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Annual Financial Report - 2 of 7

8th Mar 2017 16:16

RNS Number : 9095Y

HSBC Holdings PLC

08 March 2017

Report of the Directors | Financial summary



Financial summary
	Page
Use of non-GAAP financial measures	30
Critical accounting estimates and judgements	30
Consolidated income statement	31
Group performance by income and expense item	32
Net interest income	32
Net fee income	34
Net trading income	34
Net income/(expense) from financial instruments designated at fair value	35
Gains less losses from financial investments	36
Net insurance premium income	36
Other operating income	36
Net insurance claims and benefits paid and movement in liabilities to policyholders	37
Loan impairment charges and other credit risk provisions	38
Operating expenses	38
Share of profit in associates and joint ventures	40
Tax expense	40
Consolidated balance sheet	41
Movement in 2016	42

The management commentary included in the Strategic Report, the Report of the Directors: 'Financial Review', together with the 'Employees' and 'Corporate sustainability' sections of 'Corporate Governance' and the 'Directors' Remuneration Report' is presented in compliance with the IFRSs Practice Statement 'Management Commentary' issued by the IASB.

Use of non-GAAP financial measures

Our reported results are prepared in accordance with IFRSs as detailed in the Financial Statements starting on page 183. In measuring our performance, the financial measures that we use include those derived from our reported results in order to eliminate factors that distort period-on-period comparisons. These are considered non-GAAP financial measures.

Non-GAAP financial measures that we use throughout the Annual Report and Accounts 2016 are described below. Non-GAAP financial measures are described and reconciled to the closest reported financial measure when used.

The global business segmental results on pages 45 to 60 are presented on an adjusted basis in accordance with IFRS 8 'Operating Segments' as detailed in 'Basis of preparation' on page 44.

Adjusted performance

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

We use 'significant items' to describe collectively the group of individual adjustments excluded from reported results when arriving at adjusted performance. These items, which are detailed below, are ones that management and investors would ordinarily identify and consider separately when assessing performance to understand better the underlying trends in the business.

These items include the operating results for our Brazil operations sold to Banco Bradesco S.A. on 1 July 2016, as well as the loss recognised on disposal.

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

Foreign currency translation differences

Foreign currency translation differences reflect the movements of the US dollar against most major currencies during 2016. We exclude our reporting currency translation differences when deriving constant currency data because using these data allows us to assess balance sheet and income statement performance on a like-for-like basis to understand better the underlying trends in the business.

Foreign currency translation differences

Foreign currency translation differences for 2016 are computed by retranslating into US dollars for non-US dollar branches, subsidiaries, joint ventures and associates:

•

the income statements for 2015 and 2014 at the average rates of exchange for 2016; and

•

the balance sheets at 31 December 2015 and 31 December 2014 at the prevailing rates of exchange on 31 December 2016.

No adjustment has been made to the exchange rates used to translate foreign currency denominated assets and liabilities into the functional currencies of any HSBC branches, subsidiaries, joint ventures or associates. When reference is made to foreign currency translation differences in tables or commentaries, comparative data reported in the functional currencies of HSBC's operations have been translated at the appropriate exchange rates applied in the current period on the basis described above.

Significant items

The tables on pages 54 to 60 detail the effects of significant items on each of our global business segments and geographical regions in 2016, 2015 and 2014.

Critical accounting estimates

and judgements

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

•

Impairment of loans and advances: For collective impairment allowances, estimation methods include the use of historical information supplemented by significant management judgement about whether current economic and credit conditions are such that actual incurred losses are likely to be greater or less than experienced in the past. For individually assessed loans, judgements are made about the financial condition of individual borrowers, which can involve a wide range of factors relating to their business and the value of any security. The exercise of judgement requires the use of assumptions that are highly subjective and sensitive, in particular to changes in economic and credit conditions across a large number of geographical areas. See Note 1.2(d) on page 198.


•	Deferred tax assets: The most significant judgements relate to those made in respect of expected future profitability. See Note 1.2(h) on page 202.


•	Valuation of financial instruments: In determining the fair value of financial instruments a variety of valuation techniques are used, some of which feature significant unobservable inputs and are subject to substantial uncertainty. See Note 1.2(c) on page 197.


•	Impairment of interests in associates: Impairment testing involves significant judgement in determining the value in use, and in particular estimating the present values of cash flows expected to arise from continuing to hold the investment, based on a number of management assumptions. See Note 1.2(a) on page 196.



30	HSBC Holdings plc Annual Report and Accounts 2016


•	Goodwill impairment: A high degree of uncertainty is involved in estimating the future cash flows of the cash generating units ('CGUs') and the rates used to discount these cash flows. See Note 1.2(a) on page 196.


•	Provisions: A high degree of judgement may be required due to the high degree of uncertainty associated with determining whether a present obligation exists, and estimating the probability and amount of any outflows that may arise. See Note 1.2(i) on page 202.

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

Consolidated income statement



Summary consolidated income statement
	2016		2015		2014		2013		2012
	$m		$m		$m		$m		$m
Net interest income	29,813		32,531		34,705		35,539		37,672
Net fee income	12,777		14,705		15,957		16,434		16,430
Net trading income	9,452		8,723		6,760		8,690		7,091
Net income/(expense) from financial instruments designated at fair value	(2,666	)	1,532		2,473		768		(2,226	)
Gains less losses from financial investments	1,385		2,068		1,335		2,012		1,189
Dividend income	95		123		311		322		221
Net insurance premium income	9,951		10,355		11,921		11,940		13,044
Gains on disposal of US branch network, US cards business and Ping An Insurance (Group) Company of China, Ltd	-		-		-		-		7,024
Other operating income/(expense)	(971	)	1,055		1,131		2,632		2,100
Total operating income	59,836		71,092		74,593		78,337		82,545
Net insurance claims and benefits paid and movement in liabilities to policyholders	(11,870	)	(11,292	)	(13,345	)	(13,692	)	(14,215	)
Net operating income before loan impairment charges and othercredit risk provisions	47,966		59,800		61,248		64,645		68,330
Loan impairment charges and other credit risk provisions	(3,400	)	(3,721	)	(3,851	)	(5,849	)	(8,311	)
Net operating income	44,566		56,079		57,397		58,796		60,019
Total operating expenses	(39,808	)	(39,768	)	(41,249	)	(38,556	)	(42,927	)
Operating profit	4,758		16,311		16,148		20,240		17,092
Share of profit in associates and joint ventures	2,354		2,556		2,532		2,325		3,557
Profit before tax	7,112		18,867		18,680		22,565		20,649
Tax expense	(3,666	)	(3,771	)	(3,975	)	(4,765	)	(5,315	)
Profit for the year	3,446		15,096		14,705		17,800		15,334
Attributable to:
- ordinary shareholders of the parent company	1,299		12,572		13,115		15,631		13,454
- preference shareholders of the parent company	90		90		90		90		90
- other equity holders	1,090		860		483		483		483
- non-controlling interests	967		1,574		1,017		1,596		1,307
Profit for the year	3,446		15,096		14,705		17,800		15,334



Five-year financial information
		2016	2015	2014	2013	2012
	Footnotes	$	$	$	$	$
Basic earnings per share		0.07	0.65	0.69	0.84	0.74
Diluted earnings per share		0.07	0.64	0.69	0.84	0.74
Dividends per ordinary share	1	0.51	0.50	0.49	0.48	0.41
		%	%	%	%	%
Dividend payout ratio	2	728.6	76.5	71.0	57.1	55.4
Post-tax return on average total assets		0.1	0.6	0.5	0.7	0.6
Return on risk-weighted assets	3	0.7	1.6	1.5	2.0	1.8
Return on average ordinary shareholders' equity		0.8	7.2	7.3	9.2	8.4
Average foreign exchange translation rates to $:
$1: £		0.741	0.654	0.607	0.639	0.631
$1: €		0.904	0.902	0.754	0.753	0.778

For footnotes, see page 63.

Unless stated otherwise, all tables in the Annual Report and Accounts 2016 are presented on a reported basis.

For a summary of our financial performance in 2016, see page 14.

For further financial performance data for each global business and geographical region, see pages 45 to 51 and 54 to 60, respectively.



HSBC Holdings plc Annual Report and Accounts 2016	31

Report of the Directors | Financial summary

Group performance by income and expense item

Net interest income



		2016		2015		2014
	Footnotes	$m		$m		$m
Interest income		42,414		47,189		50,955
Interest expense		(12,601	)	(14,658	)	(16,250	)
Net interest income	4	29,813		32,531		34,705
Average interest-earning assets		1,723,702		1,726,949		1,786,536
		%		%		%
Gross interest yield	5	2.46		2.73		2.85
Less: cost of funds		(0.87	)	(1.00	)	(1.05	)
Net interest spread	6	1.59		1.73		1.80
Net interest margin	7	1.73		1.88		1.94

For footnotes, see page 63.

In 2016, we earned net interest income of $0.9bn in Brazil (2015: $2.1bn) from average interest earning assets in Brazil of

$25.8bn (2015: $40.0bn). Our net interest margin excluding Brazil was 1.70% (2015: 1.79%).



Summary of interest income by type of asset
		2016				2015				2014
		Average balance		Interest income	Yield	Average balance		Interest income	Yield	Average balance		Interest income	Yield
	Footnotes	$m		$m	%	$m		$m	%	$m		$m	%
Short-term funds and loans and advances to banks		203,799		1,510	0.74	221,924		2,277	1.03	237,148		3,068	1.29
Loans and advances to customers		865,356		29,272	3.38	909,707		33,104	3.64	931,311		37,429	4.02
Reverse repurchase agreements -non-trading		168,207		1,227	0.73	162,308		1,301	0.80	198,273		1,800	0.91
Financial investments		430,775		7,248	1.68	396,113		7,508	1.90	399,816		8,323	2.08
Other interest-earning assets		55,565		3,157	5.68	36,897		2,999	8.13	19,988		335	1.68
Total interest-earning assets		1,723,702		42,414	2.46	1,726,949		47,189	2.73	1,786,536		50,955	2.85
Trading assets and financial assets designated at fair value	8, 9	179,780		3,897	2.17	195,285		4,626	2.37	238,958		5,596	2.34
Impairment allowances		(9,127	)			(10,606	)			(14,015	)
Non-interest-earning assets		653,115				682,143				668,564
Year ended 31 Dec		2,547,470		46,311	1.82	2,593,771		51,815	2.00	2,680,043		56,551	2.11

For footnotes, see page 63.



Summary of interest expense by type of liability and equity
		2016			2015			2014
		Average balance	Interest expense	Cost	Average balance	Interest expense	Cost	Average balance	Interest expense	Cost
	Footnotes	$m	$m	%	$m	$m	%	$m	$m	%
Deposits by banks	10	49,782	342	0.69	55,863	378	0.68	61,217	481	0.79
Financial liabilities designated at fair value - own debt issued	11	62,042	942	1.52	58,489	717	1.23	66,374	837	1.26
Customer accounts	12	1,074,661	5,492	0.51	1,075,901	7,401	0.69	1,088,493	9,131	0.84
Repurchase agreements - non-trading		118,789	626	0.53	117,947	355	0.30	190,705	652	0.34
Debt securities in issue		114,343	2,807	2.45	129,039	3,521	2.73	129,724	4,554	3.51
Other interest-bearing liabilities		22,387	2,392	10.68	28,396	2,286	8.05	10,120	595	5.88
Total interest-bearing liabilities		1,442,004	12,601	0.87	1,465,635	14,658	1.00	1,546,633	16,250	1.05
Trading liabilities and financial liabilities designated at fair value (excluding own debt issued)		138,486	1,986	1.43	151,294	2,071	1.37	178,518	2,856	1.60
Non-interest bearing current accounts		184,016			190,914			185,990
Total equity and other non-interest bearing liabilities		782,964			785,928			768,902
Year ended 31 Dec		2,547,470	14,587	0.57	2,593,771	16,729	0.64	2,680,043	19,106	0.71

For footnotes, see page 63.



32	HSBC Holdings plc Annual Report and Accounts 2016



Significant items and currency translation
	2016	2015
	$m	$m
Significant items	951	2,104
- releases/(provisions) arising from the ongoing review of compliance with the UK Consumer Credit Act	2	(10	)
- acquisitions, disposals and dilutions	949	2,114
Currency translation		1,808
Year ended 31 Dec	951	3,912

Net interest income of $29.8bn decreased by $2.7bn or 8% compared with 2015. This was partly the impact of the disposal of our operations in Brazil on 1 July 2016, which reduced net interest income by ($1.2bn), and adverse effects of currency translation differences. These decreases were partly offset by growth in net interest income in Asia, notably in Hong Kong, and in Mexico, partly offset by a decrease in the UK and the US.

Net interest margin in 2016 of 1.73% was 15 basis points ('bps') lower than 2015. This reflected the effects of the disposal and currency translation noted above, which had an adverse effect of 8bps. The remainder of the decrease was primarily as a result of lower yields on customer lending, which had an adverse effect of 9bps on our net interest margin, partly reflecting the continuing run-off of our US CML portfolio. In addition, we recorded an increase in the cost of debt, partly offset by a lower cost of funds on customer accounts, notably in Hong Kong.

Interest income

Interest income decreased by $4.8bn compared with 2015, notably driven by our sale of Brazil operations ($3.1bn) and currency translation. Excluding these factors, total interest income increased marginally.

Interest income on loans and advances to customers decreased by $3.8bn, driven by a reduction of $1.9bn relating to our operations in Brazil, and the adverse effects of currency translation. Excluding these factors, interest income on customer lending was broadly unchanged. The effects of growth in balances in Europe and Mexico, together with central bank rate rises in Mexico and Argentina, were broadly offset by the run-off of our US CML portfolio and the effect of lower average balances in Asia.

Income growth in Mexico was driven by growth in average balances, reflecting gains in market share and higher yields, notably on term lending due to central bank rate increases. Income increased in Europe as the effect of growth in average balances, primarily an increase in term lending volumes, more than offset the effect of lower yields on both term lending and mortgages, reflecting competitive pricing in the market and lower interest rates in the eurozone. By contrast, interest income decreased in Asia, as a result of lower average balances in term lending, despite increased mortgage balances, notably in Hong Kong. Yields in Asia also decreased marginally as a result of central bank rate cuts in China during 2015, although these were partly offset by rate rises in Hong Kong.

Interest income on short-term funds and financial investments decreased by $1.0bn in 2016, including a decrease of $0.7bn relating to Brazil. Excluding the effect of currency translation and Brazil, interest income on short-term funds and financial investments increased by $0.2bn. The movement predominantly reflected increases in available-for-sale debt securities in Asia, reflecting growth in our surplus liquidity. In North America income increased, driven by higher balances primarily due to net purchase of US Treasury securities, and a higher yield, following the US rate rise at the end of 2015.

Interest income on reverse repurchase agreements - non-trading was $0.1bn lower, including a decrease relating to Brazil ($0.4bn). Excluding currency translation and Brazil, income increased primarily in North America, reflecting higher balances and improved market rates.

Interest expense

Reported interest expense decreased by $2.1bn, driven by the reductions relating to Brazil ($1.8bn) and currency translation. Excluding these factors, interest expense rose by $0.4bn, as increases in the cost of debt and repurchase agreements were partly offset by decreases in interest expense on customer accounts.

