REG - HSBC Holdings PLC - Half Year Report - 2023 Interim Report - Part 4
01/08/2023 16:30
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RNS Number : 9039H HSBC Holdings PLC 01 August 2023
Directors' responsibility statement
The Directors(1) are required to prepare the condensed consolidated financial
statements on a going concern basis unless it is not appropriate. They are
satisfied that the Group has the resources to continue in business for the
foreseeable future and that the financial statements continue to be prepared
on a going concern basis.
The Directors confirm that to the best of their knowledge:
- the financial statements have been prepared in accordance with IAS 34
'Interim Financial Reporting' as adopted by the UK, IAS 34 'Interim Financial
Reporting' as issued by the International Accounting Standards Board ('IASB')
and IAS 34 'Interim Financial Reporting' as adopted by the European Union, and
the Disclosure Guidance and Transparency Rules ('DTR') sourcebook of the UK's
Financial Conduct Authority;
- this Interim Report 2023 gives a true, fair, balanced and understandable
view of the assets, liabilities, financial position and profit or loss of the
Company; and
- this Interim Report 2023 includes a fair review of the information
required by:
- DTR 4.2.7R, being an indication of: important events that have
occurred during the first six months of the financial year ending
31 December 2023 and their impact on the condensed set of financial
statements; and a description of the principal risks and uncertainties for the
remaining six months of the financial year; and
- DTR 4.2.8R, being: related party transactions that have taken place in
the first six months of the financial year ending 31 December 2023, which
have materially affected the financial position or performance of HSBC during
that period; and any changes in the related parties transactions described in
the Annual Report and Accounts 2022 that could materially affect the financial
position or performance of HSBC during the first six months of the financial
year ending 31 December 2023.
On behalf of the Board
Mark E Tucker
Group Chairman
1 August 2023
1 Mark Tucker*, Geraldine Buckingham†, Rachel Duan†, Georges Elhedery,
Carolyn Julie Fairbairn†, James Anthony Forese†, Steven Guggenheimer†,
José Antonio Meade Kuribreña†, Kalpana Morparia†, Eileen K Murray†,
David Nish† and Noel Quinn.
* Non-executive Group Chairman † Independent non-executive Director
Independent review report to HSBC Holdings plc
Report on the interim condensed financial statements
Our conclusion
We have reviewed HSBC Holdings plc's interim condensed financial statements
(the 'interim financial statements') in the interim report of HSBC Holdings
plc and its subsidiaries (the 'Group') for the six month period ended 30 June
2023 (the 'period').
Based on our review, nothing has come to our attention that causes us to
believe that the interim financial statements are not prepared, in all
material respects, in accordance with UK-adopted International Accounting
Standard 34, 'Interim Financial Reporting', International Accounting Standard
34, 'Interim Financial Reporting' as issued by the IASB, International
Accounting Standard 34, 'Interim Financial Reporting' as adopted by the
European Union, and the Disclosure Guidance and Transparency Rules sourcebook
of the United Kingdom's Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
- the consolidated balance sheet as at 30 June 2023;
- the consolidated income statement and the statement of comprehensive
income for the period then ended;
- the consolidated statement of cash flows for the period then ended;
- the consolidated statement of changes in equity for the period then
ended; and
- the notes to the interim financial statements and certain other
information(1).
The interim financial statements included in the interim report of the Group
have been prepared in accordance with UK adopted International Accounting
Standard 34, 'Interim Financial Reporting' , International Accounting Standard
34, 'Interim Financial Reporting' as issued by the IASB, International
Accounting Standard 34, 'Interim Financial Reporting' as adopted by the
European Union and the Disclosure Guidance and Transparency Rules sourcebook
of the United Kingdom's Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, 'Review of Interim Financial Information Performed by
the Independent Auditor of the Entity' issued by the Financial Reporting
Council for use in the United Kingdom ('ISRE (UK) 2410'). A review of interim
financial information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and, consequently, does not
enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express
an audit opinion.
We have read the other information contained in the interim report and
considered whether it contains any apparent misstatements or material
inconsistencies with the information in the interim financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on the review
procedures performed in accordance with ISRE (UK) 2410. However, future events
or conditions may cause the Group to cease to continue as a going concern.
Responsibilities for the interim condensed financial statements and the review
Our responsibilities and those of the directors
The interim report of the Group, including the interim financial statements,
is the responsibility of, and has been approved by the directors. The
directors are responsible for preparing the interim report of the Group in
accordance with the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority. In preparing the interim
report of the Group, including the interim financial statements, the directors
are responsible for assessing the Group's ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the directors either intend to
liquidate the Group or to cease operations, or have no realistic alternative
but to do so.
Our responsibility is to express a conclusion on the interim financial
statements in the interim report based on our review. Our conclusion,
including our Conclusions relating to going concern, is based on procedures
that are less extensive than audit procedures, as described in the Basis for
conclusion paragraph of this report. This report, including the conclusion,
has been prepared for and only for the company for the purpose of complying
with the Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We do not, in
giving this conclusion, accept or assume responsibility for any other purpose
or to any other person to whom this report is shown or into whose hands it may
come save where expressly agreed by our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
London
1 August 2023
1 'Certain other information' comprises the following tables:
'Reconciliation of changes in gross carrying/nominal amount and allowances for
loans and advances to banks and customers including loan commitments and
financial guarantees' and 'Distribution of financial instruments to which the
impairment requirements of IFRS 9 are applied, by credit quality and stage
allocation'.
Interim condensed financial statements
Contents
108 Consolidated income statement
109 Consolidated statement of comprehensive income
110 Consolidated balance sheet
111 Consolidated statement of changes in equity
114 Consolidated statement of cash flows
Consolidated income statement
Half-year to(1)
30 Jun 30 Jun
2023 2022
Notes* $m $m
Net interest income 18,264 13,385
- interest income 46,955 19,788
- interest expense (28,691) (6,403)
Net fee income 2 6,085 6,228
- fee income 7,947 7,913
- fee expense (1,862) (1,685)
Net income from financial instruments held for trading or managed on a fair 8,112 4,856
value basis
Net income/(expense) from assets and liabilities of insurance businesses, 4,304 (11,849)
including related derivatives, measured at fair value through profit or loss
Insurance finance income/(expense) (4,234) 11,773
Insurance service result 524 370
- insurance revenue 1,104 980
- insurance service expense (580) (610)
Gain on acquisitions(2) 15 1,507 -
Reversal of impairment loss relating to the planned sale of our retail banking 15 2,130 -
operations in France(3)
Other operating income 184 (218)
Net operating income before change in expected credit losses and other credit 36,876 24,545
impairment charges(4)
Change in expected credit losses and other credit impairment charges (1,345) (1,087)
Net operating income 35,531 23,458
Employee compensation and benefits (8,954) (8,896)
General and administrative expenses (4,912) (5,337)
Depreciation and impairment of property, plant and equipment and right-of-use (782) (1,072)
assets
Amortisation and impairment of intangible assets (809) (822)
Total operating expenses (15,457) (16,127)
Operating profit 20,074 7,331
Share of profit in associates and joint ventures 1,583 1,449
Profit before tax 21,657 8,780
Tax (charge)/credit (3,586) 151
Profit for the period 18,071 8,931
Attributable to:
- ordinary shareholders of the parent company 16,966 7,966
- other equity holders 542 626
- non-controlling interests 563 339
Profit for the period 18,071 8,931
$ $
Basic earnings per ordinary share 4 0.86 0.40
Diluted earnings per ordinary share 4 0.86 0.40
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts', which
replaced IFRS 4 'Insurance Contracts'. Comparative data have been restated
accordingly.
2 Provisional gain of $1.5bn recognised in respect of the acquisition
of SVB UK.
3 Reversal of the $2.1bn impairment loss relating to the planned sale
of our retail banking operations in France, which is no longer classified as
held for sale.
4 Net operating income before change in expected credit losses and other
credit impairment charges, also referred to as revenue.
* For Notes on the interim condensed financial statements, see page
115.
Consolidated statement of comprehensive income
Half-year to(1)
30 Jun 30 Jun
2023 2022
$m $m
Profit for the period 18,071 8,931
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 549 (6,246)
- fair value gains/(losses) 804 (8,120)
- fair value gains transferred to the income statement on disposal (63) (52)
- expected credit (recoveries)/losses recognised in the income statement (3) 17
- income taxes (189) 1,909
Cash flow hedges (1,062) (2,063)
- fair value losses (1,700) (1,646)
- fair value (gains)/losses reclassified to the income statement 227 (1,127)
- income taxes and other movements 411 710
Share of other comprehensive income/(expense) of associates and joint ventures 101 (142)
- share for the period 101 (142)
Net finance income/(expense) from insurance contracts(2) (101) 1,360
- before income taxes (136) 1,833
- income taxes 35 (473)
Exchange differences (347) (8,382)
Items that will not be reclassified subsequently to profit or loss:
Fair value gains on property revaluation 1 -
Remeasurement of defined benefit asset/(liability) (112) 95
- before income taxes (105) (132)
- income taxes (7) 227
Changes in fair value of financial liabilities designated at fair value upon (653) 2,263
initial recognition arising from changes in own credit risk
- before income taxes (867) 3,030
- income taxes 214 (767)
Equity instruments designated at fair value through other comprehensive income 7 158
- fair value gains 7 158
Effects of hyperinflation 578 428
Other comprehensive expense for the period, net of tax (1,039) (12,529)
Total comprehensive income/(expense) for the period 17,032 (3,598)
Attributable to:
- ordinary shareholders of the parent company 15,986 (4,405)
- other equity holders 542 626
- non-controlling interests 504 181
Total comprehensive income/(expense) for the period 17,032 (3,598)
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts', which
replaced IFRS 4 'Insurance Contracts'. Comparative data have been restated
accordingly.
2 Net finance income/(expense) from insurance contracts in other
comprehensive income is the amount that offsets the effective interest rate
and expected credit losses on supporting assets that have been designated at
fair value through other comprehensive income. In the first half of 2023,
movements in net finance income/(expense) from insurance contracts of $(101)m
(1H22: $1,360m) was booked, and offsetting fair value through other
comprehensive income ('OCI') movements on supporting assets of $108m was
recorded (1H22: ($1,439m)).
Consolidated balance sheet
At(1)
30 Jun 31 Dec
2023 2022
Notes* $m $m
Assets
Cash and balances at central banks 307,733 327,002
Items in the course of collection from other banks 10,649 7,297
Hong Kong Government certificates of indebtedness 42,407 43,787
Trading assets 255,387 218,093
Financial assets designated and otherwise mandatorily measured at fair value 104,303 100,101
through profit or loss
Derivatives 8 272,595 284,159
Loans and advances to banks 100,921 104,475
Loans and advances to customers 959,558 923,561
Reverse repurchase agreements - non-trading 258,056 253,754
Financial investments 9 407,933 364,726
Assets held for sale 95,480 115,919
Prepayments, accrued income and other assets 175,473 156,149
Current tax assets 1,262 1,230
Interests in associates and joint ventures 10 29,546 29,254
Goodwill and intangible assets 11,925 11,419
Deferred tax assets 8,248 8,360
Total assets 3,041,476 2,949,286
Liabilities and equity
Liabilities
Hong Kong currency notes in circulation 42,407 43,787
Deposits by banks 68,709 66,722
Customer accounts 1,595,769 1,570,303
Repurchase agreements - non-trading 170,110 127,747
Items in the course of transmission to other banks 10,776 7,864
Trading liabilities 81,228 72,353
Financial liabilities designated at fair value 139,618 127,321
Derivatives 8 269,560 285,762
Debt securities in issue 85,471 78,149
Liabilities of disposal groups held for sale 87,241 114,597
Accruals, deferred income and other liabilities 155,275 134,313
Current tax liabilities 1,921 1,135
Insurance contract liabilities 115,756 108,816
Provisions 11 1,722 1,958
Deferred tax liabilities 976 972
Subordinated liabilities 23,286 22,290
Total liabilities 2,849,825 2,764,089
Equity
Called up share capital 10,073 10,147
Share premium account 14,737 14,664
Other equity instruments 19,392 19,746
Other reserves (9,935) (9,133)
Retained earnings 149,903 142,409
Total shareholders' equity 184,170 177,833
Non-controlling interests 7,481 7,364
Total equity 191,651 185,197
Total liabilities and equity 3,041,476 2,949,286
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts', which
replaced IFRS 4 'Insurance Contracts'. Comparative data have been restated
accordingly.
* For Notes on the interim condensed financial statements, see page
115.
Consolidated statement of changes in equity
Other reserves
Called up share Other Retained Cash Foreign Merger and other Insura-nce Total share-holders' equity Non- Total equity
flow
exchange
controlling
capital equity earnings Financial assets at FVOCI reserve
hedging
reserve reserves finance
interests
reserve
and share premium instru-ments reserve(1)
$m $m $m $m $m $m $m $m $m $m $m
At 1 Jan 2023 24,811 19,746 142,409 (7,038) (3,808) (32,575) 33,209 1,079 177,833 7,364 185,197
Profit for the period - - 17,508 - - - - - 17,508 563 18,071
Other comprehensive income (net of tax) - - (92) 560 (1,077) (271) 1 (101) (980) (59) (1,039)
- debt instruments at fair value through other comprehensive income - - - 546 - - - - 546 3 549
- equity instruments designated at fair value through other comprehensive - - - 14 - - - - 14 (7) 7
income
- cash flow hedges - - - - (1,077) - - - (1,077) 15 (1,062)
- changes in fair value of financial liabilities designated at fair value - - (654) - - - - - (654) 1 (653)
upon initial recognition arising from changes in own credit risk
- property revaluation - - - - - - 1 - 1 - 1
- remeasurement of defined benefit asset/liability - - (117) - - - - - (117) 5 (112)
- share of other comprehensive income of associates and joint ventures - - 101 - - - - - 101 - 101
- effects of hyperinflation - - 578 - - - - - 578 - 578
- insurance finance income/ - - - - - - - (101) (101) - (101)
(expense) recognised in other comprehensive income
- exchange differences - - - - - (271) - - (271) (76) (347)
Total comprehensive income for the period - - 17,416 560 (1,077) (271) 1 (101) 16,528 504 17,032
Shares issued under employee remuneration and share plans 78 - (78) - - - - - - - -
Capital securities issued(2) - 1,996 - - - - - - 1,996 - 1,996
Dividends to shareholders - - (7,133) - - - - - (7,133) (375) (7,508)
Redemption of securities(3) - (2,350) - - - - - - (2,350) - (2,350)
Cost of share-based payment arrangements - - 228 - - - - - 228 - 228
Share buy-back(4) - - (2,007) - - - - - (2,007) - (2,007)
Cancellation of shares (79) - - - - - 79 - - - -
Other movements(5) - - (932) 6 - - 1 - (925) (12) (937)
At 30 Jun 2023 24,810 19,392 149,903 (6,472) (4,885) (32,846) 33,290 978 184,170 7,481 191,651
Consolidated statement of changes in equity (continued)
Other reserves
Called up Other Retained Financial assets at FVOCI reserve Cash Foreign exchange reserve Merger and other reserves Insurance Total Non- Total
share capital
equity
earnings
flow
share-
controlling
equity
and share premium
instru-
hedging finance
holders'
interests
ments
reserve
equity
reserve(1)
$m $m $m $m $m $m $m $m $m $m $m
At 31 Dec 2021 (IFRS 4) 24,918 22,414 144,458 (634) (197) (22,769) 30,060 - 198,250 8,527 206,777
Impact on transition to IFRS 17(6) - - (9,222) 683 - - - (696) (9,235) (1,224) (10,459)
At 1 Jan 2022 24,918 22,414 135,236 49 (197) (22,769) 30,060 (696) 189,015 7,303 196,318
Profit for the period - - 8,592 - - - - - 8,592 339 8,931
Other comprehensive income (net of tax) - - 2,647 (6,062) (2,035) (8,282) - 1,360 (12,372) (157) (12,529)
- debt instruments at fair value through other comprehensive income - - - (6,183) - - - - (6,183) (63) (6,246)
- equity instruments designated at fair value through other - - - 121 - - - - 121 37 158
comprehensive
income
- cash flow hedges - - - - (2,035) - - - (2,035) (28) (2,063)
- changes in fair value of financial liabilities designated at fair - - 2,263 - - - - - 2,263 - 2,263
value
upon initial recognition arising from changes in own credit risk
- remeasurement of defined benefit asset/liability - - 98 - - - - - 98 95
(3)
- share of other comprehensive income of associates and joint - - (142) - - - - - (142) - (142)
ventures
- effects of hyperinflation - - 428 - - - - - 428 - 428
- insurance finance income/ (expense) recognised in other - - - - - - - 1,360 1,360 - 1,360
comprehensive
income
- exchange differences - - - - - (8,282) - - (8,282) (100) (8,382)
Total comprehensive income for the period - - 11,240 (6,062) (2,035) (8,282) - 1,360 (3,779) 181 (3,598)
Shares issued under employee remuneration and share plans 65 - (65) - - - - - - - -
Dividends to shareholders - - (4,202) - - - - - (4,202) (295) (4,497)
Redemption of securities(3) - (723) - - - - - - (723) - (723)
Cost of share-based payment arrangements - - 177 - - - - - 177 - 177
Share buy-back(4) - - (1,000) - - - - - (1,000) - (1,000)
Cancellation of shares (133) - - - - - 133 - - - -
Other movements - - (525) 2 - - 11 - (512) (60) (572)
At 30 Jun 2022 24,850 21,691 140,860 (6,011) (2,232) (31,051) 30,204 664 178,975 7,130 186,105
Consolidated statement of changes in equity (continued)
Other reserves
Called up Other Retained Financial assets at FVOCI reserve Cash Foreign exchange reserve Merger and other reserves Insura-nce Total Non- Total
share capital
equity
flow
share-
controlling
and share premium
instru- earnings
hedging finance
holders'
interests equity
ments
reserve
equity
reserve(1)
$m $m $m $m $m $m $m $m $m $m $m
At 1 Jul 2022 24,850 21,691 140,860 (6,011) (2,232) (31,051) 30,204 664 178,975 7,130 186,105
Profit for the period - - 6,967 - - - - - 6,967 351 7,318
Other comprehensive income (net of tax) - - (1,244) (1,027) (1,578) (1,524) 174 415 (4,784) 71 (4,713)
- debt instruments at fair value through other comprehensive income - - - (998) - - - - (998) 12 (986)
- equity instruments designated at fair value through other comprehensive - - - (29) - - - - (29) (22) (51)
income
- cash flow hedges - - - - (1,578) - - - (1,578) (14) (1,592)
- changes in fair value of financial liabilities designated at fair value - - (341) - - - - - (341) - (341)
upon initial recognition arising from changes in own credit risk
- property revaluation - - - - - - 174 - 174 106 280
- remeasurement of defined benefit asset/liability - - (1,127) - - - - - (1,127) 1 (1,126)
- share of other comprehensive income of associates and joint ventures - - (225) - - - - - (225) - (225)
- effects of hyperinflation - - 449 - - - - - 449 - 449
- insurance finance income/ (expense) recognised in other comprehensive - - - - - - - 415 415 - 415
income
- exchange differences - - - - - (1,524) - - (1,524) (12) (1,536)
Total comprehensive income for the period - - 5,723 (1,027) (1,578) (1,524) 174 415 2,183 423 2,606
Shares issued under employee remuneration and share plans 2 - (2) - - - - - - - -
Dividends to shareholders - - (2,342) - - - - - (2,342) (131) (2,473)
Redemption of securities(3) - (1,945) 402 - - - - - (1,543) - (1,543)
Cost of share-based payment arrangements - - 223 - - - - - 223 - 223
Transfers(7) - - (2,499) - - - 2,499 - - - -
Cancellation of shares (41) - - - - - 41 - - - -
Other movements - - 44 - 2 - 291 - 337 (57) 280
At 31 Dec 2022 24,811 19,746 142,409 (7,038) (3,808) (32,575) 33,209 1,079 177,833 7,364 185,197
1 The insurance finance reserve reflects the unwinding of the discount
rate on insurance liabilities for which the OCI option has been elected for
our insurance business in France. It is recorded after excluding the amount
that offsets the effective interest rate and expected credit losses on
supporting assets that have been designated at fair value through other
comprehensive income.
2 During 2023, HSBC Holdings issued $2,000m of contingent convertible
securities on which there were $4m of external issue costs.
3 During 2023, HSBC Holdings redeemed $2,350m contingent convertible
securities. In 2022, HSBC Holdings redeemed €1,500m 5.250% and SGD1,000m
5.875% contingent convertible securities.
4 In February 2022 HSBC announced a share buy-back of up to $1.0bn,
which concluded in July 2022. Additionally, in May 2023, HSBC Holdings
announced a share buy-back of up to $2.0bn.
5 Includes a payment of $749m (1H22: $435m) to the HSBC Holdings Employee
Benefit Trust 2001 (No. 2) to purchase shares in order to settle liabilities
on Group share plans.
6 The impact of IFRS 17 on previously reported total equity was $(10,585)m
at 30 June 2022 and $(10,831)m at 31 December 2022.
7 Permitted transfers from the merger reserve to retained earnings
were made when the investment in HSBC Overseas Holdings (UK) Limited was
previously impaired. In 2022, part-reversals of these impairments resulted in
transfers from retained earnings back to the merger reserve of $2,499m.
