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Annual Financial Report - 33 of 38

30th Mar 2010 17:02

RNS Number : 4144J

HSBC Holdings PLC

30 March 2010

23 Property, plant and equipment

HSBC

Property, plant and equipment

	Freehold land and buildings	Long leasehold land and buildings	Short leasehold land and buildings1	Equipment, fixtures and fittings2	Equipment on operating leases	Total3
	US$m	US$m	US$m	US$m	US$m	US$m
Cost or fair value
At 1 January 2009 .................................	4,126	1,736	2,924	10,320	4,547	23,653
Additions at cost4 ..................................	344	35	179	1,253	299	2,110
Acquisition of subsidiaries ......................	-	-	15	7	-	22
Fair value adjustments ...........................	(58)	16	18	-	-	(24)
Disposals ...............................................	(201)	(510)	(98)	(640)	(117)	(1,566)
Reclassified to held for sale ....................	(697)	-	(20)	(63)	-	(780)
Transfers ...............................................	-	(2)	2	-	-	-
Exchange differences .............................	342	62	90	737	507	1,738
Other changes .......................................	59	(10)	25	(62)	-	12

At 31 December 2009 ...........................	3,915	1,327	3,135	11,552	5,236	25,165

Accumulated depreciation and impairment
At 1 January 2009 .................................	(368)	(228)	(886)	(6,614)	(1,532)	(9,628)
Depreciation charge for the year ...........	(82)	(44)	(193)	(1,160)	(169)	(1,648)
Disposals ...............................................	39	46	90	495	(4)	666
Reclassified to held for sale ....................	46	-	3	30	-	79
Impairment losses recognised ................	(30)	(1)	(26)	(20)	-	(77)
Exchange differences .............................	(25)	(7)	(42)	(496)	(173)	(743)
Other changes .......................................	(30)	5	(11)	22	2	(12)

At 31 December 2009 ...........................	(450)	(229)	(1,065)	(7,743)	(1,876)	(11,363)

Net carrying amount at 31 December 2009 ..................................................	3,465	1,098	2,070	3,809	3,360	13,802

Cost or fair value
At 1 January 2008 .................................	4,701	1,438	2,856	10,957	6,054	26,006
Additions at cost4 ..................................	466	26	327	1,813	353	2,985
Acquisition of subsidiaries ......................	29	-	-	16	-	45
Fair value adjustments ...........................	(93)	4	(3)	-	-	(92)
Disposals ...............................................	(138)	(102)	(41)	(803)	(175)	(1,259)
Reclassified from/(to) held for sale ........	16	469	(2)	98	-	581
Transfers ...............................................	-	3	(3)	-	-	-
Exchange differences .............................	(611)	(62)	(214)	(1,876)	(1,685)	(4,448)
Other changes .......................................	(244)	(40)	4	115	-	(165)

At 31 December 2008 ...........................	4,126	1,736	2,924	10,320	4,547	23,653

Accumulated depreciation and impairment
At 1 January 2008 .................................	(344)	(175)	(826)	(7,003)	(1,964)	(10,312)
Depreciation charge for the year ...........	(82)	(53)	(184)	(1,201)	(187)	(1,707)
Disposals ...............................................	7	2	14	537	57	617
Reclassified (from)/to held for sale ........	1	(18)	-	(30)	-	(47)
Transfers ...............................................	-	(3)	3	-	-	-
Impairment losses recognised ................	(30)	(2)	-	(11)	-	(43)
Exchange differences .............................	73	9	107	1,257	561	2,007
Other changes .......................................	7	12	-	(163)	1	(143)

At 31 December 2008 ...........................	(368)	(228)	(886)	(6,614)	(1,532)	(9,628)

Net carrying amount at 31 December 2008 ..................................................	3,758	1,508	2,038	3,706	3,015	14,025

Net carrying amount at 1 January 2008 .	4,357	1,263	2,030	3,954	4,090	15,694

1 Including assets held on finance leases with a net book value of US$18 million (2008: US$13 million).

2 Including assets held on finance leases with a net book value of US$513 million (2008: US$315 million).

3 Including assets with a net book value of US$36 million (2008: US$28 million) pledged as security for liabilities.

4 At 31 December 2009, HSBC had US$878 million (2008: US$1,498 million) of contractual commitments to acquire property, plant and equipment.

In November 2009, HSBC entered into a contract for the sale and leaseback of 8 Canada Square in London for a consideration of £772.5 million (US$1,271 million). The transaction was effected through the sale of HSBC's 100 per cent shareholding in Project Maple II B.V. ('PMII') which is the legal owner of the building and long leasehold interest in 8 Canada Square.

On completion of the transaction on 30 November 2009, 'Property, plant and equipment' of £307 million (US$505 million) and 'Prepayments and accrued income' (representing the long leasehold on the land) of £106 million (US$174 million) were derecognised from HSBC's balance sheet and a gain of £353 million (US$576 million) was recognised within 'Other operating income'.

Under the terms of the arrangement, HSBC is leasing the building back from PMII for the remaining 17.5 years of the existing 20 year lease. The lease was originally entered into in May 2007, when HSBC had entered into a previous contract for the sale and leaseback of 8 Canada Square to Metrovacesa. The sale to Metrovacesa was not recognised for accounting purposes as HSBC retained a significant interest by virtue of a bridging loan. When HSBC took back ownership of 8 Canada Square in December 2008 by acquiring PMII, a then subsidiary of Metrovacesa, the impact on HSBC's operating profit for the year ended 31 December 2008 was a net gain of £244 million (US$383 million), comprising a gain of £265 million (US$416 million) included within 'Other operating income' and a charge of £21 million (US$33 million) included within 'Depreciation and impairment of property, plant and equipment'.

Leasehold land and buildings

Leasehold land and buildings are considered to be held under finance lease contracts where the value of the land cannot reliably be separated from the value of the lease and the respective contracts do not meet the criteria for classification as operating leases.