Interest expense on customer accounts decreased by $1.9bn, including amounts relating to Brazil ($0.8bn) and currency translation. Excluding these factors, interest expense on customer accounts decreased by $0.5bn, driven by Asia and Europe, partly offset by Mexico, Argentina and North America. In Asia, the effect of an increase in balances was more than offset by a lower cost of funds, partly a change in portfolio mix towards lower-cost accounts in Hong Kong, which more than offset the effect of central bank rate rises. In addition to these factors, the central bank rate cuts in a number of markets, including mainland China, Australia and India, further lowered our cost of funds. In Europe, interest expense decreased as a result of a reduction in the cost of funds, partly due to a negative rate environment, although the average balances increased, notably in the UK. These decreases were partly offset by higher interest expense on customer accounts in the US, Mexico and Argentina, reflecting promotional deposit offerings and the central bank rate rises.

Interest expense on debt securities in issue and own debt designated at fair value decreased by $0.5bn, including the impact of Brazil ($0.8bn). Excluding currency translation and the effect of Brazil, interest expense increased by $0.4bn. This was driven by an increase in the cost of funds and an increase in average balances, as redemptions across the Group were more than offset by issuances of senior debt from HSBC Holdings plc ('HSBC Holdings'). The increase in the cost of debt designated at fair value was as a result of longer maturities and the structural subordination of our new issuances from HSBC Holdings.

Interest expense increased on repurchase agreements by $0.3bn, notably in North America, reflecting higher balances and market rates.



HSBC Holdings plc Annual Report and Accounts 2016	33

Report of the Directors | Financial summary

Net fee income



	2016		2015		2014
	$m		$m		$m
Account services	2,417		2,745		3,407
Funds under management	2,076		2,570		2,658
Cards	1,970		2,281		2,460
Credit facilities	1,795		1,919		1,890
Broking income	1,060		1,441		1,371
Unit trusts	863		1,007		1,005
Imports/exports	820		971		1,115
Remittances	766		772		833
Underwriting	705		762		872
Global custody	662		721		726
Insurance agency commission	419		519		516
Other	2,116		2,308		2,692
Fee income	15,669		18,016		19,545
Less: fee expense	(2,892	)	(3,311	)	(3,588	)
Year ended 31 Dec	12,777		14,705		15,957



Significant items and currency translation
	2016	2015
	$m	$m
Significant items
- acquisitions, disposals and dilutions	233	533
Currency translation		574
Year ended 31 Dec	233	1,107

Net fee income fell by $1.9bn compared with 2015, partly as a result of the adverse effects of currency translation of $0.6bn, primarily in the UK, Argentina and Mexico, which notably affected account services, cards and fee expense. The sale of our operations in Brazil to Banco Bradesco S.A. reduced net fee income by a further $0.3bn. In addition, the decrease was driven by RBWM in Hong Kong, reflecting risk-averse retail investor sentiment in Asia.

Fee income from broking and unit trusts decreased by $525m, largely due to a strong performance in Hong Kong in the first half of 2015. The decrease was mainly in RBWM in Hong Kong, from lower securities broking income resulting from a reduction in stock market turnover.

In addition, fee income from cards decreased by $311m, primarily reflecting lower interchange fees in the UK, following regulatory change in late 2015.

Fee income from funds under management decreased by $0.5bn, partly driven by a reclassification between fee income from funds under management and fee expense in Germany ($0.2bn). In addition, fee income from funds under management decreased in RBWM's Global Asset Management business, driven by a change in the product mix towards lower margin fixed income products, as well as in GPB in Switzerland.

The reduction in fee income from funds under management was partly offset by a fall in fee expense of $419m, primarily reflecting lower brokerage fees, and the reclassification noted above.

Net trading income



		2016		2015		2014
	Footnote	$m		$m		$m
Trading activities		8,702		7,285		5,419
Net interest income on trading activities		1,386		1,775		1,907
Gain/(loss) on termination of hedges		1		(11	)	1
Other trading income - hedge ineffectiveness
- on cash flow hedges		(5	)	15		34
- on fair value hedges		23		(11	)	19
Fair value movement on non-qualifying hedges	13	(655	)	(330	)	(620	)
Year ended 31 Dec		9,452		8,723		6,760

For footnote, see page 63.



34	HSBC Holdings plc Annual Report and Accounts 2016



Significant items and currency translation
		2016		2015
	Footnote	$m		$m
Significant items
Included within trading activities		26		230
- favourable debit valuation adjustment on derivative contracts		26		230
Included in other net trading income		(508	)	(42	)
- fair value movement on non-qualifying hedges	13	(687	)	(327	)
- acquisitions, disposals and dilutions		179		285
Total significant items		(482	)	188
Currency translation				596
Year ended 31 Dec		(482	)	784

For footnote, see page 63.

Net trading income of $9.5bn was $0.7bn higher than in 2015, despite the net adverse effects of $1.3bn of significant items and currency translation summarised in the table above. The increase (excluding the movements tabulated above) was driven by:


•	favourable movements on assets held as economic hedges of foreign currency debt designated at fair value of $1.7bn in 2016 compared to minimal movements in 2015. These movements were offset by adverse movements in foreign

currency debt designated at fair value in 'Net income/(expense) from financial instruments designated at fair value'; and

•

increases in GB&M ($0.2bn), notably in Rates and in Credit, as we gained market share in Europe, partly offset by a decrease in Equities, reflecting lower trading volumes in Europe and Asia. In addition, we recorded adverse movements of $70m in credit and funding valuation adjustments compared with favourable movements of $227m in the prior year, primarily relating to movements in our own credit spread on structured liabilities.

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



	2016		2015		2014
	$m		$m		$m
Net income/(expense) arising from:
Financial assets held to meet liabilities under insurance and investment contracts	1,480		531		2,300
Liabilities to customers under investment contracts	(218	)	34		(435	)
HSBC's long-term debt issued and related derivatives	(3,975	)	863		508
- change in own credit spread on long-term debt (significant item)	(1,792	)	1,002		417
- other changes in fair value	(2,183	)	(139	)	91
Other instruments designated at fair value and related derivatives	47		104		100
Year ended 31 Dec	(2,666	)	1,532		2,473

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

These liabilities are discussed further on page 242.



Significant items and currency translation
	2016		2015
	$m		$m
Significant items	(1,488	)	1,426
- own credit spread	(1,792	)	1,002
- acquisitions, disposals and dilutions	304		424
Currency translation			24
Year ended 31 Dec	(1,488	)	1,450

We recorded a net expense from financial instruments designated at fair value of $2.7bn in 2016, compared with net income of $1.5bn in 2015. In 2016, there were unfavourable movements of $1.8bn in the fair value of our own long-term debt reflecting changes in credit spread, compared with favourable movements of $1.0bn in 2015.

The decrease was also as a result of 'Other changes in fair value' on our long-term debt and related derivatives, which reflected:


•	higher adverse movements of $1.7bn in 2016 compared with minimal movements in 2015 on foreign currency debt designated at fair value and issued as part of our overall funding strategy (offset by assets held as economic hedges in 'Net trading income'); and


•	higher adverse movements of $0.2bn relating to the economic hedging of interest and exchange rate risk on our long-term debt.

By contrast, net income from financial assets held to meet liabilities under insurance and investment contracts of $1.5bn was $0.9bn higher than in 2015. This was primarily driven by improved equity market performance in Asia and Europe in 2016, partly offset by the disposal of our operations in Brazil in July 2016.

Net income arising from financial assets held to meet liabilities under insurance and investment contracts results in a corresponding movement in liabilities to customers, reflecting the extent to which they participate in the investment performance of the associated asset portfolio. These offsetting movements are recorded in 'Net income/(expense) arising from liabilities to customers under investment contracts' and 'Net



HSBC Holdings plc Annual Report and Accounts 2016	35

Report of the Directors | Financial summary

insurance claims and benefits paid and movement in liabilities to policyholders'.

In 2016, the majority of the variance arose in unit-linked contracts where the policyholder bears the investment risk, and was therefore offset by movements in liabilities to customers.

Gains less losses from financial investments



	2016		2015		2014
	$m		$m		$m
Net gains from disposal	1,421		2,179		1,708
- debt securities	357		345		665
- equity securities	1,058		1,829		1,037
- other financial investments	6		5		6
Impairment of available-for-sale equity securities	(36	)	(111	)	(373	)
Year ended 31 Dec	1,385		2,068		1,335



Significant items and currency translation
	2016	2015
	$m	$m
Significant items	701	1,385
- gain on disposal of our membership interest in Visa - Europe	584	-
- gain on disposal of our membership interest in Visa - US	116	-
- gain on the partial sale of shareholding in Industrial Bank	-	1,372
- acquisitions, disposals and dilutions	1	13
Currency translation		34
Year ended 31 Dec	701	1,419

In 2016, gains less losses from financial investments decreased by $0.7bn compared with 2015. This was largely due to the significant items and currency translation tabulated above, notably the non-recurrence of the gain on the partial sale of

our shareholding in Industrial Bank of $1.4bn in 2015, partly offset by gains on disposal of our membership interests in Visa Europe of $0.6bn and in Visa US of $0.1bn in 2016.

Net insurance premium income



	2016		2015		2014
	$m		$m		$m
Gross insurance premium income	10,588		11,012		12,370
Reinsurance premiums	(637	)	(657	)	(449	)
Year ended 31 Dec	9,951		10,355		11,921



Significant items and currency translation
	2016	2015
	$m	$m
Significant items
- acquisitions, disposals and dilutions	362	764
Currency translation		169
Year ended 31 Dec	362	933

Net insurance premium income was $0.4bn lower than in 2015, and included reductions due to the disposal of our operations in Brazil ($0.4bn) and currency translation movements of $0.2bn. Net insurance premium income increased in Hong Kong, partly offset by reductions in France in response to low interest rates

and market volatility, and in the UK, following the disposal of our pension business in 2015.

Other operating income



	2016		2015		2014
	$m		$m		$m
Rent received	157		171		162
Gains/(losses) recognised on assets held for sale	(1,949	)	(244	)	220
Gains on investment properties	4		61		120
Gain on disposal of property, plant and equipment, intangible assets and non-financial investments	35		53		32
Losses arising from dilution of interest in Industrial Bank and other associates and joint ventures	-		-		(32	)
Change in present value of in-force long-term insurance business	902		799		261
Other	(120	)	215		368
Year ended 31 Dec	(971	)	1,055		1,131



36	HSBC Holdings plc Annual Report and Accounts 2016



Change in present value of in-force long-term insurance business
	2016		2015		2014
	$m		$m		$m
Value of new business	900		809		870
Expected return	(532	)	(552	)	(545	)
Assumption changes and experience variances	513		504		(116	)
Other adjustments	21		38		52
Year ended 31 Dec	902		799		261



Significant items and currency translation
	2016		2015
	$m		$m
Significant items
Included within gains/(losses) recognised on assets held for sale:	(163	)	(214	)
- portfolio disposals	(163	)	(214	)
Included within the remaining line items:	(1,763	)	157
- acquisitions, disposals and dilutions	(1,763	)	157
Total significant items	(1,926	)	(57	)
Currency translation			71
Year ended 31 Dec	(1,926	)	14

Other operating income decreased by $2.0bn from 2015. This was as a result of the loss on the sale of our operations in Brazil of $1.7bn and the effects of the other significant items recorded in the table above. In addition, we recorded lower revaluation gains on investment properties.

These decreases were partly offset by higher favourable movements of $0.1bn in present value of in-force ('PVIF') long-term insurance business, which was primarily driven by an

increase in the value of new business written in Hong Kong, partly offset by a reduction in France and the impact of the disposal of our operations in Brazil.

In 2016, we recognised $513m of income in 'Assumption changes and experience variances', which was broadly unchanged from the $504m recognised in 2015. For further details, please see Note 20.

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



		2016		2015		2014
	Footnote	$m		$m		$m
Net insurance claims and benefits paid and movement in liabilities to policyholders:
- gross		12,508		11,872		13,723
- less reinsurers' share		(638	)	(580	)	(378	)
Year ended 31 Dec	14	11,870		11,292		13,345

For footnote, see page 63.



Significant items and currency translation
	2016	2015
	$m	$m
Significant items
- acquisitions, disposals and dilutions	538	962
Currency translation		246
Year ended 31 Dec	538	1,208

Net insurance claims and benefits paid and movement in liabilities to policyholders were $0.6bn higher compared with 2015, and included reductions due to the disposal of our operations in Brazil ($0.4bn) and currency translation movements of $0.2bn.

This increase was primarily due to improved returns on financial assets supporting unit-linked contracts, where the policyholder bears the investment risk, reflecting improved equity market performance in Hong Kong compared to 2015. In addition, movements in liabilities to policyholders were higher due to

increased premium income, and interest rate-driven changes to liability valuations in Hong Kong.

These increases were partly offset by decreased premiums and reducing investment returns in France.

The gains or losses recognised on the financial assets designated at fair value that are held to support these insurance contract liabilities are reported in 'Net income/(expense) from financial instruments designated at fair value' on page 203.



HSBC Holdings plc Annual Report and Accounts 2016	37

Report of the Directors | Financial summary

Loan impairment charges and other credit risk provisions



	2016		2015		2014
	$m		$m		$m
New allowances net of allowance releases	3,977		4,400		5,010
Recoveries of amounts previously written off	(627	)	(808	)	(955	)
Loan impairment charges:	3,350		3,592		4,055
- individually assessed allowances	1,831		1,505		1,780
- collectively assessed allowances	1,519		2,087		2,275
Releases of impairment on available-for-sale debt securities	(63	)	(17	)	(319	)
Other credit risk provisions	113		146		115
Year ended 31 Dec	3,400		3,721		3,851
Impairment charges on loans and advances to customers as a percentage ofaverage gross loans and advances to customers	0.39	%	0.39	%	0.43	%



Significant items and currency translation
	2016	2015
	$m	$m
Significant items	748	933
- acquisitions, disposals and dilutions	748	933
Currency translation		184
Year ended 31 Dec	748	1,117

Loan impairment charges and other credit risk provisions ('LICs') of $3.4bn were $0.3bn lower than in 2015. This was partly as a result of favourable currency translation differences of $0.2bn, notably in Mexico and the UK. In addition, our sale of operations in Brazil resulted in a $0.2bn reduction.

Collectively assessed LICs of $1.5bn were down $568m compared with 2015. This reduction included the net favourable effect of $230m as a result of our sale of operations in Brazil and favourable currency translation of $95m. The remaining variance reflected the following:

•

In CMB (down $226m), a net release of collectively assessed LICs compared with a net charge in 2015. The net release of allowances in 2016 was primarily on exposures related to the oil and gas sector, notably in the US and Canada, the UAE and Asia. This reflected a more positive outlook for this sector. By contrast, in 2015 we increased our collective allowances on exposures related to the oil and gas sector. The reduction in collectively assessed LICs was partly offset by an increase in the UK, primarily reflecting new allowances against exposures in the oil and gas sector.


•	In GB&M, a net release of collectively assessed LICs, notably in the UK and US, compared with a net charge in 2015.

This was partly offset:


•	In RBWM, where collectively assessed LICs rose by $75m. The increase was mainly in Mexico reflecting our strategic focus on growing unsecured lending, as well as an increase in delinquency rates. By contrast, collectively assessed LICs decreased in a small number of markets in the Middle East and North Africa and Asia.


