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HSBC Holdings PLC (HSBA)

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Tuesday 23 February, 2021

HSBC Holdings PLC

Annual Financial Report - Part 3

RNS Number : 0463Q
HSBC Holdings PLC
23 February 2021
 

Financial review

 

77 Financial summary

85 Global businesses and geographical regions

103 Reconciliation of alternative performance measures

 

 

 

World's first corporate bonds to tackle plastic waste

Our green expertise and global connectivity helped Henkel, a leading consumer goods and industrial company, to issue the first ever corporate bonds aimed at tackling plastic waste.

The firm behind well-known brands and products such as Persil detergent, Schwarzkopf shampoo and Loctite adhesives will use the equivalent of $100m raised for projects and expenditures related to its activities to foster a circular economy, which include the development of reusable and recyclable packaging.

We were sole green structuring adviser and sole lead manager on the five-year fixed-rate bonds, which were issued in two tranches. The bonds generated interest from international investors from Japanese insurers to German banks.

 

Financial summary

 

Page

Use of alternative performance measures

77

Changes from 1 January 2020

77

Critical accounting estimates and judgements

77

Consolidated income statement

78

Income statement commentary

80

Consolidated balance sheet

84

 

Use of alternative performance measures

Our reported results are prepared in accordance with IFRSs as detailed in the financial statements starting on page 278.

To measure our performance, we supplement our IFRS figures with non-IFRS measures that constitute alternative performance measures under European Securities and Markets Authority guidance and non-GAAP financial measures defined in and presented in accordance with US Securities and Exchange Commission rules and regulations. These measures include those derived from our reported results that eliminate factors that distort year-on-year comparisons. The 'adjusted performance' measure used throughout this report is described below. Definitions and calculations of other alternative performance measures are included in our 'Reconciliation of alternative performance measures' on page 103. All alternative performance measures are reconciled to the closest reported performance measure.

A change in reportable segments was made in 2020 by combining Global Private Banking and Retail Banking and Wealth Management to form Wealth and Personal Banking. We also reallocated our reporting of Markets Treasury, hyperinflation accounting in Argentina and HSBC Holdings net interest expense from Corporate Centre to the global businesses. Comparative data have been re-presented on an adjusted basis in accordance with IFRS 8 'Operating Segments' with the change in reportable segments explained in more detail in Note 10: Segmental analysis on page 311.

Adjusted performance

Adjusted performance is computed by adjusting reported results for the effects of foreign currency translation differences and significant items, which both distort year-on-year comparisons.

We consider adjusted performance provides useful information for investors by aligning internal and external reporting, identifying and quantifying items management believes to be significant, and providing insight into how management assesses year-on-year performance.

Significant items

'Significant items' refers collectively to the items that management and investors would ordinarily identify and consider separately to improve the understanding of the underlying trends in the business.

The tables on pages 85 to 88 and pages 94 to 99 detail the effects of significant items on each of our global business segments, geographical regions and selected countries/territories in 2020, 2019 and 2018.

Foreign currency translation differences

Foreign currency translation differences reflect the movements of the US dollar against most major currencies during 2020.

We exclude them to derive constant currency data, allowing us to assess balance sheet and income statement performance on a like-for-like basis and better understand the underlying trends in the business.

Foreign currency translation differences

Foreign currency translation differences for 2020 are computed by retranslating into US dollars for non-US dollar branches, subsidiaries, joint ventures and associates:

the income statements for 2019 and 2018 at the average rates of exchange for 2020; and

the balance sheets at 31 December 2019 and 31 December 2018 at the prevailing rates of exchange on 31 December 2020.

 

No adjustment has been made to the exchange rates used to translate foreign currency-denominated assets and liabilities into the functional currencies of any HSBC branches, subsidiaries, joint ventures or associates. The constant currency data of HSBC's Argentinian subsidiaries have not been adjusted further for the impacts of hyperinflation. When reference is made to foreign currency translation differences in tables or commentaries, comparative data reported in the functional currencies of HSBC's operations have been translated at the appropriate exchange rates applied in the current period on the basis described above.

 

Changes from 1 January 2020

Interest rate benchmark reform - Phase 2

Interest Rate Benchmark Reform Phase 2: Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 issued in August 2020 represents the second phase of the IASB's project on the effects of interest rate benchmark reform, addressing issues affecting financial statements when changes are made to contractual cash flows and hedging relationships as a result of the reform.

Under these amendments, changes made to a financial instrument that are economically equivalent and required by interest rate benchmark reform do not result in the derecognition or a change in the carrying amount of the financial instrument, but instead require the effective interest rate to be updated to reflect the change in the interest rate benchmark. In addition, hedge accounting will not be discontinued solely because of the replacement of the interest rate benchmark if the hedge meets other hedge accounting criteria.

These amendments apply from 1 January 2021 with early adoption permitted. HSBC has adopted the amendments from 1 January 2020 and has made the additional disclosures as required by the amendments, see pages 112 to 113.

Critical accounting estimates and judgements

The results of HSBC reflect the choice of accounting policies, assumptions and estimates that underlie the preparation of HSBC's consolidated financial statements. The significant accounting policies, including the policies which include critical accounting estimates and judgements, are described in Note 1.2 on the financial statements. The accounting policies listed below are highlighted as they involve a high degree of uncertainty and have a material impact on the financial statements:

Impairment of amortised cost financial assets and financial assets measured at fair value through other comprehensive income ('FVOCI'): The most significant judgements relate to defining what is considered to be a significant increase in credit risk, determining the lifetime and point of initial recognition of revolving facilities, and making assumptions and estimates to incorporate relevant information about past events, current conditions and forecasts of economic conditions. A high degree of uncertainty is involved in making estimations using assumptions that are highly subjective and very sensitive to the risk factors. See Note 1.2(i) on page 293.

Deferred tax assets: The most significant judgements relate to judgements made in respect of expected future profitability. See Note 1.2(l) on page 298.

Valuation of financial instruments: In determining the fair value of financial instruments a variety of valuation techniques are used, some of which feature significant unobservable inputs and are subject to substantial uncertainty. See Note 1.2(c) on page 291.

Impairment of interests in associates: Impairment testing involves significant judgement in determining the value in use, and in particular estimating the present values of cash flows expected to arise from continuing to hold the investment, based on a number of management assumptions. The most significant judgements relate to the impairment testing of our investment in Bank of Communications Co., Limited ('BoCom'). See Note 1.2(a) on page 290.

Impairment of goodwill and non-financial assets: A high degree of uncertainty is involved in estimating the future cash flows of the cash-generating units ('CGUs') and the rates used to discount these cash flows. See Note 1.2(a) on page 290.

Provisions: Significant judgement may be required due to the high degree of uncertainty associated with determining whether a present obligation exists, and estimating the probability and amount of any outflows that may arise. See Note 1.2(m) on page 298.

Post-employment benefit plans: The calculation of the defined benefit pension obligation involves the determination of key assumptions including discount rate, inflation rate, pension payments and deferred pensions, pay and mortality. See Note 1.2(k) on page 297.

Given the inherent uncertainties and the high level of subjectivity involved in the recognition or measurement of the items above, it is possible that the outcomes in the next financial year could differ from the expectations on which management's estimates are based, resulting in the recognition and measurement of materially different amounts from those estimated by management in these financial statements.

 

 

Consolidated income statement

 

Summary consolidated income statement

 

 

2020

2019

2018

2017

2016

 

Footnotes

$m

$m

$m

$m

$m

Net interest income

 

27,578 

 

30,462 

 

30,489 

 

28,176 

 

29,813 

 

Net fee income

 

11,874 

 

12,023 

 

12,620 

 

12,811 

 

12,777 

 

Net income from financial instruments held for trading or managed on a fair value basis

 

9,582 

 

10,231 

 

9,531 

 

8,426 

 

7,521 

 

Net income/(expense) from assets and liabilities of insurance businesses, including related derivatives, measured at fair value through profit or loss

 

2,081 

 

3,478 

 

(1,488)

 

2,836 

 

1,262 

 

Change in fair value of designated debt and related derivatives

1

231 

 

90 

 

(97)

 

155 

 

(1,997)

 

Changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss

 

455 

 

812 

 

695 

 

N/A

N/A

Gains less losses from financial investments

 

653 

 

335 

 

218 

 

1,150 

 

1,385 

 

Net insurance premium income

 

10,093 

 

10,636 

 

10,659 

 

9,779 

 

9,951 

 

Other operating income/(expense)

 

527 

 

2,957 

 

960 

 

443 

 

(876)

 

Total operating income

 

63,074 

 

71,024 

 

63,587 

 

63,776 

 

59,836 

 

Net insurance claims and benefits paid and movement in liabilities to policyholders

 

(12,645)

 

(14,926)

 

(9,807)

 

(12,331)

 

(11,870)

 

Net operating income before change in expected credit losses and other
credit impairment charges/Loan impairment charges and other credit risk provisions

2

50,429 

 

56,098 

 

53,780 

 

51,445 

 

47,966 

 

Change in expected credit losses and other credit impairment charges

 

(8,817)

 

(2,756)

 

(1,767)

 

N/A

N/A

Loan impairment charges and other credit risk provisions

 

N/A

N/A

N/A

(1,769)

 

(3,400)

 

Net operating income

 

41,612 

 

53,342 

 

52,013 

 

49,676 

 

44,566 

 

Total operating expenses excluding impairment of goodwill and other intangible assets

 

(33,044)

 

(34,955)

 

(34,622)

 

(34,849)

 

(36,416)

 

Impairment of goodwill and other intangible assets

 

(1,388)

 

(7,394)

 

(37)

 

(35)

 

(3,392)

 

Operating profit

 

7,180 

 

10,993 

 

17,354 

 

14,792 

 

4,758 

 

Share of profit in associates and joint ventures

 

1,597 

 

2,354 

 

2,536 

 

2,375 

 

2,354 

 

Profit before tax

 

8,777 

 

13,347 

 

19,890 

 

17,167 

 

7,112 

 

Tax expense

 

(2,678)

 

(4,639)

 

(4,865)

 

(5,288)

 

(3,666)

 

Profit for the year

 

6,099 

 

8,708 

 

15,025 

 

11,879 

 

3,446 

 

Attributable to:

 

 

 

 

 

 

-  ordinary shareholders of the parent company

 

3,898 

 

5,969 

 

12,608 

 

9,683 

 

1,299 

 

-  preference shareholders of the parent company

 

90 

 

90 

 

90 

 

90 

 

90 

 

-  other equity holders

 

1,241 

 

1,324 

 

1,029 

 

1,025 

 

1,090 

 

-  non-controlling interests

 

870 

 

1,325 

 

1,298 

 

1,081 

 

967 

 

Profit for the year

 

6,099 

 

8,708 

 

15,025 

 

11,879 

 

3,446 

 

 

 

Five-year financial information

 

 

2020

2019

2018

2017

2016

 

Footnotes

$

$

$

$

$

Basic earnings per share

 

0.19 

 

0.30 

 

0.63 

 

0.48 

 

0.07 

 

Diluted earnings per share

 

0.19 

 

0.30 

 

0.63 

 

0.48 

 

0.07 

 

Dividends per ordinary share

3

 

0.51 

 

0.51 

 

0.51 

 

0.51 

 

 

 

%

%

%

%

%

Dividend payout ratio

4

 

172.2 

 

81.0 

 

106.3 

 

728.6 

 

Post-tax return on average total assets

 

0.2 

 

0.3 

 

0.6 

 

0.5 

 

0.1 

 

Return on average ordinary shareholders' equity

 

2.3 

 

3.6 

 

7.7 

 

5.9 

 

0.8 

 

Return on average tangible equity

 

3.1 

 

8.4 

 

8.6 

 

6.8 

 

2.6 

 

Effective tax rate

 

30.5 

 

34.8 

 

24.5 

 

30.8 

 

51.5 

 

1  The debt instruments, issued for funding purposes, are designated under the fair value option to reduce an accounting mismatch.

