|
CMB |
Commercial Banking |
|
CODM |
Chief Operating Decision Maker |
|
CRR |
Customer risk rating |
|
CRR II |
Revised Capital Requirements Regulation and Directive, as implemented |
|
CPI |
Consumer Price Index |
|
D |
|
|
DTR |
Disclosure Guidance and Transparency Rules |
|
E |
|
|
ECL |
Expected credit losses. In the income statement, ECL is recorded as a change in expected credit losses and other credit impairment charges. In the balance sheet, ECL is recorded as an allowance for financial instruments to which only the impairment requirements in IFRS 9 are applied |
|
ESG |
Environmental, social and governance |
|
EU |
European Union |
|
EVE |
Economic value of equity |
|
F |
|
|
FCA |
Financial Conduct Authority (UK) |
|
FTE |
Full-time equivalent staff |
|
FVOCI |
Fair value through other comprehensive income |
|
FY |
Full Year |
|
FY22 |
Full Year 2022 |
|
G |
|
|
GBM |
Global Banking and Markets |
|
GDP |
Gross domestic product |
|
group |
HSBC UK Bank plc together with its subsidiary undertakings |
|
Group |
HSBC Holdings together with its subsidiary undertakings |
|
H |
|
|
HMRC |
HM Revenue & Customs |
|
HMT |
His Majesty's Treasury |
|
HR |
Human Resources |
|
HSBC Group |
HSBC Holdings together with its subsidiary undertakings |
|
HSBC Holdings |
HSBC Holdings plc |
|
I |
|
|
IAS |
International Accounting Standards |
|
IASB |
International Accounting Standards Board |
|
Ibor |
Interbank offered rate |
|
ICAAP |
Internal capital adequacy assessment process |
|
IFRSs |
International Financial Reporting Standards |
|
ILAAP |
Internal liquidity adequacy assessment process |
|
L |
|
|
LCR |
Liquidity coverage ratio |
|
LFRF |
Liquidity and Funding Risk Management Framework |
|
LTV |
Loan to value |
|
M |
|
|
MREL |
EU minimum requirements for own funds and eligible liabilities |
|
N |
|
|
NII |
Net interest income |
|
NPS |
Net Promoter Score |
|
NSFR |
Net stable funding ratio |
|
O |
|
|
OCI |
Other comprehensive income |
|
P |
|
|
PD |
Probability of default |
|
POCI |
Purchased or originated credit impaired |
|
PPI |
Payment protection insurance |
|
PRA |
Prudential Regulation Authority |
|
PSR |
Payment Systems Regulator |
|
PwC |
PricewaterhouseCoopers LLP and its network of firms |
|
R |
|
|
Revenue |
Net operating income before change in expected credit losses and other credit impairment charges/Loan impairment charges and other credit provisions, also referred to as revenue |
|
RoE |
Return on average ordinary shareholders' equity |
|
RoTE |
Return on average tangible equity |
|
RWA |
Risk-weighted asset |
|
S |
|
|
SBB |
Small Business Banking |
|
SME |
Small and medium-sized enterprise |
|
SVB UK |
Silicon Valley Bank UK Limited |
|
U |
|
|
UK |
United Kingdom |
|
US |
United States of America |
|
V |
|
|
VaR |
Value at risk |
|
VAT |
Value-added tax |
|
W |
|
|
WPB |
Wealth and Personal Banking |
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