Consolidated statement of cash flows
Half-year to(1)
30 Jun 30 Jun
2023 2022
$m $m
Profit before tax 21,657 8,780
Adjustments for non-cash items:
Depreciation, amortisation and impairment 1,591 1,894
Net loss/(gain) from investing activities (41) 173
Share of profits in associates and joint ventures (1,583) (1,449)
(Gain)/loss on disposal of subsidiaries, businesses, associates and joint (3,604) (71)
ventures
Change in expected credit losses gross of recoveries and other credit 1,482 1,242
impairment charges
Provisions including pensions 148 201
Share-based payment expense 228 177
Other non-cash items included in profit before tax (1,661) 82
Elimination of exchange differences(2) (6,558) 48,921
Change in operating assets (52,745) 19,713
Change in operating liabilities 72,836 (35,752)
Dividends received from associates 124 60
Contributions paid to defined benefit plans (87) (102)
Tax paid (1,664) (1,264)
Net cash from operating activities 30,123 42,605
Purchase of financial investments (298,182) (265,427)
Proceeds from the sale and maturity of financial investments 263,838 247,517
Net cash flows from the purchase and sale of property, plant and equipment (329) (589)
Net cash flows from purchase/(disposal) of customer deposits and loan - (3,756)
portfolios
Net investment in intangible assets (1,123) (1,240)
Net cash flow on (acquisition)/disposal of subsidiaries, businesses, 1,228 (525)
associates and joint ventures(3)
Net cash from investing activities (34,568) (24,020)
Issue of ordinary share capital and other equity instruments 1,996 -
Cancellation of shares (1,273) (1,840)
Net sales/(purchases) of own shares for market-making and investment purposes (823) (443)
Net cash flow from change in stakes of subsidiaries - (197)
Redemption of preference shares and other equity instruments (2,350) (723)
Subordinated loan capital issued 2,744 2,659
Subordinated loan capital repaid (1,044) (11)
Dividends paid to shareholders of the parent company and non-controlling (7,508) (4,497)
interests
Net cash from financing activities (8,258) (5,052)
Net increase in cash and cash equivalents (12,703) 13,533
Cash and cash equivalents at the beginning of the period 521,671 574,032
Exchange differences in respect of cash and cash equivalents 8,565 (40,243)
Cash and cash equivalents at the end of the period(4) 517,533 547,322
Interest received was $46,817m (1H22: $20,957m), interest paid was $29,222m
(1H22: $7,146m) and dividends received (excluding dividends received from
associates, which are presented separately above) were $751m (1H22: $800m).
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts', which
replaced IFRS 4 'Insurance Contracts'. Comparative data have been restated
accordingly.
2 Adjustments 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.
3 The 'Net cash flow on (acquisition)/disposal of subsidiaries,
businesses, associates and joint ventures' includes $1.2bn of net cash inflow
on acquisition of Silicon Valley Bank UK Limited in March 2023.
4 Includes $7.5bn (1H22: $1.7bn) of cash and cash equivalents classified
as held for sale.
Notes on the interim condensed financial statements
Contents
115 1 Basis of preparation and material accounting policies 131138 11 Provisions
117 2 Net fee income 132 12 Contingent liabilities, contractual commitments and guarantees
117 3 Dividends 132 13 Legal proceedings and regulatory matters
118 4 Earnings per share 134 14 Transactions with related parties
118 5 Segmental analysis 135 15 Assets held for sale, liabilities of disposal groups held for sale and
business acquisitions
121 6 Fair values of financial instruments carried at fair value
126 7 Fair values of financial instruments not carried at fair value 137 16 Effects of adoption of IFRS 17
127 8 Derivatives 140 17 Events after the balance sheet date
128 9 Financial investments 140 18 Interim Report 2023 and statutory accounts
128 10 Interests in associates and joint ventures
1 Basis of preparation and material accounting policies
(a) Compliance with International Financial Reporting Standards
Our interim condensed consolidated financial statements have been prepared on
the basis of the policies set out in the 2022 annual financial statements,
except for those relating to IFRS 17 'Insurance Contracts' and amendments to
IAS 12 'Income Taxes' as set out below. They have also been prepared in
accordance with IAS 34 'Interim Financial Reporting' as adopted by the UK, IAS
34 'Interim Financial Reporting' as issued by the International Accounting
Standards Board ('IASB'), IAS 34 'Interim Financial Reporting' as adopted by
the EU, and the Disclosure Guidance and Transparency Rules sourcebook of the
UK's Financial Conduct Authority. Therefore, they include an explanation of
events and transactions that are significant to an understanding of the
changes in HSBC'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 and international financial reporting standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.
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. These financial
statements should be read in conjunction with the information about the
application of IFRS 17 'Insurance Contracts' as set out below and the new
policies for insurance contracts as described on pages 7 to 9 of our Report on
Transition to IFRS 17 'Insurance Contracts' issued on 2 May 2023.
At 30 June 2023, there were no IFRSs effective for the half-year to 30 June
2023 affecting these financial statements that were not approved for adoption
in the UK by the UK Endorsement Board. With the exception of amendments to IAS
12 'International Tax Reform - Pillar Two Model Rules', which is expected to
be endorsed by the EU in the second half of 2023, there was no difference
between IFRSs adopted by the UK, IFRSs as adopted by the EU, and IFRSs issued
by the IASB in terms of their application to HSBC.
Standards applied during the half-year to 30 June 2023
IFRS 17 'Insurance Contracts'
On 1 January 2023, the Group adopted the requirements of IFRS 17 'Insurance
Contracts' retrospectively with comparatives restated from the transition
date, 1 January 2022. At transition, the Group's total equity reduced by
$10,459m.
On adoption of IFRS 17, balances based on IFRS 4, including the present value
of in-force long-term insurance business ('PVIF') asset in relation to the
upfront recognition of future profits of in-force insurance contracts, were
derecognised. Insurance contract liabilities have been remeasured under
IFRS 17 based on groups of insurance contracts, which include the fulfilment
cash flows comprising the best estimate of the present value of the future
cash flows (for example premiums and payouts for claims, benefits, and
expenses), together with a risk adjustment for non-financial risk, as well as
the contractual service margin ('CSM'). The CSM represents the unearned
profits that will be released and systematically recognised in insurance
revenue as services are provided over the expected coverage period.
In addition, the Group has made use of the option under the standard to
re-designate certain eligible financial assets held to support insurance
contract liabilities, which were predominantly measured at amortised cost, as
financial assets measured at fair value through profit or loss, with
comparatives restated from the transition date.
The key differences between IFRS 4 and IFRS 17 are summarised in the following
table:
Balance sheet - Insurance contract liabilities for non-linked life insurance contracts are - Insurance contract liabilities are measured for groups of insurance
calculated by local actuarial principles. Liabilities under unit-linked life contracts at current value, comprising the fulfilment cash flows and the CSM.
insurance contracts are at least equivalent to the surrender or transfer
value, by reference to the value of the relevant underlying funds or indices. - The fulfilment cash flows comprise the best estimate of the present value
Grouping requirements follow local regulations. of the future cash flows, together with a risk adjustment for non-financial
risk.
- An intangible asset for the PVIF is recognised, representing the upfront
recognition of future profits associated with in-force insurance contracts. - The CSM represents the unearned profit.
Profit emergence/ recognition - The value of new business is reported as revenue on Day 1 as an increase - The CSM is systematically recognised in revenue as services are provided
in PVIF. over the expected coverage period of the group of contracts (i.e. no Day 1
profit).
- The impact of the majority of assumption changes is recognised immediately
in the income statement. - Contracts are measured using the general measurement model ('GMM') or the
variable fee approach ('VFA') model for insurance contracts with direct
- Variances between actual and expected cash flows are recognised in the participation features upon meeting the eligibility criteria. Under the VFA
period they arise. model, the Group's share of the investment experience and assumption changes
are absorbed by the CSM and released over time to profit or loss. For
contracts measured under GMM, the Group's share of the investment volatility
is recorded in profit or loss as it arises.
- Losses from onerous contracts are recognised in the income statement
immediately.
Investment return assumptions (discount rate) - PVIF is calculated based on long-term investment return assumptions based - Under the market consistent approach, expected future investment spreads
on assets held. It therefore includes investment margins expected to be earned are not included in the investment return assumption. Instead, the discount
in future. rate includes an illiquidity premium that reflects the nature of the
associated insurance contract liabilities.
Expenses - Total expenses to acquire and maintain the contract over its lifetime are - Projected lifetime expenses that are directly attributable costs are
included in the PVIF calculation. included in the insurance contract liabilities and recognised in the insurance
service result.
- Expenses are recognised across operating expenses and fee expense as
incurred and the allowances for those costs released from the PVIF - Non-attributable costs are reported in operating expenses.
simultaneously.
Transition
In applying IFRS 17 for insurance contracts retrospectively, the full
retrospective approach ('FRA') has been used unless it has been impracticable.
When the FRA is impracticable such as when there is a lack of sufficient and
reliable data, an entity has an accounting policy choice to use either the
modified retrospective approach ('MRA') or the fair value approach ('FVA').
The Group has applied the FRA for new business from 2018 at the earliest,
subject to practicability, and the FVA for the majority of contracts for which
the FRA is impracticable.
Under the FVA, the valuation of insurance liabilities on transition is based
on the applicable requirements of IFRS 13 'Fair Value Measurement'. This
requires consideration of the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date (an exit price). The CSM is calculated as
the difference between what a market participant would demand for assuming the
unexpired risk associated with insurance contracts, including required profit,
and the fulfilment cash flows that are determined using IFRS 17 principles.
In determining the fair value, the Group considered the estimated profit
margin that a market participant would demand in return for assuming the
insurance liabilities with the consideration of the level of capital that a
market participant would be required to hold, and the discount rate with an
allowance for an illiquidity premium that takes into account the level of
'matching' between the Group's assets and related liabilities. These
assumptions were set taking into account the assumptions that a hypothetical
market participant operating in each local jurisdiction would consider.
Amendments to IAS 12 'International Tax Reform - Pillar Two Model Rules'
On 23 May 2023, the IASB issued amendments to IAS 12 'International Tax Reform
- Pillar Two Model Rules', which became effective immediately and were
approved for adoption by all members of the UK Endorsement Board on 19 July
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. As noted above, the EU has not
yet endorsed these IAS 12 amendments but is expected to do so in the second
half of 2023.
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 the critical accounting estimates and judgements
applicable to the Group are those that relate to impairment of amortised cost
and FVOCI debt financial assets, the valuation of financial instruments,
deferred tax assets, provisions, interests in associates, impairment of
goodwill and non-financial assets, post-employment benefit plans, and
non-current assets and disposal groups held for sale.
There were no material changes in the current period to any of the critical
accounting estimates and judgements disclosed in 2022, which are stated on
pages 99 and 337 to 347 of the Annual Report and Accounts 2022.
(c) Composition of the Group
There were no material changes in the composition of the Group in the
half-year to 30 June 2023. For further details of future business acquisitions
and disposals, see Note 15 'Assets held for sale, liabilities of disposal
groups held for sale and business acquisitions'.
(d) Going concern
The financial statements are prepared on a going concern basis, as the
Directors are satisfied that the Group and parent company 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 that we applied for these interim condensed
consolidated financial statements are consistent with those described on pages
335 to 348 of the Annual Report and Accounts 2022, as are the methods of
computation, with the exception of those relating to IFRS 17 and amendments to
IAS 12 as described above.
2 Net fee income
Half-year to(1,2)
30 Jun 30 Jun
2023 2022
$m $m
Net fee income by product
Funds under management 1,176 1,222
Cards 1,351 1,201
Credit facilities 798 790
Account services 765 720
Broking income 555 707
Unit trusts 386 408
Underwriting 345 257
Global custody 432 471
Remittances 405 394
Imports/exports 328 322
Insurance agency commission 159 162
Other 1,247 1,259
Fee income 7,947 7,913
Less: fee expense (1,862) (1,685)
Net fee income 6,085 6,228
Net fee income by global business
Wealth and Personal Banking 2,694 2,753
Commercial Banking 2,009 1,972
Global Banking and Markets 1,382 1,503
1 In the first quarter of 2023, following an internal review to assess
which global businesses were best suited to serve our customers' respective
needs, a portfolio of our customers within our entities in Latin America was
transferred from GBM to CMB for reporting purposes. Comparative data have been
re-presented accordingly.
2 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts', which
replaced IFRS 4 'Insurance Contracts'. Comparative data have been restated
accordingly.
3 Dividends
On 1 August 2023, the Directors approved a second interim dividend for 2023 of
$0.10 per ordinary share in respect of the financial year ending
31 December 2023. This distribution amounts to approximately $1.974bn and will
be payable on 21 September 2023. No liability is recognised in the financial
statements in respect of these dividends.
Dividends paid to shareholders of HSBC Holdings plc
Half-year to
30 Jun 2023 30 Jun 2022
Per share Total Per share Total
$ $m $ $m
Dividends paid on ordinary shares
In respect of previous year:
- second interim dividend 0.23 4,590 0.18 3,576
In respect of current year:
- first interim dividend 0.10 2,001 - -
Total 0.33 6,591 0.18 3,576
Total coupons on capital securities classified as equity 542 626
Dividends to shareholders 7,133 4,202
4 Earnings per share
Basic earnings per ordinary share is calculated by dividing the profit
attributable to ordinary shareholders of the parent company by the weighted
average number of ordinary shares outstanding, excluding own shares held.
Diluted earnings per ordinary share is calculated by dividing the basic
earnings, which require no adjustment for the effects of dilutive potential
ordinary shares, by the weighted average number of ordinary shares
outstanding, excluding own shares held, plus the weighted average number of
ordinary shares that would be issued on conversion of dilutive potential
ordinary shares.
Basic and diluted earnings per share
Half-year to(1)
30 Jun 2023 30 Jun 2022
Profit Number Amount per share Profit Number Amount per share
of shares of shares
$m (millions) $ $m (millions) $
Basic(2) 16,966 19,693 0.86 7,966 19,954 0.40
Effect of dilutive potential ordinary shares 136 131
Diluted(2) 16,966 19,829 0.86 7,966 20,085 0.40
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts', which
replaced IFRS 4 'Insurance Contracts'. Comparative data have been restated
accordingly.
2 Weighted average number of ordinary shares outstanding (basic) or
assuming dilution (diluted).
2
5 Segmental analysis
The Group Chief Executive, supported by the rest of the Group Executive
Committee ('GEC'), is considered the Chief Operating Decision Maker ('CODM')
for the purposes of identifying the Group's reportable segments. Global
business results are assessed by the CODM on the basis of constant currency
performance that removes the effects of currency translation from reported
results. Therefore, we disclose these results on a constant currency basis as
required by IFRSs. The income statement for the half-year to 30 June 2022 is
converted at the average rate of exchange for 2023, and the balance sheets at
30 June 2022 and 31 December 2022 at the prevailing rates of exchange on
30 June 2023.
Our operations are closely integrated and, accordingly, the presentation of
data includes internal allocations of certain items of income and expense.
These allocations include the costs of certain support services and global
functions to the extent that they can be meaningfully attributed to global
businesses. While such allocations have been made on a systematic and
consistent basis, they necessarily involve a degree of subjectivity. Costs
that are not allocated to global businesses are included in Corporate Centre.
Where relevant, income and expense amounts presented include the results of
inter-segment funding along with inter-company and inter-business line
transactions. All such transactions are undertaken on arm's length terms. The
intra-Group elimination items for the global businesses are presented in
Corporate Centre.
Resegmentation
In the first quarter of 2023, following an internal review to assess which
global businesses were best suited to serve our customers' respective needs, a
portfolio of our Global Banking customers within our entities in Latin America
was transferred from Global Banking and Markets to Commercial Banking for
reporting purposes. Comparative data have been re-presented accordingly.
Similar smaller transfers from Global Banking and Markets to Commercial
Banking were also undertaken within our entities in Australia and Indonesia,
where comparative data have not been re-presented.
Our global businesses
We provide a comprehensive range of banking and related financial services to
our customers in our three global businesses. The products and services
offered to customers are organised by these global businesses:
- Wealth and Personal Banking ('WPB') provides a full range of retail
banking and wealth products to our customers from personal banking to ultra
high net worth individuals. Typically, customer offerings include retail
banking products, such as current and savings accounts, mortgages and personal
loans, credit cards, debit cards and local and international payment services.
We also provide wealth management services, including insurance and investment
products, global asset management services, investment management and private
wealth solutions for customers with more sophisticated and international
requirements.
- Commercial Banking ('CMB') offers a broad range of products and services
to serve the needs of our commercial customers, including small and
medium-sized enterprises, mid-market enterprises and corporates. These include
credit and lending, international trade and receivables finance, treasury
management and liquidity solutions (payments and cash management and
commercial cards), commercial insurance and investments. CMB also offers
customers access to products and services offered by other global businesses,
such as Global Banking and Markets, which include foreign exchange products,
raising capital on debt and equity markets and advisory services.
- Global Banking and Markets ('GBM') provides tailored financial solutions
to major government, corporate and institutional clients and private investors
worldwide. The client-focused business lines deliver a full range of banking
capabilities, including financing, advisory and transaction services, a
markets business that provides services in credit, rates, foreign exchange,
equities, money markets and securities services, and principal investment
activities.
HSBC constant currency profit before tax and balance sheet data
Half-year to 30 Jun 2023
Wealth and Personal Banking Commercial Global Corporate Total
Banking(3) Banking and Centre
Markets(3)
$m $m $m $m $m
Net operating income/(expense) before change in expected credit losses and 16,200 12,216 8,501 (41) 36,876
other credit impairment charges(2)
- external 12,416 12,897 13,939 (2,376) 36,876
- inter-segment 3,784 (681) (5,438) 2,335 -
- of which: net interest income/(expense)(4) 10,299 8,375 3,546 (3,956) 18,264
Change in expected credit losses and other credit impairment charges (502) (704) (136) (3) (1,345)
Net operating income/(expense) 15,698 11,512 8,365 (44) 35,531
Total operating expenses (7,141) (3,572) (4,785) 41 (15,457)
Operating profit/(loss) 8,557 7,940 3,580 (3) 20,074
Share of profit/(loss) in associates and joint ventures 35 (1) - 1,549 1,583
Constant currency profit before tax 8,592 7,939 3,580 1,546 21,657
% % % % %
Share of HSBC's constant currency profit before tax 39.7 36.7 16.5 7.1 100.0
Constant currency cost efficiency ratio 44.1 29.2 56.3 100.0 41.9
Constant currency balance sheet data $m $m $m $m $m
Loans and advances to customers (net) 463,836 319,246 176,182 294 959,558
Interests in associates and joint ventures 555 24 107 28,860 29,546
Total external assets 900,370 654,474 1,342,110 144,522 3,041,476
Customer accounts 809,864 472,146 313,126 633 1,595,769
Half-year to 30 Jun 2022(1)
Net operating income/(expense) before change in expected credit losses and 10,058 7,055 7,459 (925) 23,647
other credit impairment charges(2)
- external 9,665 7,199 8,357 (1,574) 23,647
- inter-segment 393 (144) (898) 649 -
- of which: net interest income/(expense)(4) 6,493 4,817 2,009 (473) 12,846
Change in expected credit losses and other credit impairment charges (584) (278) (210) (2) (1,074)
Net operating income/(expense) 9,474 6,777 7,249 (927) 22,573
Total operating expenses (6,995) (3,345) (4,557) (635) (15,532)
Operating profit/(loss) 2,479 3,432 2,692 (1,562) 7,041
Share of profit in associates and joint ventures 8 - - 1,355 1,363
Constant currency profit/(loss) before tax 2,487 3,432 2,692 (207) 8,404
% % % % %
Share of HSBC's constant currency profit before tax 29.6 40.8 32.0 (2.4) 100.0
Constant currency cost efficiency ratio 69.5 47.4 61.1 (68.6) 65.7
Constant currency balance sheet data $m $m $m $m $m
Loans and advances to customers (net) 482,962 354,273 200,082 557 1,037,874
Interests in associates and joint ventures 487 31 104 27,468 28,090
Total external assets 884,333 628,040 1,330,747 167,390 3,010,510
Customer accounts 846,974 491,115 332,473 589 1,671,151
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts', which
replaced IFRS 4 'Insurance Contracts'. Comparative data have been restated
accordingly.
2 Net operating income before change in expected credit losses and other
credit impairment charges, also referred to as revenue.
3 In the first quarter of 2023, following an internal review to assess
which global businesses were best suited to serve our customers' respective
needs, a portfolio of our customers within our entities in Latin America was
transferred from GBM to CMB for reporting purposes. Comparative data have been
re-presented accordingly.
4 Net interest expense recognised in the Corporate Centre includes $3.8bn
(1H22: $0.4bn) of interest expense in relation to the internal cost to fund
trading and fair value net assets; and the funding cost of foreign exchange
swaps in our Markets Treasury function. During 2Q23 we implemented a
consistent reporting approach across the 14 most material entities that
contribute to our trading and fair value net assets, which resulted in an
increase to the 1H23 associated funding costs reported through the
intersegment elimination in Corporate Centre of approximately $0.4bn,
recognised in 2Q23.
Reported external net operating income is attributed to countries and
territories on the basis of the location of the branch responsible for
reporting the results or advancing the funds:
Half-year to(1)
30 Jun 2023 30 Jun 2022
$m $m
Reported external net operating income by country/territory(2) 36,876 24,545
- UK 6,762 6,547
- Hong Kong 10,325 6,471
- US 2,112 1,964
- France 4,107 950
- other countries/territories 13,570 8,613
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts', which
replaced IFRS 4 'Insurance Contracts'. Comparative data have been restated
accordingly.
2 Net operating income before change in expected credit losses and
other credit impairment charges, also referred to as revenue.
Constant currency results reconciliation
30 Jun 2023 30 Jun 2022(1)
Reported and constant currency Constant currency Currency translation Reported
$m $m $m $m
Revenue(2) 36,876 23,647 (898) 24,545
ECL (1,345) (1,074) 13 (1,087)
Operating expenses (15,457) (15,532) 595 (16,127)
Share of profit in associates and joint ventures 1,583 1,363 (86) 1,449
Profit before tax 21,657 8,404 (376) 8,780
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts', which
replaced IFRS 4 'Insurance Contracts'. Comparative data have been restated
accordingly.
2 Net operating income before change in expected credit losses and other
credit impairment charges, also referred to as revenue.
Constant currency balance sheet reconciliation
At 30 Jun 2023 At 30 June 2022(1) At 31 Dec 2022(1)
Reported and constant currency Constant currency Currency translation Reported Constant currency Currency translation Reported
$m $m $m $m $m $m $m
Loans and advances to customers (net) 959,558 1,037,874 10,853 1,027,021 936,613 13,052 923,561
Interests in associates and joint ventures 29,546 28,090 (1,356) 29,446 28,384 (870) 29,254
Total external assets 3,041,476 3,010,510 40,029 2,970,481 2,995,590 46,304 2,949,286
Customer accounts 1,595,769 1,671,151 19,850 1,651,301 1,592,396 22,093 1,570,303
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts', which
replaced IFRS 4 'Insurance Contracts'. Comparative data have been restated
accordingly.