2  Net operating income before change in expected credit losses and other credit impairment charges/Loan impairment charges and other credit risk provisions, also referred to as revenue.

3  Dividends recorded in the financial statements are dividends per ordinary share declared and paid in the period and are not dividends in respect of, or for, that period.

4  Dividends per ordinary share expressed as a percentage of basic earnings per share.
Unless stated otherwise, all tables in the
Annual Report and Accounts 2020 are presented on a reported basis.

For a summary of our financial performance in 2020, see page 27.

For further financial performance data for each global business and geographical region, see pages 85 to 88 and 92 to 102 respectively. The global business segmental results are presented on an adjusted basis in accordance with IFRS 8 'Operating Segments', in Note 10: Segmental analysis on page 311.

 

Income statement commentary

The following commentary compares Group financial performance for the year ended 2020 with 2019.

Net interest income

 

 

Year ended

Quarter ended

 

 

31 Dec

31 Dec

31 Dec

31 Dec

30 Sep

31 Dec

 

 

2020

2019

2018

2020

2020

2019

 

Footnotes

$m

$m

$m

$m

$m

$m

Interest income

 

41,756 

 

54,695 

 

49,609 

 

9,301 

 

9,455 

 

13,229 

 

Interest expense

 

(14,178)

 

(24,233)

 

(19,120)

 

(2,682)

 

(3,005)

 

(5,575)

 

Net interest income

 

27,578 

 

30,462 

 

30,489 

 

6,619 

 

6,450 

 

7,654 

 

Average interest-earning assets

 

2,092,900 

 

1,922,822 

 

1,839,346 

 

2,159,003 

 

2,141,454 

 

1,945,596 

 

 

 

%

%

%

%

%

%

Gross interest yield

1

2.00 

 

2.84 

 

2.70 

 

1.71 

 

1.76 

 

2.70 

 

Less: gross interest payable

1

(0.81)

 

(1.48)

 

(1.21)

 

(0.60)

 

(0.68)

 

(1.34)

 

Net interest spread

2

1.19 

 

1.36 

 

1.49 

 

1.11 

 

1.08 

 

1.36 

 

Net interest margin

3

1.32 

 

1.58 

 

1.66 

 

1.22 

 

1.20 

 

1.56 

 

 

 

 

 

 

 

 

 

1  Gross interest yield is the average annualised interest rate earned on average interest-earning assets ('AIEA'). Gross interest payable is the average annualised interest cost as a percentage on average interest-bearing liabilities.

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

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

 

Summary of interest income by type of asset

 

 

2020

2019

2018

 

 

Average
balance

Interest
income

Yield

Average
balance

Interest
income

Yield

Average
balance

Interest
income

Yield

 

 

$m

$m

%

$m

$m

%

$m

$m

%

Short-term funds and loans and advances to banks

 

298,255 

 

1,264 

 

0.42 

 

212,920 

 

2,411 

 

1.13 

 

233,637 

 

2,475 

 

1.06 

 

Loans and advances to customers

 

1,046,795 

 

29,391 

 

2.81 

 

1,021,554 

 

35,578 

 

3.48 

 

972,963 

 

33,285 

 

3.42 

 

Reverse repurchase agreements - non-trading

 

221,901 

 

1,819 

 

0.82 

 

224,942 

 

4,690 

 

2.08 

 

205,427 

 

3,739 

 

1.82 

 

Financial investments

 

463,542 

 

8,143 

 

1.76 

 

417,939 

 

10,705 

 

2.56 

 

386,230 

 

9,166 

 

2.37 

 

Other interest-earning assets

 

62,407 

 

1,139 

 

1.83 

 

45,467 

 

1,311 

 

2.88 

 

41,089 

 

944 

 

2.30 

 

Total interest-earning assets

 

2,092,900 

 

41,756 

 

2.00 

 

1,922,822 

 

54,695 

 

2.84 

 

1,839,346 

 

49,609 

 

2.70 

 

 

Summary of interest expense by type of liability

 

 

2020

2019

2018

 

 

Average
balance

Interest
expense

Cost

Average
balance

Interest
expense

Cost

Average
balance

Interest
expense

Cost

 

Footnotes

$m

$m

%

$m

$m

%

$m

$m

%

Deposits by banks

1

65,536 

 

330 

 

0.50 

 

52,515 

 

702 

 

1.34 

 

44,530 

 

506 

 

1.14 

 

Customer accounts

2

1,254,249 

 

6,478 

 

0.52 

 

1,149,483 

 

11,238 

 

0.98 

 

1,138,620 

 

8,287 

 

0.73 

 

Repurchase agreements - non-trading

 

125,376 

 

963 

 

0.77 

 

160,850 

 

4,023 

 

2.50 

 

161,204 

 

3,409 

 

2.11 

 

Debt securities in issue - non-trading

 

219,610 

 

4,944 

 

2.25 

 

211,229 

 

6,522 

 

3.09 

 

183,434 

 

5,675 

 

3.09 

 

Other interest-bearing liabilities

 

76,395 

 

1,463 

 

1.92 

 

59,980 

 

1,748 

 

2.91 

 

53,731 

 

1,243 

 

2.31 

 

Total interest-bearing liabilities

 

1,741,166 

 

14,178 

 

0.81 

 

1,634,057 

 

24,233 

 

1.48 

 

1,581,519 

 

19,120 

 

1.21 

 

1  Including interest-bearing bank deposits only.

2  Including interest-bearing customer accounts only.

Net interest income ('NII') for 2020 was $27.6bn, a decrease of $2.9bn or 9.5% compared with 2019. This reflected lower average market interest rates across the major currencies compared with 2019. This was partly offset by interest income associated with the increase in average interest-earning assets ('AIEA') of $170.1bn or 8.8%.

Excluding the favourable impact of significant items and the adverse effects of foreign currency translation differences, net interest income decreased by $2.7bn or 9%.

NII for the fourth quarter of 2020 was $6.6bn, down 13.5% year-on-year, and up 2.6% compared with the previous quarter. The year-on-year decrease was driven by the impact of lower market interest rates predominantly in Asia and North America. This was partly offset by higher NII from growth in AIEA, notably short-term funds and financial investments and predominantly in Asia and Europe. The increase compared with the previous quarter was mainly driven by lower rates on customer deposits and issued debt securities, which were partly offset by lower rates on AIEA.
 

Net interest margin ('NIM') for 2020 of 1.32% was 26 basis points ('bps') lower compared with 2019 as the reduction in the yield on AIEA of 84bps was partly offset by the fall in funding costs of average interest-bearing liabilities of 67bps. The decrease in NIM in 2020 included the favourable impacts of significant items and the adverse effects of foreign currency translation differences. Excluding this, NIM fell by 25bps.

NIM for the fourth quarter of 2020 was 1.22%, down 34bps year-on-year, and up 2bps compared with the previous quarter. The year-on-year decrease was mainly driven by Asia and caused by the impact of lower market interest rates. The increase compared with the previous quarter was driven by a reduction in funding costs of average interest-bearing liabilities of 8bps, which was partly offset by a reduction in the yield on AIEA of 5bps.

Interest income for 2020 of $41.8bn decreased by $12.9bn or 24%, primarily due to the lower average interest rates compared with 2019 as the yield on AIEA fell by 84bps. This was partly offset by income from balance sheet growth, predominantly in Asia and Europe. The balance sheet growth was driven by higher balances in short-term funds and loans and advances to banks and financial investments, which increased by $85.3bn and $45.6bn, respectively. The decrease in interest income included $0.2bn in relation to the favourable impact of significant items and $0.8bn from the adverse effects of foreign currency translation differences. Excluding these, interest income decreased by $12.3bn.

Interest income of $9.3bn in the fourth quarter of 2020 was down $3.9bn year-on-year, and down $0.2bn compared with the previous quarter. The year-on-year decrease was predominantly driven by the impact of lower market interest rates, predominantly in Asia and in North America, although partly offset by growth in AIEA, notably short-term funds and loans and advances to banks and financial investments. The small decrease compared with the previous quarter was mainly driven by reduced rates on financial investments and loans and advances to customers.

Interest expense for 2020 of $14.2bn decreased by $10.1bn or 41% compared with 2019. This reflected the decrease in funding costs of 67bps, mainly arising from lower interest rates paid on interest-bearing liabilities. This was partly offset by higher interest expense from growth in interest-bearing customer accounts, which increased by $104.8bn. The decrease in interest expense included the favourable effects of foreign currency translation differences of $0.5bn. Excluding this, interest expense decreased by $9.6bn.

Interest expense of $2.7bn in the fourth quarter of 2020 was down $2.9bn year-on-year, and down $0.3bn compared with the previous quarter. The year-on-year decrease was predominantly driven by the impact of lower market interest rates, partly offset by growth in interest-bearing customer accounts, which increased by $142.9bn. The small decrease compared with the previous quarter was mainly due to reduced funding costs on customer deposits and debt issuances.

Net fee income of $11.9bn was $0.1bn lower, reflecting reductions in WPB and CMB, partly offset by an increase in GBM.

In WPB, lower fee income reflected a reduction in account services, notably in the UK, due to lower customer activity. Income from credit cards also reduced, as customer spending activity fell across most markets, mainly in Hong Kong, the UK, MENA and the US. Fee income on unit trusts fell, mainly in Hong Kong. These decreases were partly offset by higher income from broking, primarily in Hong Kong, as volatility in the equity markets resulted in increased customer activity. Fee expenses fell as a result of reduced customer activity levels, mainly in cards.

In CMB, trade-related fee income fell, reflecting the reduction in global trade activity, notably in Hong Kong and the UK. Income also fell in remittances due to lower client activity.

In GBM, net fee income was higher, mainly from growth in underwriting fees in the US and the UK. Global custody and broking fees also rose as client activity and turnover of securities increased due to market volatility. These increases were partly offset by a reduction in fee income from credit facilities, notably in the UK, Hong Kong and the US.

Net income from financial instruments held for trading or managed on a fair value basis of $9.6bn was $0.6bn lower and included a loss of $0.3bn from asset disposals relating to our restructuring programme. This was partly offset by favourable fair value movements on non-qualifying hedges of $0.1bn and favourable debit value adjustments of $0.1bn.

The remaining reduction was primarily due to lower trading interest income, reflecting lower market rates. However, other trading income increased in GBM as elevated market volatility and wider spreads supported a strong performance in FICC.