Included within 'Short leasehold land and buildings' are the following amounts in respect of assets classed as improvements to buildings, which are carried at depreciated historical cost:

	2009		2008
	Cost	Accumulated depreciation	Cost	Accumulated depreciation
	US$m	US$m	US$m	US$m

At 1 January ...................................................................	1,621	(675)	1,490	(671)
Additions ........................................................................	175	-	314	-
Disposals ........................................................................	(89)	71	(40)	12
Depreciation charge for the year ....................................	-	(133)	-	(116)
Impairment loss recognised ............................................	-	(24)	-	-
Exchange differences ......................................................	86	(40)	(141)	100
Other changes ................................................................	31	(30)	(2)	-

At 31 December .............................................................	1,824	(831)	1,621	(675)

Net carrying amount at 31 December .............................	993		946

Investment properties

The composition of the investment properties at fair value in the year was as follows:

	Freehold land and buildings	Long leasehold land and buildings	Short leasehold land and buildings	Total
	US$m	US$m	US$m	US$m
Fair value
At 1 January 2009 ..........................................................	566	188	217	971
Additions at cost ............................................................	36	-	-	36
Fair value adjustments ....................................................	(58)	16	18	(24)
Disposals ........................................................................	-	(25)	-	(25)
Exchange differences ......................................................	57	5	-	62
Other changes ................................................................	39	-	2	41

At 31 December 2009 ....................................................	640	184	237	1,061

Fair value
At 1 January 2008 ..........................................................	925	205	216	1,346
Additions at cost ............................................................	78	-	-	78
Fair value adjustments ....................................................	(93)	4	(3)	(92)
Disposals ........................................................................	(2)	-	-	(2)
Transfers ........................................................................	-	-	(1)	(1)
Exchange differences ......................................................	(196)	(15)	5	(206)
Other changes ................................................................	(146)	(6)	-	(152)

At 31 December 2008 ....................................................	566	188	217	971

Investment properties are valued on an open market value basis as at 31 December each year by independent professional valuers who have recent experience in the location and type of properties. Investment properties in Hong Kong, the Macau Special Administrative Region and mainland China, which represent more than 35 per cent by value of HSBC's investment properties subject to revaluation, were valued by an independent valuer who is a member of the Hong Kong Institute of Surveyors and who has recent experience in the locations and categories of the investment properties.

Included within 'Other operating income' was rental income of US$81 million (2008: US$23 million; 2007: US$42 million) earned by HSBC on its investment properties. Direct operating expenses of US$2 million (2008: US$2 million; 2007: US$3 million) incurred in respect of the investment properties during the year were recognised in 'General and administrative expenses'. Direct operating expenses arising in respect of investment properties that did not generate rental income during 2009 amounted to nil (2008 and 2007: nil).

HSBC recognised no contractual obligations to purchase, construct, develop, maintain or enhance investment properties (2008: nil).

HSBC Holdings had no investment properties at 31 December 2009 or 2008.

HSBC properties leased to customers

HSBC properties leased to customers included US$434 million at 31 December 2009 (2008: US$396 million) let under operating leases, net of accumulated depreciation of US$18 million (2008: US$9 million). None was held by HSBC Holdings.

24 Investments in subsidiaries

Principal subsidiaries of HSBC Holdings

	At 31 December 2009
	Country of incorporation or registration	HSBC's interest in equity capital %	Issued equity capital	Share class
Europe
HSBC Asset Finance (UK) Limited ............................	England	100	£265m	Ordinary £1
HSBC Bank A.S. ........................................................	Turkey	100	TRL652m	A-Common TRL1 B-Common TRL1
HSBC Bank Malta p.l.c. .............................................	Malta	70.03	€88m	Ordinary €0.30
HSBC Bank plc ..........................................................	England	100	£797m	Ordinary £1 Preferred Ordinary £1 Series 2 Third Dollar Preference US$0.01 Third Dollar Preference US$0.01
HSBC France .............................................................	France	99.99	€337m	Shares €5.00
HSBC Bank International Limited .............................	Jersey	100	£1m	Ordinary £1
HSBC Life (UK) Limited ...........................................	England	100	£94m	Ordinary £1
HSBC Private Banking Holdings (Suisse) S.A. .............	Switzerland	100	CHF1,363m	Ordinary CHF1,000
HSBC Trinkaus & Burkhardt AG ................................	Germany	78.60	€26m	Shares of no par value
Marks and Spencer Retail Financial Services Holdings Limited ..................................................................	England	100	£67m	Ordinary £1

Hong Kong
Hang Seng Bank Limited7 ..........................................	Hong Kong	62.14	HK$9,559m	Ordinary HK$5.00
HSBC Insurance (Asia) Limited ..................................	Hong Kong	100	HK$125m	Ordinary HK$1,000
HSBC Life (International) Limited ............................	Bermuda	100	HK$327m	Ordinary HK$1.00
The Hongkong and Shanghai Banking Corporation Limited ..................................................................	Hong Kong	100	HK$22,494m	Ordinary HK$2.50 CIP1 US$1.00 CRP2 US$1.00 NIP3 US$1.00

Rest of Asia-Pacific
HSBC Bank Australia Limited ....................................	Australia	100	A$657m	Ordinary A$1.00 Pref A$10,000
HSBC Bank (China) Company Limited ......................	PRC4	100	RMB8,000m	Ordinary CNY1.00
HSBC Bank Malaysia Berhad .....................................	Malaysia	100	RM114m	Ordinary RM0.50

Middle East
HSBC Bank Middle East Limited ................................	Jersey	100	US$931m	CRP2 US$1.00 Ordinary US$1.00
HSBC Bank Egypt S.A.E. ...........................................	Egypt	94.53	EGP1,509m	Ordinary EGP84.00

North America
The Bank of Bermuda Limited ...................................	Bermuda	100	US$30m	Common BMD1.00
HSBC Bank Canada ....................................................	Canada	100	C$1,225m	Class 1 Pref of NPV5 Class 2 Pref of NPV5 Common of NPV
HSBC Bank USA, N.A. ..............................................	United States	100	US$2m	Common US$100
HSBC Finance Corporation ........................................	United States	100	US$3,038m	Common US$0.01
HSBC Securities (USA) Inc. ........................................	United States	100	-6	Common US$0.05