Notable items
Half-year to
30 Jun 2023 30 Jun 2022
$m $m
Notable items
Revenue
Disposals, acquisitions and related costs(1,2) 3,321 (288)
Fair value movements on financial instruments(3) 15 (371)
Restructuring and other related costs(4) - 68
Operating expenses
Disposals, acquisitions and related costs (118) -
Restructuring and other related costs(5) 47 (1,040)
1 Includes the reversal of a $2.1bn impairment loss relating to the
planned sale of our retail banking operations in France, which is no longer
classified as held for sale.
2 Includes the provisional gain of $1.5bn recognised in respect of the
acquisition of SVB UK.
3 Fair value movements on non-qualifying hedges in HSBC Holdings.
4 Comprises gains and losses relating to the business update in
February 2020, including losses associated with the RWA reduction programme.
5 In 2Q23, we recognised $47m of reversals relating to restructuring
provisions recognised during 2022.
6 Fair values of financial instruments carried at fair value
The accounting policies, control framework and hierarchy used to determine
fair values at 30 June 2023 are consistent with those applied for the Annual
Report and Accounts 2022.
Financial instruments carried at fair value and bases of valuation
Valuation techniques
Quoted Using With significant Total
market price observable inputs unobservable inputs
Level 1 Level 2 Level 3
Recurring fair value measurements $m $m $m $m
At 30 Jun 2023
Assets
Trading assets 177,730 73,585 4,072 255,387
Financial assets designated and otherwise mandatorily measured at fair value 25,199 60,724 18,380 104,303
through profit or loss
Derivatives 2,434 268,389 1,772 272,595
Financial investments 198,345 75,332 3,006 276,683
Liabilities
Trading liabilities 55,039 25,738 451 81,228
Financial liabilities designated at fair value 1,210 128,259 10,149 139,618
Derivatives 2,856 264,389 2,315 269,560
At 31 Dec 2022(1)
Assets
Trading assets 148,592 64,684 4,817 218,093
Financial assets designated and otherwise mandatorily measured at fair value 23,146 59,548 17,407 100,101
through profit or loss
Derivatives 2,917 279,278 1,964 284,159
Financial investments 181,659 71,040 2,961 255,660
Liabilities
Trading liabilities 44,787 27,092 474 72,353
Financial liabilities designated at fair value 1,125 115,764 10,432 127,321
Derivatives 2,399 280,443 2,920 285,762
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts', which
replaced IFRS 4 'Insurance Contracts'. Comparative data have been restated
accordingly.
The table below provides the fair value levelling of assets held for sale and
liabilities of disposal groups that have been classified as held for sale in
accordance with IFRS 5. For further details, see Note 15.
Financial instruments carried at fair value and bases of valuation - assets
and liabilities held for sale
Valuation techniques
Quoted Using With significant Total
market price observable inputs unobservable inputs
Level 1 Level 2 Level 3
Recurring fair value measurements $m $m $m $m
At 30 Jun 2023
Assets
Trading assets 2,152 127 - 2,279
Financial assets designated and otherwise mandatorily measured at fair value - 15 - 15
through profit or loss
Derivatives - 585 - 585
Financial investments 11,599 520 - 12,119
Liabilities
Trading liabilities 1,750 155 - 1,905
Financial liabilities designated at fair value - - - -
Derivatives - 788 - 788
At 31 Dec 2022
Assets
Trading assets 2,932 244 - 3,176
Financial assets designated and otherwise mandatorily measured at fair value - 14 47 61
through profit or loss
Derivatives - 866 - 866
Financial investments 11,184 - - 11,184
Liabilities
Trading liabilities 2,572 182 - 2,754
Financial liabilities designated at fair value - 3,523 - 3,523
Derivatives - 813 - 813
Transfers between Level 1 and Level 2 fair values
Assets Liabilities
Financial investments Trading assets Designated and otherwise mandatorily measured at fair value Derivatives Trading liabilities Designated at fair value Derivatives
$m $m $m $m $m $m $m
At 30 Jun 2023
Transfers from Level 1 to Level 2 5,667 4,139 - 41 - -
801
Transfers from Level 2 to Level 1 2,432 2,495 1,197 - 147 - -
At 31 Dec 2022
Transfers from Level 1 to Level 2 4,721 5,284 2,565 - 113 - -
Transfers from Level 2 to Level 1 8,208 5,964 3,340 - 233 - -
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.
Fair value adjustments
We adopt the use of fair value adjustments when we take into consideration
additional factors not incorporated within the valuation model that would
otherwise be considered by a market participant. We classify fair value
adjustments as either 'risk-related' or 'model-related'. The majority of these
adjustments relate to GBM. Movements in the level of fair value adjustments do
not necessarily result in the recognition of profits or losses within the
income statement. For example, as models are enhanced, fair value adjustments
may no longer be required. Similarly, fair value adjustments will decrease
when the related positions are unwound, but this may not result in profit or
loss.
Global Banking and Markets fair value adjustments
At 30 Jun 2023 At 31 Dec 2022
GBM Corporate Centre GBM Corporate Centre
$m $m $m $m
Type of adjustment
Risk-related 626 50 650 40
- bid-offer 400 - 426 -
- uncertainty 72 2 86 -
- credit valuation adjustment 195 45 245 35
- debit valuation adjustment (103) - (175) -
- funding fair value adjustment 62 3 68 5
- other - - - -
Model-related 74 - 61 -
- model limitation 74 - 61 -
- other - - - -
Inception profit (Day 1 P&L reserves)(1) 84 - 97 -
Total 784 50 808 40
1 See Note 9 on the interim condensed financial statements on page
128.
The reduction in fair value adjustments was predominantly driven by changes to
exposure, and tightening of credit and liquidity market spreads, with the
reduction in the debit valuation adjustment including a consideration of the
overlap with the funding fair value adjustment.
Fair value valuation bases
Financial instruments measured at fair value using a valuation technique with
significant unobservable inputs - Level 3
Assets Liabilities
Financial investments Trading assets Designated and otherwise mandatorily measured at fair value through profit or Derivatives Total Trading liabilities Designated at fair value Derivatives Total
loss
$m $m $m $m $m $m $m $m $m
Private equity including strategic investments 679 69 16,644 - 17,392 128 - - 128
Asset-backed securities 371 376 - 747 - - - -
-
Structured notes - - - 3 - 10,149 - 10,149
3
Other derivatives - - 1,772 1,772 - - 2,315 2,315
-
Other portfolios 1,956 3,627 - 7,316 323 - - 323
1,733
At 30 Jun 2023 3,006 4,072 18,380 1,772 27,230 451 10,149 2,315 12,915
Private equity including strategic investments 647 19 15,653 - 16,319 92 - - 92
Asset-backed securities 438 208 - 741 - - - -
95
Structured notes - - - - - 10,432 - 10,432
-
Other derivatives - - 1,964 1,964 - - 2,920 2,920
-
Other portfolios 1,876 4,590 - 8,125 382 - - 382
1,659
At 31 Dec 2022 2,961 4,817 17,407 1,964 27,149 474 10,432 2,920 13,826
The basis for determining the fair value of the financial instruments in the
table above is explained on page 366 of the Annual Report and Accounts 2022.
Reconciliation of fair value measurements in Level 3 of the fair value
hierarchy
Movement in Level 3 financial instruments
Assets Liabilities
Financial investments Trading assets Designated and otherwise mandatorily measured at fair value through profit or Derivatives Trading liabilities Designated at fair value Derivatives
loss
$m $m $m $m $m $m $m
At 1 Jan 2023 2,961 4,817 17,407 1,964 474 10,432 2,920
Total gains or losses recognised in profit or loss (15) 65 706 237 25 60 478
- net income or losses from financial instruments held for trading or - 65 - 237 25 - 478
managed on a fair value basis
- changes in fair value of other financial instruments mandatorily measured - - 706 - - 60 -
at fair value through profit or loss
- gains less losses from financial investments held at fair value through (15) - - - - - -
other comprehensive income
Total gains or losses recognised in other comprehensive income ('OCI') 138 92 11 75 21 323 98
- financial investments: fair value gains or losses 83 - - - - 234 -
- exchange differences 55 92 11 75 21 89 98
Purchases 215 761 1,660 - 115 - -
New issuances - - - - 2 2,313 -
Sales (122) (1,353) (303) - (181) (2) -
Settlements (202) (487) (963) (517) (9) (1,479) (1,164)
Transfers out (108) (377) (140) (85) (32) (1,821) (138)
Transfers in 139 554 2 98 36 323 121
At 30 Jun 2023 3,006 4,072 18,380 1,772 451 10,149 2,315
Unrealised gains or losses recognised in profit or loss relating to assets and - (58) 232 734 (4) (189) (560)
liabilities held at 30 Jun 2023
- net income or losses from financial instruments held for trading or - (58) - 734 (4) - (560)
managed on a fair value basis
- changes in fair value of other financial instruments mandatorily measured - - 232 - - (189) -
at fair value through profit or loss
Movement in Level 3 financial instruments (continued)
Assets Liabilities
Financial investments Trading assets Designated and otherwise mandatorily measured at fair value through profit or Derivatives Trading liabilities Designated at fair value Derivatives
loss
$m $m $m $m $m $m $m
At 1 Jan 2022 3,389 2,662 14,238 2,478 785 7,880 3,088
IFRS 17 impacts (12) - 1,468 - - - -
At 1 Jan 2022 (as restated) 3,377 2,662 15,706 2,478 785 7,880 3,088
Total gains or losses recognised in profit or loss (7) (22) 285 408 (45) (1,103) 165
- net income or losses from financial instruments held for trading or - (22) - 408 (45) - 165
managed on a fair value basis
- changes in fair value of other financial instruments mandatorily measured - - 285 - - (1,103) -
at fair value through profit or loss
- gains less losses from financial investments held at fair value through (7) - - - - - -
other comprehensive income
Total losses recognised in other comprehensive income ('OCI') (287) (165) (336) (191) (12) (398) (231)
- financial investments: fair value losses (140) - - - - (18) -
- exchange differences (147) (165) (336) (191) (12) (380) (231)
Purchases 506 1,026 1,704 - 13 - -
New issuances - - - - 4 2,511 -
Sales (186) (698) (317) - (95) (22) -
Settlements (273) (373) (613) (509) (636) (723) (580)
Transfers out (489) (287) (48) (290) (7) (549) (437)
Transfers in 38 833 70 215 344 869 315
At 30 Jun 2022 2,679 2,976 16,451 2,111 351 8,465 2,320
Unrealised gains or losses recognised in profit or loss relating to assets and - (37) 276 929 1 423 3,494
liabilities held at 30 Jun 2022
- net income or losses from financial instruments held for trading or - (37) - 929 1 - 3,494
managed on a fair value basis
- changes in fair value of other financial instruments mandatorily measured - - 276 - - 423 -
at fair value through profit or loss
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.
Effect of changes in significant unobservable assumptions to reasonably
possible alternatives
The following table shows the sensitivity of Level 3 fair values to reasonably
possible alternative assumptions:
Sensitivity of fair values to reasonably possible alternative assumptions
Reflected in profit or loss Reflected in OCI
Favourable Unfavourable Favourable Unfavourable
changes changes changes changes
$m $m $m $m
Derivatives, trading assets and trading liabilities(1) 332 (434) - -
Financial assets and liabilities designated and otherwise mandatorily measured 1,009 (1,009) - -
at fair value through profit or loss
Financial investments 10 (10) 61 (63)
At 30 Jun 2023 1,351 (1,453) 61 (63)
Derivatives, trading assets and trading liabilities(1) 172 - -
(179)
Financial assets and liabilities designated and otherwise mandatorily measured 1,049 - -
at fair value through profit or loss (1,047)
Financial investments 12 140
(6) (141)
At 30 Jun 2022 1,233 140
(1,232) (141)
Derivatives, trading assets and trading liabilities(1) 264 - -
(291)
Financial assets and liabilities designated and otherwise mandatorily measured 981 - -
at fair value through profit or loss (978)
Financial investments 11 65
(11) (55)
At 31 Dec 2022 1,256 65
(1,280) (55)
1 'Derivatives, trading assets and trading liabilities' is presented
as one category to reflect the manner in which these financial instruments are
risk-managed.
The sensitivity analysis aims to measure a range of fair values consistent
with the application of a 95% confidence interval. Methodologies take account
of the nature of the valuation technique employed, as well as the availability
and reliability of observable proxy and historical data.
When the fair value of a financial instrument is affected by more than one
unobservable assumption, the table above reflects the most favourable or the
most unfavourable change from varying the assumptions individually.
Key unobservable inputs to Level 3 financial instruments
The following table lists key unobservable inputs to Level 3 financial
instruments and provides the range of those inputs at 30 June 2023. There has
been no change to the key unobservable inputs to Level 3 financial instruments
and inter-relationships therein, which are detailed on pages 368 and 369 of
the Annual Report and Accounts 2022.
Quantitative information about significant unobservable inputs in Level 3
valuations
Fair value Valuation techniques Key unobservable inputs 30 Jun 2023 31 Dec 2022
Assets Liabilities Full range of inputs Full range of
inputs
$m $m Lower Higher Lower Higher
Private equity including strategic investments 17,392 128 See footnote 1 See footnote 1
Asset-backed securities ('ABS') 747 -
- collateralised loan/debt obligation 76 -
Market proxy Bid quotes - 89 - 92
- other ABSs 671 - Market proxy Bid quotes - 98 - 99
Structured notes 3 10,149
- equity-linked notes 3 6,281 Model - Option model Equity volatility 6% 95% 6% 142%
Model - Option model Equity correlation 22% 99% 32% 99%
- Foreign exchange ('FX')-linked notes - 2,778 Model - Option model FX volatility 2% 36% 3% 37%
- other(2) - 1,090
Other derivatives 1,772 2,315
- interest rate derivatives 511 718
securitisation swaps 114 160 Model - Discounted cash flow Prepayment rate 5% 10% 5% 10%
long-dated swaptions 64 75 Model - Option model Interest rate volatility 9% 34% 8% 53%
other(2) 333 483
- FX derivatives 308 388
FX options 271 318 Model - Option model FX volatility 2% 44% 1% 46%
other(2) 37 70
- equity derivatives 737 941
long-dated single stock options 520 713 Model - Option model Equity volatility 7% 77% 7% 153%
other(2) 217 228
- credit derivatives 216 268
other(2) 216 268
Other portfolios 7,316 323
- repurchase agreements 763 295 Model - Discounted cash flow Interest rate curve 0% 10% 1% 9%
- other(2) 6,553 28
At 30 Jun 2023 27,230 12,915
1 Given the bespoke nature of the analysis in respect of each private
equity holding, it is not practical to quote a range of key unobservable
inputs.
2 'Other' includes a range of smaller holdings with multiple inputs.
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, financial investments, deposits by banks, customer accounts, debt
securities in issue, subordinated liabilities and non-trading repurchase and
reverse repurchase agreements are explained on pages 370 and 371 of the Annual
Report and Accounts 2022.
Fair values of financial instruments not carried at fair value on the balance
sheet
At 30 Jun 2023 At 31 Dec 2022(1)
Carrying Fair Carrying Fair
amount value amount value
$m $m $m $m
Assets
Loans and advances to banks 100,921 100,939 104,475 104,459
Loans and advances to customers 959,558 944,187 923,561 911,898
Reverse repurchase agreements - non-trading 258,056 258,050 253,754 253,668
Financial investments - at amortised cost 131,250 127,779 109,066 106,412
Liabilities
Deposits by banks 68,709 68,733 66,722 66,831
Customer accounts 1,595,769 1,595,379 1,570,303 1,570,209
Repurchase agreements - non-trading 170,110 170,123 127,747 127,500
Debt securities in issue 85,471 84,966 78,149 77,021
Subordinated liabilities 23,286 24,784 22,290 22,723
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts', which
replaced IFRS 4 'Insurance Contracts'. Comparative data have been restated
accordingly.
Fair values of financial instruments not carried at fair value on the balance
sheet - assets and disposal groups held for sale
At 30 Jun 2023 At 31 Dec 2022
Carrying Fair Carrying Fair
amount value amount value
$m $m $m $m
Assets
Loans and advances to banks 1,149 1,151 253 257
Loans and advances to customers 59,869 59,126 80,687 78,159
Reverse repurchase agreements - non-trading 3,379 3,379 4,646 4,646
Financial investments - at amortised cost 6,744 6,577 6,165 6,042
Liabilities
Deposits by banks 253 253 64 64
Customer accounts 66,154 66,543 85,274 85,303
Repurchase agreements - non-trading 2,615 2,615 3,266 3,266
Debt securities in issue 9,127 8,794 12,928 12,575
Subordinated liabilities 8 7 8 7
Other financial instruments not carried at fair value are typically short term
in nature and reprice to current market rates frequently. Accordingly, their
carrying amount is a reasonable approximation of fair value.
8 Derivatives
Notional contract amounts and fair values of derivatives by product contract
type held by HSBC
Notional contract amount Fair value amount
Assets and liabilities Assets Liabilities
Trading Hedging Trading Hedging Total Trading Hedging Total
$m $m $m $m $m $m $m $m
Foreign exchange 9,257,418 55,396 104,136 1,211 105,347 96,805 184 96,989
Interest rate 15,641,544 344,757 297,598 5,297 302,895 302,192 4,546 306,738
Equities 697,994 - 15,580 - 15,580 17,563 - 17,563
Credit 162,699 - 1,466 - 1,466 1,614 - 1,614
Commodity and other 85,366 - 1,976 - 1,976 1,325 - 1,325
Gross total fair values 25,845,021 400,153 420,756 6,508 427,264 419,499 4,730 424,229
Offset (154,669) (154,669)
At 30 Jun 2023 25,845,021 400,153 420,756 6,508 272,595 419,499 4,730 269,560
Foreign exchange 8,434,453 38,924 122,206 525 122,731 123,088 166 123,254
Interest rate 15,213,232 276,589 285,449 5,066 290,515 287,876 3,501 291,377
Equities 570,410 - 9,325 - 9,325 9,176 - 9,176
Credit 183,995 - 1,091 - 1,091 1,264 - 1,264
Commodity and other 78,414 - 1,484 - 1,484 1,678 - 1,678
Gross total fair values 24,480,504 315,513 419,555 5,591 425,146 423,082 3,667 426,749
Offset (140,987) (140,987)
At 31 Dec 2022(1) 24,480,504 315,513 419,555 5,591 284,159 423,082 3,667 285,762
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts', which
replaced IFRS 4 'Insurance Contracts'. Comparative data have been restated
accordingly.
The notional contract amounts of derivatives held for trading purposes and
derivatives designated in qualifying hedge accounting relationships indicate
the nominal value of transactions outstanding at the balance sheet date, not
amounts at risk. Derivative assets and liabilities decreased during 1H23,
reflecting changes in yield curves and the market environment.
Derivatives valued using models with unobservable inputs
The following table shows the difference between the fair value at initial
recognition, which is the transaction price, and the value that would have
been derived had valuation techniques used for subsequent measurement been
applied at initial recognition, less subsequent releases.
Unamortised balance of derivatives valued using models with significant
unobservable inputs
Half-year to
30 Jun 30 Jun
2023 2022
$m $m
Unamortised balance at beginning of period 97 106
Deferral on new transactions 84 100
Recognised in the income statement during the period (100) (99)
- amortisation (53) (61)
- subsequent to unobservable inputs becoming observable (10) -
- maturity, termination or offsetting derivative (37) (38)
Exchange differences 3 (8)
Unamortised balance at end of period(1) 84 99
1 This amount is yet to be recognised in the consolidated income
statement.
Hedge accounting derivatives
The notional contract amounts of derivatives held for hedge accounting
purposes indicate the nominal value of transactions outstanding at the balance
sheet date, not amounts at risk.
Notional contract amounts of derivatives held for hedging purposes by product
type
At 30 Jun 2023 At 31 Dec 2022
Cash flow Fair value Cash flow Fair value
hedges hedges hedges hedges
$m $m $m $m
Foreign exchange 20,927 - 8,781 -
Interest rate 166,589 178,168 114,527 162,062
Total 187,516 178,168 123,308 162,062
The Group applies hedge accounting in respect of certain consolidated net
investments. Hedging is undertaken using forward foreign exchange contracts or
by financing with foreign currency borrowings. At 30 June 2023, the notional
contract values of outstanding financial instruments designated as hedges of
net investments in foreign operations were $34,469m (31 December 2022:
$30,143m).
Interest rate benchmark reform: Amendments to IFRS 9 and IAS 39 'Financial
Instruments'
HSBC has applied both the first set of amendments ('Phase 1') and the second
set of amendments ('Phase 2') to IFRS 9 and IAS 39 applicable to hedge
accounting. The items in hedge accounting relationships that are affected by
Phase 1 and Phase 2 amendments are presented in the balance sheet as
'Financial assets designated and otherwise mandatorily measured at fair value
through other comprehensive income', 'Loans and advances to customers', 'Debt
securities in issue' and 'Deposits by banks'. The notional value of the
derivatives impacted by the Ibor reform, including those designated in hedge
accounting relationships, is disclosed on page 63 in the section 'Financial
instruments impacted by Ibor reform'. For further details on Ibor transition,
see 'Ibor transition' under 'Areas of special interest' on page 62.
During 2023, the Group transitioned all of its hedging instruments referencing
US dollar Libor. This transition did not necessitate any new approaches
compared with the mechanisms used so far for transition, and it will not be
necessary to change the transition risk management strategy.
For some of the Ibors included under the 'Other' header in the table below,
judgement has been needed to establish whether a transition is required. This
is because there are Ibor benchmarks subject to computation improvements and
insertion of fallback provisions where their administrators have yet to
provide full clarity on whether or when these Ibor benchmarks will be demised.