Net income/(expense) from assets and liabilities of insurance businesses, including related derivatives, measured at fair value through profit or loss was a net income of $2.1bn, compared with a net income of $3.5bn in 2019. This decrease primarily reflected less favourable equity market performance, compared with 2019 in France and Hong Kong, due to the impact of the Covid-19 outbreak on the equity and unit trust assets supporting insurance and investment contracts. After large losses in the first quarter of 2020, there was a partial recovery in the remainder of the year, resulting in higher revenue in these subsequent quarters during 2020 compared with the equivalent quarters in 2019.

This adverse movement resulted in a corresponding movement in liabilities to policyholders and the present value of in-force long-term insurance business ('PVIF') (see 'Other operating income' below). This reflected the extent to which the policyholders and shareholders respectively participate in the investment performance of the associated assets.

Change in fair value of designated debt and related derivatives of $0.2bn was $0.1bn favourable compared with 2019. The movements were driven by the fall in interest rates between the periods, notably in US dollars and pounds sterling.

The majority of our financial liabilities designated at fair value are fixed-rate, long-term debt issuances and are managed in conjunction with interest rate swaps as part of our interest rate management strategy. These liabilities are discussed further on page 83.

Changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss of $0.5bn was $0.4bn lower compared with 2019. This primarily reflected adverse movements in equity markets due to the impact of the Covid-19 outbreak.

Gains less losses from financial investments of $0.7bn increased by $0.3bn, reflecting higher gains from the disposal of debt securities in Markets Treasury.

Net insurance premium income of $10.1bn was $0.5bn lower than in 2019, reflecting lower new business volumes, particularly in France and Hong Kong, partly offset by lower reinsurance arrangements in Hong Kong.

Other operating income of $0.5bn decreased by $2.4bn compared with 2019, primarily due to lower favourable changes in PVIF compared with 2019 (down $1.4bn) and also the non-recurrence of a $0.8bn dilution gain in 2019 following the merger of The Saudi British Bank ('SABB') with Alawwal bank in Saudi Arabia.

The change in PVIF included a reduction of $0.8bn due to assumption changes and experience variances, mainly in Hong Kong and France due to the effect of interest rate changes on the valuation of liabilities under insurance contracts. In addition, the value of new business written fell by $0.4bn, primarily in Hong Kong, as sales volumes decreased.

The reduction also reflected the non-recurrence of 2019 gains recognised in Argentina and Mexico.

Net insurance claims and benefits paid and movement in liabilities to policyholders was $2.3bn lower, primarily due to lower returns on financial assets supporting contracts where the policyholder is subject to part or all of the investment risk. New business volumes were also lower, particularly in Hong Kong and France, partly offset by lower reinsurance arrangements in Hong Kong.

Changes in expected credit losses and other credit impairment charges ('ECL') of $8.8bn were $6.1bn higher compared with 2019 with increases in all global businesses.

The ECL charge in 2020 reflected a significant increase in stage 1 and stage 2 allowances, notably in the first half of the year, to reflect the deterioration in the forward economic outlook globally as a result of the Covid-19 outbreak. The economic outlook stabilised in the second half of 2020 and as a result stage 1 and stage 2 allowances were broadly unchanged at 31 December 2020, compared with 30 June 2020. Stage 3 charges also increased compared with 2019, largely against wholesale exposures, including a significant charge related to a CMB client in Singapore in the first quarter of 2020.

Excluding currency translation differences, ECL as a percentage of average gross loans and advances to customers was 0.81%, compared with 0.25% in 2019.

The estimated impact of the Covid-19 outbreak was incorporated in the ECL through additional scenario analysis, which considered differing severity and duration assumptions relating to the global pandemic. These included probability-weighted shocks to annual GDP and consequential impacts on unemployment and other economic variables, with differing economic recovery assumptions. Given the severity of the macroeconomic projections, and the complexities of the government measures, which have never been modelled, additional judgemental adjustments have been made to our provisions.

While we expect the full year ECL charge for 2021 to be materially lower than in 2020, the outlook is highly uncertain and remains dependent on the future path of the Covid-19 outbreak, including the successful deployment of mass vaccination programmes, and the credit quality of our loan portfolio as government support packages are gradually withdrawn.

For further details on the calculation of ECL, including the measurement uncertainties and significant judgements applied to such calculations, the impact of alternative/additional scenarios and management judgemental adjustments, see pages 127 to 135.

 

Operating expenses - currency translation and significant items

 

2020

2019

 

$m

$m

Significant items

2,973 

 

9,607 

 

-  costs of structural reform1

 

158 

 

-  customer redress programmes

(54)

 

1,281 

 

-  impairment of goodwill and other intangibles

1,090 

 

7,349 

 

-  past service costs of guaranteed minimum pension benefits equalisation

17 

 

 

-  restructuring and other related costs2

1,908 

 

827 

 

-  settlements and provisions in connection with legal and regulatory matters

12 

 

(61)

 

-  currency translation on significant items

 

53 

 

Currency translation

 

223 

 

Year ended 31 Dec

2,973 

 

9,830 

 

1  Comprises costs associated with preparations for the UK's exit from the European Union.

2  Includes impairment of software intangible assets of $189m (of the total software intangible asset impairment of $1,347m) and impairment of tangible assets of $197m.

Staff numbers (full-time equivalents)

 

2020

20191

20181

Global businesses

 

 

 

Wealth and Personal Banking

135,727 

 

141,341 

 

140,666 

 

Commercial Banking

43,221 

 

44,706 

 

45,046 

 

Global Banking and Markets

46,729 

 

48,859 

 

48,970 

 

Corporate Centre

382 

 

445 

 

535 

 

At 31 Dec

226,059 

 

235,351 

 

235,217 

 

1  A change in reportable segments was made in 2020. Comparative data have been re-presented accordingly. For further guidance, see Note 10: Segmental analysis on page 311.

Operating expenses of $34.4bn were $7.9bn lower than in 2019, primarily reflecting the net favourable movements in significant items of $6.6bn, which included:

the non-recurrence of a $7.3bn impairment of goodwill in 2019, primarily related to lower long-term economic growth assumptions in GBM and CMB, and the planned reshaping of GBM. This compared with a $1.1bn impairment of goodwill and other intangibles in 2020, primarily capitalised software related to the businesses within HSBC Bank plc, and to a lesser extent our businesses in the US. These impairments reflected underperformance and a deterioration in the future forecasts of these businesses, and in the case of HSBC Bank plc substantially relating to prior periods; and

customer redress programme costs, which were a net release of $0.1bn in 2020, compared with charges of $1.3bn in 2019. 

This was partly offset by:

restructuring and other related costs of $1.9bn in 2020, of which $0.9bn related to severance, $0.2bn related to an impairment of software intangibles and $0.2bn related to the impairment of tangible assets in France and the US. This compared with restructuring and other related costs of $0.8bn in 2019.

The reduction also included favourable currency translation differences of $0.2bn.

The remaining reduction of $1.1bn reflected a $0.5bn decrease in performance-related pay and lower discretionary expenditure, including marketing (down $0.3bn) and travel costs (down $0.3bn). In addition, our cost-saving initiatives resulted in a reduction of $1.4bn, of which $1.0bn related to our costs to achieve programme, and the UK bank levy was $0.2bn lower than in 2019. These decreases were partly offset by an increase in investments in technology to enhance our digital and automation capabilities to improve how we serve our customers, as well as inflation and volume-related increases. In addition, the 2020 period included impairments of certain real estate assets.

During 2020, we reduced the number of employees expressed in full-time equivalent staff ('FTE') and contractors by 11,011. This included a 9,292 reduction in FTE to 226,059 at 31 December 2020, while the number of contractors reduced by 1,719 to 5,692 at 31 December 2020.

Share of profit in associates and joint ventures of $1.6bn was $0.8bn or 32% lower than in 2019, primarily reflecting our share of an impairment of goodwill by SABB of $0.5bn. This goodwill was recognised by SABB on the completion of its merger with Alawwal bank in 2019. The remaining reduction reflected a lower share of profit recognised from our associates in Asia and MENA due to the impact of the Covid-19 outbreak and the lower interest-rate environment.

At 31 December 2020, we performed an impairment review of our investment in BoCom and concluded that it was not impaired, based on our value-in-use ('VIU') calculations. However, the excess of the VIU of BoCom and its carrying value has reduced over the period, increasing the risk of impairment in the future.

For more information, see Note 18: Interests in associates and joint ventures on page 331.

 

Tax expense

The effective tax rate for 2020 of 30.5% was lower than the 34.8% effective tax rate for 2019. An impairment of goodwill and non-deductible customer redress charges increased the 2019 effective tax rate. These were not repeated in 2020. Additionally, the non-taxable dilution gain arising on the merger of SABB with Alawwal bank decreased the effective tax rate in 2019. Higher charges in respect of the non-recognition of deferred tax assets, particularly in the UK ($0.4bn) and France ($0.4bn), increased the 2020 effective tax rate.

Consolidated balance sheet

Five-year summary consolidated balance sheet

 

 

2020

2019

2018

2017

2016

 

Footnotes

$m

$m

$m

$m

$m

Assets

 

 

 

 

 

 

Cash and balances at central banks

 

304,481 

 

154,099 

 

162,843 

 

180,624 

 

128,009 

 

Trading assets

 

231,990 

 

254,271 

 

238,130 

 

287,995 

 

235,125 

 

Financial assets designated and otherwise mandatorily measured at fair value through profit or loss

 

45,553 

 

43,627 

 

41,111 

 

N/A

N/A

Financial assets designated at fair value

 

N/A 

N/A

N/A

29,464 

 

24,756 

 

Derivatives

 

307,726 

 

242,995 

 

207,825 

 

219,818 

 

290,872 

 

Loans and advances to banks

 

81,616 

 

69,203 

 

72,167 

 

90,393 

 

88,126 

 

Loans and advances to customers

1

1,037,987 

 

1,036,743 

 

981,696 

 

962,964 

 

861,504 

 

Reverse repurchase agreements - non-trading

 

230,628 

 

240,862 

 

242,804 

 

201,553 

 

160,974 

 

Financial investments

 

490,693 

 

443,312 

 

407,433 

 

389,076 

 

436,797 

 

Other assets

 

253,490 

 

230,040 

 

204,115 

 

159,884 

 

148,823 

 

Total assets at 31 Dec

 

2,984,164 

 

2,715,152 

 

2,558,124 

 

2,521,771 

 

2,374,986 

 

Liabilities and equity

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Deposits by banks

 

82,080 

 

59,022 

 

56,331 

 

69,922 

 

59,939 

 

Customer accounts

 

1,642,780 

 

1,439,115 

 

1,362,643 

 

1,364,462 

 

1,272,386 

 

Repurchase agreements - non-trading

 

111,901 

 

140,344 

 

165,884 

 

130,002 

 

88,958 

 

Trading liabilities

 

75,266 

 

83,170 

 

84,431 

 

184,361 

 

153,691 

 

Financial liabilities designated at fair value

 

157,439 

 

164,466 

 

148,505 

 

94,429 

 

86,832 

 

Derivatives

 

303,001 

 

239,497 

 

205,835 

 

216,821 

 

279,819 

 

Debt securities in issue

 

95,492 

 

104,555 

 

85,342 

 

64,546 

 

65,915 

 

Liabilities under insurance contracts

 

107,191 

 

97,439 

 

87,330 

 

85,667 

 

75,273 

 

Other liabilities

 

204,019 

 

194,876 

 

167,574 

 

113,690 

 

109,595 

 

Total liabilities at 31 Dec

 

2,779,169 

 

2,522,484 

 

2,363,875 

 

2,323,900 

 

2,192,408 

 

Equity

 

 

 

 

 

 

Total shareholders' equity

 

196,443 

 

183,955 

 

186,253 

 

190,250 

 

175,386 

 

Non-controlling interests

 

8,552 

 

8,713 

 

7,996 

 

7,621 

 

7,192 

 

Total equity at 31 Dec

 

204,995 

 

192,668 

 

194,249 

 

197,871 

 

182,578 

 

Total liabilities and equity at 31 Dec

 

2,984,164 

 

2,715,152 

 

2,558,124 

 

2,521,771 

 

2,374,986 

 

 

1   Net of impairment allowances.

A more detailed consolidated balance sheet is contained in the financial statements on page 280.