•	In Corporate Centre, LICs increased in our US CML run-off portfolio by $67m.

Individually assessed LICs of $1.8bn increased by $326m compared with 2015. Higher charges in GB&M were partly offset by a reduction in CMB and favourable currency translation of $79m. This primarily reflected the following:


•	In GB&M (up $0.6bn), the increase was primarily in the US related to a significant specific charge against a mining-related corporate exposure, as well as charges relating to exposures in the oil and gas sector. Additionally, in Hong Kong, individually assessed LICs in 2016 largely related to a single corporate exposure. This compared with a net release of LICs in 2015.

This was partly offset:

•

In CMB, lower individually assessed LICs (down $261m), included favourable currency translation of $70m and a net favourable effect of $45m attributable to our sale of operations in Brazil. The decrease also reflected lower individually assessed LICs in Indonesia, where charges in 2015 related to a small number of exposures across multiple sectors. Lower charges in both the UK and the UAE also contributed to the reduction. These decreases were partly offset by higher LICs in Hong Kong, related to various sectors, including manufacturing, and in Canada due to a rise in the number of exposures in the oil and gas sector migrating to default. Notably, the increase in individually assessed LICs in Canada was more than offset by the movement in collective allowances related to the oil and gas sector, discussed above.

In 2016, we recorded higher net releases of impairment allowances against available for sale debt securities. These were primarily related to asset-backed securities ('ABSs') in our Legacy Credit business in Corporate Centre.

Operating expenses



In addition to detailing operating expense items by category, as set out in the table below, we also categorise adjusted expenses as follows:
• 'Run-the-bank' costs comprise business-as-usual running costs that keep operations functioning at the required quality and standard year on year, maintain IT infrastructure and support revenue growth. Run-the-bank costs are split between front office and back office, reflecting the way the Group is organised into four global businesses ('front office') supported by global functions ('back office'). • 'Change-the-bank' costs comprise expenses relating to the implementation of mandatory regulatory changes and other investment costs incurred relating to projects to change business-as‑usual activity to enhance future operating capabilities.	• 'Costs to achieve' comprise those specific costs relating to the achievement of the strategic actions set out in the Investor Update in June 2015. They comprise costs incurred between 1 July 2015 and 31 December 2017, and do not include ongoing initiatives such as Global Standards. Any costs arising within this category have been incurred as part of a significant transformation programme. Costs to achieve are included within significant items and incorporate restructuring costs that were identified as a separate significant item prior to 1 July 2015. • The UK bank levy is reported as a separate category.



38	HSBC Holdings plc Annual Report and Accounts 2016



Operating expenses
	2016	2015	2014
	$m	$m	$m
By expense category
Employee compensation and benefits	18,089	19,900	20,366
Premises and equipment (excluding depreciation and impairment)	3,758	3,830	4,204
General and administrative expenses	12,715	13,832	14,361
Administrative expenses	34,562	37,562	38,931
Depreciation and impairment of property, plant and equipment	1,229	1,269	1,382
Amortisation and impairment of intangible assets	777	937	936
Goodwill impairment	3,240	-	-
Year ended 31 Dec	39,808	39,768	41,249



	2016	2015
	$m	$m
By expense group
Run-the-bank - front office	13,612	13,711
Run-the-bank - back office	13,275	13,437
Change-the-bank	2,746	3,161
Bank levy	922	1,421
Significant items	9,253	5,947
Currency translation		2,091
Year ended 31 Dec	39,808	39,768



Staff numbers (full-time equivalents)
	2016	2015	2014
Global businesses
Retail Banking and Wealth Management	124,810	145,868	151,802
Commercial Banking	44,712	48,651	48,650
Global Banking and Markets	46,659	47,894	46,605
Global Private Banking	8,054	8,513	8,775
Corporate Centre	10,940	4,277	1,771
At 31 Dec	235,175	255,203	257,603

Reported operating expenses of $39.8bn were $40m higher than in 2015. This reflected an increase in significant items of $3.3bn which included:


•	a $3.2bn write-off of the goodwill in our GPB business in Europe (please see Note 20 for further details);


•	costs to achieve of $3.1bn, compared with $0.9bn in 2015; partly offset by


•	the operating expenses incurred in our Brazil business of $1.1bn in 2016, compared with $2.5bn in 2015; and


•	a reduction of $1.0bn in settlements and provisions in connection with legal matters.

The increase in significant items was partly offset by the favourable effects of currency translation of $2.1bn.



Significant items and currency translation
	2016	2015
	$m	$m
Significant items	9,252	5,947
- costs associated with portfolio disposals	28	-
- costs to achieve	3,118	908
- cost to establish UK ring-fenced bank	223	89
- impairment of GPB - Europe goodwill	3,240	-
- regulatory provisions in GPB	344	172
- restructuring and other related costs	-	117
- settlements and provisions in connection with legal matters	681	1,649
- UK customer redress programmes	559	541
- acquisitions, disposals and dilutions	1,059	2,471
Currency translation	-	2,091
Year ended 31 Dec	9,252	8,038

Excluding the significant items and currency translation tabulated above, operating expenses of $30.6bn were $1.2bn lower than in 2015. This primarily reflected cost savings of $2.2bn achieved in 2016 and a reduction in the UK bank levy of $0.5bn. This was partly offset by the impact of inflation and continued investment in regulatory programmes and compliance.

Run-the-bank costs of $26.9bn were $0.3bn lower than in 2015 and change-the-bank costs of $2.7bn were $0.4bn lower than in 2015.

Our total investment in regulatory programmes and compliance, comprising both run‑the-bank and change-the-bank elements, was $3.0bn, up $0.4bn or 14% from 2015. This reflected the ongoing implementation of our Global Standards programme to enhance our financial crime risk controls and capabilities, and to meet our external commitments.



HSBC Holdings plc Annual Report and Accounts 2016	39

Report of the Directors | Financial summary

We have maintained our transformational efforts and continue to realise the benefit of our cost-saving programme.


•	Within RBWM, savings of $0.4bn reflected the impact of our branch optimisation programme enabled by our digital initiatives.


•	Within Operations and Technology, savings of $1.2bn reflected migrations to lower cost locations, the simplification of our IT structure and the implementation of target operating models.


•	Within our back office functions, savings of $0.4bn were realised as a result of the re-engineering and simplification of processes and the implementation of global operating models.

Taking the 2016 savings into account, our run rate savings are now $3.7bn since the start of our initiatives.

The number of employees expressed in FTEs at 31 December 2016 was 235,175, a decrease of 20,028 since 31 December 2015. This included a 19,145 reduction following our disposal of operations in Brazil. Excluding Brazil, the decrease in FTE was 883 as a reduction of 17,855 FTEs realised across global businesses and global functions was partly offset by investment in our Global Standards Programme of 5,694 FTEs, costs to achieve FTEs of 8,073 and investment for growth.



Share of profit in associates and joint ventures
	2016	2015	2014
	$m	$m	$m
Share of profit in associates	2,326	2,518	2,493
- Bank of Communications Co., Limited	1,892	2,011	1,974
- The Saudi British Bank	415	462	455
- other	19	45	64
Share of profit in joint ventures	28	38	39
Year ended 31 Dec	2,354	2,556	2,532

Our share of profit in associates and joint ventures was $2.4bn, a decrease of $0.2bn or 8%, which included the adverse effects of currency translation of $0.1bn, notably affecting our share of profit in BoCom.

Excluding the impact of currency translation, our share of profit in associates and joint ventures fell by $0.1bn or 4%, relating to higher impairment charges in the Saudi British Bank and lower revenue in HSBC Saudi Arabia, reflecting lower asset management and investment banking revenue. This was partly offset by revenue growth in Saudi British Bank and well-managed costs in both associates.

Our share of profit in BoCom for the year was $1.9bn. At 31 December 2016, we performed an impairment review

of our investment in BoCom and concluded that it was not impaired, based on our value in use calculation (see Note 20 on the Financial Statements for further details).

In future periods, the value in use may increase or decrease depending on the effect of changes to model inputs. It is expected that the carrying amount will increase in 2017 due to retained profits earned by BoCom. At the point where the carrying amount exceeds the value in use, HSBC would continue to recognise its share of BoCom's profit or loss, but the carrying amount would be reduced to equal the value in use, with a corresponding reduction in income, unless the market value has increased to a level above the carrying amount.



Tax expense
	2016		2015		2014
	$m		$m		$m
Profit before tax	7,112		18,867		18,680
Tax expense	(3,666	)	(3,771	)	(3,975	)
Profit after tax for the year ended 31 Dec	3,446		15,096		14,705
Effective tax rate	51.55	%	19.99	%	21.28	%

The effective tax rate for 2016 of 51.6% was higher than the 20.0% in 2015, reflecting events that occurred in 2016 that reduced the reported profit before tax but not taxable profits. These included the non-deductible goodwill impairment and the non-deductible loss on our disposal of operations in Brazil. The

2016 tax charge includes tax losses not recognised, prior year adjustments and the impact of the 8% bank corporation tax surcharge applicable in the UK from 1 January 2016. Further detail is provided in Note 7 of the Financial Statements.



40	HSBC Holdings plc Annual Report and Accounts 2016

Consolidated balance sheet



Five-year summary consolidated balance sheet
		2016	2015	2014	2013	2012
	Footnote	$m	$m	$m	$m	$m
Assets
Cash and balances at central banks		128,009	98,934	129,957	166,599	141,532
Trading assets		235,125	224,837	304,193	303,192	408,811
Financial assets designated at fair value		24,756	23,852	29,037	38,430	33,582
Derivatives		290,872	288,476	345,008	282,265	357,450
Loans and advances to banks		88,126	90,401	112,149	120,046	117,085
Loans and advances to customers	15	861,504	924,454	974,660	992,089	962,972
Reverse repurchase agreements - non-trading		160,974	146,255	161,713	179,690	70,112
Financial investments		436,797	428,955	415,467	425,925	421,101
Assets held for sale		4,389	43,900	7,647	4,050	19,269
Other assets		144,434	139,592	154,308	159,032	160,624
Total assets at 31 Dec		2,374,986	2,409,656	2,634,139	2,671,318	2,692,538
Liabilities and equity
Liabilities
Deposits by banks		59,939	54,371	77,426	86,507	95,480
Customer accounts		1,272,386	1,289,586	1,350,642	1,361,297	1,311,396
Repurchase agreements - non-trading		88,958	80,400	107,432	164,220	40,567
Trading liabilities		153,691	141,614	190,572	207,025	304,563
Financial liabilities designated at fair value		86,832	66,408	76,153	89,084	87,720
Derivatives		279,819	281,071	340,669	274,284	358,886
Debt securities in issue		65,915	88,949	95,947	104,080	119,461
Liabilities of disposal groups held for sale		2,790	36,840	6,934	2,804	5,018
Liabilities under insurance contracts		75,273	69,938	73,861	74,181	68,195
Other liabilities		106,805	102,961	114,525	117,377	118,123
Total liabilities at 31 Dec		2,192,408	2,212,138	2,434,161	2,480,859	2,509,409
Equity
Total shareholders' equity		175,386	188,460	190,447	181,871	175,242
Non-controlling interests		7,192	9,058	9,531	8,588	7,887
Total equity at 31 Dec		182,578	197,518	199,978	190,459	183,129
Total liabilities and equity at 31 Dec		2,374,986	2,409,656	2,634,139	2,671,318	2,692,538

For footnote, see page 63.



Five-year selected financial information
		2016	2015	2014	2013	2012
	Footnotes	$m	$m	$m	$m	$m
Called up share capital		10,096	9,842	9,609	9,415	9,238
Capital resources	16, 17	172,358	189,833	190,730	194,009	180,806
Undated subordinated loan capital		1,967	2,368	2,773	2,777	2,778
Preferred securities and dated subordinated loan capital	18	42,600	42,844	47,208	48,114	48,260
Risk-weighted assets	16	857,181	1,102,995	1,219,765	1,092,653	1,123,943
Financial statistics
Loans and advances to customers as a percentage of customer accounts		67.7	71.7	72.2	72.9	73.4
Average total shareholders' equity to average total assets		7.37	7.31	7.01	6.55	6.16
Net asset value per ordinary share at year-end ($)	19	7.91	8.73	9.28	9.27	9.09
Number of $0.50 ordinary shares in issue (millions)		20,192	19,685	19,218	18,830	18,476
Closing foreign exchange translation rates to $:
$1: £		0.811	0.675	0.642	0.605	0.619
$1: €		0.949	0.919	0.823	0.726	0.758

For footnotes, see page 63.

A more detailed consolidated balance sheet is contained in the Financial Statements on page 186.



HSBC Holdings plc Annual Report and Accounts 2016	41

Report of the Directors | Financial summary



Combined view of customer lending and customer deposits
		2016	2015
	Footnote	$m	$m
Combined customer lending
Loans and advances to customers		861,504	924,454
Loans and advances to customers reported in 'Assets held for sale'		3,623	19,021
- Brazil	20	-	17,001
- other		3,623	2,020
At 31 Dec		865,127	943,475
Combined customer deposits
Customer accounts		1,272,386	1,289,586
Customer accounts reported in 'Liabilities of disposal groups held for sale'		2,713	16,682
- Brazil	20	-	15,094
- other		2,713	1,588
At 31 Dec		1,275,099	1,306,268

For footnote, see page 63.

Movement in 2016

Total reported assets of $2.4tn were 1% lower than at 31 December 2015 on a reported basis, and 5% higher on a constant currency basis.

We have maintained the strength of our balance sheet, as targeted asset growth was partly offset by reductions in our legacy portfolios and the completion of our sale of operations in Brazil to Banco Bradesco S.A. We also issued more than $30bn of senior debt during the year from HSBC Holdings to build up the Group's total loss-absorbing capacity in line with anticipated regulatory requirements.

Our ratio of customer advances to customer accounts was 68%. Loans and advances to customers fell on a reported basis by $63bn and customer accounts fell on a reported basis by $17bn. These changes included:


•	adverse currency translation movements of $62bn on loans and advances to customers and $81bn on customer accounts;


•	a $9bn reduction in corporate overdraft and current account balances relating to a small number of clients in our Global Liquidity and Cash Management business in the UK that settled their overdraft and deposit balances on a net basis; and


•	an $11bn transfer to 'Assets held for sale' of US first lien mortgage balances in Corporate Centre.

Excluding these movements, customer lending increased by $19bn, as a result of strong fourth-quarter growth in Asia and increases in Europe throughout the year.

Assets

Cash and balances at central banks increased by $29bn or 29%, primarily from higher euro denominated balances in continental Europe, and in the US.

Trading assets increased by $10bn, mainly in Hong Kong and the US. This included higher balances in settlement accounts and an increase in debt and equity securities.

Reverse repurchase agreements - non-trading increased by $15bn, primarily in the US, as we managed our surplus liquidity to maximise returns.

Assets held for sale reduced by $40bn, of which $42bn related to our disposal of operations in Brazil.

Loans and advances to customers decreased by $63bn on a reported basis, primarily in Europe (down $48bn) and North America (down $17bn), partly offset by Asia (up $9bn). This included:


•	adverse currency translation movements of $62bn;


•	a $9bn reduction in corporate overdraft balances in Europe, with a corresponding fall in corporate customer accounts; and


•	an $11bn transfer to 'Assets held for sale' of US first lien mortgage balances in Corporate Centre, reflecting our strategic focus on reducing our legacy portfolios. (We sold most of these loans during 2016).