Latin America
HSBC Bank Argentina S.A. ........................................	Argentina	99.99	ARS1,244m	Ordinary-A ARS1.00 Ordinary-B ARS1.00
HSBC Bank Brasil S.A. - Banco Múltiplo ...................	Brazil	100	BRL3,483m	Ordinary BRL1.14 Ordinary BRL1.89 Ordinary BRL1.17
HSBC Mexico, S.A., Institucion de Banca Multiple, Grupo Financiero HSBC .........................................	Mexico	99.99	MXN4,334m	Ordinary MXN2.00
HSBC Bank (Panama) S.A. ........................................	Panama	100	US$10m	Ordinary PAB 1.00

1 Cumulative Irredeemable Preference shares.

2 Cumulative Redeemable Preference shares.

3 Non-cumulative Irredeemable Preference shares.

4 People's Republic of China.

5 Preference shares of nil par value.

6 Issued equity capital is less than US$1 million.

7 Listed in Hong Kong.

Details of the debt, subordinated debt and preference shares issued by the principal subsidiaries to parties external to the Group are included in the Notes 28 'Debt securities in issue', 32 'Subordinated liabilities' and 36 'Minority interests', respectively.

All the above subsidiaries are included in the HSBC consolidated financial statements.

Details of all HSBC subsidiaries will be annexed to the next Annual Return of HSBC Holdings filed with the UK Registrar of Companies.

All the above make their financial statements up to 31 December except for HSBC Bank Argentina S.A., whose financial statements are made up to 30 June annually.

The principal countries of operation are the same as the countries of incorporation except for HSBC Bank Middle East Limited which operates mainly in the Middle East and HSBC Life (International) Limited which operates mainly in Hong Kong.

Subsidiaries which experience significant restrictions on their ability to transfer funds to HSBC in the form of cash dividends or to repay loans and advances

During 2009 and 2008, none of the Group's subsidiaries experienced significant restrictions on paying dividends or repaying loans and advances.

Subsidiaries excluding SPEs where HSBC owns less than 50 per cent of the voting rights

Subsidiary	HSBC's interest in equity capital	Description of relationship that gives HSBC control
	%
2009
HSBC Private Equity Fund 3 ...........................	38.8	HSBC has control under IAS 27 because it is the investment adviser/manager of the fund and has a significant equity interest.
2008
HSBC Private Equity Fund 3 ...........................	38.8	HSBC has control under IAS 27 because it is the investment adviser/manager of the fund and has a significant equity interest.

SPEs consolidated by HSBC where HSBC owns less than 50 per cent of the voting rights

Carrying value of total consolidated assets		Nature of SPE
	US$bn
2009
Barion Funding Limited ................................................................................	4.4	Structured investment conduit
Bryant Park Funding LLC ............................................................................	3.8	Conduit
HSBC Affinity Corporation I .......................................................................	4.9	Securitisation
HSBC Auto Receivables Corporation ............................................................	1.3	Securitisation
HSBC Corporate Money Fund (Euro) ...........................................................	0.8	Money market fund
HSBC Funding Inc V .....................................................................................	5.3	Securitisation
HSBC Home Equity Loan Corporation I .......................................................	3.1	Securitisation
HSBC Home Equity Loan Corporation II .....................................................	3.3	Securitisation
HSBC Investor Prime Money Market Fund ..................................................	10.7	Money market fund
HSBC Receivables Funding, Inc I ..................................................................	5.4	Securitisation
HSBC Receivables Inc Funding II ..................................................................	1.8	Securitisation
HSBC Sterling Liquidity Fund ........................................................................	7.5	Money market fund
HSBC US Dollar Liquidity Fund ....................................................................	23.4	Money market fund
Malachite Funding Limited ...........................................................................	4.3	Structured investment conduit
Mazarin Funding Limited ..............................................................................	11.3	Structured investment conduit
Metrix Funding Ltd ......................................................................................	3.7	Securitisation
Metrix Securities plc .....................................................................................	4.2	Securitisation
Regency Assets Limited ................................................................................	6.8	Conduit
Solitaire Funding Ltd ....................................................................................	12.8	Conduit
Turquoise Receivable Trustee Ltd .................................................................	0.5	Securitisation

In addition to the above, HSBC consolidates a number of individually insignificant SPEs with total assets of US$12.1 billion. For further details, see 'Special Purpose Entities' on page 181.

Carrying value of total consolidated assets		Nature of SPE
	US$bn
2008
Barion Funding Limited ................................................................................	4.5	Structured investment conduit
Bryant Park Funding LLC ............................................................................	5.5	Conduit
Cullinan Funding Ltd ....................................................................................	0.4	Structured investment vehicle
HSBC Affinity Corporation I .......................................................................	6.0	Securitisation
HSBC Auto Receivables Corporation ............................................................	3.5	Securitisation
HSBC Corporate Money Fund (Euro) ...........................................................	0.6	Money market fund
HSBC Home Equity Loan Corporation I .......................................................	3.5	Securitisation
HSBC Investor Prime Money Market Fund ..................................................	10.5	Money market fund
HSBC Receivables Funding, Inc I ..................................................................	5.7	Securitisation
HSBC Sterling Liquidity Fund ........................................................................	7.7	Money market fund
HSBC US Dollar Liquidity Fund ....................................................................	25.0	Money market fund
Malachite Funding Limited ...........................................................................	4.2	Structured investment conduit
Mazarin Funding Limited ..............................................................................	11.5	Structured investment conduit
Metris Receivables Inc ..................................................................................	3.6	Securitisation
Metrix Funding Ltd ......................................................................................	3.6	Securitisation
Metrix Securities plc .....................................................................................	4.2	Securitisation
Regency Assets Limited ................................................................................	8.1	Conduit
Solitaire Funding Ltd ....................................................................................	12.1	Conduit
Turquoise Receivable Trustee Ltd .................................................................	2.3	Securitisation

In each of the above cases, HSBC has less than 50 per cent of the voting rights, but consolidates because it has the majority of risks and rewards of ownership of the SPE, or the substance of the relationship with the SPE is such that its activities are conducted on behalf of HSBC according to its specific business needs so that HSBC obtains benefit from the SPE's operation. HSBC also consolidates a number of other individually insignificant SPEs where it owns less than 50 per cent of the voting rights. The consolidation of SPEs sponsored by HSBC is discussed on page 181.

Acquisitions

There were minor acquisitions and increases in investment in subsidiaries which increased goodwill by US$580 million.