Five-year selected financial information

 

 

2020

2019

2018

2017

2016

 

Footnotes

$m

$m

$m

$m

$m

Called up share capital

 

10,347 

 

10,319 

 

10,180 

 

10,160 

 

10,096 

 

Capital resources

1

184,423 

 

172,150 

 

173,238 

 

182,383 

 

172,358 

 

Undated subordinated loan capital

 

1,970 

 

1,968 

 

1,969 

 

1,969 

 

1,967 

 

Preferred securities and dated subordinated loan capital

2

30,721 

 

33,063 

 

35,014 

 

42,147 

 

42,600 

 

Risk-weighted assets

 

857,520 

 

843,395 

 

865,318 

 

871,337 

 

857,181 

 

Total shareholders' equity

 

196,443 

 

183,955 

 

186,253 

 

190,250 

 

175,386 

 

Less: preference shares and other equity instruments

 

(22,414)

 

(22,276)

 

(23,772)

 

(23,655)

 

(18,515)

 

Total ordinary shareholders' equity

 

174,029 

 

161,679 

 

162,481 

 

166,595 

 

156,871 

 

Less: goodwill and intangible assets (net of tax)

 

(17,606)

 

(17,535)

 

(22,425)

 

(21,680)

 

(19,649)

 

Tangible ordinary shareholders' equity

 

156,423 

 

144,144 

 

140,056 

 

144,915 

 

137,222 

 

Financial statistics

 

 

 

 

 

 

Loans and advances to customers as a percentage of customer accounts

 

63.2%

72.0%

72.0%

70.6%

67.7%

Average total shareholders' equity to average total assets

 

6.46%

6.97%

7.16%

7.33%

7.37%

Net asset value per ordinary share at year-end ($)

3

8.62 

 

8.00 

 

8.13 

 

8.35 

 

7.91 

 

Tangible net asset value per ordinary share at year-end ($)

 

7.75 

 

7.13 

 

7.01 

 

7.26 

 

6.92 

 

Tangible net asset value per fully diluted share at year-end ($)

 

7.72 

 

7.11 

 

6.98 

 

7.22 

 

6.88 

 

Number of $0.50 ordinary shares in issue (millions)

 

20,694 

 

20,639 

 

20,361 

 

20,321 

 

20,192 

 

Basic number of $0.50 ordinary shares outstanding (millions)

 

20,184 

 

20,206 

 

19,981 

 

19,960 

 

19,838 

 

Basic number of $0.50 ordinary shares outstanding and dilutive potential ordinary shares (millions)

 

20,272 

 

20,280 

 

20,059 

 

20,065 

 

19,933 

 

Closing foreign exchange translation rates to $:

 

 

 

 

 

 

$1: £

 

0.732 

 

0.756 

 

0.783 

 

0.740 

 

0.811 

 

$1: €

 

0.816 

 

0.890 

 

0.873 

 

0.834 

 

0.949 

 

1   Capital resources are regulatory capital, the calculation of which is set out on page 173.

2   Including perpetual preferred securities, details of which can be found in Note 28: Subordinated liabilities on page 344.

3   The definition of net asset value per ordinary share is total shareholders' equity, less non-cumulative preference shares and capital securities, divided by the number of ordinary shares in issue, excluding own shares held by the company, including those purchased and held in treasury.

Balance sheet commentary compared with
31 December 2019

At 31 December 2020, our total assets were $3.0tn, an increase of $269bn or 10% on a reported basis and $200bn or 7% on a constant currency basis.

The increase in total assets primarily reflected growth in cash balances, derivative assets and financial investments.

On a reported basis, our ratio of customer advances to customer accounts was 63.2%, compared with 72.0% at 31 December 2019, mainly due to growth in customer accounts.

Assets

Cash and balances at central banks increased by $150bn or 98%, mainly in the UK, France, Hong Kong and North America, as a result of deposit inflows and an increase in the commercial surplus.

Trading assets decreased by $22bn or 9%, notably from a reduction in debt securities held, along with a reduction in bond positions previously used for hedging purposes.

Derivative assets increased by $65bn or 27%, primarily in the UK, France and Hong Kong, reflecting favourable revaluation movements on interest rate contracts as interest rates fell in most major markets. There was also an increase in foreign exchange contracts linked to valuation movements attributable to market conditions. The growth in derivative assets was consistent with the increase in derivative liabilities, as the underlying risk is broadly matched.

Loans and advances to customers of $1.0tn increased by $1bn on a reported basis. This included favourable foreign currency translation differences of $26bn. Excluding the effects of foreign currency translation differences, loans and advances to customers decreased by $25bn or 2%.

The commentary below is on a constant currency basis.

In GBM, customer lending was down $28bn or 11%, while in CMB customer lending was down $11bn or 3%. Despite significant growth in these businesses in the first quarter of 2020 from customers drawing down on credit facilities, balances subsequently reduced as customers made repayments in part due to the uncertain economic outlook.

In GBM, lower lending was mainly from decreases in term lending in Asia, Europe and the US, and also from a decrease in overdrafts in Europe.

In CMB, the decrease in customer lending reflected a reduction in other lending and overdrafts in Asia and North America. In Europe, lending remained relatively flat as lower other lending and overdrafts were almost entirely offset by a rise in term lending.

In WPB, lending increased by $14bn or 3%, notably from mortgage growth in the UK (up $12bn) and in Hong Kong (up $5bn). This was partly offset by a $6bn reduction in credit card balances and overdrafts as customer activity fell as a result of government measures to contain the outbreak of Covid-19.

Financial investments increased by $47bn or 11%, mainly as we redeployed our commercial surplus. We increased our holdings of debt securities and treasury bills and benefited from valuation gains resulting from interest rate reductions. The increases in financial investments were notably observed in Hong Kong, as we increased our holdings of government-issued bonds and bills. These increases were partly offset by lower holdings of debt securities in Canada.

Other assets increased by $23bn due to a $10bn increase in cash collateral balances, mainly in France and Hong Kong as underlying derivative balances grew. Additionally, there were increases in precious metals balances, mainly in the US as we grew our depository.

 

Liabilities

Customer accounts of $1.6tn increased by $204bn or 14% on a reported basis and included the favourable effect of foreign currency translation differences of $31bn. Excluding this, customer accounts increased by $173bn or 12%.

The commentary below is on a constant currency basis.

Customer accounts increased in all our global businesses and regions. In CMB, balances grew by $73bn, and in GBM, customer accounts increased by $33bn. These increases included the impact of corporate clients consolidating their funds and depositing these into their customer accounts to maintain liquidity, notably in the UK, Hong Kong and the US.

In WPB, customer account balances increased by $67bn, notably in the UK and Hong Kong, reflecting reduced customer spending resulting in larger balances held in current and savings accounts.

Repurchase agreements - non-trading decreased by $28bn or 20%, primarily in the US, in line with our actions to manage our funding requirements across the Group.

Derivative liabilities increased by $64bn or 27%, which is consistent with the increase in derivative assets, since the underlying risk is broadly matched.

Equity

Total shareholders' equity, including non-controlling interests, increased by $12bn or 6% compared with 31 December 2019, reflecting the effects of profits generated of $6.1bn combined with other comprehensive income ('OCI') of $8bn. OCI included fair value gains on debt instruments of $2bn, favourable remeasurement of defined benefit pension obligations of $1bn and foreign exchange differences of $5bn. These increases were partly offset by $2bn of coupon distributions on securities classified as equity and dividends paid by non-controlling interests.

Risk-weighted assets

Risk-weighted assets ('RWAs') totalled $857.5bn at 31 December 2020, a $14.1bn increase since 2019. Excluding foreign currency translation differences, RWAs increased by $1.0bn in 2020, and included the following movements:

a $9.7bn asset size decrease, largely driven by RWA reductions in CMB and GBM under our transformation programme. This was partly offset by lending growth and increases in counterparty credit risk RWAs due to mark-to-market movements;

a $24.5bn increase in RWAs due to changes in asset quality, mostly in CMB and GBM. This was largely due to credit migration in Asia, North America and Europe, partly offset by decreases due to portfolio mix changes; and

a $14.2bn fall in RWAs due to changes in methodology and policy, mostly in GBM and CMB. This included reductions under management initiatives involving risk parameter refinements, improved collateral linkage, and data enhancement, and changes under the CRR 'Quick Fix' relief package. These reductions were partly offset by changes in approach to credit risk exposures.

From a global business perspective, primarily in GBM and CMB, increases from credit migration, lending growth, and market risk volatility were mitigated by reductions of $51.5bn as a result of our transformation programme.