Excluding these factors, customer lending balances increased by $19bn or 2%. We grew balances in Asia by $13bn, notably in Hong Kong in both GB&M ($8bn) and CMB ($4bn) in term lending, although trade lending remained broadly unchanged. We also grew RBWM balances ($4bn), particularly in mortgages in Hong Kong. We recorded particularly strong growth in the fourth quarter ($20bn) in the region. In addition, we increased balances in Europe by $15bn as a result of higher term lending in CMB and mortgages in RBWM, both mainly in the UK. By contrast, US GB&M balances fell, reflecting our active management of overall client returns.

Liabilities

Customer accounts at 31 December 2016 were $17bn lower than at 31 December 2015 and included:


•	adverse currency translation movements of $81bn; and


•	a $9bn reduction in corporate current account balances, in line with a fall in corporate overdraft positions.

Excluding these factors, customer accounts grew by $73bn, primarily in RBWM and in GLCM in Hong Kong and the UK, with the latter driven by targeted customer mandate acquisition.

Trading liabilities increased by $12bn, mainly in the US, reflecting an increase in settlement accounts and net short positions from increased trading activity at the end of 2016, compared with the same period in 2015.

Financial liabilities designated at fair value increased by $20bn, reflecting new issuances of senior debt by HSBC Holdings.

Debt securities in issue fell by $23bn, mainly in HSBC Bank plc., following reductions in commercial paper issuances. These have been replaced by intra-group funding from HSBC Holdings from total loss-absorbing capacity resources. In the US, balances also fell, reflecting a lower funding requirement as we continued to run off legacy portfolios.

Liabilities of disposal groups held for sale decreased by $34bn, reflecting the completion of our sale of operations in Brazil.

Equity

Total shareholders' equity fell by $13.1bn or 7%. The effects of profits generated in the year were more than offset by dividends paid and an increase in accumulated foreign exchange losses, reflecting the significant appreciation of the US dollar against the British pound and the euro. The net increase in treasury shares, principally reflecting our share buy-back initiative, also reduced shareholders' equity by $2.5bn.

Risk-weighted assets

Risk-weighted assets ('RWAs') were $857.2bn at 31 December 2016, a decrease of $245.8bn compared with 31 December 2015. After foreign currency translation differences, RWAs reduced by $207.7bn in 2016. This reflected targeted RWA-reduction initiatives of $143.2bn and the change of regulatory treatment of our investment in BoCom reducing RWAs by $120.9bn. This was partly offset by book size increases of $38.7bn.

The RWA initiatives included:


•	exposure reductions, process improvements and refined calculations, which reduced RWAs by $69.8bn, 55% of which were in GB&M;


•	the disposal of our activities in Brazil, which reduced RWAs by $41.8bn; and



42	HSBC Holdings plc Annual Report and Accounts 2016


•	an accelerated sell-down of our consumer mortgage portfolio in the US and our Legacy Credit book, together contributing $31.6bn to the reduction

The book size increase of $38.7bn primarily came from higher term lending to corporate customers in CMB and higher general lending to customers in GB&M, both mainly in Europe and Asia.



Customer accounts by country
	2016	2015
	$m	$m
Europe	446,615	491,520
- UK	361,278	404,084
- France	35,996	35,635
- Germany	13,925	13,873
- Switzerland	9,474	10,448
- other	25,942	27,480
Asia	631,723	598,620
- Hong Kong	461,626	421,538
- Mainland China	46,576	46,177
- Singapore	39,062	41,307
- Australia	18,030	17,703
- Malaysia	12,904	14,114
- Taiwan	11,731	11,812
- India	11,289	11,795
- Indonesia	5,092	5,366
- other	25,413	28,808
Middle East and North Africa (excluding Saudi Arabia)	34,766	42,824
- United Arab Emirates	16,532	18,281
- Turkey	4,122	6,356
- Egypt	3,790	6,602
- other	10,322	11,585
North America	138,790	135,152
- US	88,751	86,322
- Canada	42,096	39,727
- other	7,943	9,103
Latin America	20,492	21,470
- Mexico	14,423	15,798
- other	6,069	5,672
At 31 Dec	1,272,386	1,289,586



HSBC Holdings plc Annual Report and Accounts 2016	43

Report of the Directors | Financial summary / Global businesses



Global businesses and geographical regions
	Page
Change in reportable segments	44
Analysis of adjusted results by global business	45
Reconciliation of reported and adjusted items	47
Reconciliation of reported and adjusted items - global businesses	48
Retail Banking and Wealth Management	51
Commercial Banking	52
Global Banking and Markets	52
Global Private Banking	53
Corporate Centre	53
Analysis of reported results by geographical regions	54
Reconciliation of reported and adjusted items - geographical regions	56
Analysis of reported results by country	59

Change in reportable segments

(Audited)

The Group Chief Executive as supported by the GMB is considered to be the CODM for the purposes of identifying the Group's reportable segments.

They review operating activity on a number of bases, including by global business and geographical region. While in 2015 we considered the reportable segments to be the geographical regions, over time the focus of internal management reporting provided to the GMB and CODM has moved towards global business. The shift in internal reporting was further augmented in 2016 to include financial information and metrics on the consumption of, and returns on, capital by global business to support the GMB assessment of business performance and the allocation of capital resources. As a result global business is now the most prominent view used by management to allocate resources and assess performance, and is considered to be the Group's reportable segment.

In addition, we made the following realignments within our internal reporting to the GMB and CODM:


•	Creation of a Corporate Centre: Certain functions were combined to create a Corporate Centre. These include Balance Sheet Management, legacy businesses and interests in associates and joint ventures. The Corporate Centre also includes the results of our financing operations, central support costs with associated recoveries and the UK bank levy, previously reported within Other.


•	Reallocation of Head Office costs: We have reviewed central costs previously reported in Other and reallocated them to

the global businesses where appropriate. Residual costs are reported within the Corporate Centre.


•	Customer realignment: We conducted a number of internal reviews aligning customer requirements to those global businesses best suited to service their respective needs, resulting in the transfer of a portfolio of customers from CMB to GB&M and the transfer of certain policyholders in Asia from CMB to RBWM during the year.

Comparative data have been represented accordingly.

In addition, geographical comparative data for Europe and Middle East and North Africa have been re-presented to reflect the management oversight provided by our Middle East and North Africa region following the management services agreement entered between HSBC Bank plc and HSBC Bank Middle East Limited in 2016 in respect of HSBC Bank A.S. (Turkey).

Basis of preparationFollowing the changes in internal reporting to the CODM, analysis by global business is considered more prominent than the geographical region view in the way the CODM assesses performance and allocates resources. The global businesses are therefore considered our reportable segments under IFRS 8.Global business results are assessed by the CODM on the basis of adjusted performance that removes the effects of significant items and currency translation from reported results. We therefore present these results on an adjusted basis as required by IFRSs. The 2015 and 2014 adjusted performance comparative information is presented on a constant currency basis as described on page 45.As required by IFRS 8, reconciliations of the total adjusted global business results of the Group reported results are presented on page 46. Supplementary reconciliations from reported to adjusted results by global business are presented on pages 47 to 51 for information purposes.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 operational business lines and geographical regions. While such allocations have been made on a systematic and consistent basis, they necessarily involve a degree of subjectivity. Costs which are not allocated to global businesses are included in the 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 the Corporate Centre. The expense of the UK bank levy is included in the Europe geographical region as HSBC regards the levy as a cost of being headquartered in the UK. For the purposes of the presentation by global business, the cost of the levy is included in the Corporate Centre.The results of geographical regions are presented on a reported basis.

A description of the global businesses is provided in the Strategic Report, pages 3, 18 and 19.



44	HSBC Holdings plc Annual Report and Accounts 2016

Analysis of adjusted results by global business

(Audited)



HSBC adjusted profit before tax and balance sheet data
		2016
		Retail Bankingand WealthManagement		CommercialBanking		GlobalBanking andMarkets		GlobalPrivateBanking		Corporate Centre		Total
	Footnotes	$m		$m		$m		$m		$m		$m
Profit before tax
Net interest income		13,198		8,689		4,923		809		1,243		28,862
Net fee income/(expense)		4,839		3,627		3,392		749		(63	)	12,544
Net trading income	21	435		447		6,327		183		2,542		9,934
Other income/(expenses)	34	453		124		277		16		(2,057	)	(1,187	)
Net operating income before loan impairment charges and other credit risk provisions	22	18,925		12,887		14,919		1,757		1,665		50,153
- external		16,319		12,953		17,798		1,498		1,585		50,153
- inter-segment		2,606		(66	)	(2,879	)	259		80		-
Loan impairment (charges)/recoveries and other credit risk provisions		(1,171	)	(1,000	)	(457	)	1		(25	)	(2,652	)
Net operating income		17,754		11,887		14,462		1,758		1,640		47,501
Total operating expenses		(12,441	)	(5,835	)	(8,865	)	(1,469	)	(1,946	)	(30,556	)
Operating profit/(loss)		5,313		6,052		5,597		289		(306	)	16,945
Share of profit in associates and joint ventures		20		-		-		-		2,335		2,355
Adjusted profit before tax		5,333		6,052		5,597		289		2,029		19,300
		%		%		%		%		%		%
Share of HSBC's adjusted profit before tax		27.6		31.4		29.0		1.5		10.5		100.0
Adjusted cost efficiency ratio		65.7		45.3		59.4		83.6		116.9		60.9
Adjusted balance sheet data		$m		$m		$m		$m		$m		$m
Loans and advances to customers (net)		306,056		281,930		225,855		35,456		12,207		861,504
Interests in associates and joint ventures		395		-		-		-		19,634		20,029
Total external assets		413,287		306,256		925,187		41,459		688,797		2,374,986
Customer accounts		590,502		341,729		256,095		69,850		14,210		1,272,386
Adjusted risk-weighted assets (unaudited)	37	111,899		274,893		299,629		15,213		150,327		851,961



		201535
Profit before tax
Net interest income		12,579		8,461		4,514		824		2,241		28,619
Net fee income/(expense)		5,545		3,739		3,500		933		(119	)	13,598
Net trading income	21	443		462		6,175		204		655		7,939
Other income	34	675		91		377		4		116		1,263
Net operating income before loan impairment charges and other credit risk provisions	22	19,242		12,753		14,566		1,965		2,893		51,419
- external		16,763		12,863		17,055		1,690		3,048		51,419
- inter-segment		2,479		(110	)	(2,489	)	275		(155	)	-
Loan impairment charges and other credit risk provisions		(1,060	)	(1,434	)	(74	)	(11	)	(25	)	(2,604	)
Net operating income		18,182		11,319		14,492		1,954		2,868		48,815
Total operating expenses		(12,514	)	(5,896	)	(8,958	)	(1,567	)	(2,795	)	(31,730	)
Operating profit		5,668		5,423		5,534		387		73		17,085
Share of profit in associates and joint ventures		22		-		-		-		2,421		2,443
Adjusted profit before tax		5,690		5,423		5,534		387		2,494		19,528
		%		%		%		%		%		%
Share of HSBC's adjusted profit before tax		29.1		27.8		28.3		2.0		12.8		100.0
Adjusted cost efficiency ratio		65.0		46.2		61.5		79.7		96.6		61.7
Adjusted balance sheet data		$m		$m		$m		$m		$m		$m
Loans and advances to customers (net)		296,607		269,758		231,215		41,161		23,451		862,192
Interests in associates and joint ventures		393		-		-		-		18,080		18,473
Total external assets		399,866		296,380		842,437		49,241		625,813		2,213,737
Customer accounts		548,835		327,285		240,971		78,318		13,337		1,208,746
Adjusted risk-weighted assets (unaudited)	37	113,268		270,915		308,189		17,121		305,691		1,015,184



HSBC Holdings plc Annual Report and Accounts 2016	45

Report of the Directors | Global businesses



HSBC adjusted profit before tax and balance sheet data (continued)
		201435
		RetailBankingand WealthManagement		CommercialBanking		GlobalBanking andMarkets		GlobalPrivateBanking		Corporate Centre		Total
	Footnotes	$m		$m		$m		$m		$m		$m
Profit before tax
Net interest income		12,400		8,094		4,148		861		3,103		28,606
Net fee income/(expense)		5,572		3,809		3,412		971		(115	)	13,649
Net trading income/(expense)	21	380		479		5,261		243		(18	)	6,345
Other income	34	623		216		757		4		929		2,529
Net operating income before loan impairment charges and other credit risk provisions	22	18,975		12,598		13,578		2,079		3,899		51,129
- external		17,050		13,103		15,406		1,799		3,771		51,129
- inter-segment		1,925		(505	)	(1,828	)	280		128		-
Loan impairment (charges)/recoveries and other credit risk provisions		(901	)	(894	)	(408	)	11		291		(1,901	)
Net operating income		18,074		11,704		13,170		2,090		4,190		49,228
Total operating expenses		(11,964	)	(5,576	)	(8,246	)	(1,551	)	(2,723	)	(30,060	)
Operating profit		6,110		6,128		4,924		539		1,467		19,168
Share of profit in associates and joint ventures		40		-		-		-		2,342		2,382
Adjusted profit before tax		6,150		6,128		4,924		539		3,809		21,550
		%		%		%		%		%		%
Share of HSBC's adjusted profit before tax		28.6		28.4		22.8		2.5		17.7		100.0
Adjusted cost efficiency ratio		63.1		44.3		60.7		74.6		69.8		58.8
Adjusted balance sheet data		$m		$m		$m		$m		$m		$m
Loans and advances to customers (net)		287,496		259,053		228,323		40,928		28,844		844,644
Interests in associates and joint ventures		383		-		-		-		16,801		17,184
Total external assets		385,926		288,755		928,215		51,283		640,404		2,294,583
Customer accounts		514,074		309,152		261,110		78,592		23,681		1,186,609
Adjusted risk-weighted assets (unaudited)	37	109,526		262,634		349,661		17,660		343,882		1,083,363

For footnotes, see page 63.