The notional amounts of interest rate derivatives designated in hedge
accounting relationships do not represent the extent of the risk exposure
managed by the Group but they are expected to be directly affected by
market-wide Ibor reform and in scope of Phase 1 amendments and are shown in
the table below. The cross-currency swaps designated in hedge accounting
relationships and affected by Ibor reform are not significant and have not
been presented below:
Hedging instrument impacted by Ibor reform
Hedging instrument
Impacted by Ibor reform Not impacted by Ibor reform Notional
amount(3)
€(1) $ Other(2) Total
$m $m $m $m $m $m
Fair value hedges 18,019 - 11,804 29,823 148,345 178,168
Cash flow hedges 11,157 - 30,469 41,626 124,963 166,589
At 30 Jun 2023 29,176 - 42,273 71,449 273,308 344,757
Fair value hedges 12,756 2,015 12,643 27,414 134,648 162,062
Cash flow hedges 8,865 - 27,830 36,695 77,832 114,527
At 31 Dec 2022 21,621 2,015 40,473 64,109 212,480 276,589
1 The notional contract amounts of euro interest rate derivatives
impacted by Ibor reform mainly comprise hedges with a Euribor benchmark, which
are 'Fair value hedges' of $18,019m (31 December 2022: $12,756m) and 'Cash
flow hedges' of $11,157m (31 December 2022: $8,865m).
2 Other benchmarks impacted by Ibor reform comprise mainly of Canadian
dollar offered rate ('CDOR'), Hong Kong interbank offered rate ('HIBOR') and
Mexican interbank equilibrium interest rate ('TIIE')-related derivatives.
3 The notional contract amounts of interest rate derivatives
designated in qualifying hedge accounting relationships indicate the nominal
value of transactions outstanding at the balance sheet date. They do not
represent amounts at risk.
9 Financial investments
Carrying amounts of financial investments
30 Jun 31 Dec(1)
2023 2022
$m $m
Financial investments measured at fair value through other comprehensive 276,683 255,660
income
- treasury and other eligible bills 102,704 86,749
- debt securities 172,280 167,107
- equity securities 1,606 1,696
- other instruments 93 108
Debt instruments measured at amortised cost 131,250 109,066
- treasury and other eligible bills 30,627 34,507
- debt securities 100,623 74,559
At the end of the period 407,933 364,726
1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts', which
replaced IFRS 4 'Insurance Contracts'. Comparative data have been restated
accordingly.
10 Interests in associates and joint ventures
At 30 June 2023, the carrying amount of HSBC's interests in associates and
joint ventures was $29,546m (31 December 2022: $29,254m).
Principal associates of HSBC
At 30 Jun 2023 At 31 Dec 2022
Carrying amount Fair value(1) Carrying amount Fair value(1)
$m $m $m $m
Bank of Communications Co., Limited 23,344 9,363 23,307 8,141
Saudi Awwal Bank 4,704 6,479 4,494 6,602
1 Principal associates are listed on recognised stock exchanges. The fair
values are based on the quoted market prices of the shares held (Level 1 in
the fair value hierarchy).
Share of profit in associates and joint ventures
Half year to
30 Jun 30 Jun
2023 2022
$m $m
Bank of Communications Co., Limited 1,317 1,344
Saudi Awwal Bank 272 117
Other associates and joint ventures (6) (12)
Share of profit in associates and joint ventures 1,583 1,449
Bank of Communications Co., Limited
The Group's investment in Bank of Communications Co., Limited ('BoCom') is
classified as an associate. Significant influence in BoCom was established
with consideration of all relevant factors, including representation on
BoCom's Board of Directors and participation in a resource and experience
sharing agreement ('RES'). Under the RES, HSBC staff have been seconded to
assist in the maintenance of BoCom's financial and operating policies.
Investments in associates are recognised using the equity method of accounting
in accordance with IAS 28 'Investments in Associates and Joint Ventures',
whereby the investment is initially recognised at cost and adjusted thereafter
for the post-acquisition change in the Group's share of BoCom's net assets. An
impairment test is required if there is any indication of impairment.
Impairment testing
At 30 June 2023, the fair value of the Group's investment in BoCom had been
below the carrying amount for approximately 11 years. As a result, the Group
performed an impairment test on the carrying amount, which confirmed that
there was no impairment at 30 June 2023 as the recoverable amount as
determined by a value-in-use ('VIU') calculation was higher than the carrying
value.
At 30 Jun 2023 At 31 Dec 2022
VIU Carrying value Fair value VIU Carrying value Fair value
$bn $bn $bn $bn $bn $bn
BoCom 23.9 23.3 9.4 23.5 23.3 8.1
The headroom, which is defined as the extent to which the VIU exceeds the
carrying value, increased by $0.4bn compared with 31 December 2022. The
increase in headroom was principally due to the movement in the discount rate
which was market driven, partly offset by revisions to management's best
estimates of BoCom's future earnings in the short to medium term.
In future periods, the VIU may increase or decrease depending on the effect of
changes to model inputs. The main model inputs are described below and are
based on factors observed at the period-end. The factors that could result in
a change in the VIU and an impairment include a short-term underperformance by
BoCom, a change in regulatory capital requirements, or an increase in
uncertainty regarding the future performance of BoCom resulting in a downgrade
of the forecast of future asset growth or profitability. An increase in the
discount rate could also result in a reduction of VIU and an impairment.
If the Group did not have significant influence in BoCom, the investment would
be carried at fair value rather than the current carrying value.
Basis of recoverable amount
The impairment test was performed by comparing the recoverable amount of
BoCom, determined by a VIU calculation, with its carrying amount. The VIU
calculation uses discounted cash flow projections based on management's best
estimates of future earnings available to ordinary shareholders prepared in
accordance with IAS 36 'Impairment of Assets'. Significant management
judgement is required in arriving at the best estimate.
There are two main components to the VIU calculation. The first component is
management's best estimate of BoCom's earnings. Forecast earnings growth over
the short to medium term are lower than recent (within the last five years)
historical actual growth and reflect the uncertainty arising from the current
economic outlook. Reflecting management's intent to continue to retain its
investment, earnings beyond the short to medium term are then extrapolated
into perpetuity using a long-term growth rate to derive a terminal value,
which comprises the majority of the VIU. The second component is the capital
maintenance charge ('CMC'), which is management's forecast of the earnings
that need to be withheld in order for BoCom to meet capital requirements over
the forecast period, meaning that CMC is deducted when arriving at
management's estimate of future earnings available to ordinary shareholders.
The principal inputs to the CMC calculation include estimates of asset growth,
the ratio of risk-weighted assets to total assets and the expected capital
requirements. An increase in the CMC as a result of a change to these
principal inputs would reduce VIU. Additionally, management considers other
qualitative factors, to ensure that the inputs to the VIU calculation remain
appropriate.
Key assumptions in value-in-use calculation
We used a number of assumptions in our VIU calculation, in accordance with the
requirements of IAS 36:
- Long-term profit growth rate: 3% (31 December 2022: 3%) for periods
after 2026, which does not exceed forecast GDP growth in mainland China and is
similar to forecasts by external analysts.
- Long-term asset growth rate: 3% (31 December 2022: 3%) for periods after
2026, which is the rate that assets are expected to grow to achieve long-term
profit growth of 3%.
- Discount rate: 9.80% (31 December 2022: 10.04%), which is based on a
capital asset pricing model ('CAPM'), using market data. The discount rate
used is within the range of 8.0% to 9.8% (31 December 2022: 8.4% to 10.4%)
indicated by the CAPM, and decreased as a consequence of a market driven
reduction in beta. While the CAPM range sits at the lower end of the range
adopted by selected external analysts of 8.8% to 13.5% (31 December 2022:
8.8%% to 13.5%), we continue to regard the CAPM range as the most appropriate
basis for determining this assumption.
- Expected credit losses ('ECL') as a percentage of customer advances:
ranges from 0.87% to 0.94% (31 December 2022: 0.99% to 1.05%) in the short to
medium term, reflecting reported credit experience through the recovery from
the Covid-19 pandemic in mainland China. For periods after 2026, the ratio is
0.97% (31 December 2022: 0.97%), which is higher than BoCom's average ECL as a
percentage of customer advances in recent years prior to the pandemic.
- Risk-weighted assets as a percentage of total assets: ranges from 61.0%
to 63.7% (31 December 2022: 61.0% to 64.4%) in the short to medium term,
reflecting higher risk-weights in the short term followed by an expected
reversion to recent historical levels. For periods after 2026, the ratio is
61.0% (31 December 2022: 61.0%), which is similar to BoCom's actual results in
recent years.
- Operating income growth rate: ranges from 1.7% to 9.4% (31 December
2022: 1.9% to 7.7%) in the short to medium term, which is similar to BoCom's
actual results in recent years, and is heavily influenced by projections of
net interest income in future periods. This reflects BoCom's most recent
actual results, global trade tensions and industry developments in mainland
China.
- Cost-income ratio: ranges from 35.5% to 36.8% (31 December 2022: 35.5%
to 36.3%) in the short to medium term. These ratios are similar to BoCom's
actual results in recent years and forecasts disclosed by external analysts.
- Effective tax rate: ranges from 5.3% to 15.0% (31 December 2022: 4.4% to
15.0%) in the short to medium term, reflecting BoCom's actual results and an
expected increase towards the long-term assumption through the forecast
period. For periods after 2026, the rate is 15.0% (31 December 2022: 15.0%),
which is higher than the recent historical average, and aligned to the minimum
tax rate as proposed by the OECD/G20 Inclusive Framework on Base Erosion and
Profit Shifting.
- Capital requirements: capital adequacy ratio of 12.5% (31 December 2022:
12.5%) and tier 1 capital adequacy ratio of 9.5% (31 December 2022: 9.5%),
based on BoCom's capital risk appetite and capital requirements respectively.
The following table shows the change to each key assumption in the VIU
calculation that on its own would reduce the headroom to nil:
Key assumption Changes to key assumption to reduce headroom to nil
- Long-term profit growth rate Decrease by 13 basis points
- Long-term asset growth rate Increase by 11 basis points
- Discount rate Increase by 17 basis points
- Expected credit losses as a percentage of customer advances Increase by 2 basis points
- Risk-weighted assets as a percentage of total assets Increase by 90 basis points
- Operating income growth rate Decrease by 24 basis points
- Cost-income ratio Increase by 53 basis points
- Long-term effective tax rate Increase by 153 basis points
- Capital requirements - capital adequacy ratio Increase by 18 basis points
- Capital requirements - tier 1 capital adequacy ratio Increase by 162 basis points
The following table further illustrates the impact on VIU of reasonably
possible changes to key assumptions. This reflects the sensitivity of the VIU
to each key assumption on its own and it is possible that more than one
favourable and/or unfavourable change may occur at the same time. The selected
rates of reasonably possible changes to key assumptions are based on external
analysts' forecasts, statutory requirements and other relevant external data
sources, which can change period to period.
Sensitivity of VIU to reasonably possible changes in key assumptions
Favourable change Unfavourable change
Increase in VIU VIU Decrease in VIU VIU
bps $bn $bn bps $bn $bn
At 30 Jun 2023
Long-term profit growth rate(1) 62 3.1 27.0 (72) (3.0) 20.9
Long-term asset growth rate(1) (72) 3.4 27.3 62 (3.6) 20.3
Discount rate (180) 8.2 32.1 210 (5.3) 18.6
Expected credit losses as a percentage of customer advances 2023 to 2026: 83 2.0 25.9 2023 to 2026: 120 (3.6) 20.3
2027 onwards: 91 2027 onwards: 104
Risk-weighted assets as a percentage of total assets (77) 0.1 24.0 280 (2.2) 21.7
Operating income growth rate 56 1.4 25.3 (116) (2.9) 21.0
Cost-income ratio (131) 0.9 24.8 164 (2.3) 21.6
Long-term effective tax rate (426) 1.6 25.5 1,000 (3.7) 20.2
Capital requirements - capital adequacy ratio - - 23.9 229 (7.8) 16.1
Capital requirements - tier 1 capital adequacy ratio - - 23.9 257 (3.9) 20.0
At 31 Dec 2022
Long-term profit growth rate(1) 75 3.6 27.1 (71) (2.7) 20.8
Long-term asset growth rate(1) (71) 3.1 26.6 75 (4.1) 19.4
Discount rate 6.9 30.4 136 19.8
(164) (3.7)
Expected credit losses as a percentage of customer advances 2022 to 2026: 95 1.9 25.4 2022 to 2026: 120 20.6
(2.9)
2027 onwards: 91 2027 onwards: 104
Risk-weighted assets as a percentage of total assets 0.1 23.6 239 21.2
(118) (2.3)
Operating income growth rate 44 1.3 24.8 21.0
(83) (2.5)
Cost-income ratio 1.0 24.5 174 21.4
(122) (2.1)
Long-term effective tax rate 1.5 25.0 1,000 19.9
(426) (3.6)
Capital requirements - capital adequacy ratio - - 23.5 191 17.2
(6.3)
Capital requirements - tier 1 capital adequacy ratio - - 23.5 266 20.3
(3.2)
1 The reasonably possible ranges of the long-term profit growth rate
and long-term asset growth rate assumptions reflect the close relationship
between these assumptions, which would result in offsetting changes to each
assumption.
Considering the interrelationship of the changes set out in the table above,
management estimates that the reasonably possible range of VIU is $16.2bn to
$29.3bn (31 December 2022: $16.9bn to $28.7bn). The range is based on impacts
set out in the table above arising from the favourable/unfavourable change in
the earnings in the short to medium term, the long-term expected credit losses
as a percentage of customer advances and a 50bps increase/decrease in the
discount rate. All other long-term assumptions, and the basis of the CMC have
been kept unchanged when determining the reasonably possible range of the VIU.
Impairment, if determined, would be recognised in the income statement. The
impact on the Group's CET1 ratio is expected to be minimal in the event of an
impairment, as the adverse impact on CET1 capital from the impairment would be
offset by the favourable impact from a lower carrying value.
Saudi Awwal Bank
The Group's investment in Saudi Awwal Bank ('SAB') is classified as an
associate. HSBC is the largest shareholder in SAB with a shareholding of 31%.
Significant influence in SAB is established via representation on the Board of
Directors. Investments in associates are recognised using the equity method of
accounting in accordance with IAS 28, as described previously for BoCom.
Impairment testing
There were no indicators of impairment at 30 June 2023. The fair value of the
Group's investment in SAB of $6.5bn was above the carrying amount of $4.7bn.
11 Provisions
Restructuring Legal proceedings Customer Other Total
costs and regulatory remediation provisions
matters
$m $m $m $m $m
Provisions (excluding contractual commitments)
At 31 Dec 2022 445 409 195 397 1,446
Additions 152 78 9 86 325
Amounts utilised (147) (171) (35) (34) (387)
Unused amounts reversed (45) (19) (34) (49) (147)
Exchange and other movements 23 (6) 8 6 31
At 30 Jun 2023 428 291 143 406 1,268
Contractual commitments(1)
At 31 Dec 2022 512
Net change in expected credit loss provision and other movements (58)
At 30 Jun 2023 454
Total provisions
At 31 Dec 2022 1,958
At 30 Jun 2023 1,722
1 Contractual commitments include the expected credit loss provision
in relation to off-balance sheet financial guarantee contracts and commitments
where HSBC has become party to an irrevocable commitment, as defined under
IFRS 9 'Financial Instruments'; and provisions for performance and other
guarantee contracts.
Further details of 'Legal proceedings and regulatory matters' are set out in
Note 13. Legal proceedings include civil court, arbitration or tribunal
proceedings brought against HSBC companies (whether by way of claim or
counterclaim); or civil disputes that may, if not settled, result in court,
arbitration or tribunal proceedings. 'Regulatory matters' refers to
investigations, reviews and other actions carried out by, or in response to,
the actions of regulators or law enforcement agencies in connection with
alleged wrongdoing by HSBC.
Customer remediation refers to HSBC'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 in
response to customer complaints and/or industry developments in sales
practices, and is not necessarily initiated by regulatory action.
For further details of the impact of IFRS 9 on undrawn loan commitments and
financial guarantees, presented in 'Contractual commitments', see Note 12.
Further analysis of the movement in the expected credit loss provision is
disclosed within the 'Reconciliation of changes in gross carrying/nominal
amount and allowances for loans and advances to banks and customers including
loan commitments and financial guarantees' table on page 78.
Brazil PIS and COFINS tax matters
Beginning in the late 1990s, HSBC Bank Brasil S.A. - Banco Múltiplo ('HSBC
Brazil') and other financial services firms brought legal proceedings in
Brazil challenging the assessment of PIS and COFINS taxes, which are federal
taxes imposed on gross revenues earned by legal entities in Brazil. The
Supreme Court of Brazil selected three cases - one involving an insurer, in
2007, and two involving other banks, in 2011 - to set standards that would
apply to all of these proceedings. In June 2023, the court ruled against the
financial services firms in all three cases. The standards set by the court in
this ruling have not yet been applied to HSBC Brazil's legacy cases, liability
for which remained with HSBC after the sale of HSBC's operations in Brazil to
Bradesco in 2016. There are many factors that may affect the range of outcomes
and any resulting financial impact for HSBC. Based upon the information
currently available, a provision was recognised in respect of one legacy case.
The remaining additional tax liability subject to challenge on all legacy PIS
and COFINS cases is up to $0.4bn.
12 Contingent liabilities, contractual commitments and guarantees
At
30 Jun 31 Dec
2023 2022
$m $m
Guarantees and other contingent liabilities:
- financial guarantees 18,882 18,783
- performance and other guarantees 89,758 88,240
- other contingent liabilities 590 676
At the end of the period 109,230 107,699
Commitments:(1)
- documentary credits and short-term trade-related transactions 7,698 8,241
- forward asset purchases and forward deposits placed 72,340 50,852
- standby facilities, credit lines and other commitments to lend 793,256 768,761
At the end of the period 873,294 827,854
1 Includes $649,526m of commitments at 30 June 2023 (31 December 2022:
$618,788m), to which the impairment requirements in IFRS 9 are applied where
HSBC 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 represent the maximum
amounts at risk should the contracts be fully drawn upon and the 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 11. 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 HSBC'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 13.
13 Legal proceedings and regulatory matters
HSBC is party to legal proceedings and regulatory matters in a number of
jurisdictions arising out of its normal business operations. Apart from the
matters described below, HSBC considers that none of these matters are
material. 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 as at 30
June 2023 (see Note 11). Where an individual provision is material, the fact
that a provision has been made is stated and quantified, except to the extent
that doing so would be seriously prejudicial. 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.
Bernard L. Madoff Investment Securities LLC
Various non-US HSBC companies provided custodial, administration and similar
services to a number of funds incorporated outside the US whose assets were
invested with Bernard L. Madoff Investment Securities LLC ('Madoff
Securities'). Based on information provided by Madoff Securities as at 30
November 2008, the purported aggregate value of these funds was $8.4bn,
including fictitious profits reported by Madoff. Based on information
available to HSBC, the funds' actual transfers to Madoff Securities minus
their actual withdrawals from Madoff Securities during the time HSBC serviced
the funds are estimated to have totalled approximately $4bn. Various HSBC
companies have been named as defendants in lawsuits arising out of Madoff
Securities' fraud.
US litigation: The Madoff Securities Trustee has brought lawsuits against
various HSBC companies and others, seeking recovery of transfers from Madoff
Securities to HSBC in an amount not specified, and these lawsuits remain
pending in the US Bankruptcy Court for the Southern District of New York (the
'US Bankruptcy Court').
Certain Fairfield entities (together, 'Fairfield') (in liquidation since July
2009) have brought a lawsuit in the US against fund shareholders, including
HSBC companies that acted as nominees for clients, seeking restitution of
redemption payments. In August 2022, the US District Court for the Southern
District of New York affirmed earlier decisions by the US Bankruptcy Court
that dismissed the majority of the liquidators' claims (against most of the
HSBC companies). In September 2022, the remaining defendants before the US
Bankruptcy Court sought leave to appeal and the liquidators filed appeals to
the US Court of Appeals for the Second Circuit, which are currently pending.
Meanwhile, proceedings before the US Bankruptcy Court with respect to the
remaining claims are ongoing.
UK litigation: The Madoff Securities Trustee has filed a claim against various
HSBC companies in the High Court of England and Wales, seeking recovery of
transfers from Madoff Securities to HSBC. The claim has not yet been served
and the amount claimed has not been specified.
Cayman Islands litigation: In February 2013, Primeo Fund ('Primeo') (in
liquidation since April 2009) brought an action against HSBC Securities
Services Luxembourg ('HSSL') and Bank of Bermuda (Cayman) Limited (now known
as HSBC Cayman Limited), alleging breach of contract and breach of fiduciary
duty and claiming monetary damages. Following dismissal of Primeo's action by
the lower and appellate courts in the Cayman Islands, in 2019, Primeo appealed
to the UK Privy Council. During 2021, the UK Privy Council held two separate
hearings in connection with Primeo's appeal. Judgment was given against HSBC
in respect of the first hearing and judgment is pending in respect of the
second hearing.
Luxembourg litigation: In April 2009, Herald Fund SPC ('Herald') (in
liquidation since July 2013) brought an action against HSSL before the
Luxembourg District Court, seeking restitution of cash and securities that
Herald purportedly lost because of Madoff Securities' fraud, or money damages.
The Luxembourg District Court dismissed Herald's securities restitution claim,
but reserved Herald's cash restitution and money damages claims. Herald has
appealed this judgment to the Luxembourg Court of Appeal, where the matter is
pending. In late 2018, Herald brought additional claims against HSSL and HSBC
Bank plc before the Luxembourg District Court, seeking further restitution and
damages.
In October 2009, Alpha Prime Fund Limited ('Alpha Prime') brought an action
against HSSL before the Luxembourg District Court, seeking the restitution of
securities, or the cash equivalent, or money damages. In December 2018, Alpha
Prime brought additional claims seeking damages against various HSBC
companies. These matters are currently pending before the Luxembourg District
Court.
In December 2014, Senator Fund SPC ('Senator') brought an action against HSSL
before the Luxembourg District Court, seeking restitution of securities, or
the cash equivalent, or money damages. In April 2015, Senator commenced a
separate action against the Luxembourg branch of HSBC Bank plc asserting
identical claims. In December 2018, Senator brought additional claims against
HSSL and HSBC Bank plc Luxembourg branch, seeking restitution of Senator's
securities or money damages. These matters are currently pending before the
Luxembourg District Court.
There are many factors that may affect the range of possible outcomes, and any
resulting financial impact, of the various Madoff-related proceedings
described above, including but not limited to the multiple jurisdictions in
which the proceedings have been brought. Based upon the information currently
available, management's estimate of the possible aggregate damages that might
arise as a result of all claims in the various Madoff-related proceedings is
around $600m, excluding costs and interest. Due to uncertainties and
limitations of this estimate, any possible damages that might ultimately arise
could differ significantly from this amount.