 

Customer accounts by country/territory

 

2020

2019

 

$m

$m

Europe

629,647 

 

528,718 

 

-  UK

504,275 

 

419,642 

 

-  France

55,111 

 

47,699 

 

-  Germany

21,605 

 

19,361 

 

-  Switzerland

10,102 

 

6,558 

 

-  other

38,554 

 

35,458 

 

Asia

762,406 

 

697,358 

 

-  Hong Kong

531,489 

 

499,955 

 

-  Singapore

55,140 

 

48,569 

 

-  mainland China

56,826 

 

48,323 

 

-  Australia

29,286 

 

23,191 

 

-  India

20,199 

 

14,935 

 

-  Malaysia

15,997 

 

14,624 

 

-  Taiwan

16,041 

 

14,668 

 

-  Indonesia

5,198 

 

4,732 

 

-  other

32,230 

 

28,361 

 

Middle East and North Africa (excluding Saudi Arabia)

41,221 

 

38,126 

 

-  United Arab Emirates

20,974 

 

17,949 

 

-  Turkey

3,987 

 

3,870 

 

-  Egypt

5,659 

 

5,186 

 

-  other

10,601 

 

11,121 

 

North America

182,028 

 

146,676 

 

-  US

117,485 

 

90,834 

 

-  Canada

56,520 

 

48,425 

 

-  other

8,023 

 

7,417 

 

Latin America

27,478 

 

28,237 

 

-  Mexico

22,220 

 

23,051 

 

-  other

5,258 

 

5,186 

 

At 31 Dec

1,642,780 

 

1,439,115 

 

 

Loans and advances, deposits by currency

 

At

 

31 Dec 2020

$m

USD

GBP

HKD

EUR

CNY

Others1

Total

Loans and advances to banks

17,959 

 

3,495 

 

7,155 

 

4,601 

 

6,063 

 

42,343 

 

81,616 

 

Loans and advances to customers

173,117 

 

280,803 

 

222,138 

 

89,851 

 

37,671 

 

234,407 

 

1,037,987 

 

Total loans and advances

191,076 

 

284,298 

 

229,293 

 

94,452 

 

43,734 

 

276,750 

 

1,119,603 

 

 

 

 

 

 

 

 

 

Deposits by banks

30,239 

 

7,856 

 

2,884 

 

25,291 

 

4,904 

 

10,906 

 

82,080 

 

Customer accounts

433,647 

 

431,143 

 

310,197 

 

135,851 

 

60,971 

 

270,971 

 

1,642,780 

 

Total deposits

463,886 

 

438,999 

 

313,081 

 

161,142 

 

65,875 

 

281,877 

 

1,724,860 

 

 

 

 

 

 

 

 

 

 

At

 

31 Dec 2019

$m

USD

GBP

HKD

EUR

CNY

Others

Total

Loans and advances to banks

19,386 

 

3,245 

 

6,242 

 

4,266 

 

5,772 

 

30,292 

 

69,203 

 

Loans and advances to customers

177,696 

 

264,029 

 

234,945 

 

84,919 

 

34,338 

 

240,816 

 

1,036,743 

 

Total loans and advances

197,082 

 

267,274 

 

241,187 

 

89,185 

 

40,110 

 

271,108 

 

1,105,946 

 

 

 

 

 

 

 

 

 

Deposits by banks

23,508 

 

7,537 

 

1,865 

 

11,154 

 

4,265 

 

10,693 

 

59,022 

 

Customer accounts

360,462 

 

358,764 

 

299,049 

 

122,988 

 

52,216 

 

245,636 

 

1,439,115 

 

Total deposits

383,970 

 

366,301 

 

300,914 

 

134,142 

 

56,481 

 

256,329 

 

1,498,137 

 

1   'Others' includes items with no currency information available ($8,671m for loans to banks, $56,729m for loans to customers, $4m for deposits by banks and $5m for customer accounts).

Global businesses and

geographical regions

 

Page

Summary

89

Reconciliation of reported and adjusted items - global businesses

89

Reconciliation of reported and adjusted risk-weighted assets

93

Supplementary tables for WPB and GBM

93

Analysis of reported results by geographical regions

97

Reconciliation of reported and adjusted items - geographical regions

99

Analysis by country

105

.

Summary

The Group Chief Executive, supported by the rest of the Group Executive Committee ('GEC') (previously the Group Management

 

Board), reviews operating activity on a number of bases, including by global business and geographical region. Global businesses are our reportable segments under IFRS 8 'Operating Segments' and are presented in Note 10: Segmental analysis on page 311.

Geographical information is classified by the location of the principal operations of the subsidiary or, for The Hongkong and Shanghai Banking Corporation Limited, HSBC Bank plc, HSBC UK Bank plc, HSBC Bank Middle East Limited and HSBC Bank USA, by the location of the branch responsible for reporting the results or providing funding.

The expense of the UK bank levy is included in the Europe geographical region as HSBC regards the levy as a cost of being headquartered in the UK. For the purposes of the presentation by global business, the cost of the levy is included in the Corporate Centre.

The results of geographical regions are presented on a reported basis.

 

Reconciliation of reported and adjusted items - global businesses

Supplementary unaudited analysis of significant items by global business is presented below.

 

 

2020

 

 

Wealth and Personal Banking

Commercial
Banking

Global
Banking and
Markets

Corporate Centre

Total

 

Footnotes

$m

$m

$m

$m

$m

Revenue

1

 

 

 

 

 

Reported

 

21,999 

 

13,294 

 

14,994 

 

142 

 

50,429 

 

Significant items

 

14 

 

18 

 

309 

 

(404)

 

(63)

 

-  customer redress programmes

 

 

16 

 

 

 

21 

 

-  disposals, acquisitions and investment in new businesses

 

 

 

 

 

10 

 

-  fair value movements on financial instruments

2

 

 

 

(267)

 

(264)

 

-  restructuring and other related costs

3

 

 

307 

 

(138)

 

170 

 

Adjusted

 

22,013 

 

13,312 

 

15,303 

 

(262)

 

50,366 

 

ECL

 

 

 

 

 

 

Reported

 

(2,855)

 

(4,754)

 

(1,209)

 

 

(8,817)

 

Adjusted

 

(2,855)

 

(4,754)

 

(1,209)

 

 

(8,817)

 

Operating expenses

 

 

 

 

 

 

Reported

 

(15,446)

 

(6,900)

 

(10,169)

 

(1,917)

 

(34,432)

 

Significant items

 

422 

 

211 

 

905 

 

1,435 

 

2,973 

 

-  customer redress programmes

 

(64)

 

 

 

 

(54)

 

-  impairment of goodwill and other intangibles

 

294 

 

45 

 

577 

 

174 

 

1,090 

 

-  past service costs of guaranteed minimum pension benefits equalisation

 

 

 

 

17 

 

17 

 

-  restructuring and other related costs

4

192 

 

165 

 

326 

 

1,225 

 

1,908 

 

-  settlements and provisions in connection with legal and regulatory matters

 

 

 

 

10 

 

12 

 

Adjusted

 

(15,024)

 

(6,689)

 

(9,264)

 

(482)

 

(31,459)

 

Share of profit in associates and joint ventures

 

 

 

 

 

 

Reported

 

 

(1)

 

 

1,592 

 

1,597 

 

Significant items

 

 

 

 

462 

 

462 

 

-  impairment of goodwill

5

 

 

 

462 

 

462 

 

Adjusted

 

 

(1)

 

 

2,054 

 

2,059 

 

Profit/(loss) before tax

 

 

 

 

 

 

Reported

 

3,704 

 

1,639 

 

3,616 

 

(182)

 

8,777 

 

Significant items

 

436 

 

229 

 

1,214 

 

1,493 

 

3,372 

 

-  revenue

 

14 

 

18 

 

309 

 

(404)

 

(63)

 

-  operating expenses

 

422 

 

211 

 

905 

 

1,435 

 

2,973 

 

-  share of profit in associates and joint ventures

 

 

 

 

462 

 

462 

 

Adjusted

 

4,140 

 

1,868 

 

4,830 

 

1,311 

 

12,149 

 

Loans and advances to customers (net)

 

 

 

 

 

 

Reported

 

469,186 

 

343,182 

 

224,364 

 

1,255 

 

1,037,987 

 

Adjusted

 

469,186 

 

343,182 

 

224,364 

 

1,255 

 

1,037,987 

 

Customer accounts

 

 

 

 

 

 

Reported

 

834,759 

 

470,428 

 

336,983 

 

610 

 

1,642,780 

 

Adjusted

 

834,759 

 

470,428 

 

336,983 

 

610 

 

1,642,780 

 

1  Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.

2  Includes fair value movements on non-qualifying hedges and debt valuation adjustments on derivatives.

3  Comprises losses associated with the RWA reduction commitments and gains relating to the business update in February 2020.

4  Includes impairment of software intangible assets of $189m (of the total software intangible asset impairment of $1,347m) and impairment of tangible assets of $197m.

5  During the year, The Saudi British Bank ('SABB'), an associate of HSBC, impaired the goodwill that arose following the merger with Alawwal bank in 2019. HSBC's post-tax share of the goodwill impairment was $462m.

Reconciliation of reported and adjusted items (continued)

 

 

20194

 

 

Wealth and Personal Banking

Commercial
Banking

Global
Banking and
Markets

Corporate
Centre

Total

 

Footnotes

$m

$m

$m

$m

$m

Revenue

1

 

 

 

 

 

Reported

 

25,552 

 

15,256 

 

14,894 

 

396 

 

56,098 

 

Currency translation

 

(208)

 

(103)

 

(107)

 

(53)

 

(471)

 

Significant items

 

221 

 

11 

 

82 

 

(997)

 

(683)

 

-  customer redress programmes

 

155 

 

 

 

 

163 

 

-  disposals, acquisitions and investment in new businesses

 

52 

 

 

 

(820)

 

(768)

 

-  fair value movements on financial instruments

2

 

 

84 

 

(179)

 

(84)

 

-  currency translation on significant items

 

 

 

(2)

 

 

 

Adjusted

 

25,565 

 

15,164 

 

14,869 

 

(654)

 

54,944 

 

ECL

 

 

 

 

 

 

Reported

 

(1,437)

 

(1,192)

 

(162)

 

35 

 

(2,756)

 

Currency translation

 

89 

 

30 

 

 

 

129 

 

Adjusted

 

(1,348)

 

(1,162)

 

(153)

 

36 

 

(2,627)

 

Operating expenses

 

 

 

 

 

 

Reported

 

(17,351)

 

(9,905)

 

(13,790)

 

(1,303)

 

(42,349)

 

Currency translation

 

135 

 

18 

 

21 

 

49 

 

223 

 

Significant items

 

1,828 

 

3,055 

 

4,225 

 

499 

 

9,607 

 

-  costs of structural reform

3

 

 

42 

 

112 

 

158 

 

-  customer redress programmes

 

1,264 

 

17 

 

 

 

1,281 

 

-  goodwill impairment

 

431 

 

2,956 

 

3,962 

 

 

7,349 

 

-  restructuring and other related costs

 

180 

 

51 

 

217 

 

379 

 

827 

 

-  settlements and provisions in connection with legal and regulatory matters

 

(69)

 

 

 

 

(61)

 

-  currency translation on significant items

 

22 

 

27 

 

 

 

53 

 

Adjusted

 

(15,388)

 

(6,832)

 

(9,544)

 

(755)

 

(32,519)

 

Share of profit in associates and joint ventures

 

 

 

 

 

 

Reported

 

55 

 

 

 

2,299 

 

2,354 

 

Currency translation

 

(1)

 

 

 

(2)

 

(3)

 

Adjusted

 

54 

 

 

 

2,297 

 

2,351 

 

Profit before tax

 

 

 

 

 

 

Reported

 

6,819 

 

4,159 

 

942 

 

1,427 

 

13,347 

 

Currency translation

 

15 

 

(55)

 

(77)

 

(5)

 

(122)

 

Significant items

 

2,049 

 

3,066 

 

4,307 

 

(498)

 

8,924 

 

-  revenue

 

221 

 

11 

 

82 

 

(997)

 

(683)

 

-  operating expenses

 

1,828 

 

3,055 

 

4,225 

 

499 

 

9,607 

 

Adjusted

 

8,883 

 

7,170 

 

5,172 

 

924 

 

22,149 

 

Loans and advances to customers (net)

 

 

 

 

 

 

Reported

 

443,025 

 

346,105 

 

246,492 

 

1,121 

 

1,036,743 

 

Currency translation

 

12,593 

 

7,676 

 

5,639 

 

45 

 

25,953 

 

Adjusted

 

455,618 

 

353,781 

 

252,131 

 

1,166 

 

1,062,696 

 

Customer accounts

 

 

 

 

 

 

Reported

 

753,769 

 

388,723 

 

295,880 

 

743 

 

1,439,115 

 

Currency translation

 

14,382 

 

8,459 

 

8,214 

 

37 

 

31,092 

 

Adjusted

 

768,151 

 

397,182 

 

304,094 

 

780 

 

1,470,207 

 

1  Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.