46	HSBC Holdings plc Annual Report and Accounts 2016

Reconciliation of reported and adjusted items

(Audited)



Adjusted results reconciliation
		2016						2015								2014
		Adjusted		Significant items		Reported		Adjusted		Currency translation		Significant items		Reported		Adjusted		Currency translation		Significant items		Reported
	Footnote	$m		$m		$m		$m		$m		$m		$m		$m		$m		$m		$m
Revenue	22	50,153		(2,187	)	47,966		51,419		3,001		5,380		59,800		51,129		7,612		2,507		61,248
LICs		(2,652	)	(748	)	(3,400	)	(2,604	)	(184	)	(933	)	(3,721	)	(1,901	)	(918	)	(1,032	)	(3,851	)
Operating expenses		(30,556	)	(9,252	)	(39,808	)	(31,730	)	(2,091	)	(5,947	)	(39,768	)	(30,060	)	(5,433	)	(5,756	)	(41,249	)
Share of profit in associates and joint ventures		2,355		(1	)	2,354		2,443		114		(1	)	2,556		2,382		150		-		2,532
Profit/(loss) before tax		19,300		(12,188	)	7,112		19,528		840		(1,501	)	18,867		21,550		1,411		(4,281	)	18,680



Adjusted balance sheet reconciliation
	2016			2015				2014
	Adjusted	Brazil operations	Reported	Adjusted	Currency translation	Brazil operations	Reported	Adjusted	Currency translation	Brazil operations	Reported
	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m
Loans and advances to customers (net)	861,504	-	861,504	862,192	62,262	-	924,454	844,644	110,001	20,015	974,660
Interests in associates and joint ventures	20,029	-	20,029	18,473	666	-	19,139	17,184	990	7	18,181
Total external assets	2,374,986	-	2,374,986	2,213,737	145,747	50,172	2,409,656	2,294,583	289,936	49,620	2,634,139
Customer accounts	1,272,386	-	1,272,386	1,208,746	80,840	-	1,289,586	1,186,609	145,084	18,949	1,350,642



Adjusted profit reconciliation
		2016		2015		2014
	Footnotes	$m		$m		$m
For the year ended 31 Dec
Adjusted profit before tax		19,300		19,528		21,550
DVA on derivative contracts		26		230		(332	)
Fair value movements on non-qualifying hedges	23	(687	)	(327	)	(541	)
Gain on disposal of our membership interest in Visa - Europe		584		-		-
Gain on disposal of our membership interest in Visa - US		116		-		-
Gain on sale of shareholding in Bank of Shanghai		-		-		428
Gain on the partial sale of shareholding in Industrial Bank		-		1,372		-
(Loss)/gain and trading results from disposals and changes in ownership levels		(2,081	)	(78	)	(163	)
Impairment of our investment in Industrial Bank		-		-		(271	)
Own credit spread	24	(1,792	)	1,002		417
Portfolio disposals		(163	)	(214	)	168
Releases/(provisions) arising from the ongoing review of compliance with the UK Consumer Credit Act		2		(10	)	(632	)
Charge in relation to the settlement agreement with the Federal HousingFinance Authority		-		-		(550	)
Costs associated with portfolio disposals		(28	)	-		-
Costs to achieve		(3,118	)	(908	)	-
Costs to establish UK ring-fenced bank		(223	)	(89	)	-
Impairment of GPB - Europe goodwill		(3,240	)	-		-
Regulatory provisions in GPB		(344	)	(172	)	(65	)
Restructuring and other related costs		-		(117	)	(278	)
Settlements and provisions in connection with legal matters		(681	)	(1,649	)	(1,187	)
UK customer redress programmes		(559	)	(541	)	(1,275	)
Currency translation				840		1,411
Reported profit before tax		7,112		18,867		18,680

For footnotes, see page 63.



HSBC Holdings plc Annual Report and Accounts 2016	47

Report of the Directors | Global businesses

Reconciliation of reported and adjusted items - global businesses

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



2016 compared with 2015 and 2014
		2016
		Retail Bankingand WealthManagement		CommercialBanking		GlobalBanking andMarkets		GlobalPrivateBanking		Corporate Centre		Total
	Footnotes	$m		$m		$m		$m		$m		$m
Revenue	22
Reported		20,338		13,405		15,213		1,745		(2,735	)	47,966
Significant items		(1,413	)	(518	)	(294	)	12		4,400		2,187
- DVA on derivative contracts		-		-		(26	)	-		-		(26	)
- fair value movements on non-qualifying hedges	23	-		-		-		-		687		687
- gain on disposal of our membership interest in Visa - Europe		(354	)	(230	)	-		-		-		(584	)
- gain on disposal of our membership interest in Visa - US		(72	)	-		-		-		(44	)	(116	)
- own credit spread	24	-		-		-		-		1,792		1,792
- portfolio disposals		-		-		-		26		137		163
- releases arising from the ongoing review of compliance with the UK Consumer Credit Act		-		-		-		(2	)	-		(2	)
- loss and trading results from disposed-of operations in Brazil		(987	)	(288	)	(268	)	(12	)	1,828		273
Adjusted		18,925		12,887		14,919		1,757		1,665		50,153
Loan impairment charge and other credit risk provisions ('LICs')
Reported		(1,633	)	(1,272	)	(471	)	1		(25	)	(3,400	)
Significant items		462		272		14		-		-		748
- trading results from disposed-of operations in Brazil		462		272		14		-		-		748
Adjusted		(1,171	)	(1,000	)	(457	)	1		(25	)	(2,652	)
Operating expenses
Reported		(14,138	)	(6,087	)	(9,302	)	(5,074	)	(5,207	)	(39,808	)
Significant items		1,697		252		437		3,605		3,261		9,252
- costs associated with portfolio disposals		-		-		-		10		18		28
- costs to achieve		393		62		233		6		2,424		3,118
- costs to establish UK ring-fenced bank		2		1		-		-		220		223
- impairment of GPB - Europe goodwill		-		-		-		3,240		-		3,240
- regulatory provisions in GPB		-		-		-		341		3		344
- settlements and provisions in connection with legal matters		-		-		94		-		587		681
- UK customer redress programmes		497		34		28		-		-		559
- trading results from disposed-of operations in Brazil		805		155		82		8		9		1,059
Adjusted		(12,441	)	(5,835	)	(8,865	)	(1,469	)	(1,946	)	(30,556	)
Share of profit in associates and joint ventures
Reported		20		-		-		-		2,334		2,354
Significant items		-		-		-		-		1		1
- trading results from disposed-of operations in Brazil		-		-		-		-		1		1
Adjusted		20		-		-		-		2,335		2,355
Profit/(loss) before tax
Reported		4,587		6,046		5,440		(3,328	)	(5,633	)	7,112
Significant items		746		6		157		3,617		7,662		12,188
- revenue		(1,413	)	(518	)	(294	)	12		4,400		2,187
- LICs		462		272		14		-		-		748
- operating expenses		1,697		252		437		3,605		3,261		9,252
- share of profit in associates and joint ventures		-		-		-		-		1		1
Adjusted		5,333		6,052		5,597		289		2,029		19,300



48	HSBC Holdings plc Annual Report and Accounts 2016



Reconciliation of reported and adjusted items (continued)
		201535
		Retail Bankingand WealthManagement		CommercialBanking		GlobalBanking andMarkets		GlobalPrivateBanking		Corporate Centre		Total
	Footnotes	$m		$m		$m		$m		$m		$m
Revenue	22
Reported		22,624		14,198		15,972		2,076		4,930		59,800
Currency translation		(1,288	)	(790	)	(724	)	(54	)	(145	)	(3,001	)
Significant items		(2,094	)	(655	)	(682	)	(57	)	(1,892	)	(5,380	)
- DVA on derivative contracts		-		-		(230	)	-		-		(230	)
- fair value movements on non-qualifying hedges	23	-		-		-		-		327		327
- gain on the partial sale of shareholding in Industrial Bank		-		-		-		-		(1,372	)	(1,372	)
- own credit spread	24	-		-		-		-		(1,002	)	(1,002	)
- portfolio disposals		-		-		-		-		214		214
- provisions/(releases) arising from the ongoing review of compliance with the UK Consumer Credit Act		22		18		-		(30	)	-		10
- trading results from disposed-of operations in Brazil		(2,116	)	(673	)	(452	)	(27	)	(59	)	(3,327	)
Adjusted		19,242		12,753		14,566		1,965		2,893		51,419
LICs
Reported		(1,878	)	(1,761	)	(47	)	(13	)	(22	)	(3,721	)
Currency translation		105		76		4		2		(3	)	184
Significant items		713		251		(31	)	-		-		933
- trading results from disposed-of operations in Brazil		713		251		(31	)	-		-		933
Adjusted		(1,060	)	(1,434	)	(74	)	(11	)	(25	)	(2,604	)
Operating expenses
Reported		(15,970	)	(6,852	)	(10,767	)	(1,840	)	(4,339	)	(39,768	)
Currency translation		1,015		352		573		46		105		2,091
Significant items		2,441		604		1,236		227		1,439		5,947
- costs to achieve		153		163		69		16		507		908
- costs to establish UK ring-fenced bank		-		-		-		-		89		89
- regulatory provisions in GPB		-		-		-		171		1		172
- restructuring and other related costs		9		5		22		18		63		117
- settlements and provisions in connection with legal matters		-		-		949		-		700		1,649
- UK customer redress programmes		541		18		(19	)	-		1		541
- trading results from disposed-of operations in Brazil		1,738		418		215		22		78		2,471
Adjusted		(12,514	)	(5,896	)	(8,958	)	(1,567	)	(2,795	)	(31,730	)
Share of profit in associates and joint ventures
Reported		23		-		-		-		2,533		2,556
Currency translation		(1	)	-		-		-		(113	)	(114	)
Significant items		-		-		-		-		1		1
- trading results from disposed-of operations in Brazil		-		-		-		-		1		1
Adjusted		22		-		-		-		2,421		2,443
Profit/(loss) before tax
Reported		4,799		5,585		5,158		223		3,102		18,867
Currency translation		(169	)	(362	)	(147	)	(6	)	(156	)	(840	)
Significant items		1,060		200		523		170		(452	)	1,501
- revenue		(2,094	)	(655	)	(682	)	(57	)	(1,892	)	(5,380	)
- LICs		713		251		(31	)	-		-		933
- operating expenses		2,441		604		1,236		227		1,439		5,947
- share of profit in associates and joint ventures		-		-		-		-		1		1
Adjusted		5,690		5,423		5,534		387		2,494		19,528



HSBC Holdings plc Annual Report and Accounts 2016	49

Report of the Directors | Global businesses



Reconciliation of reported and adjusted items (continued)
		201435
		Retail Bankingand WealthManagement		CommercialBanking		GlobalBanking andMarkets		GlobalPrivateBanking		Corporate Centre		Total
	Footnotes	$m		$m		$m		$m		$m		$m
Revenue	22
Reported		24,056		15,197		15,392		2,248		4,355		61,248
Currency translation		(3,490	)	(1,967	)	(1,725	)	(185	)	(245	)	(7,612	)
Significant items		(1,591	)	(632	)	(89	)	16		(211	)	(2,507	)
- DVA on derivative contracts		-		-		332		-		-		332
- fair value movements on non-qualifying hedges	23	-		-		-		-		541		541
- gain on sale of shareholding in Bank of Shanghai		-		-		-		-		(428	)	(428	)
- impairment of our investment in Industrial Bank		-		-		-		-		271		271
- own credit spread	24	-		-		-		-		(417	)	(417	)
- portfolio disposals		-		-		-		-		(168	)	(168	)
- provisions arising from the ongoing review of compliance with the UK Consumer Credit Act		568		24		-		40		-		632
- (gain)/loss and trading results from disposals and changes in ownership levels		(2,159	)	(656	)	(421	)	(24	)	(10	)	(3,270	)
Adjusted		18,975		12,598		13,578		2,079		3,899		51,129
LICs
Reported		(1,905	)	(1,551	)	(721	)	8		318		(3,851	)
Currency translation		488		318		139		-		(27	)	918
Significant items		516		339		174		3		-		1,032
- trading results from disposals and changes in ownership levels		516		339		174		3		-		1,032
Adjusted		(901	)	(894	)	(408	)	11		291		(1,901	)
Operating expenses
Reported		(17,670	)	(7,115	)	(11,257	)	(1,780	)	(3,427	)	(41,249	)
Currency translation		2,869		976		1,455		136		(3	)	5,433
Significant items		2,837		563		1,556		93		707		5,756
- charge in relation to the settlement agreement with the Federal Housing Finance Authority		-		-		-		-		550		550
- regulatory provisions in GPB		-		-		-		65		-		65
- restructuring and other related costs		86		37		27		6		122		278
- settlements and provisions in connection with legal matters		-		-		1,187		-		-		1,187
- UK customer redress programmes		992		138		145		-		-		1,275
- trading results from disposals and changes inownership levels		1,759		388		197		22		35		2,401
Adjusted		(11,964	)	(5,576	)	(8,246	)	(1,551	)	(2,723	)	(30,060	)
Share of profit in associates and joint ventures
Reported		41		-		-		-		2,491		2,532
Currency translation		(1	)	-		-		-		(149	)	(150	)
Significant items		-		-		-		-		-		-
- trading results from disposals and changes in ownership levels		-		-		-		-		-		-
Adjusted		40		-		-		-		2,342		2,382
Profit/(loss) before tax
Reported		4,522		6,531		3,414		476		3,737		18,680
Currency translation		(134	)	(673	)	(131	)	(49	)	(424	)	(1,411	)
Significant items		1,762		270		1,641		112		496		4,281
- revenue		(1,591	)	(632	)	(89	)	16		(211	)	(2,507	)
- LICs		516		339		174		3		-		1,032
- operating expenses		2,837		563		1,556		93		707		5,756
- share of profit in associates and joint ventures		-		-		-		-		-		-
Adjusted		6,150		6,128		4,924		539		3,809		21,550

For footnotes, see page 63.



50	HSBC Holdings plc Annual Report and Accounts 2016



Reconciliation of reported and adjusted risk-weighted assets
	2016
	Retail Bankingand WealthManagement		CommercialBanking		GlobalBanking andMarkets		GlobalPrivateBanking		Corporate Centre		Total
	$bn		$bn		$bn		$bn		$bn		$bn
Risk-weighted assets
Reported	115.1		275.9		300.4		15.3		150.5		857.2
Brazil operations	(3.2	)	(1.0	)	(0.8	)	-		(0.2	)	(5.2	)
Adjusted	111.9		274.9		299.6		15.3		150.3		852.0

	201535
Risk-weighted assets
Reported	130.7		302.2		330.3		18.0		321.8		1,103.0
Currency translation	(3.8	)	(14.9	)	(9.0	)	(0.7	)	(13.0	)	(41.4	)
Brazil operations	(13.6	)	(16.4	)	(13.1	)	(0.2	)	(3.1	)	(46.4	)
Adjusted	113.3		270.9		308.2		17.1		305.7		1,015.2



	201435
Risk-weighted assets
Reported	133.7		312.1		385.8		18.9		369.3		1,219.8
Currency translation	(12.0	)	(32.6	)	(23.2	)	(1.1	)	(24.2	)	(93.1	)
Brazil operations	(12.2	)	(16.9	)	(12.9	)	(0.1	)	(1.2	)	(43.3	)
Adjusted	109.5		262.6		349.7		17.7		343.9		1,083.4

For footnote, see page 63.

Management view of adjusted revenue

The tables below provide a breakdown of revenue by major products for RBWM, CMB, GB&M and Corporate Centre. These reflect the basis on which revenue performance of the businesses is assessed and managed.

For GPB, the key measure of business performance is client assets, which is presented below.

Adjusted return on risk-weighted assets ('RoRWA') is used to measure performance of RBWM, CMB, GB&M and GPB and is presented below.

Further information on the global businesses can be found in the Strategic Report on pages 18 to 19.

A reconciliation of changes in the global businesses is available in the re-segmentation data pack which can be found online at www.hsbc.com/investor-relations.

Retail Banking and Wealth Management



Management view of adjusted revenue
		2016	2015	2014
	Footnotes	$m	$m	$m
Net operating income	22
Retail Banking		12,979	12,806	13,041
Current accounts, savings and deposits		5,359	4,941	4,881
Personal lending		7,620	7,865	8,160
- mortgages		2,590	2,694	2,758
- credit cards		3,111	3,312	3,438
- other personal lending	26	1,919	1,859	1,964
Wealth Management		5,288	5,799	5,331
- investment distribution	25	2,926	3,262	3,030
- life insurance manufacturing		1,404	1,553	1,384
- asset management		958	984	917
Other	27	658	637	603
Year ended 31 Dec		18,925	19,242	18,975
		%	%	%
RoRWA	38	4.6	4.9	5.4

For footnotes, see page 63.