25 Other assets

	2009	2008
	US$m	US$m

Bullion ...................................................................................................................................	13,757	6,095
Assets held for sale ................................................................................................................	3,118	2,075
Reinsurers' share of liabilities under insurance contracts (Note 30) ........................................	2,069	2,023
Endorsements and acceptances ..............................................................................................	9,311	10,482
Other accounts ......................................................................................................................	16,279	17,147

	44,534	37,822

Assets held for sale

	2009	2008
	US$m	US$m
Non-current assets held for sale
Interests in associates ............................................................................................................	105	2
Property, plant and equipment ..............................................................................................	1,639	2,007
Investment properties ...........................................................................................................	1	2
Financial assets ......................................................................................................................	1,359	62
Other .....................................................................................................................................	14	2

Total assets classified as held for sale .....................................................................................	3,118	2,075

Property, plant and equipment

In October 2009, HSBC entered into a contract for the sale of 452 Fifth Avenue and 1W. 39th Street in New York for a combined consideration of US$330 million. Under the terms of the arrangement, HSBC will lease back the entire 452 Fifth Avenue building for one year and certain parts of the building for 10 years. The transaction is

expected to complete in the second quarter of 2010. The carrying amount of the property included in assets held for sale at 31 December 2009 was (US$257 million).

In December 2009, HSBC entered into a contract for the sale of 103 Champs Elysées and 15 Rue Vernet in Paris for a combined consideration of EUR 400 million (US$576 million). Under the terms of the arrangement, HSBC will lease the buildings back for a period of 9 years. The carrying amount of the buildings included in assets held for sale at 31 December 2009 was EUR257 million (US$370 million). The transaction completed on 25 February 2010.

The remaining property, plant and equipment classified as held for sale is the result of repossession of property that had been pledged as collateral by customers. These assets are disposed of within 12 months of acquisition. The majority arose within the geographical segment of North America.

Financial assets

At 31 December 2009, financial assets classified as held for sale included US$972 million of vehicle finance loans and US$366 million of credit card portfolios. These are presented in North America geographical segment.

Neither a gain nor loss was recognised on reclassifying assets as held for sale during the year.

26 Trading liabilities

	2009 US$m	2008 US$m

Deposits by banks ..................................................................................................................	41,165	36,537
Customer accounts .................................................................................................................	99,306	113,053
Other debt securities in issue ..................................................................................................	37,592	31,288
Other liabilities - net short positions in securities...................................................................	90,067	66,774

	268,130	247,652

At 31 December 2009, the cumulative amount of change in fair value attributable to changes in credit risk was a gain of US$119 million (2008: gain of US$563 million).

27 Financial liabilities designated at fair value

HSBC

	2009	2008
	US$m	US$m

Deposits by banks and customer accounts ..............................................................................	6,586	6,618
Liabilities to customers under investment contracts ...............................................................	10,865	9,283
Debt securities in issue (Note 28) ...........................................................................................	38,208	34,969
Subordinated liabilities (Note 32) ...........................................................................................	20,180	20,316
Preference shares (Note 32) ..................................................................................................	4,253	3,401

	80,092	74,587

The carrying amount at 31 December 2009 of financial liabilities designated at fair value was US$1,346 million more than the contractual amount at maturity (2008: US$1,851 million less). The cumulative amount of the change in fair value attributable to changes in credit risk was a gain of US$1,510 million (2008: gain of US$7,978 million).

HSBC Holdings

	2009	2008
	US$m	US$m
Subordinated liabilities (Note 32):
- owed to third parties .......................................................................................................	12,549	13,321
- owed to HSBC undertakings .............................................................................................	4,360	3,068

	16,909	16,389

The carrying amount at 31 December 2009 of financial liabilities designated at fair value was US$769 million more than the contractual amount at maturity (2008: US$969 million less). The cumulative amount of the change in fair value attributable to changes in credit risk was a loss of US$191 million (2008: gain of US$2,638 million).

28 Debt securities in issue

	2009	2008
	US$m	US$m

Bonds and medium-term notes ...............................................................................................	160,295	160,927
Other debt securities in issue ..................................................................................................	62,401	85,023

	222,696	245,950
Of which debt securities in issue reported as:
- trading liabilities (Note 26)..............................................................................................	(37,592)	(31,288)
- financial liabilities designated at fair value (Note 27) .......................................................	(38,208)	(34,969)

	146,896	179,693

Certain debt securities in issue are managed on a fair value basis as part of HSBC's interest rate risk management policies. The hedged portion of these debt securities is presented within the balance sheet caption 'Financial liabilities designated at fair value', with the remaining portion included within 'Trading liabilities'. The following table analyses the carrying amount of bonds and medium-term notes in issue at 31 December with original maturities greater than one year:

	2009	2008
	US$m	US$m
Fixed rate
Secured financing:
0.01% to 3.99%: due 2010 to 2019 ...................................................................................	5,929	767
4.00% to 4.99%: due 2010 to 2015 ...................................................................................	1,948	1,590
5.00% to 5.99%: due 2010 to 2021 ...................................................................................	1,315	2,754
7.00% to 7.99%: due 2010 to 2011 ...................................................................................	9	14
8.00% to 9.99%: due 2010 to 2028 ...................................................................................	417	462
10.00% or higher: due 2010 ...............................................................................................	43	-
Other fixed rate senior debt:
0.01% to 3.99%: due 2010 to 2051 ...................................................................................	22,554	21,790
4.00% to 4.99%: due 2010 to 2046 ...................................................................................	15,754	13,088
5.00% to 5.99%: due 2010 to 2036 ...................................................................................	25,619	22,357
6.00% to 6.99%: due 2010 to 2033 ...................................................................................	11,066	11,176
7.00% to 7.99%: due 2010 to 2039 ...................................................................................	3,900	4,995
8.00% to 9.99%: due 2010 to 2037 ...................................................................................	1,737	1,822
10.00% or higher: due 2010 to 2017 ..................................................................................	280	884

	90,571	81,699

Variable interest rate
Secured financings - 0.01% to 13.99%: due 2010 to 2021 .....................................................	13,971	27,741
FHLB advances - 0.01% to 0.99%: due 2010 to 2036 ...........................................................	1,000	3,156
Other variable interest rate senior debt - 0.01% to 12.99%: due 2010 to 2057 ......................	50,258	43,849