Anti-money laundering and sanctions-related matters
Since November 2014, a number of lawsuits have been filed in federal courts in
the US against various HSBC companies and others on behalf of plaintiffs who
are, or are related to, victims of terrorist attacks in the Middle East. In
each case, it is alleged that the defendants aided and abetted the unlawful
conduct of various sanctioned parties in violation of the US Anti-Terrorism
Act. Nine actions remain pending in federal courts and HSBC's motions to
dismiss have been granted in five of these cases. In September 2022 and
January 2023, respectively, the appellate courts affirmed the dismissals of
two of the cases, and the plaintiffs are seeking review of these decisions by
the US Supreme Court. The dismissals in the other cases are subject to appeal.
The four remaining actions are at an early stage.
Based on the facts currently known, it is not practicable at this time for
HSBC to predict the resolution of these matters, including the timing or any
possible impact on HSBC, which could be significant.
Interbank offered rates investigation and litigation
Euro interest rate derivatives: In December 2016, the European Commission
('EC') issued a decision finding that HSBC, among other banks, engaged in
anti-competitive practices in connection with the pricing of euro interest
rate derivatives, and the EC imposed a fine on HSBC based on a one-month
infringement in 2007. The fine was annulled in 2019 and a lower fine was
imposed in 2021. In January 2023, the European Court of Justice dismissed an
appeal by HSBC and upheld the EC's findings on HSBC's liability. A separate
appeal by HSBC concerning the amount of the fine remains pending before the
General Court of the European Union.
US dollar Libor: Beginning in 2011, HSBC and other panel banks have been named
as defendants in a number of private lawsuits filed in federal and state
courts in the US with respect to the setting of US dollar Libor. The
complaints assert claims under various US federal and state laws, including
antitrust and racketeering laws and the Commodity Exchange Act ('US CEA'). The
lawsuits include individual and putative class actions, most of which have
been transferred and/or consolidated for pre-trial purposes before the US
District Court for the Southern District of New York. HSBC has reached class
settlements with five groups of plaintiffs, and the court has approved these
settlements. HSBC has also resolved several of the individual actions,
although a number of other US dollar Libor-related actions remain pending.
Based on the facts currently known, it is not practicable at this time for
HSBC to predict the resolution of these matters, including the timing or any
possible impact on HSBC, which could be significant.
Foreign exchange-related investigations and litigation
In December 2016, Brazil's Administrative Council of Economic Defense
initiated an investigation into the onshore foreign exchange market and
identified a number of banks, including HSBC, as subjects of its
investigation, which remains ongoing.
In June 2020, the Competition Commission of South Africa, having initially
referred a complaint for proceedings before the South African Competition
Tribunal in February 2017, filed a revised complaint against 28 financial
institutions, including HSBC Bank plc and HSBC Bank USA N.A. ('HSBC Bank
USA'), for alleged anti-competitive behaviour in the South African foreign
exchange market. In March 2023, HSBC Bank plc's and HSBC Bank USA's
applications to dismiss the revised complaint were denied and, in April 2023,
HSBC Bank plc and HSBC Bank USA appealed the decision to the South African
Competition Appeal Court.
Beginning in 2013, various HSBC companies and other banks have been named as
defendants in a number of putative class actions filed in, or transferred to,
the US District Court for the Southern District of New York arising from
allegations that the defendants conspired to manipulate foreign exchange
rates. HSBC has reached class settlements with two groups of plaintiffs,
including direct and indirect purchasers of foreign exchange products, and the
court has granted final approval of these settlements. A putative class action
by a group of retail customers of foreign exchange products remains pending.
In 2018, complaints alleging foreign exchange-related misconduct were filed in
the US District Court for the Southern District of New York and the High Court
of England and Wales against HSBC and other defendants by certain plaintiffs
that opted out of the direct purchaser class action settlement in the US. HSBC
has reached a settlement with the plaintiffs to resolve these claims. These
matters are now closed. In January 2023, HSBC reached a
settlement-in-principle with plaintiffs in Israel to resolve a class action
filed in the local courts alleging foreign exchange-related misconduct. The
settlement remains subject to the negotiation of definitive documentation and
court approval. Lawsuits alleging foreign exchange-related misconduct remain
pending against HSBC and other banks in courts in Brazil. It is possible that
additional civil actions will be initiated against HSBC in relation to its
historical foreign exchange activities.
There are many factors that may affect the range of outcomes, and the
resulting financial impact, of the pending matters, which could be
significant.
Precious metals fix-related litigation
Gold: Since 2015, numerous putative class actions have been filed in the
Ontario and Quebec Superior Courts of Justice against various HSBC companies
and other financial institutions. The plaintiffs allege that, among other
things, from January 2004 to March 2014, the defendants conspired to
manipulate the price of gold and gold derivatives in violation of the Canadian
Competition Act and common law. These actions are ongoing.
Silver: HSBC and other members of The London Silver Market Fixing Limited are
defending a class action pending in the US District Court for the Southern
District of New York alleging that, from January 2007 to December 2013, the
defendants conspired to manipulate the price of silver and silver derivatives
for their collective benefit in violation of US antitrust laws, the US CEA and
New York state law. In May 2023, the court granted the defendants' motion to
dismiss. The plaintiffs have appealed the dismissal, and this appeal remains
pending.
In April 2016, two putative class actions were filed in the Ontario and Quebec
Superior Courts of Justice against various HSBC companies and other financial
institutions. The plaintiffs in both actions allege that, from January 1999 to
August 2014, the defendants conspired to manipulate the price of silver and
silver derivatives in violation of the Canadian Competition Act and common
law. These actions are ongoing.
Platinum and palladium: HSBC and other members of The London Platinum and
Palladium Fixing Company Limited are defending a class action pending in the
US District Court for the Southern District of New York alleging that, from
January 2008 to November 2014, the defendants conspired to manipulate the
price of platinum group metals and related financial products for their
collective benefit in violation of US antitrust laws and the US CEA. In
February 2023, the court reversed an earlier dismissal of the plaintiffs'
third amended complaint, and this matter is proceeding.
Based on the facts currently known, it is not practicable at this time for
HSBC to predict the resolution of these matters, including the timing or any
possible impact on HSBC, which could be significant.
Gilts trading investigation and litigation
Since 2018, the UK Competition and Markets Authority ('CMA') has been
investigating HSBC and four other banks for suspected anti-competitive conduct
in relation to the historical trading of gilts and related derivatives. In May
2023, the CMA announced its case against HSBC Bank plc and HSBC Holdings, and
both HSBC companies are contesting the CMA's allegations.
In June 2023, HSBC Bank plc and HSBC Securities (USA) Inc., among other banks,
were named as defendants in a putative class action filed in the US District
Court for the Southern District of New York by plaintiffs alleging
anti-competitive conduct in the gilts market. This matter is at an early
stage. It is possible that additional civil actions will be initiated against
HSBC in relation to its historical gilts trading activities.
Based on the facts currently known, it is not practicable at this time for
HSBC to predict the resolution of these matters, including the timing or any
possible impact on HSBC, which could be significant.
Other regulatory investigations, reviews and litigation
HSBC Holdings and/or certain of its affiliates are subject to a number of
other investigations and reviews by various regulators and competition and law
enforcement authorities, as well as litigation, in connection with various
matters relating to the firm's businesses and operations, including:
- an investigation by the PRA in connection with depositor protection
arrangements in the UK;
- an investigation by the FCA in connection with collections and
recoveries operations in the UK;
- investigations by prosecuting authorities in Germany and France in
connection with the dividend withholding tax treatment of certain trading
activities;
- an investigation by the US Commodity Futures Trading Commission ('CFTC')
regarding interest rate swap transactions related to bond issuances, among
other things. HSBC has reached a settlement with the CFTC to resolve this
investigation, and this matter is now closed;
- investigations by the CFTC and the US Securities and Exchange Commission
('SEC') concerning compliance with records preservation requirements relating
to the use of unapproved electronic messaging platforms for business
communications. HSBC has reached settlements with the CFTC and SEC to resolve
these investigations, and these matters are now closed;
- investigations by tax administration, regulatory and law enforcement
authorities in various countries in connection with allegations of tax evasion
or tax fraud, money laundering and unlawful cross-border banking solicitation;
- 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;
- litigation brought against various HSBC companies in New York State
court relating to residential mortgage-backed securities, based primarily on
(a) claims brought against HSBC Bank USA in connection with its role as
trustee on behalf of various securitisation trusts; and (b) claims against
several HSBC companies seeking to have the defendants repurchase various
mortgage loans;
- a putative class action brought in the US District Court for the
Southern District of New York relating to the Mexican government bond market;
- claims issued by two separate investor groups against HSBC UK Bank plc
(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; and
- two group actions pending in federal courts in the US and a claim issued
in the High Court of England and Wales in connection with HSBC Bank plc's role
as a correspondent bank to Stanford International Bank Ltd from 2003 to 2009.
HSBC Bank plc has reached settlements with the plaintiffs in the US and UK to
resolve these claims. The US settlement is subject to court approval and the
UK settlement has concluded.
There are many factors that may affect the range of outcomes, and the
resulting financial impact, of the pending matters, which could be
significant.
14 Transactions with related parties
There were no changes in 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 HSBC in the half-year to 30 June 2023.
All 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.
15 Assets held for sale, liabilities of disposal groups held for sale and
business acquisitions
At
30 Jun 31 Dec
2023 2022
$m $m
Disposal groups 94,995 118,055
Unallocated impairment losses(1) (298) (2,385)
Non-current assets held for sale(2) 783 249
Assets held for sale 95,480 115,919
Liabilities of disposal groups held for sale 87,241 114,597
1 This represents impairment losses in excess of the carrying value of the
non-current assets included in the measurement scope of IFRS 5.
2 Includes $0.5bn of US commercial real estate loans classified as held
for sale at 30 June 2023.
Disposal groups
Planned sale of our retail banking operations in France
On 25 November 2021, HSBC Continental Europe signed a framework agreement with
Promontoria MMB SAS ('My Money Group') and its subsidiary Banque des Caraïbes
SA, regarding the planned sale of HSBC Continental Europe's retail banking
operations in France. The sale, which is subject to information and
consultation processes with respective works councils, regulatory approvals
and the satisfaction of other relevant conditions, included: HSBC Continental
Europe's French retail banking operations; the Crédit Commercial de France
('CCF') brand; and HSBC Continental Europe's 100% ownership interest in HSBC
SFH (France) and its 3% ownership interest in Crédit Logement.
During 1Q23, the completion of the planned transaction became less certain.
This was due to a significant rise in interest rates in France, which is
expected to increase the amount of capital required by the buyer on
completion. Given the completion of the sale had become less certain, we were
required by IFRS 5 to change the accounting classification of our retail
banking operations in France to be no longer classified as held for sale,
resulting in a $2.1bn reversal of the previously recognised impairment in
respect of the sale. The related $0.4bn impairment of goodwill previously
recognised was not reversed.
On 14 June 2023, HSBC Continental Europe signed a further memorandum of
understanding with the buyer regarding certain potential changes to the terms
of the sale, which are designed to enable the buyer to satisfy its future
capital requirements and to obtain regulatory approval for the transaction.
The potential changes foresee: the retention of $7.5bn of home and other loans
by HSBC Continental Europe that were originally planned to transfer as part of
the sale, the inclusion in the perimeter for sale of a cash amount equivalent
to the carrying value of the retained portfolio of loans, and the setting of
the net asset value of the transferred business by reference to relevant
prevailing market rates at completion. In addition, depending on the
prevailing market rates at completion, HSBC Continental Europe may receive a
profit participation interest in exchange for investing capital into the top
holding company of My Money Group, such that the aggregate of the actual net
asset value delivered at completion and the investment made in the profit
participation interest would not exceed €1.768bn. The potential changes also
foresee the retention of the CCF brand, the entry into a long-term agreement
to license it to the buyer and certain enhancements to the insurance and asset
management distribution agreements with the buyer. The transaction remains
subject to information and consultation processes with respective works
councils and regulatory approvals, and the parties aim to complete on 1
January 2024.
Taking into account the potential changes, the transaction is expected to
result in the recognition of a pre-tax loss on sale estimated up to €2.0bn
($2.2bn) upon reclassification of the business as held for sale. This is
expected during the second half of 2023 provided sufficient progress is
demonstrated to support the appropriate level of probability of successful
completion. Once that threshold is achieved, the disposal group will be
reclassified as held for sale and will be remeasured at the lower of carrying
amount and fair value less costs to sell at each reporting period. Any
remaining gains or losses not previously recognised and the reversal of any
remaining deferred tax assets and liabilities, will be recognised on
completion.
At 30 June 2023, a deferred tax liability of $0.4bn was recognised as a
consequence of the temporary difference in tax and accounting treatment in
respect of the provision for loss on disposal, which was deductible in the
French tax return in 2021 but will be accounted for when the disposal group is
classified as held for sale in accordance with IFRS 5, at which time the
deferred tax liability will reverse.
Agreed sale of our banking business in Canada
On 29 November 2022, HSBC Holdings plc announced that its wholly-owned
subsidiary, HSBC Overseas Holdings (UK) Limited, had entered into an agreement
for the sale of its banking business in Canada to Royal Bank of Canada.
Completion of the transaction is expected to occur in the first quarter of
2024, subject to regulatory and governmental approvals.
The majority of the estimated gain on sale of $5.3bn will be recognised on
completion, reduced by earnings recognised by the Group in the period to
completion. The estimated pre-tax profit on the sale will be recognised
through a combination of the consolidation of HSBC Canada's results into the
Group's financial statements (between the 30 June 2022 net asset reference
date and until completion), and the remaining gain on sale recognised at
completion. There would be no tax on the gain recognised at completion. At 30
June 2023, total assets of $87.2bn and total liabilities of $80.4bn met the
criteria to be classified as held for sale in accordance with IFRS 5.
Planned sale of our branch operations in Greece
On 24 May 2022, HSBC Continental Europe signed a sale and purchase agreement
for the sale of its branch operations in Greece to Pancreta Bank SA. In the
second quarter of 2022, we recognised a loss of $0.1bn, including goodwill
impairment, upon reclassification as held for sale in accordance with IFRS 5.
At 30 June 2023, the disposal group included $0.3bn of loans and advances to
customers and $1.5bn of customer accounts.
Planned sale of our business in Russia
On 30 June 2022, following a strategic review of our business in Russia, HSBC
Europe BV (a wholly-owned subsidiary of HSBC Bank plc) entered into an
agreement for the planned sale of its wholly-owned subsidiary HSBC Bank (RR)
(Limited Liability Company). Completion of the transaction is subject to
regulatory and governmental approvals. In 2022, a $0.3bn loss on the planned
sale was recognised, upon reclassification as held for sale in accordance with
IFRS 5. Completion is currently expected to occur in the second half of 2023.
At 30 June 2023, the business remained classified as held for sale.
Planned merger of our business Oman
On 15 November 2022, HSBC Bank Oman SAOG entered into a binding merger
agreement with Sohar International Bank SAOG, under which the two banks agreed
to take the necessary steps to implement a merger by incorporation, whereby
HSBC Bank Oman would merge into Sohar International Bank. On 5 February 2023,
HSBC Bank Oman received approval from the Central Bank of Oman for the
proposed merger. On 20 June 2023, the merger was approved by the shareholders
of HSBC Bank Oman and Sohar International Bank through their respective
Extraordinary General Meetings. The merger is expected to be completed in the
third quarter of 2023. Upon completion of the merger, all of the assets and
liabilities of HSBC Bank Oman would be transferred to Sohar International
Bank, and HSBC Bank Oman would be dissolved with the shareholders of HSBC Bank
Oman entitled to receive consideration in cash and/or shares in Sohar
International Bank. In addition, HSBC Bank Middle East Limited is planning to
establish a new wholesale banking branch in Oman subject to regulatory
approvals. At 30 June 2023, $6.0bn in assets and $5.3bn in liabilities were
reclassified as held for sale in accordance with IFRS 5.
At 30 June 2023, the major classes of assets and associated liabilities of
disposal groups held for sale, including allocated impairment losses, were as
follows:
Canada Oman Other Total
$m $m $m $m
Assets of disposal groups held for sale
Cash and balances at central banks 3,541 576 1,109 5,226
Trading assets 2,273 - 2,279
6
Financial assets designated and otherwise mandatorily measured at fair value - -
through profit or loss 15 15
Derivatives 584 - 585
1
Loans and advances to banks 891 182 1,149
76
Loans and advances to customers 55,932 2,975 303 59,210
Reverse repurchase agreements - non-trading 3,254 - 125 3,379
Financial investments(1) 17,424 1,418 18,863
21
Goodwill 225 - - 225
Prepayments, accrued income and other assets 3,913 128 4,064
23
Total assets at 30 Jun 2023 87,237 5,988 1,770 94,995
Liabilities of disposal groups held for sale
Trading liabilities 1,903 - 1,905
2
Deposits by banks 175 253
77 1
Customer accounts 59,813 4,878 1,463 66,154
Repurchase agreements - non-trading 2,615 - - 2,615
Derivatives 788 - - 788
Debt securities in issue 9,127 - - 9,127
Subordinated liabilities - -
8 8
Accruals, deferred income and other liabilities 5,975 383 6,391
33
Total liabilities at 30 Jun 2023 80,404 5,338 1,499 87,241
Expected date of completion First half of 2024 Second half of 2023
Operating segment All global businesses All global businesses
1 Includes financial investments measured at fair value through other
comprehensive income of $12,119m and debt instruments measured at amortised
cost of $6,744m.
Business acquisitions
Silicon Valley Bank UK Limited (now HSBC Innovation Bank Limited)
In March 2023, HSBC UK Bank plc acquired Silicon Valley Bank UK Limited ('SVB
UK'), and in June 2023 changed its legal entity name to HSBC Innovation Bank
Limited. The acquisition was funded from existing resources and brought the
staff, assets and liabilities of SVB UK into the HSBC portfolio. On
acquisition, we performed a preliminary assessment of the fair value of the
assets and liabilities purchased. We established an 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 $0.2bn. The provisional gain on
acquisition of $1.5bn 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 $146m of revenue and $66m to the
Group profit after tax for the period from the 13 March 2023 to 30 June 2023.
As per the disclosure requirement set out in IFRS 3 'Business Combinations',
if HSBC Innovation Bank Limited had been acquired on 1 January 2023 and
included in the Group results, management estimates that for the six months to
30 June 2023 the Group consolidated revenue would have been $37,024m and the
Group consolidated profit after tax would have been $18,149m. In determining
these, management has assumed that the fair value adjustments that arose on
acquisition would have been the same if the acquisition had occurred on 1
January 2023.
The details of the business combination are as follows:
At
13 March
2023
$m
Fair value of assets acquired 11,291
Fair value of liabilities acquired (9,784)
Fair value of net assets acquired 1,507
Provisional gain on acquisition 1,507
Consideration transferred settled in cash -
Cash and cash equivalents acquired 1,243
Net cash inflow on acquisition 1,243
16 Effects of adoption of IFRS 17
On 1 January 2023, the Group adopted IFRS 17 'Insurance Contracts', and as
required by the standard applied the requirements retrospectively, with
comparatives restated from the transition date, 1 January 2022. Under IFRS 17
there is no PVIF intangible asset recognised. Instead, the measurement of the
insurance contract liability is based on groups of insurance contracts and
includes fulfilment cash flows, as well as the CSM unearned profit. The impact
of transitioning to IFRS 17 on the consolidated financial statements of the
Group was a reduction to total equity of $10,459m at 1 January 2022. In
contrast to the Group's IFRS 4 accounting where profits are recognised
upfront, under IFRS 17 they are deferred within the CSM which is
systematically recognised in revenue as services are provided over the
expected coverage period of groups of insurance contracts. Losses resulting
from the recognition of onerous contracts are not deferred but recognised in
the income statement as they arise. The impact on the Group's consolidated
balance sheet, income statement and other comprehensive income are set out in
the tables below.
Further information about the effect of the adoption of IFRS 17 is provided in
Note 1 'Basis of preparation of material accounting policies' on page 115 and
in the Report on Transition to IFRS 17 'Insurance Contracts' issued on 2 May
2023.
IFRS 17 transition impact on the Group consolidated balance sheet at 1 January
2022
IFRS 4 Removal of PVIF and IFRS 4 Remeasure-ment effect of IFRS 9 re-designations IFRS 17 IFRS 17 Tax effect IFRS 17 Total
fulfilment cash flows CSM movements
$m $m $m $m $m $m $m $m
Assets
Financial assets designated and otherwise mandatorily measured at fair value 49,804 - 60,991 - - - 110,795 60,991
through profit or loss
Loans and advances to banks 83,136 - (569) - - - 82,567 (569)
Loans and advances to customers - (1,280) - - - 1,044,534 (1,280)
1,045,814
Financial investments 446,274 - (54,269) - - - 392,005 (54,269)
Goodwill and intangible assets 20,622 (9,453) - - - - 11,169 (9,453)
Deferred tax assets 4,624 - - - - 808 5,432 808
All other assets (4,468) - 4,198 (105) - 1,307,290 (375)
1,307,665
Total assets (13,921) 4,873 4,198 (105) 808 2,953,792 (4,147)
2,957,939
Liabilities and equity
Liabilities
Insurance contract liabilities 112,745 (112,745) - 109,393 9,914 - 119,307 6,562
Deferred tax liabilities 4,673 - - - - (1,379) 3,294 (1,379)
All other liabilities 78 - 1,102 (51) - 2,634,873 1,129
2,633,744
Total liabilities (112,667) - 110,495 9,863 (1,379) 2,757,474 6,312
2,751,162
Total shareholders' equity 198,250 92,738 4,558 (99,631) (8,847) 1,947 189,015 (9,235)
Non-controlling interests 8,527 6,008 315 (6,666) (1,121) 240 7,303 (1,224)
Total equity 206,777 98,746 4,873 (106,297) (9,968) 2,187 196,318 (10,459)
Total liabilities and equity (13,921) 4,873 4,198 (105) 808 2,953,792 (4,147)
2,957,939
Transition drivers
Removal of PVIF and IFRS 4 balances
The PVIF intangible asset of $9,453m previously reported under IFRS 4 within
'Goodwill and intangible assets' arose from the upfront recognition of future
profits associated with in-force insurance contracts. The PVIF intangible
asset is no longer reported following the transition to IFRS 17, as future
profits are deferred within the CSM. Other IFRS 4 insurance contract assets
(shown above within 'All other assets') and insurance contract liabilities are
removed on transition, to be replaced with IFRS 17 balances.