HSBC Holdings plc Annual Report and Accounts 2016	51

Report of the Directors | Global businesses



RBWM - summary
				Consists of
		Total RBWM		Banking operations		Insurance manufacturing		Asset management
	Footnote	$m		$m		$m		$m
Year ended 31 Dec 2016
Net operating income before loan impairment charges and other credit risk provisions	22	18,925		16,437		1,531		957
- net interest income		13,198		11,292		1,898		8
- net fee income/(expense)		4,839		4,474		(539	)	904
- other income/(loss)		888		671		172		45
LICs		(1,171	)	(1,171	)	-		-
Net operating income		17,754		15,266		1,531		957
Total operating expenses		(12,441	)	(11,415	)	(380	)	(646	)
Operating profit/(loss)		5,313		3,851		1,151		311
Income from associates		20		-		20		-
Profit/(loss) before tax		5,333		3,851		1,171		311

Year ended 31 Dec 2015
Net operating income before loan impairment charges and other credit risk provisions	22	19,242		16,548		1,709		985
- net interest income		12,579		10,807		1,763		9
- net fee income/(expense)		5,545		5,081		(493	)	957
- other income		1,118		660		439		19
LICs		(1,060	)	(1,060	)	-		-
Net operating income		18,182		15,488		1,709		985
Total operating expenses		(12,514	)	(11,484	)	(364	)	(666	)
Operating profit/(loss)		5,668		4,004		1,345		319
Income from associates		22		-		22		-
Profit/(loss) before tax		5,690		4,004		1,367		319

For footnote, see page 63.

Insurance manufacturing for RBWM excluded other global businesses which contributed net operating income of $167m (2015: $171m) and profit before tax of $117m (2015: $108m) to overall insurance manufacturing. In 2016 insurance manufacturing net operating income for RBWM included $1,404m within Wealth Management (2015: $1,553m) and $127m within other products (2015: $156m).

In total insurance manufacturing generated $2,634m of annualised new business premiums (2015: $2,349m) of which $2,519m (2015: $2,230m) related to RBWM.

Distribution of insurance products by HSBC channels contributed $1,048m of net fee income (2015: $994m) of which RBWM channels earned $922m (2015: $896m). Of this total income, $615m was in respect of HSBC manufactured products (2015: $568m) and a corresponding fee expense is therefore recognised within the Insurance manufacturing.

Commercial Banking



Management view of adjusted revenue
		2016	2015	2014
	Footnotes	$m	$m	$m
Net operating income	22
Global Trade and Receivables Finance		1,879	2,077	2,125
Credit and Lending		5,102	5,019	4,688
Global Liquidity and Cash Management		4,345	4,164	4,014
Markets products, Insurance and Investments and Other	30	1,561	1,493	1,771
Year ended 31 Dec		12,887	12,753	12,598
		%	%	%
RoRWA	38	2.1	1.9	2.4

Global Banking and Markets



Management view of adjusted revenue
		2016		2015	2014
	Footnotes	$m		$m	$m
Net operating income	22
Global Markets		6,775		6,140	5,488
- Credit		803		631	669
- Rates		2,149		1,391	1,172
- Foreign Exchange		2,813		2,714	2,519
- Equities		1,010		1,404	1,128
Global Banking		3,820		3,801	3,521
Global Liquidity and Cash Management		1,951		1,798	1,699
Securities Services		1,585		1,620	1,508
Global Trade and Receivables Finance		702		691	693
Principal Investments		218		226	467
Credit and funding valuation adjustments	28	(70	)	227	127
Other	29	(62	)	63	75
Year ended 31 Dec		14,919		14,566	13,578
		%		%	%
RoRWA	38	1.8		1.6	1.5

The table above has been re-presented. In 2016, 'Credit and funding valuation adjustments' of $(70)m is a separate line previously included within 'Markets' (2015: $227m).



52	HSBC Holdings plc Annual Report and Accounts 2016

Global Private Banking



Management view of adjusted revenue
	2016	2015	2014
	$m	$m	$m
Net operating income
Investment Revenue	725	899	954
Lending	414	416	425
Deposit	343	355	381
Other	275	295	319
Year ended 31 Dec	1,757	1,965	2,079



Reported client assets31
		2016		2015		2014
	Footnote	$bn		$bn		$bn
At 1 Jan		349		365		382
Net new money		(17	)	1		(3	)
- of which: areas targeted for growth		2		14		14
Value change		1		1		8
Disposals		(24	)	-		(11	)
Exchange and other		(11	)	(18	)	(11	)
At 31 Dec		298		349		365
		%		%		%
RoRWA	38	1.7		2.1		2.9



Reported client assets by geography
		2016	2015	2014
	Footnote	$bn	$bn	$bn
Europe		147	167	177
Asia		108	112	112
North America		40	61	63
Latin America		3	8	11
Middle East	40	-	1	2
At 31 Dec		298	349	365

For footnotes, see page 63.

Corporate Centre



Management view of adjusted revenue
		2016		2015		2014
	Footnotes	$m		$m		$m
Net operating income	22
Central Treasury	42	1,504		1,905		1,938
Legacy portfolios		715		1,234		1,571
- US run-off portfolio		692		1,164		1,548
- Legacy credit		23		70		23
Other	43	(554	)	(246	)	390
Year ended 31 Dec		1,665		2,893		3,899



HSBC Holdings plc Annual Report and Accounts 2016	53

Report of the Directors | Geographical regions

Analysis of reported results by geographical regions



HSBC reported profit/(loss) before tax and balance sheet data
		2016
		Europe35		Asia		MENA35		North America		Latin America		Intra-HSBC items		Total
	Footnotes	$m		$m		$m		$m		$m		$m		$m
Profit/(loss) before tax
Net interest income		8,346		12,490		1,831		4,220		3,006		(80	)	29,813
Net fee income/(expense)		4,247		5,200		709		1,898		723		-		12,777
Net trading income/(expense)	21	4,949		3,127		385		462		449		80		9,452
Other income/(expense)	34	(2,026	)	2,503		44		485		(1,492	)	(3,590	)	(4,076	)
Net operating income before loan impairment charges and other credit risk provisions	22	15,516		23,320		2,969		7,065		2,686		(3,590	)	47,966
Loan impairment charges and other credit risk provisions		(446	)	(677	)	(316	)	(732	)	(1,229	)	-		(3,400	)
Net operating income		15,070		22,643		2,653		6,333		1,457		(3,590	)	44,566
Total operating expenses		(21,845	)	(10,785	)	(1,584	)	(6,147	)	(3,037	)	3,590		(39,808	)
Operating profit/(loss)		(6,775	)	11,858		1,069		186		(1,580	)	-		4,758
Share of profit/(loss) in associates and joint ventures		1		1,921		434		(1	)	(1	)	-		2,354
Profit/(loss) before tax		(6,774	)	13,779		1,503		185		(1,581	)	-		7,112
		%		%		%		%		%				%
Share of HSBC's profit before tax		(95.2	)	193.7		21.1		2.6		(22.2	)			100.0
Cost efficiency ratio		140.8		46.2		53.4		87.0		113.1				83.0
Balance sheet data	20	$m		$m		$m		$m		$m		$m		$m
Loans and advances to customers (net)		336,670		365,430		30,740		111,710		16,954		-		861,504
- reported in held for sale		1,057		-		474		2,092		-		-		3,623
Total external assets		1,068,446		965,730		60,472		409,021		43,137		(171,820	)	2,374,986
Customer accounts		446,615		631,723		34,766		138,790		20,492		-		1,272,386
- reported in held for sale		2,012		-		701		-		-		-		2,713
Risk-weighted assets (unaudited)	33	298,384		333,987		59,065		150,714		34,341		-		857,181

		2015
Profit/(loss) before tax
Net interest income		9,686		12,184		1,849		4,532		4,318		(38	)	32,531
Net fee income/(expense)		4,702		6,032		822		2,018		1,131		-		14,705
Net trading income/(expense)	21	3,968		3,090		418		545		664		38		8,723
Other income/(expense)	34	2,116		3,997		90		562		479		(3,403	)	3,841
Net operating income before loan impairment charges and other credit risk provisions	22	20,472		25,303		3,179		7,657		6,592		(3,403	)	59,800
Loan impairment charges and other credit risk provisions		(519	)	(693	)	(470	)	(544	)	(1,495	)	-		(3,721	)
Net operating income		19,953		24,610		2,709		7,113		5,097		(3,403	)	56,079
Total operating expenses		(19,274	)	(10,889	)	(1,721	)	(6,501	)	(4,786	)	3,403		(39,768	)
Operating profit/(loss)		679		13,721		988		612		311		-		16,311
Share of profit/(loss) in associates and joint ventures		9		2,042		504		2		(1	)	-		2,556
Profit/(loss) before tax		688		15,763		1,492		614		310		-		18,867
		%		%		%		%		%				%
Share of HSBC's profit before tax		3.6		83.5		7.9		3.3		1.7				100.0
Cost efficiency ratio		94.1		43.0		54.1		84.9		72.6				66.5
Balance sheet data	20	$m		$m		$m		$m		$m		$m		$m
Loans and advances to customers (net)		385,037		356,375		36,898		128,851		17,293		-		924,454
- reported in held for sale		-		-		-		2,020		17,001		-		19,021
Total external assets		1,121,401		889,747		70,157		393,960		86,262		(151,871	)	2,409,656
Customer accounts		491,520		598,620		42,824		135,152		21,470		-		1,289,586
- reported in held for sale		-		-		-		1,588		15,094		-		16,682
Risk-weighted assets (unaudited)	33	327,219		459,680		70,585		191,611		73,425		-		1,102,995



54	HSBC Holdings plc Annual Report and Accounts 2016



		2014
		Europe		Asia		MENA		North America		Latin America		Intra-HSBC items		Total
	Footnotes	$m		$m		$m		$m		$m		$m		$m
Net interest income		10,115		12,273		2,014		5,015		5,310		(22	)	34,705
Net fee income		5,738		5,910		954		1,940		1,415		-		15,957
Net trading income/(expense)	21	2,557		2,622		292		411		856		22		6,760
Other income/(expense)	34	2,394		2,872		79		786		691		(2,996	)	3,826
Net operating income before loan impairment charges and other credit risk provisions	22	20,804		23,677		3,339		8,152		8,272		(2,996	)	61,248
Loan impairment charges and other credit risk provisions		(518	)	(647	)	(240	)	(322	)	(2,124	)	-		(3,851	)
Net operating income		20,286		23,030		3,099		7,830		6,148		(2,996	)	57,397
Total operating expenses		(19,633	)	(10,427	)	(1,824	)	(6,429	)	(5,932	)	2,996		(41,249	)
Operating profit/(loss)		653		12,603		1,275		1,401		216		-		16,148
Share of profit in associates and joint ventures		6		2,022		488		16		-		-		2,532
Profit/(loss) before tax		659		14,625		1,763		1,417		216		-		18,680
		%		%		%		%		%				%
Share of HSBC's profit before tax		3.6		78.3		9.4		7.6		1.1				100.0
Cost efficiency ratio		94.4		44.0		54.6		78.9		71.7				67.3
Balance sheet data	20	$m		$m		$m		$m		$m		$m		$m
Loans and advances to customers (net)		401,642		362,955		37,154		129,787		43,122		-		974,660
- reported in held for sale		91		-		-		486		-		-		577
Total external assets		1,279,817		878,723		76,609		436,859		115,354		(153,223	)	2,634,139
Customer accounts		538,104		577,491		47,575		138,884		48,588		-		1,350,642
- reported in held for sale		145		-		-		-		-		-		145
Risk-weighted assets (unaudited)	33	363,473		499,846		74,785		221,378		88,781		-		1,219,765

For footnotes, see page 63.



HSBC Holdings plc Annual Report and Accounts 2016	55

Report of the Directors | Geographical regions

Reconciliation of reported and adjusted items - geographical regions



2016 compared with 2015 and 2014
		2016
		Europe		Asia		MENA		NorthAmerica		LatinAmerica		Total		UK		HongKong
	Footnotes	$m		$m		$m		$m		$m		$m		$m		$m
Revenue	22
Reported	32	15,516		23,320		2,969		7,065		2,686		47,966		10,893		14,014
Significant items		1,740		(6	)	(11	)	155		309		2,187		1,795		(1	)
- DVA on derivative contracts		(56	)	(15	)	-		9		36		(26	)	(63	)	(22	)
- fair value movements on non-qualifying hedges	23	563		17		-		107		-		687		532		26
- gain on disposal of our membership interest in Visa - Europe		(573	)	-		(11	)	-		-		(584	)	(441	)	-
- gain on disposal of our membership interest in Visa - US		-		-		-		(116	)	-		(116	)	-		-
- own credit spread	24	1,782		(8	)	-		18		-		1,792		1,769		(5	)
- portfolio disposals		26		-		-		137		-		163		-		-
- releases arising from the ongoing reviewof compliance with the UK ConsumerCredit Act		(2	)	-		-		-		-		(2	)	(2	)	-
- loss and trading results from disposed-of operations in Brazil		-		-		-		-		273		273		-		-
Adjusted	32	17,256		23,314		2,958		7,220		2,995		50,153		12,688		14,013
LICs
Reported		(446	)	(677	)	(316	)	(732	)	(1,229	)	(3,400	)	(245	)	(321	)
Significant items		-		-		-		-		748		748		-		-
- trading results from disposed-of operations in Brazil		-		-		-		-		748		748		-		-
Adjusted		(446	)	(677	)	(316	)	(732	)	(481	)	(2,652	)	(245	)	(321	)
Operating expenses
Reported	32	(21,845	)	(10,785	)	(1,584	)	(6,147	)	(3,037	)	(39,808	)	(14,562	)	(5,646	)
Significant items		6,632		430		103		989		1,098		9,252		2,670		183
- costs associated with portfolio disposals		28		-		-		-		-		28		-		-
- costs to achieve		2,098		476		103		402		39		3,118		1,838		229
- costs to establish UK ring-fenced bank		223		-		-		-		-		223		223		-
- impairment of GPB - Europe goodwill		3,240		-		-		-		-		3,240		-		-
- regulatory provisions in GPB		390		(46	)	-		-		-		344		-		(46	)
- settlements and provisions in connection with legal matters		94		-		-		587		-		681		50		-
- UK customer redress programmes		559		-		-		-		-		559		559		-
- trading results from disposed-of operations in Brazil		-		-		-		-		1,059		1,059		-		-
Adjusted	32	(15,213	)	(10,355	)	(1,481	)	(5,158	)	(1,939	)	(30,556	)	(11,892	)	(5,463	)
Share of profit in associates and joint ventures
Reported		1		1,921		434		(1	)	(1	)	2,354		1		22
Significant items		-		-		-		-		1		1		-		-
- trading results from disposed-of operations in Brazil		-		-		-		-		1		1		-		-
Adjusted		1		1,921		434		(1	)	-		2,355		1		22
Profit/(loss) before tax
Reported		(6,774	)	13,779		1,503		185		(1,581	)	7,112		(3,913	)	8,069
Significant items		8,372		424		92		1,144		2,156		12,188		4,465		182
- revenue		1,740		(6	)	(11	)	155		309		2,187		1,795		(1	)
- LICs		-		-		-		-		748		748		-		-
- operating expenses		6,632		430		103		989		1,098		9,252		2,670		183
- share of profit in associates and joint ventures		-		-		-		-		1		1		-		-
Adjusted		1,598		14,203		1,595		1,329		575		19,300		552		8,251