	65,229	74,746

Structured notes
Interest rate linked ................................................................................................................	5	348
Equity, equity index or credit-linked ......................................................................................	4,490	4,134

	4,495	4,482

Total bonds and medium-term notes ......................................................................................	160,295	160,927

HSBC Holdings

	2009	2008
	US$m	US$m
Bonds and medium-term notes
Fixed rate senior debt, unsecured:
4.00% to 4.99%: due 2010 to 2014 ...................................................................................	1,791	-
6.00% to 6.99%: due 2010 to 2024 ...................................................................................	1,048	-

	2,839	-

29 Other liabilities

	HSBC		HSBC Holdings
	2009	2008	2009	2008
	US$m	US$m	US$m	US$m

Amounts due to investors in funds consolidated by HSBC .....................................................................	48,193	44,539	-	-
Obligations under finance leases (Note 40) .....................	644	563	-	-
Dividend declared and payable by HSBC Holdings ...........	1,231	1,795	1,231	1,795
Endorsements and acceptances .......................................	9,313	10,482	-	-
Other liabilities ...............................................................	9,259	15,005	26	21

	68,640	72,384	1,257	1,816

30 Liabilities under insurance contracts

	Gross	Reinsurers' share	Net
	US$m	US$m	US$m
At 31 December 2009
Non-life insurance liabilities
Unearned premium provision .....................................................................	833	(135)	698
Notified claims ...........................................................................................	1,032	(245)	787
Claims incurred but not reported ................................................................	685	(82)	603
Other .........................................................................................................	178	(5)	173

	2,728	(467)	2,261

Life insurance liabilities to policyholders
Life (non-linked) .......................................................................................	20,979	(771)	20,208
Investment contracts with discretionary participation features1 .................	21,014	-	21,014
Life (linked) ...............................................................................................	8,986	(831)	8,155

	50,979	(1,602)	49,377

Total liabilities under insurance contracts ...................................................	53,707	(2,069)	51,638

At 31 December 2008
Non-life insurance liabilities
Unearned premium provision .....................................................................	1,136	(159)	977
Notified claims ...........................................................................................	908	(230)	678
Claims incurred but not reported ................................................................	368	(41)	327
Other .........................................................................................................	68	-	68

	2,480	(430)	2,050

Life insurance liabilities to policyholders
Life (non-linked) .......................................................................................	17,370	(637)	16,733
Investment contracts with discretionary participation features1 .................	17,766	-	17,766
Life (linked) ...............................................................................................	6,067	(956)	5,111

	41,203	(1,593)	39,610

Total liabilities under insurance contracts ...................................................	43,683	(2,023)	41,660

1 Though investment contracts with discretionary participation features are financial instruments, HSBC continues to treat them as insurance contracts as permitted by IFRS 4.

The movement of liabilities under insurance contracts during the year was as follows:

Non-life insurance liabilities

	Gross	Reinsurers' share	Net
	US$m	US$m	US$m
2009
Unearned premium reserve ('UPR')
At 1 January ..............................................................................................	1,136	(159)	977
Changes in UPR recognised as (income)/expense ........................................	(233)	10	(223)
Gross written premiums ..........................................................................	1,339	(215)	1,124
Gross earned premiums ...........................................................................	(1,572)	225	(1,347)
Exchange differences and other movements ...............................................	(70)	14	(56)

At 31 December .........................................................................................	833	(135)	698

Notified and incurred but not reported claims
At 1 January ..............................................................................................	1,276	(271)	1,005
Notified claims .......................................................................................	908	(230)	678
Claims incurred but not reported .............................................................	368	(41)	327

Claims paid in current year .........................................................................	(987)	156	(831)
Claims incurred in respect of current year ..................................................	939	(156)	783
Claims incurred in respect of prior years ....................................................	342	(2)	340
Exchange differences and other movements ...............................................	147	(54)	93

At 31 December .........................................................................................	1,717	(327)	1,390
Notified claims .......................................................................................	1,032	(245)	787
Claims incurred but not reported .............................................................	685	(82)	603


Other .........................................................................................................	178	(5)	173

Total non-life insurance liabilities ..............................................................	2,728	(467)	2,261

2008
Unearned premium reserve ('UPR')
At 1 January ..............................................................................................	1,279	(181)	1,098
Changes in UPR recognised as (income)/expense ........................................	(58)	3	(55)
Gross written premiums ..........................................................................	1,776	(260)	1,516
Gross earned premiums ...........................................................................	(1,834)	263	(1,571)
Exchange differences and other movements ...............................................	(85)	19	(66)

At 31 December .........................................................................................	1,136	(159)	977

Notified and incurred but not reported claims
At 1 January ..............................................................................................	1,483	(429)	1,054
Notified claims .......................................................................................	1,063	(380)	683
Claims incurred but not reported .............................................................	420	(49)	371

Claims paid in current year .........................................................................	(1,044)	158	(886)
Claims incurred in respect of current year ..................................................	975	(68)	907
Claims incurred in respect of prior years ....................................................	69	(15)	54
Exchange differences and other movements ...............................................	(207)	83	(124)

At 31 December .........................................................................................	1,276	(271)	1,005
Notified claims .......................................................................................	908	(230)	678
Claims incurred but not reported .............................................................	368	(41)	327


Other .........................................................................................................	68	-	68

Total non-life insurance liabilities ..............................................................	2,480	(430)	2,050

Life insurance liabilities to policyholders

	Gross	Reinsurers' share	Net
	US$m	US$m	US$m
2009
Life (non-linked)
At 1 January ..............................................................................................	17,370	(637)	16,733
Benefits paid ..............................................................................................	(2,098)	159	(1,939)
Increase in liabilities to policyholders .........................................................	4,669	(98)	4,571
Exchange differences and other movements ...............................................	1,038	(195)	843

At 31 December .........................................................................................	20,979	(771)	20,208

Investment contracts with discretionary participation features
At 1 January ..............................................................................................	17,766	-	17,766
Benefits paid ..............................................................................................	(1,818)	-	(1,818)
Increase in liabilities to policyholders .........................................................	3,934	-	3,934
Exchange differences and other movements1 .............................................	1,132	-	1,132