IFRS 9 asset re-designation
Loans and advances of $1,849m and debt securities of $53,201m, both supporting
associated insurance liabilities, were re-designated from an amortised cost
classification to fair value through profit and loss. Debt securities
supporting the associated insurance liabilities of $1,068m were reclassified
from fair value through other comprehensive income to fair value through
profit or loss. The re-designations were made in order to more closely align
the asset accounting with the valuation of the associated insurance
liabilities. The re-designation of amortised cost assets generated a net
increase to assets of $4,873m because the fair value measurement on transition
was higher than the previous amortised cost carrying amount.
Recognition of the IFRS 17 fulfilment cash flows
The measurement of the insurance contracts liabilities under IFRS 17 is based
on groups of insurance contracts and includes a liability for fulfilling the
insurance contracts, such as premiums, expenses, insurance benefits and claims
including policyholder returns and the cost of guarantees. These are recorded
within the fulfilment cash flow component of the insurance contract liability,
together with the risk adjustment for non-financial risk.
Recognition of the IFRS 17 CSM
The CSM is a component of the insurance contract liability and represents the
future unearned profit associated with insurance contracts which will be
released to the profit and loss over the expected coverage period.
Tax effect
The removal of deferred tax liabilities primarily results from the removal of
the associated PVIF intangible asset, and new deferred tax assets are
reported, where appropriate, on temporary differences between the new IFRS 17
accounting balances and their associated tax bases.
IFRS 17 transition impact on the reported Group consolidated income statement
for the 6 months ended 30 June 2022
IFRS 4 Removal of PVIF and IFRS 4 Remeasure-ment effect of IFRS 9 re-designations Insurance finance income/expense IFRS 17 CSM Onerous contracts Experience variance and other Attribut- Tax effect IFRS 17
able expenses
$m $m $m $m $m $m $m $m $m $m
Net interest income 14,451 - (1,066) - - - - - - 13,385
Net fee income 6,064 - - - - - - 164 - 6,228
Net income from financial instruments held for trading 4,921 - (65) - - - - - - 4,856
or managed on a fair
value basis
Net expense from assets and liabilities of insurance (3,051) - (8,798) - - - - - - (11,849)
businesses, including
related derivatives, measured at fair value through
profit or loss
Net insurance premium income 7,646 (7,646) - - - - - - - -
Insurance finance income/(expense) - - - 11,773 - - 11,773
Insurance service result - - - - 459 (120) 31 - - 370
- insurance revenue - - - - 459 521 - - 980
- insurance service expense - - - - (120) (490) - - (610)
Other operating income/(loss) 654 (892) 52 (32) (218)
Total operating income 30,685 (8,538) (9,929) 11,825 459 (120) (1) 164 - 24,545
Net insurance claims and benefits paid and movement in (5,449) 5,449 - - - - - - - -
liabilities to
policyholders
Net operating income before change in expected credit 25,236 (3,089) (9,929) 11,825 459 (120) (1) 164 - 24,545
losses and other credit
impairment charges
Change in expected credit losses and other credit (1,090) - 3 - - - - - - (1,087)
impairment charges
Net operating income 24,146 (3,089) (9,926) 11,825 459 (120) (1) 164 - 23,458
Total operating expenses (16,419) - - - - - 292 - (16,127)
Operating profit 7,727 (3,089) (9,926) 11,825 459 (120) (1) 456 - 7,331
Share of profit in associates and joint ventures 1,449 - - - - - - - - 1,449
Profit before tax 9,176 (3,089) (9,926) 11,825 459 (120) (1) 456 - 8,780
Tax expense 39 - - - - - - - 112 151
Profit for the period 9,215 (3,089) (9,926) 11,825 459 (120) (1) 456 112 8,931
Transition drivers
Removal of IFRS 4-based revenue items
As a result of the removal of the PVIF intangible asset and IFRS 4 results,
the associated revenue of $892m for the six months to 30 June 2022 that was
previously reported within 'Other operating income' is no longer reported
under IFRS 17. This includes the removal of the value of new business and
changes to PVIF intangible asset from valuation adjustments and experience
variances.
On the implementation of IFRS 17, new income statement line items associated
with insurance contract accounting were introduced. Consequently, the
previously reported IFRS 4 line items 'Net insurance premium income' and 'Net
insurance claims and benefits paid and movement in liabilities to
policyholders' were also removed.
IFRS 9 re-designations
Following the re-designation of financial assets supporting associated
insurance liabilities to fair value through profit or loss classification, the
related income statement reporting also changed. Under our previous IFRS
4-based reporting convention, these assets generated interest income of
$1,066m for the six months to 30 June 2022, which is no longer reported in
'Net interest income' under IFRS 17. To the extent that this interest income
was shared with policyholders, the corresponding policyholder sharing
obligation was previously included within the 'net insurance claims and
benefits paid and movement in liabilities to policyholders' line.
Following re-designation to fair value through profit or loss, gains and
losses from changes in the fair value of underlying assets, together with
interest income earned, are both reported within 'Net expense from assets and
liabilities of insurance businesses, including related derivatives, measured
at fair value through profit or loss'. Similar to an IFRS 4 basis, IFRS 17
accounting provides for an offset. While this offset was reported within the
claims line under IFRS 4, under IFRS 17 it is reported within the 'Insurance
finance income/(expense)' line described below.
Introduction of IFRS 17 income statement
Insurance finance income/(expense)
Insurance finance income/(expense) of $11,773m for the six months to 30 June
2022 represents the change in the carrying amount of insurance contracts
arising from the effect of, and changes in, the time value of money and
financial risk. For variable fee approach contracts, which represent more than
90% of HSBC's insurance contracts, the insurance finance income/(expense)
includes the changes in the fair value of underlying items (excluding
additions and withdrawals). It therefore has an offsetting impact to
investment income earned on underlying assets supporting insurance contracts.
This includes an offsetting impact to the gains and losses on assets
re-designated on transition to fair value through profit or loss, and which is
now included in 'Net expense from assets and liabilities of insurance
businesses, including related derivatives, measured at fair value through
profit or loss'.
CSM
Revenue is recognised for the release of the CSM associated with the in-force
business, which was allocated at a rate of approximately 9% during 2022. The
CSM release is largely impacted by the constant measure allocation approach
for investment services, but may vary over time primarily due to changes in
the total amount of CSM reported on the balance sheet from factors such as new
business written, changes to levels of actual returns earned on underlying
assets, or changes to assumptions.
Onerous contracts
Losses on onerous contracts are taken to the income statement as incurred.
Experience variance and other
'Experience variance and other' represents the expected expenses, claims and
recovery of acquisition cash flows, which are reported as part of the
insurance revenue. This is offset with the actual expenses and claims incurred
in the period and amortisation of acquisition cash flows, which are reported
as part of insurance service expense.
Attributable expenses
Directly attributable expenses are the costs associated with originating and
fulfilling an identified portfolio of insurance contracts. These costs include
distribution fees paid to third parties as part of originating insurance
contracts together with appropriate allocations of fixed and variable
overheads, which are included within the fulfilment cash flows and are no
longer shown on the operating expenses line.
IFRS 17 transition impact on the Group comprehensive income
Half year to
31 Dec 31 Dec 30 Jun 30 Jun
2022 2022 2022 2022
IFRS 17 IFRS 4 IFRS 17 IFRS 4
$m $m $m $m
Opening total equity for the period 186,105 196,690 196,318 206,777
of which
- retained earnings 140,860 150,417 135,236 144,458
- financial assets at FVOCI reserve (6,011) (5,354) 49 (634)
- insurance finance reserve 664 - (696) -
Profit for the period 7,318 7,455 8,931 9,215
Debt instruments at fair value through other comprehensive income (986) (561) (6,246) (4,907)
Equity instruments designated at fair value through other comprehensive income (51) (51) 158 158
Insurance finance income recognised in other comprehensive income 415 - 1,360 -
Other comprehensive expense for the period, net of tax (4,090) (3,990) (7,801) (7,950)
Total comprehensive (expense)/income for the period 2,606 2,853 (3,598) (3,484)
Other movements (3,514) (3,515) (6,615) (6,603)
Closing total equity for the period 185,197 196,028 186,105 196,690
Transition drivers
Insurance finance reserve
The insurance finance reserve reflects the impact of the adoption of the other
comprehensive income option for our insurance business in France. Underlying
assets supporting these contracts are measured at fair value through other
comprehensive income. Under this option, only the amount that matches income
or expenses recognised in profit or loss on underlying items is included in
finance income or expenses, resulting in the elimination of income statement
accounting mismatches. The remaining amount of finance income or expenses for
these insurance contracts is recognised in OCI. At the transition date an
insurance finance reserve of $696m was recognised and following transition,
gains net of tax of $1,360m were recorded in the six months to 30 June 2022
and $415m for the six-month period to 31 December 2022. An offsetting fair
value through other comprehensive income reserve of $683m recorded on
transition represents the accumulated fair value movements on assets
supporting these insurance liabilities, with associated losses net of tax of
$1,439m recorded within the fair value through other comprehensive income
reserve for the six months to 30 June 2022 and $459m for the six months to 31
December 2022.
Group's consolidated balance sheet as at the transition date and at 31
December 2022
IFRS 17 IFRS 4
31 Dec 1 Jan 31 Dec 31 Dec
2022 2022 2022 2021
$m $m $m $m
Assets
Cash and balances at central banks 327,002 403,018 327,002 403,018
Items in the course of collection from other banks 7,297 4,136 7,297 4,136
Hong Kong Government certificates of indebtedness 43,787 42,578 43,787 42,578
Trading assets 218,093 248,842 218,093 248,842
Financial assets designated and otherwise mandatorily measured at fair value 100,101 110,795 45,063 49,804
through profit or loss
Derivatives 284,159 196,882 284,146 196,882
Loans and advances to banks 104,475 82,567 104,882 83,136
Loans and advances to customers 923,561 1,044,534 924,854 1,045,814
Reverse repurchase agreements - non-trading 253,754 241,648 253,754 241,648
Financial investments 364,726 392,005 425,564 446,274
Assets held for sale 115,919 3,411 115,919 3,411
Prepayments, accrued income and other assets 156,149 136,196 156,866 136,571
Current tax assets 1,230 970 1,230 970
Interests in associates and joint ventures 29,254 29,609 29,254 29,609
Goodwill and intangible assets 11,419 11,169 21,321 20,622
Deferred tax assets 8,360 5,432 7,498 4,624
Total assets 2,949,286 2,953,792 2,966,530 2,957,939
Liabilities and equity
Liabilities
Hong Kong currency notes in circulation 43,787 42,578 43,787 42,578
Deposits by banks 66,722 101,152 66,722 101,152
Customer accounts 1,570,303 1,710,574 1,570,303 1,710,574
Repurchase agreements - non-trading 127,747 126,670 127,747 126,670
Items in the course of transmission to other banks 7,864 5,214 7,864 5,214
Trading liabilities 72,353 84,904 72,353 84,904
Financial liabilities designated at fair value 127,321 145,503 127,327 145,502
Derivatives 285,762 191,064 285,764 191,064
Debt securities in issue 78,149 78,557 78,149 78,557
Liabilities of disposal groups held for sale 114,597 9,005 114,597 9,005
Accruals, deferred income and other liabilities 134,313 115,900 133,240 114,773
Current tax liabilities 1,135 699 1,135 698
Insurance contract liabilities 108,816 119,307 114,844 112,745
Provisions 1,958 2,566 1,958 2,566
Deferred tax liabilities 972 3,294 2,422 4,673
Subordinated liabilities 22,290 20,487 22,290 20,487
Total liabilities 2,764,089 2,757,474 2,770,502 2,751,162
Equity
Called up share capital 10,147 10,316 10,147 10,316
Share premium account 14,664 14,602 14,664 14,602
Other equity instruments 19,746 22,414 19,746 22,414
Other reserves (9,133) 6,447 (9,141) 6,460
Retained earnings 142,409 135,236 152,068 144,458
Total shareholders' equity 177,833 189,015 187,484 198,250
Non-controlling interests 7,364 7,303 8,544 8,527
Total equity 185,197 196,318 196,028 206,777
Total liabilities and equity 2,949,286 2,953,792 2,966,530 2,957,939
17 Events after the balance sheet date
On 28 July 2023, HSBC Continental Europe completed the sale of its branch
operations in Greece to Pancreta Bank SA. A loss of $0.1bn, including goodwill
impairment, was recognised upon reclassification to held for sale, in
accordance with IFRS 5 in the second quarter of 2022.
A second interim dividend for 2023 of $0.10 per ordinary share in respect of
the financial year ending 31 December 2023 was approved by the Directors on
1 August 2023, as described in Note 3. On 1 August 2023, HSBC Holdings
announced a share buy-back programme to purchase its ordinary shares up to a
maximum consideration of $2.0bn, which is expected to commence shortly and
complete within three months.
18 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. This Interim Report 2023 was approved by the Board of
Directors on 1 August 2023. The unaudited interim condensed financial
statements included in the Interim Report 2023 have been reviewed by the
Group's auditor, PwC, in accordance with International Standard on Review
Engagements (UK) 2410, 'Review of Interim Financial Information Performed by
the Independent Auditor of the Entity' issued by the Financial Reporting
Council for use in the United Kingdom. The statutory accounts of HSBC Holdings
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 ('PwC') 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 its report and did not contain a statement under section
498(2) or (3) of the Companies Act 2006.
Shareholder information
Contents
141 1 Directors' interests 147 10 Earnings release
143 2 Employee share plans 147 11 Final results
145 3 Share buy-back 147 12 Corporate governance
146 4 Other equity instruments 148 13 Changes in Directors' details
146 5 Notifiable interests in share capital 148 14 Going concern basis
146 6 Dealings in HSBC Holdings listed securities 148 15 Telephone and online share dealing service
147 7 Second interim dividend for 2023 148 16 Stock symbols
147 8 Dividend on preference share 148 17 Copies of the Interim Report 2023 and shareholder enquiries and communications
147 9 Proposed interim dividends for 2023
1 Directors' interests
According to the register of Directors' interests maintained by HSBC Holdings
pursuant to section 352 of the Securities and Futures Ordinance of Hong Kong,
at 30 June 2023 the Directors of HSBC Holdings had the following interests,
all beneficial unless otherwise stated, in the shares or debentures of HSBC
Holdings and its associated corporations:
Directors' interests - shares and debentures
At 1 Jan 2023 or date of appointment, if later At 30 Jun 2023 or date of retirement, if earlier
Total interests Beneficial Child Jointly with another person Trustee Total
owner under 18 interests
or spouse
HSBC Holdings ordinary shares
Geraldine Buckingham(1) 15,000 15,000 - - - 15,000
Rachel Duan(1) 15,000 15,000 - - - 15,000
Georges Elhedery(2) (appointed to the Board on 1 Jan 2023) 572,575 689,181 - - - 689,181
Dame Carolyn Fairbairn 15,000 15,000 - - - 15,000
James Forese(1) 115,000 115,000 - - - 115,000
Steven Guggenheimer(1) 15,000 - - 15,000 - 15,000
José Antonio Meade Kuribreña(1) 15,000 15,000 - - - 15,000
Kalpana Morparia (appointed to the Board on 1 Mar 2023) - - - - - -
Eileen Murray(1) 75,000 75,000 - - - 75,000
David Nish 50,000 - 50,000 - - 50,000
Noel Quinn(2) 1,422,650 1,620,739 - - - 1,620,739
Jackson Tai(1,3) (retired on 5 May 2023) 66,515 32,800 11,965 21,750 - 66,515
Mark Tucker 307,352 307,352 - - - 307,352
1 Geraldine Buckingham has an interest in 3,000, Rachel Duan in 3,000,
James Forese in 23,000, Steven Guggenheimer in 3,000, José Antonio Meade
Kuribreña in 3,000, Eileen Murray in 15,000 and Jackson Tai had an interest
in 13,303 listed American Depositary Shares ('ADSs'), which are categorised as
equity derivatives under Part XV of the Securities and Futures Ordinance of
Hong Kong. Each ADS represents five HSBC Holdings ordinary shares.
2 Executive Directors' other interests in HSBC Holdings ordinary
shares arising from the HSBC Holdings Savings-Related Share Option Plan (UK)
and the HSBC Share Plan 2011 are set out on the following pages. At 30 June
2023, the aggregate interests under the Securities and Futures Ordinance of
Hong Kong in HSBC Holdings ordinary shares, including interests arising
through employee share plans, were: Noel Quinn - 4,892,153 and Georges
Elhedery - 1,878,652. Each Director's total interests represents approximately
0.02% of the shares in issue and 0.01% of the shares in issue excluding
treasury shares.
3 Jackson Tai's holding included a non-beneficial interest in 11,965
shares of which he is custodian.
HSBC Holdings Savings-Related Share Option Plan (UK)
Currently no executive Directors participate in a Savings-Related Share Option
Plan. For further details of the Savings-Related Share Option Plan, see page
143.
HSBC Share Plan 2011
Conditional awards of deferred shares
Vesting of deferred share awards is normally subject to the Director remaining
an employee on the vesting date. The awards may vest at an earlier date in
certain circumstances. Under the Securities and Futures Ordinance of Hong
Kong, interests in conditional share awards are categorised as the interests
of the beneficial owner.
Deferred share awards
HSBC Holdings ordinary shares
Date of Year in which Awards Awards made during Awards vested during Awards
award awards may held at the period to 30 Jun 2023 the period to 30 Jun 2023 held at
vest
1 Jan 2023 Number Monetary value Number Monetary value 30 Jun 2023
£000 £000
Noel Quinn 27/2/2017(1) 2020-2024 37,086 - - 19,097 110 19,375(2)
26/2/2018(3) 2021-2025 64,515 - - 21,504 122 43,011
25/2/2019(4) 2022-2026 112,468 - - 28,117 161 84,351
24/2/2020(5) 2023-2027 201,702 - - 40,340 231 161,362
27/2/2023(6) 2023 - 170,206 1,077 170,206 1,077 -
Georges Elhedery (appointed 1 Jan 2023) 25/2/2019(7) 2020-2024 34,386 - - 17,193 99 17,193
24/2/2020(5) 2023-2027 147,661 - - 29,532 169 118,129
01/3/2021(8) 2024-2028 305,523 - - - - 305,523
28/2/2022(9) 2025-2029 273,163 - - - - 273,163
27/2/2023(6) 2023 - 112,568 712 112,568 712 -
1 At the date of the award (27 February 2017), the market value per share
was £6.5030. The award will vest in five equal annual tranches. The fourth
tranche vested on 13 March 2023 at a market value of £5.7362. Shares
equivalent in number to those that vest under the award (net of tax
liabilities) must be retained for six months from the vesting date. The
closing price of the shares immediately before the date on which the awards
were vested was £5.9260.
2 Includes any additional shares arising from dividend equivalents.
3 At the date of the award (26 February 2018), the market value per share
was £7.2340. Shares equivalent in number to those that vest under the award
(net of tax liabilities) must be retained for one year from the vesting date.
The award will vest in five equal annual tranches. The third tranche vested on
14 March 2023 at a market value of £5.6710. The closing price of the shares
immediately before the date on which the awards were vested was £5.6810.
4 At the date of the award (25 February 2019), the market value per share
was £6.2350. Shares equivalent in number to those that vest under the award
(net of tax liabilities) must be retained for one year from the vesting date.
The award will vest in five equal annual tranches. The second tranche vested
on 13 March 2023 at a market value of £5.7362. The closing price of the
shares immediately before the date on which the awards were vested was
£5.9260.
5 At the date of the award (24 February 2020), the market value per share
was £5.6220. Shares equivalent in number to those that vest under the award
(net of tax liabilities) must be retained for one year from the vesting date.
The award will vest in five equal annual tranches. The first tranche vested on
13 March 2023 at a market value of £5.7362. The closing price of the shares
immediately before the date on which the awards were vested was £5.9260.
6 The non-deferred award vested immediately on 27 February 2023 and was
based on the market value of £6.3277. Shares equivalent in number to those
that vest under the award (net of tax liabilities) must be retained for one
year from the vesting date. The closing price of the shares immediately before
27 February 2023 on which the awards were granted was £6.3570. The fair value
of the awards granted on 27 February 2023 was £6.3180 based on IFRS 2
accounting standards. The closing price of the shares immediately before the
date on which the awards were vested was £6.3570.
7 At the date of the award (25 February 2019), the market value per share
was £6.2350. Shares equivalent in number to those that vest under the award
(net of tax liabilities) must be retained for six months from the vesting
date. The award will vest in five equal annual tranches. The fourth tranche
vested on 13 March 2023 at a market value of £5.7362. The closing price of
the shares immediately before the date on which the awards were vested was
£5.9260.
8 At the date of the award (1 March 2021), the market value per share was
£4.2620. The award will vest in five equal annual tranches commencing in
2024. Shares equivalent in number to those that vest under the award (net of
tax liabilities) must be retained for one year from the vesting date.
9 At the date of the award (28 February 2022), the market value per share
was £5.3800. The award will vest in five equal annual tranches commencing in
2025. Shares equivalent in number to those that vest under the award (net of
tax liabilities) must be retained for one year from the vesting date.
9
Long-term incentive awards
The long-term incentive award is an award of shares with a three-year
performance period. At the end of this performance period and subject to the
award terms, the number of shares that vest will be determined based on an
assessment against financial and non-financial measures. Subject to that
assessment, the shares will vest in five equal annual instalments. On vesting,
awards are subject to a retention period of up to one year. Under the
Securities and Futures Ordinance of Hong Kong, interests in share awards are
categorised as interests of the beneficial owner.