56	HSBC Holdings plc Annual Report and Accounts 2016



Reconciliation of reported and adjusted items (continued)
		2015
		Europe		Asia		MENA		NorthAmerica		LatinAmerica		Total		UK		HongKong
	Footnotes	$m		$m		$m		$m		$m		$m		$m		$m
Revenue	22
Reported	32	20,472		25,303		3,179		7,657		6,592		59,800		15,493		15,616
Currency translation	32	(1,613	)	(305	)	(182	)	(60	)	(896	)	(3,001	)	(1,577	)	(20	)
Significant items		(656	)	(1,431	)	(10	)	98		(3,381	)	(5,380	)	(595	)	(1,383	)
- DVA on derivative contracts		(95	)	(58	)	(1	)	(21	)	(55	)	(230	)	(78	)	(13	)
- fair value movements on non-qualifying hedges	23	200		2		-		124		1		327		204		6
- gain on the partial sale of shareholding in Industrial Bank		-		(1,372	)	-		-		-		(1,372	)	-		(1,372	)
- own credit spread	24	(771	)	(3	)	(9	)	(219	)	-		(1,002	)	(731	)	(4	)
- portfolio disposals		-		-		-		214		-		214		-		-
- provisions arising from the ongoing review of compliance with the UK Consumer Credit Act		10		-		-		-		-		10		10		-
- trading results from disposed-of operations in Brazil		-		-		-		-		(3,327	)	(3,327	)	-		-
Adjusted	32	18,203		23,567		2,987		7,695		2,315		51,419		13,321		14,213
LICs
Reported		(519	)	(693	)	(470	)	(544	)	(1,495	)	(3,721	)	(248	)	(155	)
Currency translation		36		6		19		3		120		184		39		-
Significant items		-		-		-		-		933		933		-		-
- trading results from disposed-of operations in Brazil		-		-		-		-		933		933		-		-
Adjusted		(483	)	(687	)	(451	)	(541	)	(442	)	(2,604	)	(209	)	(155	)
Operating expenses
Reported	32	(19,274	)	(10,889	)	(1,721	)	(6,501	)	(4,786	)	(39,768	)	(15,555	)	(5,686	)
Currency translation	32	1,287		177		83		32		567		2,091		1,253		7
Significant items		2,405		130		15		851		2,546		5,947		2,151		49
- costs to achieve		600		122		14		103		69		908		536		43
- costs to establish UK ring-fenced bank		89		-		-		-		-		89		89		-
- regulatory provisions in GPB		172		-		-		-		-		172		-		-
- restructuring and other related costs		68		8		1		34		6		117		50		6
- settlements and provisions in connection with legal matters		935		-		-		714		-		1,649		935		-
- UK customer redress programmes		541		-		-		-		-		541		541		-
- trading results from disposed-of operations in Brazil		-		-		-		-		2,471		2,471		-		-
Adjusted	32	(15,582	)	(10,582	)	(1,623	)	(5,618	)	(1,673	)	(31,730	)	(12,151	)	(5,630	)
Share of profit in associates and joint ventures
Reported		9		2,042		504		2		(1	)	2,556		10		31
Currency translation		-		(113	)	-		(1	)	-		(114	)	(1	)	-
Significant items		-		-		-		-		1		1		-		-
- trading results from disposed-of operations in Brazil		-		-		-		-		1		1		-		-
Adjusted		9		1,929		504		1		-		2,443		9		31
Profit/(loss) before tax
Reported		688		15,763		1,492		614		310		18,867		(300	)	9,806
Currency translation		(290	)	(235	)	(80	)	(26	)	(209	)	(840	)	(286	)	(13	)
Significant items		1,749		(1,301	)	5		949		99		1,501		1,556		(1,334	)
- revenue		(656	)	(1,431	)	(10	)	98		(3,381	)	(5,380	)	(595	)	(1,383	)
- LICs		-		-		-		-		933		933		-		-
- operating expenses		2,405		130		15		851		2,546		5,947		2,151		49
- share of profit in associates and joint ventures		-		-		-		-		1		1		-		-
Adjusted		2,147		14,227		1,417		1,537		200		19,528		970		8,459



HSBC Holdings plc Annual Report and Accounts 2016	57

Report of the Directors | Geographical regions



Reconciliation of reported and adjusted items (continued)
		2014
		Europe		Asia		MENA		NorthAmerica		LatinAmerica		Total		UK		HongKong
	Footnotes	$m		$m		$m		$m		$m		$m		$m		$m
Revenue	22
Reported	32	20,804		23,677		3,339		8,152		8,272		61,248		15,727		13,844
Currency translation	32	(3,404	)	(964	)	(367	)	(311	)	(2,703	)	(7,612	)	(2,574	)	(17	)
Significant items		708		(48	)	(3	)	116		(3,280	)	(2,507	)	353		(119	)
- DVA on derivative contracts		234		69		5		16		8		332		203		26
- fair value movements on non-qualifying hedges	23	235		4		-		302		-		541		(8	)	11
- gain on sale of shareholding in Bank of Shanghai		-		(428	)	-		-		-		(428	)	-		(428	)
- impairment of our investment in Industrial Bank		-		271		-		-		-		271		-		271
- own credit spread	24	(393	)	4		6		(34	)	-		(417	)	(474	)	1
- portfolio disposals		-		-		-		(168	)	-		(168	)	-		-
- provisions arising from the ongoing review of compliance with the UK Consumer Credit Act		632		-		-		-		-		632		632		-
- (gain)/loss and trading results fromdisposals and changes in ownership levels		-		32		(14	)	-		(3,288	)	(3,270	)	-		-
Adjusted	32	18,108		22,665		2,969		7,957		2,289		51,129		13,506		13,708
LICs
Reported		(518	)	(647	)	(240	)	(322	)	(2,124	)	(3,851	)	(214	)	(320	)
Currency translation		137		38		71		16		656		918		81		1
Significant items		-		-		(2	)	-		1,034		1,032		-		-
- trading results from disposals andchanges in ownership levels		-		-		(2	)	-		1,034		1,032		-		-
Adjusted		(381	)	(609	)	(171	)	(306	)	(434	)	(1,901	)	(133	)	(319	)
Operating expenses
Reported	32	(19,633	)	(10,427	)	(1,824	)	(6,429	)	(5,932	)	(41,249	)	(15,576	)	(5,424	)
Currency translation	32	2,797		509		212		158		1,894		5,433		2,165		6
Significant items		2,600		58		34		578		2,486		5,756		2,553		56
- charge in relation to the settlement agreement with the Federal Housing Finance Authority		-		-		-		550		-		550		-		-
- regulatory provisions in GPB		16		49		-		-		-		65		-		49
- restructuring and other related costs		122		9		3		28		116		278		91		7
- settlements and provisions in connection with legal matters		1,187		-		-		-		-		1,187		1,187		-
- UK customer redress programmes		1,275		-		-		-		-		1,275		1,275		-
- trading results from disposals and changes in ownership levels		-		-		31		-		2,370		2,401		-		-
Adjusted	32	(14,236	)	(9,860	)	(1,578	)	(5,693	)	(1,552	)	(30,060	)	(10,858	)	(5,362	)
Share of profit in associates and joint ventures
Reported		6		2,022		488		16		-		2,532		7		42
Currency translation		(1	)	(147	)	-		(2	)	-		(150	)	(1	)	1
Significant items		-		-		-		-		-		-		-		-
- trading results from disposals and changes in ownership levels		-		-		-		-		-		-		-		-
Adjusted		5		1,875		488		14		-		2,382		6		43
Profit/(loss) before tax
Reported		659		14,625		1,763		1,417		216		18,680		(56	)	8,142
Currency translation		(471	)	(564	)	(84	)	(139	)	(153	)	(1,411	)	(329	)	(9	)
Significant items		3,308		10		29		694		240		4,281		2,906		(63	)
- revenue		708		(48	)	(3	)	116		(3,280	)	(2,507	)	353		(119	)
- LICs		-		-		(2	)	-		1,034		1,032		-		-
- operating expenses		2,600		58		34		578		2,486		5,756		2,553		56
- share of profit in associates and joint ventures		-		-		-		-		-		-		-		-
Adjusted		3,496		14,071		1,708		1,972		303		21,550		2,521		8,070

For footnotes, see page 63.



58	HSBC Holdings plc Annual Report and Accounts 2016

Analysis of reported results by country



Profit/(loss) before tax by priority markets within global businesses
		Retail Bankingand WealthManagement		CommercialBanking		GlobalBankingand Markets		GlobalPrivateBanking		Corporate Centre		Total
	Footnotes	$m		$m		$m		$m		$m		$m
Europe		524		2,129		1,009		(3,695	)	(6,741	)	(6,774	)
- UK		338		1,834		385		86		(6,556	)	(3,913	)
- of which: HSBC Holdings	36, 41	(676	)	(379	)	(425	)	(63	)	(3,748	)	(5,291	)
- France		147		198		289		9		(53	)	590
- Germany		23		68		142		7		13		253
- Switzerland		-		9		-		(493	)	(7	)	(491	)
- other		16		20		193		(3,304	)	(138	)	(3,213	)
Asia		4,115		2,920		3,211		268		3,265		13,779
- Hong Kong		3,796		2,191		1,298		221		563		8,069
- Australia		108		74		156		-		31		369
- India		15		123		355		10		240		743
- Indonesia		(9	)	66		110		-		11		178
- Mainland China		(72	)	68		456		(3	)	2,158		2,607
- Malaysia		65		65		172		-		53		355
- Singapore		107		43		170		42		77		439
- Taiwan		24		10		102		(1	)	13		148
- other		81		280		392		(1	)	119		871
Middle East and North Africa		20		290		652		-		541		1,503
- Egypt		58		104		213		-		79		454
- UAE		83		94		298		-		5		480
- Saudi Arabia		1		-		-		-		434		435
- other		(122	)	92		141		-		23		134
North America		64		648		259		90		(876	)	185
- US		(28	)	336		86		67		(932	)	(471	)
- Canada		46		292		155		-		47		540
- other		46		20		18		23		9		116
Latin America		(136	)	59		309		9		(1,822	)	(1,581	)
- Mexico		94		84		79		5		(15	)	247
- other		(230	)	(25	)	230		4		(1,807	)	(1,828	)
- of which: Brazil		(281	)	(139	)	176		4		(1,836	)	(2,076	)
Year ended 31 Dec 2016		4,587		6,046		5,440		(3,328	)	(5,633	)	7,112



HSBC Holdings plc Annual Report and Accounts 2016	59

Report of the Directors | Geographical regions / Other information



Profit/(loss) before tax by priority markets within global businesses (continued)
		Retail Bankingand WealthManagement		CommercialBanking		GlobalBankingand Markets		Global Private Banking		Corporate Centre		Total
		$m		$m		$m		$m		$m		$m
Europe		914		1,953		122		(93	)	(2,208	)	688
- UK		560		1,722		(361	)	126		(2,347	)	(300	)
- of which: HSBC Holdings	36, 41	(530	)	(399	)	(274	)	(91	)	(2,892	)	(4,186	)
- France		357		130		84		14		54		639
- Germany		23		66		137		20		(7	)	239
- Switzerland		-		8		-		(267	)	43		(216	)
- other		(26	)	27		262		14		49		326
Asia		4,154		2,843		3,653		252		4,861		15,763
- Hong Kong		3,811		2,317		1,629		177		1,872		9,806
- Australia		60		51		232		-		30		373
- India		(25	)	79		321		14		217		606
- Indonesia		(6	)	(128	)	76		-		51		(7	)
- Mainland China		32		97		574		(3	)	2,360		3,060
- Malaysia		118		78		196		-		50		442
- Singapore		105		81		193		65		63		507
- Taiwan		10		17		113		-		15		155
- other		49		251		319		(1	)	203		821
Middle East and North Africa
- Egypt		50		92		179		-		89		410
- UAE		85		(24	)	270		-		36		367
- Saudi Arabia		2		-		-		-		498		500
- other		(138	)	120		161		2		70		215
North America		(23	)	445		444		59		(311	)	614
- US		(112	)	194		319		64		(424	)	41
- Canada		57		240		101		-		87		485
- other		32		11		24		(5	)	26		88
Latin America		(245	)	156		329		3		67		310
- Mexico		70		(8	)	(70	)	(2	)	42		32
- other		(315	)	164		399		5		25		278
- of which: Brazil		(344	)	13		341		6		(11	)	5
Year ended 31 Dec 2015		4,799		5,585		5,158		223		3,102		18,867

Europe		352		2,238		(1,010	)	181		(1,102	)	659
- UK		283		1,917		(1,655	)	154		(755	)	(56	)
- of which: HSBC Holdings	36, 41	(335	)	(321	)	(206	)	(22	)	(1,965	)	(2,849	)
- France		6		215		319		-		(326	)	214
- Germany		28		70		139		26		15		278
- Switzerland		-		5		2		(46	)	81		42
- other		35		31		185		47		(117	)	181
Asia		4,239		3,123		3,102		212		3,949		14,625
- Hong Kong		3,727		2,217		1,163		145		890		8,142
- Australia		78		99		222		-		33		432
- India		4		101		378		11		206		700
- Indonesia		10		42		101		-		45		198
- Mainland China		31		86		449		(3	)	2,388		2,951
- Malaysia		155		108		165		-		68		496
- Singapore		162		120		181		57		69		589
- Taiwan		18		29		130		-		44		221
- other		54		321		313		2		206		896
Middle East and North Africa		84		379		695		-		605		1,763
- Egypt		64		84		136		-		51		335
- UAE		162		158		363		-		(21	)	662
- Saudi Arabia		1		-		-		-		485		486
- other		(143	)	137		196		-		90		280
North America		19		799		388		87		124		1,417
- US		(99	)	323		215		84		9		532
- Canada		95		479		140		-		115		829
- other		23		(3	)	33		3		-		56
Latin America		(172	)	(8	)	239		(4	)	161		216
- Mexico		4		(27	)	11		(2	)	65		51
- other		(176	)	19		228		(2	)	96		165
- of which: Brazil		(230	)	(97	)	79		(2	)	3		(247	)
Year ended 31 Dec 2014		4,522		6,531		3,414		476		3,737		18,680

For footnotes, see page 63.



60	HSBC Holdings plc Annual Report and Accounts 2016



Other information
	Page
Funds under management and assets held in custody	61
Taxes paid by region and country	61
Conduct-related matters	62
Carbon dioxide emissions	62

Funds under management and assets held

in custody



Funds under management
		2016		2015
	Footnote	$bn		$bn
Funds under management	44
At 1 Jan		896		954
Net new money		(8	)	(3	)
Value change		25		2
Exchange and other		(40	)	(57	)
Disposals		(42	)	-
At 31 Dec		831		896
Funds under management by business
Global Asset Management		410		419
Global Private Banking		222		261
Affiliates		2		4
Other		197		212
At 31 Dec		831		896

For footnote, see page 63.