2  Includes fair value movements on non-qualifying hedges and debt valuation adjustments on derivatives.

3  Comprises costs associated with preparations for the UK's exit from the European Union.

4  A change in reportable segments was made in 2020. Comparative data have been re-presented accordingly. For further guidance, see Note 10: Segmental analysis on page 311.

Reconciliation of reported and adjusted items (continued)

 

 

20184

 

 

Wealth and Personal Banking

Commercial
Banking

Global
Banking and
Markets

Corporate
Centre

Total

 

Footnotes

$m

$m

$m

$m

$m

Revenue

1

 

 

 

 

 

Reported

 

24,232 

 

14,889 

 

15,754 

 

(1,095)

 

53,780 

 

Currency translation

 

(699)

 

(475)

 

(590)

 

(90)

 

(1,854)

 

Significant items

 

18 

 

(40)

 

(108)

 

302 

 

172 

 

-  customer redress programmes

 

 

(53)

 

 

 

(53)

 

-  disposals, acquisitions and investment in new businesses

 

 

 

 

111 

 

113 

 

-  fair value movements on financial instruments

2

16 

 

 

(112)

 

187 

 

100 

 

-  currency translation on significant items

 

 

 

 

 

12 

 

Adjusted

 

23,551 

 

14,374 

 

15,056 

 

(883)

 

52,098 

 

ECL

 

 

 

 

 

 

Reported

 

(1,163)

 

(737)

 

26 

 

107 

 

(1,767)

 

Currency translation

 

91 

 

54 

 

 

(6)

 

147 

 

Adjusted

 

(1,072)

 

(683)

 

34 

 

101 

 

(1,620)

 

Operating expenses

 

 

 

 

 

 

Reported

 

(15,522)

 

(6,563)

 

(9,512)

 

(3,062)

 

(34,659)

 

Currency translation

 

625 

 

255 

 

304 

 

96 

 

1,280 

 

Significant items

 

283 

 

 

(108)

 

1,480 

 

1,656 

 

-  costs of structural reform

3

 

 

41 

 

310 

 

361 

 

-  customer redress programmes

 

172 

 

(5)

 

(21)

 

 

146 

 

-  disposals, acquisitions and investment in new businesses

 

52 

 

 

 

 

52 

 

-  past service costs of guaranteed minimum pension benefits equalisation

 

 

 

 

228 

 

228 

 

-  restructuring and other related costs

 

 

 

 

59 

 

66 

 

-  settlements and provisions in connection with legal and regulatory matters

 

58 

 

 

(132)

 

890 

 

816 

 

-  currency translation on significant items

 

(8)

 

(2)

 

 

(7)

 

(13)

 

Adjusted

 

(14,614)

 

(6,307)

 

(9,316)

 

(1,486)

 

(31,723)

 

Share of profit in associates and joint ventures

 

 

 

 

 

 

Reported

 

33 

 

 

 

2,503 

 

2,536 

 

Currency translation

 

(1)

 

 

 

(91)

 

(92)

 

Adjusted

 

32 

 

 

 

2,412 

 

2,444 

 

Profit/(loss) before tax

 

 

 

 

 

 

Reported

 

7,580 

 

7,589 

 

6,268 

 

(1,547)

 

19,890 

 

Currency translation

 

16 

 

(166)

 

(278)

 

(91)

 

(519)

 

Significant items

 

301 

 

(39)

 

(216)

 

1,782 

 

1,828 

 

-  revenue

 

18 

 

(40)

 

(108)

 

302 

 

172 

 

-  operating expenses

 

283 

 

 

(108)

 

1,480 

 

1,656 

 

Adjusted

 

7,897 

 

7,384 

 

5,774 

 

144 

 

21,199 

 

Loans and advances to customers (net)

 

 

 

 

 

 

Reported

 

401,268 

 

333,400 

 

245,525 

 

1,503 

 

981,696 

 

Currency translation

 

17,963 

 

11,455 

 

7,794 

 

96 

 

37,308 

 

Adjusted

 

419,231 

 

344,855 

 

253,319 

 

1,599 

 

1,019,004 

 

Customer accounts

 

 

 

 

 

 

Reported

 

707,773 

 

359,957 

 

294,130 

 

783 

 

1,362,643 

 

Currency translation

 

22,129 

 

12,594 

 

12,308 

 

48 

 

47,079 

 

Adjusted

 

729,902 

 

372,551 

 

306,438 

 

831 

 

1,409,722 

 

1  Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.

2  Includes fair value movements on non-qualifying hedges and debt valuation adjustments on derivatives.

3  Comprises costs associated with preparations for the UK's exit from the European Union, costs to establish the UK ring-fenced bank (including the UK ServCo group) and costs associated with establishing an intermediate holding company in Hong Kong.

4  A change in reportable segments was made in 2020. Comparative data have been re-presented accordingly. For further guidance, see Note 10: Segmental analysis on page 311.

 

 

Reconciliation of reported and adjusted risk-weighted assets

 

 

 

At 31 Dec 2020

 

 

Wealth and Personal Banking

Commercial
Banking

Global
Banking and
Markets

Corporate Centre

Total

 

Footnotes

$bn

$bn

$bn

$bn

$bn

Risk-weighted assets

 

 

 

 

 

 

Reported

 

172.8 

 

327.7 

 

265.1 

 

91.9 

 

857.5 

 

Adjusted

1

172.8 

 

327.7 

 

265.1 

 

91.9 

 

857.5 

 

 

 

 

 

 

 

 

 

 

At 31 Dec 2019

Risk-weighted assets

 

 

 

 

 

 

Reported

 

162.6 

 

325.9 

 

273.4 

 

81.5 

 

843.4 

 

Currency translation

 

2.0 

 

6.6 

 

3.4 

 

0.5 

 

12.5 

 

Adjusted

1

164.6 

 

332.5 

 

276.8 

 

82.0 

 

855.9 

 

 

 

 

At 31 Dec 2018

Risk-weighted assets

 

 

 

 

 

 

Reported

 

161.8 

 

331.8 

 

297.9 

 

73.8 

 

865.3 

 

Currency translation

 

2.2 

 

10.3 

 

4.4 

 

0.6 

 

17.5 

 

Disposals

 

 

 

 

(0.8)

 

(0.8)

 

-  operations in Brazil

 

 

 

 

(0.8)

 

(0.8)

 

Adjusted

1

164.0 

 

342.1 

 

302.3 

 

73.6 

 

882.0 

 

1  Adjusted risk-weighted assets are calculated using reported risk-weighted assets adjusted for the effects of currency translation differences and significant items.

Supplementary tables for WPB and GBM

 

WPB adjusted performance by business unit

A breakdown of WPB by business unit is presented below to reflect the basis of how the revenue performance of the business units is assessed and managed.

WPB - summary (adjusted basis)

 

 

Total
WPB

Consists of1

 

 

Banking
operations

Insurance manufacturing

Global Private Banking

Asset
management

 

Footnotes

$m

$m

$m

$m

$m

2020

 

 

 

 

 

 

Net operating income before change in expected credit losses and other credit impairment charges

2

22,013 

 

17,346 

 

1,874 

 

1,745 

 

1,048 

 

-  net interest income

 

15,090 

 

12,181 

 

2,241 

 

670 

 

(2)

 

-  net fee income/(expense)

 

5,408 

 

4,094 

 

(518)

 

828 

 

1,004 

 

-  other income

 

1,515 

 

1,071 

 

151 

 

247 

 

46 

 

ECL

 

(2,855)

 

(2,707)

 

(80)

 

(67)

 

(1)

 

Net operating income

 

19,158 

 

14,639 

 

1,794 

 

1,678 

 

1,047 

 

Total operating expenses

 

(15,024)

 

(12,422)

 

(479)

 

(1,390)

 

(733)

 

Operating profit

 

4,134 

 

2,217 

 

1,315 

 

288 

 

314 

 

Share of profit in associates and joint ventures

 

 

 

 

 

 

Profit before tax

 

4,140 

 

2,222 

 

1,316 

 

288 

 

314 

 

 

 

 

 

 

 

 

2019

 

 

 

 

 

 

Net operating income before change in expected credit losses and other credit impairment charges

2

25,565 

 

20,024 

 

2,639 

 

1,878 

 

1,024 

 

-  net interest income

 

17,423 

 

14,371 

 

2,167 

 

891 

 

(6)

 

-  net fee income/(expense)

 

5,621 

 

4,582 

 

(717)

 

784 

 

972 

 

-  other income

 

2,521 

 

1,071 

 

1,189 

 

203 

 

58 

 

ECL

 

(1,348)

 

(1,247)

 

(80)

 

(21)

 

 

Net operating income

 

24,217 

 

18,777 

 

2,559 

 

1,857 

 

1,024 

 

Total operating expenses

 

(15,388)

 

(12,722)

 

(471)

 

(1,447)

 

(748)

 

Operating profit

 

8,829 

 

6,055 

 

2,088 

 

410 

 

276 

 

Share of profit in associates and joint ventures

 

54 

 

11 

 

43 

 

 

 

Profit before tax

 

8,883 

 

6,066 

 

2,131 

 

410 

 

276 

 

 

WPB - summary (adjusted basis) (continued)

 

 

Total
WPB

Consists of1

 

 

Banking
operations

Insurance manufacturing

Global Private Banking

Asset
management

 

Footnotes

$m

$m

$m

$m

$m

2018

 

 

 

 

 

 

Net operating income before change in expected credit losses and other credit impairment charges

2

23,551 

 

18,860 

 

1,868 

 

1,783 

 

1,040 

 

-  net interest income

 

16,418 

 

13,477 

 

2,060 

 

884 

 

(3)

 

-  net fee income/(expense)

 

5,774 

 

4,594 

 

(593)

 

743 

 

1,030 

 

-  other income

 

1,359 

 

789 

 

401 

 

156 

 

13 

 

ECL

 

(1,072)

 

(1,079)

 

(1)

 

 

 

Net operating income

 

22,479 

 

17,781 

 

1,867 

 

1,791 

 

1,040 

 

Total operating expenses

 

(14,614)

 

(12,023)

 

(437)

 

(1,449)

 

(705)

 

Operating profit

 

7,865 

 

5,758 

 

1,430 

 

342 

 

335 

 

Share of profit in associates and joint ventures

 

32 

 

 

31 

 

 

 

Profit before tax

 

7,897 

 

5,759 

 

1,461 

 

342 

 

335 

 

 

1  The results presented for insurance manufacturing operations are shown before elimination of inter-company transactions with HSBC non-insurance operations. These eliminations are presented within Banking operations.