At 31 December .........................................................................................	21,014	-	21,014

Life (linked)
At 1 January ..............................................................................................	6,067	(956)	5,111
Benefits paid ..............................................................................................	(325)	21	(304)
Increase in liabilities to policyholders .........................................................	2,676	146	2,822
Exchange differences and other movements2 .............................................	568	(42)	526

At 31 December .........................................................................................	8,986	(831)	8,155

Total liabilities to policyholders .................................................................	50,979	(1,602)	49,377

2008
Life (non-linked)
At 1 January ..............................................................................................	14,370	(605)	13,765
Benefits paid ..............................................................................................	(1,491)	172	(1,319)
Increase in liabilities to policyholders .........................................................	5,480	(792)	4,688
Exchange differences and other movements ...............................................	(989)	588	(401)

At 31 December .........................................................................................	17,370	(637)	16,733

Investment contracts with discretionary participation features
At 1 January ..............................................................................................	18,983	-	18,983
Benefits paid ..............................................................................................	(1,911)	-	(1,911)
Increase in liabilities to policyholders .........................................................	1,743	-	1,743
Exchange differences and other movements1..............................................	(1,049)	-	(1,049)

At 31 December .........................................................................................	17,766	-	17,766

Life (linked)
At 1 January ..............................................................................................	6,399	(57)	6,342
Benefits paid ..............................................................................................	(481)	44	(437)
Increase in liabilities to policyholders .........................................................	939	(1,442)	(503)
Exchange differences and other movements2 .............................................	(790)	499	(291)

At 31 December .........................................................................................	6,067	(956)	5,111

Total liabilities to policyholders .................................................................	41,203	(1,593)	39,610

1 Includes movement in liabilities relating to discretionary profit participation benefits due to policyholders arising from net unrealised investment gains recognised in other comprehensive income.

2 Includes amounts arising under reinsurance agreements.

The increase in liabilities to policyholders represents the aggregate of all events giving rise to additional liabilities to policyholders in the year. The key factors contributing to the movement in liabilities to policyholders include death claims, surrenders, lapses, liabilities to policyholders created at the initial inception of the policies, the declaration of bonuses and other amounts attributable to policyholders.

31 Provisions

	2009	2008
	US$m	US$m

At 1 January ..........................................................................................................................	1,730	1,958
Additional provisions/increase in provisions1 .........................................................................	894	738
Provisions utilised ..................................................................................................................	(684)	(624)
Amounts reversed ..................................................................................................................	(225)	(147)
Exchange differences and other movements ..........................................................................	250	(195)

At 31 December ....................................................................................................................	1,965	1,730

1 The increase in provisions includes the unwinding of discounts of US$3 million (2008: US$3 million) in relation to vacant space provisions and US$32 million (2008: US$21 million) in relation to Brazilian provisions for civil and fiscal labour claims.

Included within provisions are:

(i) Provisions for onerous property contracts of US$158 million (2008: US$85 million), of which US$32 million (2008: US$20 million) relates to discounted future costs associated with leasehold properties that became vacant as a consequence of HSBC's move to Canary Wharf in 2002. The provisions cover rent voids while finding new tenants, shortfalls in expected rent receivable compared with rent payable and the cost of refurbishing the buildings to attract tenants. Uncertainties arise from movements in market rents, delays in finding new tenants and the timing of rental reviews.

(ii) Labour, civil and fiscal litigation provisions in HSBC's Brazil operations of US$538 million (2008: US$334 million). These relate to labour and overtime litigation claims brought by employees after leaving the bank. The provisions are based on the expected number of departing employees, their individual salaries and historical trends. The timing of the settlement of these claims is uncertain.

(iii) Provisions of US$449 million (2008: US$439 million) have been made in respect of costs arising from contingent liabilities and contractual commitments (Note 39), including guarantees of US$56 million (2008: US$35 million) and commitments of US$172 million (2008: US$192 million).

32 Subordinated liabilities

HSBC

	2009	2008
	US$m	US$m
Subordinated liabilities
At amortised cost ............................................................................................................	30,478	29,433
- subordinated liabilities ..................................................................................................	23,893	24,618
-. preferred securities ......................................................................................................	6,585	4,815

Designated at fair value (Note 27) ...................................................................................	24,433	23,717
- subordinated liabilities ..................................................................................................	20,180	20,316
-. preferred securities ......................................................................................................	4,253	3,401


	54,911	53,150

Subordinated liabilities
HSBC Holdings ................................................................................................................	23,048	23,544
Other HSBC ....................................................................................................................	31,863	29,606

	54,911	53,150

HSBC's subordinated liabilities

		2009	2008
		US$m	US$m

Amounts owed to third parties by HSBC Holdings (see below) ......................................		23,048	23,544