Long-term incentive awards
HSBC Holdings ordinary shares
Date of Year in which Awards Awards made during Awards vested during Awards
award awards may held at the period to 30 Jun 2023 the period to 30 Jun 2023 held at
vest
1 Jan 2023 Number Monetary value Number Monetary value 30 Jun 2023
£000 £000
Noel Quinn 1 Mar 2021(1) 2024-2028 1,118,554 - - - - 1,118,554
28 Feb 2022(1) 2025-2029 983,339 - - - - 983,339
27 Feb 2023(2) 2026-2030 - 861,422 5,451 - - 861,422
Georges Elhedery 28 Feb 2022(1) 2025-2029 223,989 - - - - 223,989
27 Feb 2023(2) 2026-2030 - 251,474 1,591 - - 251,474
1 Awards made on 1 March 2021 were based on the market value of
£4.2620, awards made on 28 February 2022 were based on the market value of
£5.3800 and awards made on 27 February 2023 were based on the market value of
£6.357.
2 The closing price of the shares on the day before the grant date was
£6.357. The fair value of the awards was £4.6930 based on IFRS 2 accounting
standards.
No Directors held any short position (as defined in the Securities and Futures
Ordinance of Hong Kong) in the shares or debentures of HSBC Holdings and its
associated corporations. Save as stated in the tables above, none of the
Directors had an interest in any shares or debentures of HSBC Holdings or any
associates at the beginning or at the end of the period, and none of the
Directors or members of their immediate families were awarded or exercised any
right to subscribe for any shares or debentures in any HSBC corporation during
the period.
There have been no changes in the shares or debentures of the Directors from
30 June 2023 to the date of this report.
2 Employee share plans
Share options and discretionary awards of shares are granted under HSBC share
plans to help align the interests of employees with those of shareholders. The
following are particulars of share options and share awards, including those
held by, or to be granted to, employees working under employment contracts
that are regarded as 'continuous contracts' for the purposes of the Hong Kong
Employment Ordinance, or former employees. The options and share awards were
granted for nil consideration. No options or share awards have been granted to
substantial shareholders, suppliers of goods or services, or those with an
amount in excess of the 1% individual limit for each share plan. No options or
share awards were cancelled by HSBC during the six months to 30 June 2023. The
options and share awards were granted only to employees. Particulars of
options and share awards held by Directors of HSBC Holdings are set out on
page 141.
The number of shares available for the grant of options or share awards under
each limit set out in the HSBC share plans at the beginning of 1H23 were
1,038,335,768 and 290,981,959. At the end of 1H23, the number of shares
available were 1,017,612,461 and 272,087,852 under each limit. The number of
shares that may be issued in respect of options or awards granted under all
HSBC share plans divided by the weighted average number of shares of the
relevant class in issue for 1H23 is 5.02% and 1.34% under each limit set out
in the HSBC share plans.
Summaries of the total number of options and share awards granted,
exercised/vested or lapsed during 1H23 are shown in the tables below. Further
details required to be disclosed pursuant to Chapter 17 of the Rules Governing
the Listing of Securities on The Stock Exchange of Hong Kong Limited are
available on our website at www.hsbc.com, and on the website of The Stock
Exchange of Hong Kong Limited at www.hkex.com.hk. Copies may be obtained upon
request from the Group Company Secretary and Chief Governance Officer, 8
Canada Square, London E14 5HQ.
All-employee share plans
The HSBC Holdings Savings-Related Share Option Plan (UK) is an all-employee
share option plan under which eligible employees have been granted options to
acquire HSBC Holdings ordinary shares. The HSBC International Employee Share
Purchase Plan was introduced in 2013 and now includes employees based in 31
jurisdictions. No options are granted under this plan but matching share
awards are granted in the form of conditional awards that vest after three
years. During 2022, approximately 189,000 employees were offered participation
in these plans. During 1H23, no employee was offered participation in the
plans. No options or awards under these plans are subject to performance
targets.
For options granted under the HSBC Holdings Savings-Related Share Option Plan
(UK) employees may make contributions of up to £500 each month over a period
of three or five years. The contributions may be used within six months
following the third or fifth anniversary of the commencement of the relevant
savings contract, at the employee's election, to exercise the options.
Alternatively, the employee may elect to have the savings, plus (where
applicable) any interest or bonus, repaid in cash. In the case of redundancy,
ceasing employment on grounds of injury or disability, retirement, death, the
transfer of the employing business to another party, or a change of control of
the employing company, options may be exercised before completion of the
relevant savings contract. In certain circumstances, the exercise period of
options awarded under the all-employee share option plans may be extended; for
example, on the death of a participant, the executors may exercise the option
up to six months beyond the normal exercise period or, if a participant has
chosen to defer up to 12 contributions, the start of the normal exercise
period will be delayed by up to 12 months.
Under the HSBC Holdings Savings-Related Share Option Plan (UK) the option
exercise price is determined by reference to the average market value of the
HSBC Holdings ordinary shares on the five business days immediately preceding
the invitation date, then applying a discount of 20%. The HSBC Holdings
Savings-Related Share Option Plan (UK) has an expiry date of 24 April 2030 (by
which time the plan may be extended with approval from shareholders) unless
the Directors resolve to terminate the plan at an earlier date.
Under the HSBC International Employee Share Purchase Plan, shares are
purchased on behalf of participants (using their own funds) in the market each
quarter up to a maximum annual value of £3,000, or equivalent in local
currency, per participant. No options are granted under the HSBC International
Employee Share Purchase Plan. However, matching awards in the form of
conditional share awards are granted to participants for nil consideration at
a ratio of one free share for every three purchased. Matching awards vest
subject to continued employment and the retention by the participant of the
purchased shares for a maximum period of two years and nine months. The HSBC
International Employee Share Purchase Plan has an expiry date of 24 April 2030
(by which time the plan may be extended with approval from shareholders)
unless the Directors resolve to terminate the plan at an earlier date.
HSBC Holdings Savings-Related Share Option Plan (UK)
HSBC Holdings ordinary share options
Dates of award Exercise price (£) Usually exercisable 1 Jan 2023 Granted Exercised Lapsed Cancelled in period 30 Jun 2023
in period in period(1) in period
from to from to from to
21 Sep 2017 27 Sep (£) (£) 1 Nov 2020 28 April 2028 115,650,723 - 2,773,354 3,680,465 - 109,196,904
2022 2.6270 5.9640
1 The weighted average closing price of the shares immediately before the
dates on which options were exercised was £5.9183.
HSBC International Employee Share Purchase Plan - awards of matching shares
HSBC Holdings ordinary shares under award
Dates of award Purchase price Usually vesting 1 Jan 2023 Granted Vested Lapsed Cancelled in period 30 Jun 2023
in period in period in period
from to from to
2020 2022 £0 2023 2025 2,347,806 - - 85,841 - 2,261,965
2020 2022 HK$0 2023 2025 2,854,482 - - 75,227 - 2,779,255
11 Jan 2023(1) £0 - 288,546 - 13,386 - 275,160
11 Jan 2023(2) HK$0 - 301,397 - 8,149 - 293,248
14 Mar 2023(3) £0 - 42 - - - 42
13 Apr 2023(4) £0 - 277,730 - 7,422 - 270,308
13 Apr 2023(5) HK$0 - 284,890 - 4,079 - 280,811
1 The closing price of the shares on the day before the grant date was
£5.6410. The fair value of the awards granted was £5.0580 based on IFRS 2
accounting standards.
2 The closing price of the shares on the day before the grant date was
HK$53.30. The fair value of the awards granted was £5.0580 based on IFRS 2
accounting standards.
3 The closing price of the shares on the day before the grant date was
£5.6810. The fair value of the awards granted was £5.1237 based on IFRS 2
accounting standards.
4 The closing price of the shares on the day before the grant date was
£5.6160. The fair value of the awards granted was £4.9941 based on IFRS 2
accounting standards.
5 The closing price of the shares on the day before the grant date was
HK$54.75. The fair value of the awards granted was £5.0376 based on IFRS 2
accounting standards.
Awards under HSBC Share Plan 2011
Conditional share awards may be granted on a discretionary basis to employees
and former employees. A conditional award of deferred shares defines the
number of shares to which the employee will become entitled, which is
generally up to three, four, five or seven years from the date of the award,
and normally subject to the individual remaining in employment. In some cases,
the employee's entitlement depends upon the satisfaction of a performance
condition. The long-term incentive awards and fixed pay allowances are
incorporated in the HSBC Share Plan 2011. The maximum value of awards or
options that may be granted to an employee in any one year under the HSBC
Share Plan 2011 is 600% of the employee's annual salary. For the purpose of
the limit, any deferred share awards made on or shortly after the commencement
of employment or in substitution for all or any part of any bonus to which the
employee would otherwise have been entitled, are excluded. Participants do not
need to pay any consideration for the grant or vesting of an award. The HSBC
Share Plan 2011 has an expiry date of 24 April 2030 (by which time the plan
may be extended with approval from shareholders) unless the Directors resolve
to terminate the plan at an earlier date.
HSBC Share Plan 2011 - particulars of awards
HSBC Holdings ordinary shares under award.
Dates of award Purchase price (£) Usually vesting 1 Jan 2023 Granted Vested Lapsed in period Cancelled 30 Jun 2023
in period in period(1) in period
from to from to
1 Jan 2013 31 Dec 2022 0 1 Mar 2023 30 Mar 2030 119,879,459 - 43,913,965 2,003,869 - 73,961,625
27 Feb 2023(2) 0 27 Feb 2023 30 Mar 2030 - 59,835,210 19,477,610 159,369 7,612 40,190,619
27 Feb 2023(3) 0 27 Feb 2023 30 Mar 2030 - 3,800,403 - - - 3,800,403
20 Mar 2023(4) 0 20 Mar 2023 30 Mar 2030 - 2,486,251 760,095 - - 1,726,156
15 May 2023(5) 0 15 May 2023 30 Mar 2029 - 1,283,921 391,767 1,662 - 890,492
15 May 2023(6) 0 15 May 2023 30 May 2028 - 50,946 - 5,738 - 45,208
1 Mar 2023(7) 0 1 Mar 2023 31 Aug 2026 - 644,298 344,620 1,869 - 297,809
1 The weighted average closing price of the shares immediately before the
dates on which the awards were vested was £5.9679.
2 The closing price on the day before the grant date was £6.3570. The
fair values of the awards were calculated according to the IFRS 2 accounting
standard. The fair values, which vary based on the length of the vesting
period, are £6.3180, £5.4370, £5.3450, £5.3110, £5.2410, £5.1860,
£5.1300, £5.1050, £5.0570, £4.9310, £4.9210 and £4.6930.
3 The closing price on the day before the grant date was £6.3570. The
fair values of the awards were calculated according to the IFRS 2 accounting
standard. The fair values, which vary based on the length of the vesting
period, are £6.3180 and £4.6930. Vesting of these awards, which are made up
of LTI awards and retention awards, are subject to satisfaction of performance
conditions. LTI awards are subject to a combination of financial and
non-financial metrics that are detailed in the Directors' remuneration report
in the Annual Report and Accounts. Retention awards are subject to the
completion of a strategically important project.
4 The closing price on the day before the grant date was £5.4210. The
fair values of the awards were calculated according to the IFRS 2 accounting
standard. The fair values, which vary based on the length of the vesting
period, are £5.4170, £4.6650, £4.6620, £4.5830, £4.5540, £4.4480,
£4.4460 and £4.0230.
5 The closing price on the day before the grant date was £5.9970. The
fair values of the awards were calculated according to the IFRS 2 accounting
standard. The fair values, which vary based on the length of the vesting
period, are £6.1100, £5.5310, £5.2720, £5.2600, £5.1710, £5.1380,
£5.0160 and £5.0110.
6 The closing price on the day before the grant date was £5.9970. The
fair values of the awards were calculated according to the IFRS 2 accounting
standard. The fair value of the awards is £6.1100. Vesting of these awards,
which relate to retention awards, are subject to the satisfaction of
performance conditions. These retention awards are subject to the completion
of a strategically important project.
7 Relates to the allocation of dividend equivalent shares in relation to
eligible awards.
7
3 Share buy-back
On 10 May 2023, HSBC Holdings commenced a share buy-back programme to purchase
its ordinary shares up to a maximum consideration of $2.0bn. As part of the
buy-back programme, shares were repurchased on UK trading venues, including
London Stock Exchange, Turquoise, Aquis Exchange and Cboe Europe Limited
through the BXE and CXE order books, as well as The Stock Exchange of Hong
Kong Limited. The purpose of the buy-back programme is to reduce HSBC's number
of outstanding ordinary shares.
At 30 June 2023, 83,545,603 ordinary shares had been purchased and cancelled
from the UK register, representing a nominal value of $41,772,802 and an
aggregate consideration paid by HSBC of £507,452,886. The shares cancelled
represented 0.415% of the shares in issue and 0.421% of the shares in issue,
excluding treasury shares.
At 30 June 2023, 88,400,000 ordinary shares had been purchased from the Hong
Kong register, representing a nominal value of $44,200,000 and an aggregate
consideration paid by HSBC of HK$5,269,455,949. The shares purchased
represented 0.439% of the shares in issue and 0.446% of the shares in issue,
excluding treasury shares. The shares purchased are cancelled in batches, with
74,000,000 shares cancelled at 30 June 2023.
At 30 June 2023, the Company held 325,273,407 shares in treasury which were
repurchased during the 2016 buy-back and were not cancelled at the time. All
shares repurchased pursuant to subsequent buy-backs have been cancelled. The
Board intends to consider the cancellation of the treasury shares in due
course.
The table that follows outlines details of the shares purchased and cancelled
on a monthly basis during 2023.
Share buy-back - UK venues
Number of shares purchased and cancelled Highest price Lowest price Average price Aggregate
paid per share paid per share paid per share price paid
£ £ £ £
May 2023 31,169,005 6.2000 189,244,725
5.8710 6.0716
Jun 2023 52,376,598 318,208,161
6.1900 5.8810 6.0754
Total 83,545,603 507,452,886
Share buy-back - Hong Kong venues
Number of shares purchased Highest price Lowest price Average price Aggregate
paid per share paid per share paid per share price paid
HK$ HK$ HK$ HK$
May 2023 37,500,000 59.9500 57.2000 59.0377 2,213,913,666
Jun 2023 50,900,000 61.4500 57.1000 60.0303 3,055,542,283
Total 88,400,000 5,269,455,949
4 Other equity instruments
Additional tier 1 capital - contingent convertible securities
HSBC Holdings continues to issue contingent convertible securities that are
included in its capital base as fully CRR II-compliant additional tier 1
capital securities on an end point basis. These securities are marketed
principally and subsequently allotted to corporate investors and fund
managers. The net proceeds of the issuances are typically used for HSBC
Holdings' general corporate purposes and to further strengthen its capital
base to meet requirements under CRR II. These securities bear a fixed rate of
interest until their initial call dates. After the initial call dates, if they
are not redeemed, the securities will bear interest at rates fixed
periodically in advance for five-year periods based on credit spreads, fixed
at issuance, above prevailing market rates. Interest on the contingent
convertible securities will be due and payable only at the sole discretion of
HSBC Holdings, and HSBC Holdings has sole and absolute discretion at all times
to cancel for any reason (in whole or part) any interest payment that would
otherwise be payable on any payment date. Distributions will not be paid if
they are prohibited under UK banking regulations or if the Group has
insufficient reserves or fails to meet the solvency conditions defined in the
securities' terms.
The contingent convertible securities are undated and are repayable at the
option of HSBC Holdings in whole typically at the initial call date or on any
fifth anniversary after this date. In addition, the securities are repayable
at the option of HSBC Holdings in whole for certain regulatory or tax reasons.
Any repayments require the prior consent of the PRA. These securities rank
pari passu with HSBC Holdings' sterling preference share and therefore rank
ahead of ordinary shares. The contingent convertible securities will be
converted into fully paid ordinary shares of HSBC Holdings at a predetermined
price, should HSBC's consolidated non-transitional CET1 ratio fall below 7.0%.
Therefore, in accordance with the terms of the securities, if HSBC's
non-transitional CET1 ratio breaches the 7.0% trigger, the securities will
convert into ordinary shares at the fixed contractual conversion prices in the
issuance currencies of the relevant securities, equivalent to £2.70 at the
prevailing rate of exchange on the issuance date, subject to anti-dilution
adjustments. During the first half of 2023, HSBC Holdings issued $2,000m
contingent convertible securities and called and repaid $2,350m contingent
convertible securities.
5 Notifiable interests in share capital
Between 1 January 2023 and 30 June 2023, HSBC Holdings did not receive any
notification of major holdings of voting rights pursuant to the requirements
of Rule 5 of the Disclosure, Guidance and Transparency Rules, which had not
been amended or withdrawn. No further notifications had been received between
30 June 2023 and 20 July 2023.
Previous notifications received, which have not been amended or withdrawn, are
as follows:
- BlackRock, Inc. gave notice on 3 March 2020 that on 2 March 2020 it had
the following: an indirect interest in HSBC Holdings ordinary shares of
1,235,558,490; qualifying financial instruments with 7,294,459 voting rights
that may be acquired if the instruments are exercised or converted; and
financial instruments with a similar economic effect to qualifying financial
instruments, which refer to 2,441,397 voting rights, representing 6.07%, 0.03%
and 0.01%, respectively, of the total voting rights at 2 March 2020.
- Ping An Asset Management Co., Ltd. gave notice on 6 December 2017 that
on 4 December 2017 it had an indirect interest in HSBC Holdings ordinary
shares of 1,007,946,172, representing 5.04% of the total voting rights at that
date.
At 30 June 2023, according to the register maintained by HSBC Holdings
pursuant to section 336 of the Securities and Futures Ordinance of Hong Kong,
the following notifications of major holdings have been made to HSBC Holdings
and have not been amended or withdrawn:
- BlackRock, Inc. gave notice on 9 March 2022 that on 4 March 2022 it had
the following interests in HSBC Holdings ordinary shares: a long position of
1,701,656,169 shares and a short position of 19,262,061 shares, representing
8.27% and 0.09%, respectively, of the ordinary shares in issue at that date.
- Ping An Asset Management Co., Ltd. gave notice on 25 September 2020 that
on 23 September 2020 it had a long position of 1,655,479,531 in HSBC Holdings
ordinary shares, representing 8.00% of the ordinary shares in issue at that
date.
-
6 Dealings in HSBC Holdings listed securities
HSBC has policies and procedures that, except where permitted by statute and
regulation, prohibit it undertaking specified transactions in respect of its
securities listed on The Stock Exchange of Hong Kong Limited ('HKEx'). Except
for dealings as intermediaries or as trustees by subsidiaries of HSBC
Holdings, or in relation to the HSBC Holdings ordinary share buy-back, neither
HSBC Holdings nor any of its subsidiaries has purchased, sold or redeemed any
of its securities listed on HKEx during the half-year ended 30 June 2023.
7 Second interim dividend for 2023
On 1 August 2023, the Directors approved a second interim dividend in respect
of the financial year ending 31 December 2023 of $0.10 per ordinary share, a
distribution of approximately $1.974bn. The dividend will be payable on 21
September 2023 to holders on the Principal Register in the UK, the Hong Kong
Overseas Branch Register or the Bermuda Overseas Branch Register on 11 August
2023.
The dividend will be payable in US dollars, or in pounds sterling or Hong Kong
dollars at the forward exchange rates quoted by HSBC Bank plc in London at or
about 11.00am on 11 September 2023. Particulars of these arrangements will be
sent to shareholders on or about 18 August 2023 and changes to currency
elections must be received by 7 September 2023. The ordinary shares in London,
Hong Kong and Bermuda, and American Depositary Shares ('ADSs') in New York
will be quoted ex-dividend on 10 August 2023.
The dividend will be payable on ADSs, each of which represents five ordinary
shares, on 21 September 2023 to holders of record on 11 August 2023. The
dividend of $0.50 per ADS will be payable by the depositary in US dollars.
Alternatively, the cash dividend may be invested in additional ADSs by
participants in the dividend reinvestment plan operated by the depositary.
Elections must be received by 1 September 2023.
Any person who has acquired ordinary shares registered on the Principal
Register in the UK, the Hong Kong Overseas Branch Register or the Bermuda
Overseas Branch Register but who has not lodged the share transfer with the
Principal Registrar in the UK, Hong Kong Overseas Branch Registrar or Bermuda
Overseas Branch Registrar should do so before 4.00pm local time on 11 August
2023 in order to receive the dividend.
Ordinary shares may not be removed from or transferred to the Principal
Register in the UK, the Hong Kong Overseas Branch Register or the Bermuda
Overseas Branch Register on 11 August 2023. Any person wishing to remove
ordinary shares to or from each register must do so before 4.00pm local time
on 10 August 2023.
Transfer of ADSs must be lodged with the depositary by 11.00am on 11 August
2023 in order to receive the dividend. ADS holders who receive a cash dividend
will be charged a fee, which will be deducted by the depositary, of $0.005 per
ADS per cash dividend.
8 Dividend on preference share
A quarterly dividend of £0.01 per Series A sterling preference share is
payable on 15 March, 15 June, 15 September and 15 December 2023 for the
quarter then ended at the sole and absolute discretion of the Board of HSBC
Holdings plc. Accordingly, the Board of HSBC Holdings plc has approved a
quarterly dividend to be payable on 15 September 2023 to holders of record on
31 August 2023.
9 Proposed interim dividends for 2023
As previously communicated, given our current returns trajectory, we have
established a dividend payout ratio of 50% of reported earnings per share for
2023 and 2024, excluding material significant items (including the planned
sale of our retail banking operations in France and the agreed sale of our
banking business in Canada). The Group has reverted to a policy of paying
quarterly dividends from the first quarter of 2023. The dividend policy has
the flexibility to adjust reported earnings per ordinary share ('EPS') for
material significant items such as goodwill or intangibles impairments and may
be supplemented from time to time by buy-backs or special dividends, should
the Group find itself in an excess capital position absent compelling
investment opportunities to deploy that excess.
Dividends are declared in US dollars and, at the election of the shareholder,
paid in cash in one of US dollars, pounds sterling or Hong Kong dollars.
10 Earnings release
An earnings release for the three-month period ending 30 September 2023 is
expected to be issued on 30 October 2023.
11 Final results
The results for the year to 31 December 2023 are expected to be announced on
21 February 2024.
12 Corporate governance
We are subject to corporate governance requirements in both the UK and Hong
Kong. Throughout the six months ended 30 June 2023, we complied with the
applicable provisions of the UK Corporate Governance Code, and also the
requirements of the Hong Kong Corporate Governance Code. The UK Corporate
Governance Code is available at www.frc.org.uk and the Hong Kong Corporate
Governance Code is available at www.hkex.com.hk.