2  Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue. WPB insurance manufacturing adjusted revenue of $1,874m (2019: $2,639m, 2018: $1,868m) was disclosed within the management view of adjusted revenue on page 31, as follows: Wealth Management $1,816m (2019: $2,464m, 2018: $1,621m) and Other $58m (2019: $175m, 2018: $247m).

WPB insurance manufacturing adjusted results

The following table shows the results of our insurance manufacturing operations by income statement line item. It shows

 

the results of insurance manufacturing operations for WPB and for all global business segments in aggregate, and separately the insurance distribution income earned by HSBC bank channels.

 

Adjusted results of insurance manufacturing operations and insurance distribution income earned by HSBC bank channels1, 2

 

 

2020

2019

2018

 

 

WPB

All global businesses

WPB

All global businesses

WPB

All global businesses

 

Footnotes

$m 

$m

$m

$m

$m

$m

Net interest income

 

2,241 

 

2,408 

 

2,167 

 

2,308 

 

2,060 

 

2,217 

 

Net fee income/(expense)

 

(518)

 

(556)

 

(717)

 

(742)

 

(593)

 

(567)

 

-  fee income

 

110 

 

131 

 

108 

 

130 

 

186 

 

277 

 

-  fee expense

 

(628)

 

(687)

 

(825)

 

(872)

 

(779)

 

(844)

 

Net income from/(expenses) financial instruments held for trading or managed on a fair value basis

 

76 

 

95 

 

(82)

 

(82)

 

84 

 

27 

 

Net income/(expense) from assets and liabilities of insurance businesses, including related derivatives, measured at fair value through profit or loss

 

2,182 

 

2,137 

 

3,582 

 

3,565 

 

(1,600)

 

(1,627)

 

Gains less losses from financial investments

 

13 

 

13 

 

 

 

54 

 

56 

 

Net insurance premium income

 

9,717 

 

10,212 

 

10,398 

 

10,763 

 

10,280 

 

10,824 

 

Other operating income

 

336 

 

351 

 

1,789 

 

1,805 

 

796 

 

783 

 

Of which: PVIF

 

370 

 

382 

 

1,718 

 

1,763 

 

678 

 

685 

 

Total operating income

 

14,047 

 

14,660 

 

17,142 

 

17,622 

 

11,081 

 

11,713 

 

Net insurance claims and benefits paid and movement in liabilities to policyholders

 

(12,173)

 

(12,683)

 

(14,503)

 

(14,902)

 

(9,213)

 

(9,693)

 

Net operating income before change in expected credit losses and other credit impairment charges

3

1,874 

 

1,977 

 

2,639 

 

2,720 

 

1,868 

 

2,020 

 

Change in expected credit losses and other credit impairment charges

 

(80)

 

(92)

 

(80)

 

(86)

 

(1)

 

(1)

 

Net operating income

 

1,794 

 

1,885 

 

2,559 

 

2,634 

 

1,867 

 

2,019 

 

Total operating expenses

 

(479)

 

(509)

 

(471)

 

(497)

 

(437)

 

(462)

 

Operating profit

 

1,315 

 

1,376 

 

2,088 

 

2,137 

 

1,430 

 

1,557 

 

Share of profit in associates and joint ventures

 

 

 

43 

 

43 

 

31 

 

31 

 

Profit before tax of insurance manufacturing operations

4

1,316 

 

1,377 

 

2,131 

 

2,180 

 

1,461 

 

1,588 

 

Annualised new business premiums of insurance manufacturing operations

 

2,257 

 

2,307 

 

3,324 

 

3,403 

 

3,179 

 

3,255 

 

Insurance distribution income earned by HSBC bank channels

 

737 

 

801 

 

945 

 

1,041 

 

949 

 

1,040 

 

1  Adjusted results are derived by adjusting for year-on-year effects of foreign currency translation differences, and the effect of significant items that distort year-on-year comparisons. There are no significant items included within insurance manufacturing, and the impact of foreign currency translation on all global businesses' profit before tax is 2019: $45m favourable (reported: $2,135m), 2018: $15m favourable (reported: $1,573m).

2  The results presented for insurance manufacturing operations are shown before elimination of inter-company transactions with HSBC non-insurance operations.

3  Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.

4  The effect on the insurance manufacturing operations of applying hyperinflation accounting in Argentina resulted in an increase in adjusted revenue in 2020 of $9m (2019: reduction of $1m, 2018: reduction of $8m) and an increase in profit before tax in 2020 of $12m (2019: increase of $1m, 2018: reduction of $3m). These effects are recorded within 'All global businesses'.

Insurance manufacturing

The following commentary, unless otherwise specified, relates to the 'All global businesses' results.

HSBC recognises the present value of long-term in-force insurance contracts and investment contracts with discretionary participation features ('PVIF') as an asset on the balance sheet. The overall balance sheet equity, including PVIF, is therefore a measure of the embedded value in the insurance manufacturing entities, and the movement in this embedded value in the period drives the overall income statement result.

Adjusted profit before tax of $1.4bn decreased by $0.8bn or 37% compared with 2019.

Net operating income before change in expected credit losses and other credit impairment changes was $0.7bn or 27% lower than in 2019. This reflected the following:

'Net income from assets and liabilities of insurance businesses, including related derivatives, measured at fair value through profit or loss' of $2.1bn in 2020 compared with $3.6bn in 2019. This decrease primarily reflected less favourable equity market performance, compared with 2019 in France and Hong Kong, due to the impact of the Covid-19 outbreak on the equity and unit trust assets supporting insurance and investment contracts. While there was strong investment performance within the portfolio in light of volatile markets during the year, the overall fair value gains were lower compared with 2019.

This adverse movement resulted in a corresponding movement in liabilities to policyholders and PVIF (see 'Other operating income' below). This reflected the extent to which policyholders and shareholders respectively participate in the investment performance of the associated assets.

Net insurance premium income of $10.2bn was $0.6bn lower than in 2019, primarily reflecting lower new business volumes due to the Covid-19 outbreak, particularly in France and Hong Kong, partly offset by lower reinsurance premiums ceded in Hong Kong.

Other operating income of $0.4bn decreased by $1.5bn compared with 2019, mainly from adverse movements in PVIF. This included a reduction of $0.8bn due to assumption changes and experience variances, mainly in Hong Kong and France due to the effect of interest rate changes. In addition, the value of new business written fell by $0.4bn, primarily in Hong Kong, as sales volumes decreased.

Net insurance claims and benefits paid and movement in liabilities to policyholders was $2.2bn lower, primarily due to lower returns on financial assets supporting contracts where the policyholder is subject to part or all of the investment risk. New business volumes were lower, particularly in Hong Kong and France, partly offset by lower reinsurance arrangements in Hong Kong.

Change in expected credit losses and other credit impairment charges ('ECL') of $92m was $6m higher compared with 2019, mainly from charges relating to the global impact of the Covid-19 outbreak on the forward economic outlook, partly offset by the ECL release on Argentina sovereign exposure due to the debt restructure in 2020.

Adjusted operating expenses of $0.5bn increased by 2% compared with 2019, reflecting investments in core insurance functions and capabilities during the period.

Annualised new business premiums ('ANP') is used to assess new insurance premium generation by the business. It is calculated as 100% of annualised first year regular premiums and 10% of single premiums, before reinsurance ceded. Lower ANP during the period reflected a reduction in new business volumes, mainly in Hong Kong and France.

Insurance distribution income from HSBC channels included $470m (2019: $658m; 2018: $644m) on HSBC manufactured products, for which a corresponding fee expense is recognised within insurance manufacturing, and $331m (2019: $382m; 2018: $397m) on products manufactured by third-party providers. The WPB component of this distribution income was $423m (2019: $583m; 2018: $575m) from HSBC manufactured products and $314m (2019: $362m; 2018: $374m) from third-party products.

 

WPB: Client assets and funds under management

The following table shows the client assets and funds under management, including self-directed client investments and execution-only trades, across our WPB global business. Funds under management represents assets managed, either actively or passively, on behalf of our customers.  

WPB - reported client assets and funds under management1

 

2020

2019

 

$bn

$bn

Global Private Banking client assets

394 

 

361 

 

-  managed by Global Asset Management

66 

 

61 

 

-  external managers, direct securities and other

328 

 

300 

 

Retail wealth balances

407 

 

380 

 

-  managed by Global Asset Management

219 

 

199 

 

-  external managers, direct securities and other

188 

 

181 

 

Asset Management third-party distribution

317 

 

247 

 

Closing balance

1,118 

 

988 

 

1  Client assets and funds distributed and under management are not reported on the Group's balance sheet, except where it is deemed that we are acting as principal rather than agent in our role as investment manager. Customer deposits included in client assets are on balance sheet.

WPB wealth balances

The following table shows the consolidated areas of focus across all WPB wealth balances.

WPB wealth balances

 

2020

2019

 

$bn

$bn

Client assets and funds under management

1,118 

 

988 

 

Premier and Jade deposits1

470 

 

433 

 

Total

1,588 

 

1,421 

 

1  Premier and Jade deposits, which include Prestige deposits in Hang Seng Bank, form part of the total WPB customer accounts balance of $835bn on page 85 (31 December 2019: $754bn).

Asset Management: Funds under management

The following table shows the funds under management of our Asset Management business. Funds under management represents assets managed, either actively or passively, on behalf of our customers. Funds under management are not reported on the Group's balance sheet, except where it is deemed that we are acting as principal rather than agent in our role as investment manager.  

Asset Management - reported funds under management

 

2020

2019

2018

 

$bn

$bn

$bn

Opening balance

506 

 

444 

 

462 

 

Net new money

53 

 

30 

 

 

Value change

17 

 

30 

 

(14)

 

Exchange and other

26 

 

 

(12)

 

Closing balance

602 

 

506 

 

444 

 

 

 

 

 

 

 

 

 

Asset Management - reported funds under management by geography

 

2020

2019

2018

 

$bn

$bn

$bn

Europe

346 

 

287 

 

235 

 

Asia

176 

 

161 

 

164 

 

MENA

 

 

 

North America

65 

 

44 

 

36 

 

Latin America

 

 

 

Closing balance

602 

 

506 

 

444 

 

At 31 December 2020, Asset Management funds under management amounted to $602bn, an increase of $96bn or 19%. The increase reflected strong net new money, primarily from money market funds and passive investment products. In addition, the growth reflected positive market performance and favourable foreign exchange translation.  

Global Private Banking: client assets

The following table shows the client assets of our Global Private Banking business which are translated at the rates of exchange applicable for their respective year-ends, with the effects of currency translation reported separately .

 

Global Private Banking - reported client assets1

 

2020

2019

2018

 

$bn

$bn

$bn

At 1 Jan

361 

 

309 

 

330 

 

Net new money

 

23 

 

10 

 

Value change

 

23 

 

(17)

 

Disposals

 

 

 

Exchange and other

21 

 

 

(14)

 

At 31 Dec

394 

 

361 

 

309 

 

 

Global Private Banking - reported client assets by geography1

 

2020

2019

2018

 

$bn

$bn

$bn

Europe

174 

 

171 

 

149 

 

Asia

176 

 

151 

 

124 

 

North America

44 

 

39 

 

36 

 

At 31 Dec

394 

 

361 

 

309 

 

1  Client assets are not reported on the Group's balance sheet, except where it is deemed that we are acting as principal rather than agent in our role as investment manager. Customer deposits included in these client assets are on balance sheet.