Other HSBC subordinated liabilities
€1,400m	5.3687% non-cumulative step-up perpetual preferred securities1 ..................	1,804	1,532
US$1,350m	9.547% non-cumulative step-up perpetual preferred securities, series 11 .......	1,339	1,337
€800m	Callable subordinated floating rate notes 20162 .............................................	1,152	1,116
£700m	5.844% non-cumulative step-up perpetual preferred securities3 ....................	1,136	1,021
US$1,250m	4.61% non-cumulative step-up perpetual preferred securities1 ......................	1,077	745
US$1,000m	4.625% subordinated notes 2014 ..................................................................	1,002	1,001
US$1,000m	5.911% trust preferred securities 20354 ........................................................	993	992
£600m	4.75% subordinated notes 2046 ....................................................................	961	863
€750m	5.13% non-cumulative step-up perpetual preferred securities1 ......................	960	790
US$1,000m	5.875% subordinated notes 2034 ..................................................................	950	953
€600m	4.25% callable subordinated notes 20165 .......................................................	904	831
US$900m	10.176% non-cumulative step-up perpetual preferred securities, series 21 .....	900	900
€600m	8.03% non-cumulative step-up perpetual preferred securities1 ......................	862	834
£500m	8.208% non-cumulative step-up perpetual preferred securities1 ....................	806	724
£500m	4.75% callable subordinated notes 20206 ......................................................	785	675
£500m	5.375% subordinated notes 2033 ..................................................................	776	659
US$750m	Undated floating rate primary capital notes ..................................................	750	750
US$750m	5.625% subordinated notes 2035 ..................................................................	712	715
US$700m	7.00% subordinated notes 2039 ....................................................................	688	694
€500m	Callable subordinated floating rate notes 20207 .............................................	639	567
£350m	Callable subordinated variable coupon notes 20178 ........................................	608	518
£350m	5% callable subordinated notes 20239 ............................................................	550	481
£350m	5.375% callable subordinated step-up notes 203010 .......................................	531	461
US$500m	6.00% subordinated notes 2017 ....................................................................	521	498
US$500m	Undated floating rate primary capital notes ..................................................	500	500
£300m	6.5% subordinated notes 2023 ......................................................................	483	436
US$450m	Callable subordinated floating rate notes 20162 .............................................	449	449
£300m	5.862% non-cumulative step-up perpetual preferred securities3 ....................	412	333
US$400m	Primary capital undated floating rate notes...................................................	407	410
US$400m	Primary capital undated floating rate notes (second series) ...........................	404	404
US$400m	Primary capital undated floating rate notes (third series) ..............................	400	400
CAD400m	4.80% subordinated notes 2022 ....................................................................	382	277
£225m	6.25% subordinated notes 2041 ....................................................................	363	325
US$300m	6.95% subordinated notes 2011 ....................................................................	321	324
US$300m	7.65% subordinated notes 2025 ....................................................................	312	384
US$300m	Undated floating rate primary capital notes, series 3 ....................................	300	300
US$300m	Callable subordinated floating rate notes 201711 ...........................................	299	299
BRL500m	Subordinated certificates of deposit 2016 ......................................................	287	215
US$250m	Non-convertible subordinated obligations 2019.............................................	247	-
BRL383m	Subordinated certificates of deposit 2015 ......................................................	220	-
US$250m	7.20% subordinated debentures 2097 ............................................................	213	218
US$200m	7.808% capital securities 2026 .....................................................................	200	200
US$200m	8.38% capital securities 2027 .......................................................................	200	200
CAD200m	4.94% subordinated debentures 2021 ............................................................	190	163
US$200m	7.75% subordinated notes 2009 ....................................................................	-	203
US$200m	6.625% subordinated notes 2009 ..................................................................	-	198
	Other subordinated liabilities each less than US$200m ..................................	3,868	3,711

		31,863	29,606

		54,911	53,150

Subordinated loan capital is repayable at par on maturity, but some is repayable prior to maturity at the option of the borrower, generally subject to prior notification to the Financial Services Authority and, where relevant, the consent of the local banking regulator, and in certain cases at a premium over par. Interest rates on the floating rate loan capital are related to interbank offered rates. On the remaining subordinated loan capital, interest is payable at fixed rates up to 10.176 per cent.

1 See 'Step-up perpetual preferred securities' below, note (a) 'Guaranteed by HSBC Holdings'.

2 The interest margin on the €800 million and US$450 million callable subordinated floating rate notes 2016 increases by 0.5 per cent from March 2011 and July 2011, respectively.

3 See 'Step-up perpetual preferred securities' below, note (b) 'Guaranteed by HSBC Bank'.

4 The distributions on the trust preferred securities change in November 2015 to three-month dollar LIBOR plus 1.926 per cent.

5 The interest rate on the 4.25 per cent callable subordinated notes changes in March 2011 to three-month EURIBOR plus 1.05 per cent.

6 The interest rate on the 4.75 per cent callable subordinated notes 2020 changes in September 2015 to three-month sterling LIBOR plus 0.82 per cent.

7 The interest margin on the callable subordinated floating rate notes 2020 increases by 0.5 per cent from September 2015.

8 The interest rate on the callable subordinated variable coupon notes 2017 is fixed at 5.75 per cent until June 2012. Thereafter, the rate per annum is the sum of the gross redemption yield of the then prevailing five-year UK gilt plus 1.70 per cent.

9 The interest rate on the 5 per cent callable subordinated notes 2023 changes in March 2018 to become the rate per annum which is the sum of the gross redemption yield of the then prevailing five-year UK gilt plus 1.80 per cent.

10 The interest rate on the 5.375 per cent callable subordinated step-up notes 2030 changes in November 2025 to three-month sterling LIBOR plus 1.50 per cent.

11 The interest margin on the callable subordinated floating rate notes 2017 increases by 0.5 per cent from July 2012.

Footnotes 2, and 4 to 10 relate to notes that are repayable at the option of the borrower on the date of the change of the interest rate, and at subsequent interest rate reset dates and interest payment dates in some cases, subject to prior notification to the Financial Services Authority and, where relevant, the consent of the local banking regulator.

Step-up perpetual preferred securities

(a) Guaranteed by HSBC Holdings

The seven issues of non-cumulative step-up perpetual preferred securities (footnote 1) were made by Jersey limited partnerships and are guaranteed, on a subordinated basis, by HSBC Holdings. The proceeds of the issues were on-lent to HSBC Holdings by the limited partnerships by issue of subordinated notes. The preferred securities qualify as innovative tier 1 capital for HSBC. The preferred securities, together with the guarantee, are intended to provide investors with rights to income and capital distributions and distributions upon liquidation of HSBC Holdings that are equivalent to the rights that they would have had if they had purchased non-cumulative perpetual preference shares of HSBC Holdings.

The preferred securities are perpetual, but redeemable in 2014, 2010, 2013, 2016, 2030, 2012 and 2015, respectively, at the option of the general partner of the limited partnerships. If not redeemed, the distributions payable step-up and become floating rate or, for the sterling issue, for each successive five-year period the sum of the then five-year benchmark UK gilt plus a margin. There are limitations on the payment of distributions if prohibited under UK banking regulations or other requirements, if a payment would cause a breach of HSBC's capital adequacy requirements, or if HSBC Holdings has insufficient distributable reserves (as defined).

HSBC Holdings has covenanted that if it is prevented under certain circumstances from paying distributions on the preferred securities in full, it will not pay dividends or other distributions in respect of its ordinary shares, or effect repurchase or redemption of its ordinary shares, until after a distribution has been paid in full.