Under the Hong Kong Code, the Group Audit Committee should be responsible for
the oversight of all risk management and internal control systems, unless
expressly addressed by a separate risk committee. Our Group Risk Committee is
responsible for oversight of internal control, other than internal financial
controls, and risk management systems.
The Board has codified obligations for transactions in Group securities in
accordance with the requirements of the Market Abuse Regulation and the rules
governing the listing of securities on the HKEx, save that the HKEx has
granted waivers from strict compliance with the rules that take into account
accepted practices in the UK, particularly in respect of employee share plans.
Following specific enquiries all Directors have confirmed that they have
complied with their obligations in respect of transacting in Group securities
throughout the period.
There have been no material changes to the information disclosed in the Annual
Report and Accounts 2022 in respect of the remuneration of employees,
remuneration policies, bonus and share option plans and training schemes.
Details of the number of employees are provided on page 33 of the Interim
Report 2023.
13 Changes in Directors' details
Changes in current Directors' details since the date of the Annual Report and
Accounts 2022, which are required to be disclosed pursuant to Rule 13.51(2)
and Rule 13.51B(1) of the Hong Kong Listing Rules, are set out below.
Georges Elhedery
Appointed to the Board on 1 January 2023.
James Anthony Forese
Appointed Chair of the Group Risk Committee and to the Group Audit Committee
on 5 May 2023. He also stepped down from the Group Remuneration Committee.
Kalpana Morparia
Appointed to the Board, Group Risk Committee and Nomination & Corporate
Governance Committee on 1 March 2023.
Eileen K Murray
Appointed to the Group Remuneration Committee on 5 May 2023.
Jackson Tai
Retired from the Board, Group Risk Committee, Nomination & Corporate
Governance Committee and Group Audit Committee on 5 May 2023.
14 Going concern basis
As mentioned in Note 1 'Basis of preparation and material accounting policies'
on page 115, the financial statements are prepared on a going concern basis as
the Directors are satisfied that the Group and parent company have the
resources to continue in business for the foreseeable future. In making this
assessment, the Directors 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 high interest and inflationary stress scenarios that reflect the
intensification of ongoing global energy supply issues, the impact of the
Russia-Ukraine war, structural changes from the Covid-19 pandemic, and ongoing
vulnerabilities in China, as well as the potential impacts from other top and
emerging risks, and the related impact on profitability, capital and
liquidity.
In particular, HSBC's principal activities, business and operating models,
strategic direction, and top and emerging risks are addressed in the Overview
section. A financial summary, including a review of the consolidated income
statement and consolidated balance sheet, is provided in the 'Interim
management report' section. HSBC's objectives, policies and processes for
managing credit, liquidity and market risk are described in the 'Risk review'
section of the Annual Report and Accounts 2022. HSBC's approach to capital
management and allocation is described in the 'Treasury risk' section of the
Annual Report and Accounts 2022.
15 Telephone and online share dealing service
For shareholders on the Principal Register who are resident in the UK, with a
UK postal address, and who hold an HSBC Bank plc personal current account, the
HSBC InvestDirect share dealing service is available for buying and selling
HSBC Holdings plc ordinary shares. Details are available from: HSBC
InvestDirect, Forum 1, Parkway, Whiteley PO15 7PA; or UK telephone: +44 (0)
3456 080848, or from an overseas telephone: +44 (0) 1226 261090; or website:
www.hsbc.co.uk/investments/products-and-services/invest-direct.
16 Stock symbols
HSBC Holdings plc ordinary shares trade under the following stock symbols:
London Stock Exchange HSBA
Hong Kong Stock Exchange 5
New York Stock Exchange (ADS) HSBC
Bermuda Stock Exchange HSBC.BH
17 Copies of the Interim Report 2023 and shareholder enquiries and communications
Further copies of the Interim Report 2023 may be obtained from Global
Communications, HSBC Holdings plc, 8 Canada Square, London E14 5HQ, United
Kingdom; from Communications (Asia), The Hongkong and Shanghai Banking
Corporation Limited, 1 Queen's Road Central, Hong Kong; or from US
Communications, HSBC Bank USA, N.A., 1 West 39th Street, 9th Floor, New York,
NY 10018, USA. The Interim Report 2023 may also be downloaded from the HSBC
website, www.hsbc.com.
Shareholders may at any time choose to receive corporate communications in
printed form or to receive notifications of their availability on HSBC's
website. To receive notifications of the availability of a corporate
communication on HSBC's website by email, or to revoke or amend an
instruction to receive such notifications by email, go to www.hsbc.com/ecomms.
If you provide an email address to receive electronic communications from
HSBC, we will also send notifications of any future dividend entitlements by
email. If you received a notification of the availability of this document on
HSBC's website and would like to receive a printed copy or, if you would like
to receive future corporate communications in printed form, please write or
send an email (quoting your shareholder reference number) to the appropriate
Registrar at the address given below. Printed copies will be provided without
charge.
Any enquiries relating to your shareholdings on the share register (for
example transfers of shares, change of name or address, lost share
certificates or dividend cheques) should be sent to the Registrar at the
address given below. The Registrars offer an online facility, Investor Centre,
which enables shareholders to manage their shareholding electronically.
Principal Register Hong Kong Overseas Branch Register Bermuda Overseas Branch Register
Computershare Investor Services PLC Computershare Hong Kong Investor Investor Relations Team
The Pavilions Services Limited HSBC Bank Bermuda Limited
Bridgwater Road Rooms 1712-1716, 17th Floor 37 Front Street
Bristol BS99 6ZZ Hopewell Centre Hamilton HM 11
United Kingdom 183 Queen's Road East Bermuda
Hong Kong
Telephone: +44 (0) 370 702 0137 Telephone: +852 2862 8555 Email: hbbm.shareholder.services@hsbc.bm
Email: web.queries@computershare.co.uk Email: hsbc.ecom@computershare.com.hk Web: www.investorcentre.com/bm
Web: www.investorcentre.co.uk/contactus Web: www.investorcentre.com/hk
Any enquiries relating to ADSs should be sent to the depositary at:
The Bank of New York Mellon Telephone (US): +1 877 283 5786
Shareowner Services Telephone (international): +1 201 680 6825
P.O. Box 43006 Email: shrrelations@cpushareownerservices.com
Providence RI 02940-3078 Web: www.mybnymdr.com
USA
A Chinese translation of this and future documents may be obtained on request
from the Registrar. Please also contact the Registrar if you have received a
Chinese translation of this document and do not wish to receive such
translations in future.
Persons whose shares are held on their behalf by another person may have been
nominated to receive communications from HSBC pursuant to section 146 of the
UK Companies Act 2006 ('nominated person'). The main point of contact for a
nominated person remains the registered shareholder (for example your
stockbroker, investment manager, custodian or other person who manages
the investment on your behalf). Any changes or queries relating to a
nominated person's personal details and holding (including any administration
thereof) must continue to be directed to the registered shareholder and not
HSBC's Registrar. The only exception is where HSBC, in exercising one of its
powers under the UK Companies Act 2006, writes to nominated persons directly
for a response.
本中期業績報告及日後的相關文件均備有中譯本，如有需要，請向適當的股份登記處索取。股東如收到本報告的中譯本，但不希望再收取此等中譯本，亦請聯絡股份登記處。
Cautionary statement regarding forward-looking statements
This Interim Report 2023 contains certain forward-looking statements with
respect to HSBC's: financial condition; results of operations and business,
including the strategic priorities; financial, investment and capital targets;
and ESG targets, commitments and ambitions described herein.
Statements that are not historical facts, including statements about HSBC's
beliefs and expectations, are forward-looking statements. Words such as 'may',
'will', 'should', 'expects', 'targets', 'anticipates', 'intends', 'plans',
'believes', 'seeks', 'estimates', 'potential' and 'reasonably possible', or
the negative thereof, other variations thereon or similar expressions are
intended to identify forward-looking statements. These statements are based on
current plans, information, data, estimates and projections, and therefore
undue reliance should not be placed on them. Forward-looking statements speak
only as of the date they are made. HSBC makes no commitment to revise or
update any forward-looking statements to reflect events or circumstances
occurring or existing after the date of any forward-looking statements.
Written and/or oral forward-looking statements may also be made in the
periodic reports to the US Securities and Exchange Commission, summary
financial statements to shareholders, proxy statements, offering circulars and
prospectuses, press releases and other written materials, and in oral
statements made by HSBC's Directors, officers or employees to third parties,
including financial analysts.
Forward-looking statements involve inherent risks and uncertainties. Readers
are cautioned that a number of factors could cause actual results to differ,
in some instances materially, from those anticipated or implied in any
forward-looking statement.
These include, but are not limited to:
- changes in general economic conditions in the markets in which we
operate, such as new, continuing or deepening recessions, prolonged
inflationary pressures and fluctuations in employment levels and the
creditworthiness of customers beyond those factored into consensus forecasts
(including, without limitation, as a result of the Russia-Ukraine war); the
Russia-Ukraine war and its impact on global economies and the markets where
HSBC operates, which could have a material adverse effect on (among other
things) our financial condition, results of operations, prospects, liquidity,
capital position and credit ratings; deviations from the market and economic
assumptions that form the basis for our ECL measurements (including, without
limitation, as a result of the Russia-Ukraine war and inflationary pressures);
potential changes in HSBC's dividend policy; changes and volatility in foreign
exchange rates and interest rates levels, including the accounting impact
resulting from financial reporting in respect of hyperinflationary economies;
volatility in equity markets; lack of liquidity in wholesale funding or
capital markets, which may affect our ability to meet our obligations under
financing facilities or to fund new loans, investments and businesses;
geopolitical tensions or diplomatic developments producing social instability
or legal uncertainty, such as the Russia-Ukraine war (including the
continuation and escalation thereof) and the related imposition of sanctions
and trade restrictions, supply chain restrictions and disruptions, sustained
increases in energy prices and key commodity prices, claims of human rights
violations, diplomatic tensions, including between China and the US, the UK,
the EU, India and other countries, and developments in Hong Kong and Taiwan,
alongside other potential areas of tension, which may adversely affect HSBC by
creating regulatory, reputational and market risks; the efficacy of
government, customer and HSBC's actions in managing and mitigating ESG risks,
in particular climate risk, nature-related risks and human rights risks, and
in supporting the global transition to net zero carbon emissions, each of
which can impact HSBC both directly and indirectly through our customers and
which may result in potential financial and non-financial impacts; illiquidity
and downward price pressure in national real estate markets; adverse changes
in central banks' policies with respect to the provision of liquidity support
to financial markets; heightened market concerns over sovereign
creditworthiness in over-indebted countries; adverse changes in the funding
status of public or private defined benefit pensions; societal shifts in
customer financing and investment needs, including consumer perception as to
the continuing availability of credit; exposure to counterparty risk,
including third parties using us as a conduit for illegal activities without
our knowledge; the discontinuation of certain key Ibors and the development of
near risk-free benchmark rates, as well as the transition of legacy Ibor
contracts to near risk-free benchmark rates, which continues to expose HSBC to
execution risks, including in relation to the effectiveness of its Ibor
remediation strategy, and increases some financial and non-financial risks;
and price competition in the market segments we serve;
- changes in government policy and regulation, including the monetary,
interest rate and other policies of central banks and other regulatory
authorities in the principal markets in which we operate and the consequences
thereof (including, without limitation, actions taken as a result of the
impact of the Russia-Ukraine war on inflation); initiatives to change the
size, scope of activities and interconnectedness of financial institutions in
connection with the implementation of stricter regulation of financial
institutions in key markets worldwide; revised capital and liquidity
benchmarks, which could serve to deleverage bank balance sheets and lower
returns available from the current business model and portfolio mix; changes
to tax laws and tax rates applicable to HSBC, including the imposition of
levies or taxes designed to change business mix and risk appetite; the
practices, pricing or responsibilities of financial institutions serving their
consumer markets; expropriation, nationalisation, confiscation of assets and
changes in legislation relating to foreign ownership; the UK's relationship
with the EU, which continues to be characterised by uncertainty and political
disagreement, particularly with respect to the regulation of financial
services, despite the signing of the Trade and Cooperation Agreement between
the UK and the EU; changes in UK macroeconomic and fiscal policy, which may
result in fluctuations in the value of the pound sterling; general changes in
government policy that may significantly influence investor decisions; the
costs, effects and outcomes of regulatory reviews, actions or litigation,
including any additional compliance requirements; and the effects of
competition in the markets where we operate including increased competition
from non-bank financial services companies; and
- factors specific to HSBC, including our success in adequately
identifying the risks we face, such as the incidence of loan losses or
delinquency, and managing those risks (through account management, hedging and
other techniques); our ability to achieve our financial, investment, capital
and ESG targets, commitments and ambitions (including with respect to the
commitments set forth in our thermal coal phase-out policy and our energy
policy and our targets to reduce our on-balance sheet financed emissions in
eight high-emitting sectors), which may result in our failure to achieve any
of the expected benefits of our strategic priorities; model limitations or
failure, including, without limitation, the impact that high inflationary
pressures and rising interest rates have had on the performance and usage of
financial models, which may require us to hold additional capital, incur
losses and/or use compensating controls, such as judgemental post-model
adjustments, to address model limitations; changes to the judgements,
estimates and assumptions we base our financial statements on; changes in our
ability to meet the requirements of regulatory stress tests; a reduction in
the credit ratings assigned to us or any of our subsidiaries, which could
increase the cost or decrease the availability of our funding and affect our
liquidity position and net interest margin; changes to the reliability and
security of our data management, data privacy, information and technology
infrastructure, including threats from cyber-attacks, which may impact our
ability to service clients and may result in financial loss, business
disruption and/or loss of customer services and data; the accuracy and
effective use of data, including internal management information that may not
have been independently verified; changes in insurance customer behaviour and
insurance claim rates; our dependence on loan payments and dividends from
subsidiaries to meet our obligations; changes in our reporting frameworks and
accounting standards, which have had and may continue to have a material
impact on the way we prepare our financial statements; our success in
adequately integrating SVB UK into our CMB business; changes in our ability to
manage third-party, fraud and reputational risks inherent in our operations;
employee misconduct, which may result in regulatory sanctions and/or
reputational or financial harm; changes in skill requirements, ways of working
and talent shortages, which may affect our ability to recruit and retain
senior management and diverse and skilled personnel; and changes in our
ability to develop sustainable finance and climate-related products consistent
with the evolving expectations of our regulators, and our capacity to measure
the climate impact from our financing activity (including as a result of data
limitations and changes in methodologies), which may affect our ability to
achieve our climate ambition, our targets to reduce financed emissions in our
high-emitting sectors portfolio and the commitments set forth in our thermal
coal phase-out policy and our energy policy, and increase the risk of
greenwashing. Effective risk management depends on, among other things, our
ability through stress testing and other techniques to prepare for events that
cannot be captured by the statistical models it uses; our success in
addressing operational, legal and regulatory, and litigation challenges; and
other risks and uncertainties we identify in 'Areas of Special Interest' on
pages 61 to 63 of this Interim Report 2023.
Additional detailed information concerning important factors, including but
not limited to ESG-related factors, that could cause actual results to differ
materially from those anticipated or implied in any forward-looking statement
in this Interim Report 2023 is available in our Annual Report and Accounts for
the fiscal year ended 31 December 2022 which was filed with the SEC on Form
20-F on 22 February 2023.
Certain defined terms
Unless the context requires otherwise, 'HSBC Holdings' means HSBC Holdings plc
and 'HSBC', the 'Group', 'we', 'us' and 'our' refer to HSBC Holdings together
with its subsidiaries. Within this document the Hong Kong Special
Administrative Region of the People's Republic of China is referred to as
'Hong Kong'. When used in the terms 'shareholders' equity' and 'total
shareholders' equity', 'shareholders' means holders of HSBC Holdings ordinary
shares and those preference shares and capital securities issued by HSBC
Holdings classified as equity. The abbreviations '$m', '$bn' and '$tn'
represent millions, billions (thousands of millions) and trillions of US
dollars, respectively.
Abbreviations
Currencies
£ British pound sterling
CA$ Canadian dollar
€ Euro
HK$ Hong Kong dollar
RMB Chinese renminbi
SGD Singapore dollar
$ United States dollar
Abbreviation
1H22 First half of 2022
1H23 First half of 2023
1Q22 First quarter of 2022
1Q23 First quarter of 2023
2H22 Second half of 2022
2Q22 Second quarter of 2022
2Q23 Second quarter of 2023
4Q22 Fourth quarter of 2022
A
ABS Asset-backed security
ADS American Depositary Share
AI Artificial intelligence
AIEA Average interest-earning assets
ALCO Asset and Liability Management Committee
ANP Annualised new business premiums
ASEAN Association of Southeast Asian Nations
AT1 Additional tier 1
B
Basel Basel Committee on Banking Supervision
Basel III Basel Committee's reforms to strengthen global capital and liquidity rules
Basel 3.1 Outstanding measures to be implemented from the Basel III reforms
BoCom Bank of Communications Co., Limited, one of China's largest banks
BoE Bank of England
Bps Basis points. One basis point is equal to one hundredth of a percentage point
C
CAPM Capital asset pricing model
CDOR Canadian dollar offered rate
CEA Commodity Exchange Act (US)
CET1 Common equity tier 1
CMB Commercial Banking, a global business
CMC Capital maintenance charge
CODM Chief Operating Decision Maker
COFINS Contribution for the Financing of Social Security, a Brazilian federal
corporation tax
CRD IV Capital Requirements Regulation and Directive
CRR Customer risk rating
CRR II Revised Capital Requirements Regulation and Directive, as implemented
CSM Contractual service margin
D
DPD Days past due
DPF Discretionary participation feature of insurance and investment contracts
DVA Debit valuation adjustment
E
EBA European Banking Authority
EC European Commission
ECB European Central Bank
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.
EEA European Economic Area
Eonia Euro Overnight Index Average
EPS Earnings per ordinary share
ESG Environmental, social and governance
EU European Union
Euribor Euro interbank offered rate
EVE Economic value of equity
F
FCA Financial Conduct Authority (UK)
FRB Federal Reserve Board (US)
FTE Full-time equivalent staff
FVOCI Fair value through other comprehensive income
FX Foreign exchange
G
GAAP Generally accepted accounting principles
GBM Global Banking and Markets, a global business
GDP Gross domestic product
GEC Group Executive Committee
GPS Global Payments Solutions, the business formerly known as Global Liquidity and
Cash Management
Group HSBC Holdings together with its subsidiary undertakings
GTRF Global Trade and Receivables Finance
H
HIBOR Hong Kong interbank offered rate
HKEx The Stock Exchange of Hong Kong Limited
HKMA Hong Kong Monetary Authority
Holdings ALCO HSBC Holdings Asset and Liability Management Committee
Hong Kong Hong Kong Special Administrative Region of the People's Republic of China
HQLA High-quality liquid assets
HSBC HSBC Holdings together with its subsidiary undertakings
HSBC Bank plc HSBC Bank plc, also known as the non-ring-fenced bank
HSBC Bank Middle East HSBC Bank Middle East Limited
HSBC Canada The sub-group, HSBC Bank Canada, HSBC Trust Company Canada, HSBC Mortgage
Corporation Canada and HSBC Securities Canada, consolidated for liquidity
purposes
HSBC Continental Europe HSBC Continental Europe
HSBC Holdings HSBC Holdings plc, the parent company of HSBC
HSBC UK HSBC UK Bank plc, also known as the ring-fenced bank
HSSL HSBC Securities Services (Luxembourg)
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
J
JV Joint venture
L
LCR Liquidity coverage ratio
Libor London interbank offered rate
LTI Long-term incentive
LTV Loan to value
M
M&A Mergers and acquisitions
Mainland China People's Republic of China excluding Hong Kong
and Macau
MENAT Middle East, North Africa and Türkiye
MREL Minimum requirement for own funds and eligible liabilities
MSS Markets and Securities Services, HSBC's capital markets and securities
services businesses in Global Banking and Markets
N
Net operating income Net operating income before change in expected credit losses and other credit
impairment charges, also referred to as revenue
NII Net interest income
NIM Net interest margin
NSFR Net stable funding ratio
O
OCI Other comprehensive income
OECD Organisation of Economic Co-operation and Development
OTC Over-the-counter
P
PCAF Partnership for Carbon Accounting Financials
PD Probability of default
PIS Contibution to the Social Integration Programme, a Brazilian federal
corporation tax
POCI Purchased or originated credit-impaired financial assets
PRA Prudential Regulation Authority (UK)
Premier HSBC Premier, HSBC's premium personal global banking service
PVIF Present value of in-force long-term insurance business and long-term
investment contracts with DPF
PwC The member firms of the PwC network, including PricewaterhouseCoopers LLP
R
RFR Risk-free rate
RoE Return on average ordinary shareholders' equity
RoTE Return on average tangible equity
RWA Risk-weighted asset
S
SAB Saudi Awwal Bank
SEC Securities and Exchange Commission (US)
ServCo group Separately incorporated group of service companies established in response to
UK ring-fencing requirements
Sibor Singapore interbank offered rate
SME Small and medium-sized enterprise
SOFR Secured Overnight Financing Rate
SVB UK Silicon Valley Bank UK Limited, now HSBC Innovation Bank Limited
T
TNFD Taskforce on Nature-related Financial Disclosures
U
UAE United Arab Emirates
UK United Kingdom
UN United Nations
US United States of America
V
VaR Value at risk
VIU Value in use
W
WPB Wealth and Personal Banking, a global business
This document comprises the Interim Report 2023 and information herein has
been filed on Form 6-K with the US Securities and Exchange Commission for HSBC
Holdings plc and its subsidiary and associated undertakings.
HSBC Holdings plc
Incorporated in England with limited liability. Registered in England: number
617987
Registered Office and Group Head Office
8 Canada Square, London E14 5HQ, United Kingdom
Web: www.hsbc.com
© Copyright HSBC Holdings plc 2023
All rights reserved
No part of this publication may be reproduced, stored in a retrieval system,
or transmitted, in any form or by any means, electronic, mechanical,
photocopying, recording, or otherwise, without the prior written permission of
HSBC Holdings plc.
Published by Global Finance, HSBC Holdings plc, London
Designed by Superunion, London (cover and 'Overview' section) and by Global
Finance, HSBC Holdings plc, London (rest of the Interim Report 2023)
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