 

 

GBM: Securities Services and Issuer Services

Assets held in custody

Custody is the safekeeping and servicing of securities and other financial assets on behalf of clients. Assets held in custody are not reported on the Group's balance sheet, except where it is deemed that we are acting as principal rather than agent in our role as investment manager . At 31 December 2020, we held $10.0tn of assets as custodian, 17% higher than at 31 December 2019. This increase was driven by favourable market movements and the effect of currency translation differences globally. In addition, there were increases from new client asset inflows, notably in Asia.

 

Assets under administration

Our assets under administration business, which includes the provision of bond and loan administration services, transfer agency services and the valuation of portfolios of securities and other financial assets on behalf of clients, complements the custody business. At 31 December 2020, the value of assets held under administration by the Group amounted to $4.5tn, which was 13% higher than at 31 December 2019. This increase was mainly driven by the favourable effect of currency translation differences in Europe and favourable market movements globally. It also included increases from the onboarding of new client assets, notably in Europe.

Analysis of reported results by geographical regions

 

HSBC reported profit/(loss) before tax and balance sheet data

 

 

2020

 

 

Europe

Asia

MENA

North America

Latin America

Intra-HSBC

Total

 

Footnotes

$m

$m

$m

$m

$m

$m

$m

Net interest income

 

5,695 

 

14,318 

 

1,465 

 

2,836 

 

1,960 

 

1,304 

 

27,578 

 

Net fee income

 

3,499 

 

5,418 

 

695 

 

1,795 

 

467 

 

 

11,874 

 

Net income from financial instruments held for trading or managed on a fair value basis

 

3,266 

 

4,273 

 

402 

 

997 

 

593 

 

51 

 

9,582 

 

Net income from assets and liabilities of insurance businesses, including related derivatives, measured at fair value through profit and loss

 

327 

 

1,699 

 

 

 

55 

 

 

2,081 

 

Changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss

 

1,747 

 

17 

 

 

 

40 

 

(1,354)

 

455 

 

Other income/(expense)

1

3,885 

 

1,197 

 

63 

 

745 

 

(95)

 

(6,936)

 

(1,141)

 

Net operating income before change in
expected credit losses and other credit
impairment charges

2

18,419 

 

26,922 

 

2,628 

 

6,375 

 

3,020 

 

(6,935)

 

50,429 

 

Change in expected credit losses and other credit
impairment charges

 

(3,751)

 

(2,284)

 

(758)

 

(900)

 

(1,124)

 

 

(8,817)

 

Net operating income

 

14,668 

 

24,638 

 

1,870 

 

5,475 

 

1,896 

 

(6,935)

 

41,612 

 

Total operating expenses excluding impairment of goodwill and other intangible assets

 

(17,860)

 

(13,584)

 

(1,521)

 

(5,081)

 

(1,933)

 

6,935 

 

(33,044)

 

Impairment of goodwill and other intangible assets

 

(1,014)

 

(78)

 

(65)

 

(226)

 

(5)

 

 

(1,388)

 

Operating profit/(loss)

 

(4,206)

 

10,976 

 

284 

 

168 

 

(42)

 

 

7,180 

 

Share of profit/(loss) in associates and joint ventures

 

 

1,856 

 

(265)

 

 

 

 

1,597 

 

Profit/(loss) before tax

 

(4,205)

 

12,832 

 

19 

 

168 

 

(37)

 

 

8,777 

 

 

 

 

Share of HSBC's profit before tax

 

(47.9)

146.2

0.2

1.9

(0.4)

 

100.0

Cost efficiency ratio

 

102.5

50.7

60.4

83.2

64.2

 

68.3

Balance sheet data

 

$m

$m

$m

$m

$m

$m

$m

Loans and advances to customers (net)

 

408,495 

 

473,165 

 

28,700 

 

107,969 

 

19,658 

 

 

1,037,987 

 

Total assets

 

1,416,111 

 

1,206,404 

 

68,860 

 

373,167 

 

49,703 

 

(130,081)

 

2,984,164 

 

Customer accounts

 

629,647 

 

762,406 

 

41,221 

 

182,028 

 

27,478 

 

 

1,642,780 

 

Risk-weighted assets

3

284,322 

 

384,228 

 

60,181 

 

117,755 

 

35,240 

 

 

857,520 

 

 

 

 

2019

Net interest income

 

5,601 

 

16,607 

 

1,781 

 

3,241 

 

2,061 

 

1,171 

 

30,462 

 

Net fee income

 

3,668 

 

5,325 

 

685 

 

1,804 

 

540 

 

 

12,023 

 

Net income from financial instruments held for trading or managed on a fair value basis

 

3,785 

 

4,735 

 

327 

 

873 

 

883 

 

(372)

 

10,231 

 

Net income from assets and liabilities of insurance businesses, including related derivatives, measured at fair value through profit and loss

 

1,656 

 

1,803 

 

 

 

14 

 

 

3,478 

 

Changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss

 

1,516 

 

28 

 

 

31 

 

41 

 

(805)

 

812 

 

Other income/(expense)

1

1,830 

 

1,921 

 

916 

 

638 

 

(23)

 

(6,190)

 

(908)

 

Net operating income before change in
expected credit losses and other credit
impairment charges

2

18,056 

 

30,419 

 

3,710 

 

6,587 

 

3,516 

 

(6,190)

 

56,098 

 

Change in expected credit losses and other credit
impairment charges

 

(938)

 

(724)

 

(117)

 

(237)

 

(740)

 

 

(2,756)

 

Net operating income

 

17,118 

 

29,695 

 

3,593 

 

6,350 

 

2,776 

 

(6,190)

 

53,342 

 

Total operating expenses excluding impairment of goodwill and other intangible assets

 

(19,209)

 

(13,284)

 

(1,452)

 

(5,150)

 

(2,050)

 

6,190 

 

(34,955)

 

Impairment of goodwill and other intangible assets

 

(2,550)

 

(13)

 

(97)

 

(433)

 

(339)

 

(3,962)

 

(7,394)

 

Operating profit/(loss)

 

(4,641)

 

16,398 

 

2,044 

 

767 

 

387 

 

(3,962)

 

10,993 

 

Share of profit/(loss) in associates and joint ventures

 

(12)

 

2,070 

 

283 

 

 

13 

 

 

2,354 

 

Profit/(loss) before tax

 

(4,653)

 

18,468 

 

2,327 

 

767 

 

400 

 

(3,962)

 

13,347 

 

 

 

%

%

%

%

%

 

%

Share of HSBC's profit before tax

 

(34.9)

138.4

17.4

5.7

3.0

(29.6)

100.0

Cost efficiency ratio

 

120.5

43.7

41.8

84.8

67.9

 

75.5

Balance sheet data

 

$m

$m

$m

$m

$m

$m

$m

Loans and advances to customers (net)

 

393,850 

 

477,727 

 

28,556 

 

113,474 

 

23,136 

 

 

1,036,743 

 

Total assets

 

1,248,205 

 

1,102,805 

 

65,369 

 

377,095 

 

52,879 

 

(131,201)

 

2,715,152 

 

Customer accounts

 

528,718 

 

697,358 

 

38,126 

 

146,676 

 

28,237 

 

 

1,439,115 

 

Risk-weighted assets

3

280,983 

 

366,375 

 

57,492 

 

121,953 

 

38,460 

 

 

843,395 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HSBC reported profit/(loss) before tax and balance sheet data (continued)

 

 

2018

 

 

Europe

Asia

MENA

North America

Latin
America

Intra-HSBC items

Total

 

Footnotes

$m

$m

$m

$m

$m

$m

$m

Net interest income

 

6,841 

 

16,108 

 

1,763 

 

3,521 

 

2,020 

 

236 

 

30,489 

 

Net fee income

 

3,996 

 

5,676 

 

607 

 

1,854 

 

498 

 

(11)

 

12,620 

 

Net income from financial instruments held for trading or managed on a fair value basis

 

3,942 

 

4,134 

 

285 

 

728 

 

736 

 

(294)

 

9,531 

 

Net income/(expense) from assets and liabilities of insurance businesses, including related derivatives, measured at fair value through profit and loss

 

(789)

 

(717)

 

 

 

18 

 

 

(1,488)

 

Changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss

 

601 

 

(26)

 

(1)

 

36 

 

27 

 

58 

 

695 

 

Other income/(expense)

1

3,113 

 

3,609 

 

33 

 

586 

 

(237)

 

(5,171)

 

1,933 

 

Net operating income before loan impairment (charges)/recoveries and other credit risk provisions

2

17,704 

 

28,784 

 

2,687 

 

6,725 

 

3,062 

 

(5,182)

 

53,780 

 

Change in expected credit losses and other credit
impairment (charges)/recoveries

 

(609)

 

(602)

 

(209)

 

223 

 

(570)

 

 

(1,767)

 

Net operating income

 

17,095 

 

28,182 

 

2,478 

 

6,948 

 

2,492 

 

(5,182)

 

52,013 

 

Total operating expenses excluding impairment of goodwill and other intangible assets

 

(17,912)

 

(12,449)

 

(1,357)

 

(6,151)

 

(1,935)

 

5,182 

 

(34,622)

 

Impairment of goodwill and other intangible assets

 

(22)

 

(17)

 

 

 

 

 

(37)

 

Operating profit/(loss)

 

(839)

 

15,716 

 

1,121 

 

799 

 

557 

 

 

17,354 

 

Share of profit  in associates and joint ventures

 

24 

 

2,074 

 

436 

 

 

 

 

2,536 

 

Profit/(loss) before tax

 

(815)

 

17,790 

 

1,557 

 

799 

 

559 

 

 

19,890 

 

 

 

%

%

%

%

%

 

%

Share of HSBC's profit before tax

 

(4.1)

 

89.5 

 

7.8 

 

4.0 

 

2.8 

 

 

100.0 

 

Cost efficiency ratio

 

101.3 

 

43.3 

 

50.5 

 

91.4 

 

63.2 

 

 

64.4 

 

Balance sheet data

 

$m

$m

$m

$m

$m

$m

$m

Loans and advances to customers (net)

 

373,073 

 

450,545 

 

28,824 

 

108,146 

 

21,108 

 

 

981,696 

 

Total assets

 

1,150,235 

 

1,047,636 

 

57,455 

 

390,410 

 

51,923 

 

(139,535)

 

2,558,124 

 

Customer accounts

 

503,154 

 

664,824 

 

35,408 

 

133,291 

 

25,966 

 

 

1,362,643 

 

Risk-weighted assets

3

298,056 

 

363,894 

 

56,689 

 

131,582 

 

38,341 

 

 

865,318 

 

1  'Other income/(expense)' in this context comprises where applicable net income/expense from other financial instruments designated at fair value, gains less losses from financial investments, dividend income, net insurance premium income and other operating income less net insurance claims and benefits paid and movement in liabilities to policyholders.

2  Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.

3  Risk-weighted assets are non-additive across geographical regions due to market risk diversification effects within the Group.