Funds under management ('FuM') represents assets managed, either actively or passively, on behalf of our customers. At 31 December 2016, FuM amounted to $831bn, a decrease of 7% as a result of adverse foreign exchange movements and disposals, which included our sale of operations in Brazil, partly offset by favourable market performance.

Global Asset Management FuM decreased by 2% to $410bn compared with 31 December 2015. Excluding currency translation, FuM increased by 3% primarily as a result of positive market performance, with net new money from our retail and institutional customers in Asia into fixed income products being offset by outflows from our customers in Europe and the Americas.

GPB FuM decreased by 15% to $222bn compared with 31 December 2015. Excluding currency translation, FuM decreased by 13%, reflecting the ongoing repositioning of our client base. This was partly offset by positive net new money in areas targeted for growth, notably in the UK, the Channel Islands and Hong Kong.

Other FuM, of which the main element is a corporate trust business in Asia, decreased by 7% to $197bn.

Assets held in custody44 and under administration

Custody is the safekeeping and servicing of securities and other financial assets on behalf of clients. At 31 December 2016, we held assets as custodian of $6.3tn, 1% higher than the $6.2tn held at 31 December 2015. The increase was driven by favourable foreign exchange movements in Asia, together with the onboarding of new clients in Europe and Asia. This was partly offset by adverse foreign exchange movements in the UK.

Our Assets Under Administration business, which includes the provision of bond and loan administration services and the valuation of portfolios of securities and other financial assets on behalf of clients, complements the Custody business. At 31 December 2016, the value of assets held under administration by the Group amounted to $2.9tn. This was 7% lower than the $3.1tn held at 31 December 2015. The decrease primarily reflected net asset outflows in the Corporate Trust and Loan Agency business in North America, together with adverse foreign exchange movements in the UK.

Taxes paid by region and country

The following tables reflect a geographical view of HSBC's operations.

Taxes paid by HSBC relate to HSBC's own tax liabilities including tax on profits earned, employer taxes, bank levy and other duties/levies such as stamp duty. Numbers are reported on a cash flow basis.



Taxes paid by country
		2016	2015	2014
	Footnote	$m	$m	$m
Europe	45	3,151	3,644	3,550
Home and priority markets		3,096	3,346	3,391
- UK		2,385	2,526	2,363
- France		553	620	790
- Germany		124	108	131
- Switzerland		34	92	107
Other markets		55	298	159
Asia		2,755	2,780	2,687
Home and priority markets		2,470	2,458	2,418
- Hong Kong		1,488	1,415	1,273
- Mainland China		241	277	278
- India		315	285	290
- Australia		147	173	204
- Malaysia		99	92	133
- Indonesia		46	70	76
- Singapore		85	80	101
- Taiwan		35	53	44
- Japan		14	13	19
Other markets		285	322	269
Middle East and North Africa		293	449	369
Priority markets		267	407	246
- Saudi Arabia		60	151	84
- UAE		89	120	102
- Egypt		97	136	60
- Turkey		21	16	75
Other markets		26	26	48
North America		276	353	(108	)
Priority markets		276	353	(108	)
- US		135	127	(377	)
- Canada		141	226	269
Other markets		-	-	-
Latin America		965	1,184	1,384
Priority markets		303	431	534
- Argentina		224	340	333
- Mexico		79	91	201
Brazil		658	735	804
Other markets		4	18	46
Total		7,440	8,410	7,882

For footnote, see page 63.



HSBC Holdings plc Annual Report and Accounts 2016	61

Report of the Directors | Other information

Conduct-related matters



Conduct-related costs included in significant items
	2016	2015		2014
	$m	$m		$m
Income statement
Net interest income/(expense)	2	(10	)	(632	)
provisions arising from the ongoing review of compliance with the UK Consumer Credit Act	2	(10	)	(632	)
Operating expenses
Comprising:
Legal proceedings and regulatory matters	1,025	1,821		1,802
- charge in relation to the settlement agreement with the Federal Housing Finance Authority	-	-		550
- regulatory provisions in GPB	344	172		65
- settlements and provisions in connection with legal matters	681	1,649		1,187
Customer remediation	559	541		1,275
Total operating expenses	1,584	2,362		3,077
Total charge for the year relating to significant items	1,582	2,372		3,709
- of which:
total provisions charge for the year	1,584	2,362		2,500
total provisions utilised during the year	2,265	1,021		2,503
Balance sheet at 31 Dec
Total provisions	3,056	3,926		2,545
- legal proceedings and regulatory matters	2,060	2,729		1,154
- customer remediation	996	1,197		1,391
Accruals, deferred income and other liabilities	106	168		379

The table above provides a summary of conduct-related costs incurred and included within significant items (see pages 33 and 39).

The HSBC approach to conduct is designed to ensure that through our actions and behaviours we deliver fair outcomes for our customers and do not disrupt the orderly and transparent operation of financial markets. The Board places a strong emphasis on conduct, requiring adherence to high behavioural standards and adhering to the HSBC Values. Board oversight of conduct matters is provided by the Conduct & Values Committee, which oversees the embedding of HSBC Values and our required global conduct outcomes, and the Remuneration Committee, which considers conduct and compliance-related matters relevant to remuneration. These committees' reports may be found on pages 143 to 145.

The management of business conduct and the steps taken to raise standards are described on page 81. 'Regulatory focus on conduct of business and financial crime' is one of the Group's top and emerging risks and is discussed on page 66.

Provisions relating to significant items raised for conduct costs in 2016 resulted from the ongoing consequences of a small number of historical events.

Operating expenses included significant items related to conduct matters in respect of legal proceedings and regulatory matters of $1.0bn and customer remediation costs in respect of the mis-selling of payment protection insurance of $0.5bn. These are discussed in Note 27 and Note 35 of the Financial Statements.

Carbon dioxide emissions

To report carbon emissions, we use the revised edition of the Greenhouse Gas Protocol's A Corporate Accounting and Reporting Standard guideline for disclosure that incorporates the Scope 2 market-based methodology.

We report carbon dioxide emissions resulting from energy use in our buildings and employees' business travel.

For 29 countries where we operated in 2016, which accounted for approximately 92% of our full-time employees ('FTEs'), we collect data on energy use and business travel. For the other countries where we have financial control and a small presence, we estimate emissions by scaling up from 92% to 100% of FTEs.

We then apply emission uplift rates to reflect uncertainty concerning the quality and coverage of emission measurement and estimation. The rates are 4% for electricity, 10% for other energy and 6% for business travel. This is consistent both with the Intergovernmental Panel on Climate Change's Good Practice Guidance and Uncertainty Management in National Greenhouse Gas Inventories and our internal analysis of data coverage and quality.

Figures for 2016 and the previous year are in the following tables.



Carbon dioxide emissions in tonnes
	Footnote	2016	2015
	46
Total		617,000	771,000
From energy		529,000	662,000
From travel		88,000	109,000



Carbon dioxide emissions in tonnes per FTE
	Footnote	2016	2015
Total	46	2.63	2.97
From energy		2.25	2.54
From travel		0.38	0.42

For footnote, see page 63.

Our greenhouse gas reporting year runs from October to September. For the year from 1 October 2015 to 30 September 2016, carbon dioxide emissions from our global operations were 617,000 tonnes. Independent assurance of our carbon dioxide emissions will be available in the first half of 2017 on our website.



62	HSBC Holdings plc Annual Report and Accounts 2016



Footnotes to financial summary and other information
Consolidated income statement/ Group performance by income and expense item
1	Dividends recorded in the financial statements are dividends per ordinary share declared in a year and are not dividends in respect of, or for, that year.
2	Dividends per ordinary share expressed as a percentage of basic earnings per share.
3	Return on risk-weighted assets ('RoRWA') is calculated using pre-tax return and reported average RWAs.
4	Net interest income includes the cost of internally funding trading assets, while the related external revenues are reported in 'Trading income'. In our global business results, the cost of funding trading assets is included with Global Banking and Market's net trading income as interest expense.
5	Gross interest yield is the average annualised interest rate earned on average interest-earning assets ('AIEA').
6	Net interest spread is the difference between the average annualised interest rate earned on AIEA, net of amortised premiums and loan fees, and the average annualised interest rate paid on average interest-bearing funds.
7	Net interest margin is net interest income expressed as an annualised percentage of AIEA.
8	Interest income on trading assets is reported as 'Net trading income' in the consolidated income statement.
9	Interest income on financial assets designated at fair value is reported as 'Net income/(expense) from financial instruments designated at fair value' in the consolidated income statement.
10	Including interest-bearing bank deposits only.
11	Interest expense on financial liabilities designated at fair value is reported as 'Net income on financial instruments designated at fair value' in the consolidated income statement, other than interest on own debt, which is reported in 'Interest expense'.
12	Including interest-bearing customer accounts only.
13	Trading income also includes movements on non-qualifying hedges. These hedges are derivatives entered into as part of a documented interest rate management strategy for which hedge accounting was not, nor could be, applied. They are principally cross-currency and interest rate swaps used to economically hedge fixed rate debt issued by HSBC Holdings and floating rate debt issued by HSBC Finance. The size and direction of the changes in the fair value of non-qualifying hedges that are recognised in the income statement can be volatile from year-to-year, but do not alter the cash flows expected as part of the documented interest rate management strategy for both the instruments and the underlying economically hedged assets and liabilities if the derivative is held to maturity.
14	Net insurance claims and benefits paid and movement in liabilities to policyholders arise from both life and non-life insurance business. For non-life business, amounts reported represent the cost of claims paid during the year and the estimated cost of incurred claims. For life business, the main element of claims is the liability to policyholders created on the initial underwriting of the policy and any subsequent movement in the liability that arises, primarily from the attribution of investment performance to savings-related policies. Consequently, claims rise in line with increases in sales of savings-related business and with investment market growth.

Consolidated balance sheet
15	Net of impairment allowances.
16	On 1 January 2014, CRD IV came into force and the calculation of capital resources and RWAs for 2014 to 2016 are calculated and presented on this basis. 2012 and 2013 comparatives are on a Basel 2.5 basis.
17	Capital resources are regulatory capital, the calculation of which is set out on page 127.
18	Including perpetual preferred securities, details of which can be found in Note 28 on the Financial Statements.
19	The definition of net asset value per ordinary share is total shareholders' equity, less non-cumulative preference shares and capital securities, divided by the number of ordinary shares in issue excluding shares the company has purchased and are held in treasury.
20	In the first half of 2015 our operations in Brazil were classified as held for sale. As a result, balance sheet accounts were classified as 'Assets held for sale' and 'Liabilities of disposal groups held for sale'. There was no separate income statement classification. The sale completed on 1 July 2016.
Global businesses and geographical regions
21	Net interest income includes the cost of internally funding trading assets, while the related revenues are reported in net trading income. In our global business results, the total cost of funding trading assets is included within Corporate Centre net trading income as an interest expense. In the statutory presentation, internal interest income and expense are eliminated.
22	Net operating income before loan impairment charges and other credit risk provisions, also referred to as revenue.
23	Excludes items where there are substantial offsets in the income statement for the same year.



24	'Own credit spread' includes the fair value movements on our long-term debt attributable to credit spread where the net result of such movements will be zero upon maturity of the debt. This does not include fair value changes due to own credit risk in respect of trading liabilities or derivative liabilities.
25	'Investment distribution' includes Investments, which comprises mutual funds (HSBC manufactured and third party), structured products and securities trading, and Wealth Insurance distribution, consisting of HSBC manufactured and third-party life, pension and investment insurance products.
26	'Other personal lending' includes personal non-residential closed-end loans and personal overdrafts.
27	'Other' mainly includes the distribution and manufacturing (where applicable) of retail and credit protection insurance.
28	In 2016, credit and funding valuation adjustments included an adverse fair value movement of $110m on the widening of own credit spreads on structured liabilities (2015: favourable fair value movement of $179m; 2014: favourable fair value movement of $12m).
29	'Other' in GB&M includes net interest earned on free capital held in the global business not assigned to products, allocated funding costs and gains resulting from business disposals. Within the management view of total operating income, notional tax credits are allocated to the businesses to reflect the economic benefit generated by certain activities which is not reflected within operating income; for example, notional credits on income earned from tax-exempt investments where the economic benefit of the activity is reflected in tax expense. In order to reflect the total operating income on an IFRS basis, the offset to these tax credits are included within 'Other'.
30	'Markets products, Insurance and Investments and Other' includes revenue from Foreign Exchange, insurance manufacturing and distribution, interest rate management and GCF products.
31	'Client assets' are translated at the rates of exchange applicable for their respective period-ends, with the effects of currency translation reported separately. The main components of client assets were funds under management ($222bn at 31 December 2016) which were not reported on the Group's balance sheet, and customer deposits ($76bn at 31 December 2016), of which $70bn was reported on the Group's balance sheet and $6bn were off-balance sheet deposits.
32	Amounts are non-additive across geographical regions due to inter-company transactions within the Group.
33	Risk-weighted assets are non-additive across geographical regions due to market risk diversification effects within the Group.
34	Other income in this context comprises where applicable net income/expense from other financial instruments designated at fair value, gains less losses from financial investments, dividend income, net insurance premium income and other operating income less net insurance claims and benefits paid and movement in liabilities to policyholders.
35	2015 and 2014 figures are restated for the changes explained on page 44.
36	For the purposes of the analysis of reported results by country table, HSBC Holdings profit/(loss) is presented excluding the effect of the early adoption of the requirements of IFRS 9 'Financial Instruments' relating to the presentation of gains and losses on financial liabilities designated at fair value', which was early adopted in the separate financial statements of HSBC Holdings but not in the consolidated financial statements of HSBC.
37	Adjusted RWAs are calculated using reported RWAs adjusted for the effects of currency translation differences and significant items.
38	Adjusted RoRWA is calculated using adjusted profit before tax and adjusted average risk-weighted assets.
39	Includes Head Office costs attributable to Global Business operations.
40	Client assets related to our Middle East clients are booked across to various other regions, primarily in Europe.
41	Excludes intra-Group dividend income.
42	Central Treasury includes revenue relating to BSM of $3,060m (2015: $2,885m; 2014:$2,794m ), interest expense of $948m (2015: $710m; 2014: $484m) and adverse valuation differences on issued long-term debt and associated swaps of $278m (2015: loss of $64m; 2014: gain of $33m). Revenue relating to BSM includes other internal allocations, including notional tax credits to reflect the economic benefit generated by certain activities which is not reflected within operating income, for example notional credits on income earned from tax-exempt investments where the economic benefit of the activity is reflected in tax expense. In order to reflect the total operating income on an IFRS basis, the offset to these tax credits are included in other Central Treasury.
43	Other miscellaneous items in Corporate Centre includes internal allocations relating to Legacy Credit.

Other information
44	Funds under management and assets held in custody are not reported on the Group's balance sheet, except where it is deemed that we are acting as principal rather than agent in our role as investment manager, and these assets are consolidated as Structured entities (see Note 19 on the Financial Statements).
45	Taxes paid by HSBC relate to HSBC's own tax liabilities, including tax on profits earned, employer taxes, bank levy and other duties/levies such as stamp duty. Numbers are reported on a cash flow basis.
46	In the Annual Report and Accounts 2015, we applied our own internal methodology which did not contain the Greenhouse Gas Protocol's Scope 2 quality criteria verification and the residual mix factors which are recommended in the Scope 2 market-based methodology.



HSBC Holdings plc Annual Report and Accounts 2016	63

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