If (i) HSBC's total capital ratio falls below the regulatory minimum ratio required, or (ii) the Directors expect that, in view of the deteriorating financial condition of HSBC Holdings, the former will occur in the near term, then the preferred securities will be substituted by preference shares of HSBC Holdings having economic terms which are in all material respects equivalent to those of the preferred securities and the guarantee taken together.

(b) Guaranteed by HSBC Bank

The two issues of non-cumulative step-up perpetual preferred securities (footnote 3) were made by Jersey limited partnerships and are guaranteed, on a subordinated basis, by HSBC Bank. The proceeds of the issues were on-lent to HSBC Bank by the limited partnerships by issue of subordinated notes. The preferred securities qualify as innovative tier 1 capital for HSBC and for HSBC Bank on a solo and consolidated basis and, together with the guarantee, are intended to provide investors with rights to income and capital distributions and distributions upon liquidation of HSBC Bank that are equivalent to the rights they would have had if they had purchased non-cumulative perpetual preference shares of HSBC Bank.

The two issues of preferred securities are perpetual, but redeemable in 2031 and 2020, respectively, at the option of the general partner of the limited partnerships. If not redeemed, the distributions payable step-up and become floating rate. The same limitations on the payment of distributions apply to HSBC Bank as to HSBC Holdings, as described above. HSBC Bank has provided a similar covenant to that provided by HSBC Holdings, also as described above.

If (i) any of the two issues of preferred securities are outstanding in November 2048 or April 2049, respectively, or (ii) the total capital ratio of HSBC Bank on a solo and consolidated basis falls below the regulatory minimum ratio required, or (iii) in view of the deteriorating financial condition of HSBC Bank, the Directors expect (ii) to occur in the near term, then the preferred securities will be substituted by preference shares of HSBC Bank having economic terms which are in all material respects equivalent to those of the preferred securities and the guarantee taken together.

HSBC Holdings

	2009	2008
	US$m	US$m
Subordinated liabilities:
-. at amortised cost ............................................................................................................	14,406	14,017
-. designated at fair value (Note 27) ...................................................................................	16,909	16,389

	31,315	30,406

HSBC Holdings subordinated borrowings

		2009 US$m	2008 US$m
Amounts owed to third parties
€1,750m	6.0% subordinated notes 2019 ......................................................................	2,835	-
US$2,500m	6.5% subordinated notes 2037 ......................................................................	2,659	2,669
€1,600m	6.25% subordinated notes 2018 ....................................................................	2,306	2,231
US$2,000m	6.5% subordinated notes 2036 ......................................................................	2,052	2,052
€1,000m	5.375% subordinated notes 2012 ..................................................................	1,549	1,403
£900m	6.375% callable subordinated notes 20221 ....................................................	1,517	1,330
US$1,400m	5.25% subordinated notes 2012 ....................................................................	1,488	1,455
US$1,500m	6.8% subordinated notes 2038 ......................................................................	1,484	1,484
£750m	7.0% subordinated notes 2038 ......................................................................	1,267	1,140
£650m	6.75% subordinated notes 2028 ....................................................................	1,043	938
€700m	3.625% callable subordinated notes 20202 ....................................................	1,005	840
£650m	5.75% subordinated notes 2027 ....................................................................	1,000	878
US$750m	Callable subordinated floating rate notes 20163 .............................................	750	750
US$750m	Callable subordinated floating rate notes 20154 .............................................	750	750
US$488m	7.625% subordinated notes 2032 ..................................................................	587	609
£250m	9.875% subordinated bonds 20185 ................................................................	496	441
US$222m	7.35% subordinated notes 2032 ....................................................................	260	269
€2,000m	Callable subordinated floating rate notes 20146 .............................................	-	2,805
US$1,000m	7.5% subordinated notes 2009 ......................................................................	-	1,068
€300m	5.5% subordinated notes 2009 ......................................................................	-	432

		23,048	23,544

Amounts owed to HSBC undertakings
€1,400m	5.3687% fixed/floating subordinated notes 2043 - HSBC Capital Funding (Euro 2) LP ...............................................................	2,042	1,532
US$1,350m	9.547% subordinated step-up cumulative notes 2040 - HSBC Capital Funding (Dollar 1) LP ............................................................	1,339	1,337
US$1,250m	4.61% fixed/floating subordinated notes 2043 - HSBC Capital Funding (Dollar 2) LP ............................................................	1,223	745
€750m	5.13% fixed/floating subordinated notes 2044 - HSBC Capital Funding (Euro 3) LP ...............................................................	1,095	790
US$900m	10.176% subordinated step-up cumulative notes 2040 - HSBC Capital Funding (Dollar 1) LP ............................................................	900	900
€600m	8.03% subordinated step-up cumulative notes 2040 - HSBC Capital Funding (Euro 1) LP ...............................................................	862	834
£500m	8.208% subordinated step-up cumulative notes 2040 - HSBC Capital Funding (Sterling 1) LP ..........................................................	806	724

		8,267	6,862

		31,315	30,406

1 The interest rate on the 6.375 per cent callable subordinated notes 2022 changes in October 2017 to become three-month sterling LIBOR plus 1.3 per cent. The notes may be redeemed at par from October 2017 at the option of the borrower, subject to the prior notification of the FSA.

2 The interest rate on the 3.625 per cent callable subordinated notes 2020 changes in June 2015 to become three-month EURIBOR plus 0.93 per cent. The notes may be redeemed at par from June 2015 at the option of the borrower, subject to the prior notification of the FSA.

3 The interest margin on the callable subordinated floating rate notes 2016 increases by 0.5 per cent from October 2011. The notes are repayable from their step up date at the option of the borrower, subject to the prior notification of the FSA.

4 On 11 February 2010, HSBC Holdings gave notice to holders of its US$750 million callable subordinated floating rate notes due 2015 that it will call and redeem the notes at par on 16 March 2010.

5 The interest rate on the 9.875 per cent subordinated bonds 2018 changes in April 2013 to become the higher of (i) 9.875 per cent or (ii) the sum of the yield on the relevant benchmark treasury stock plus 2.5 per cent. The bonds may be redeemed in April 2013 at par and redemption has also been allowed from April 1998, subject to the prior notification of the FSA, for an amount based on the redemption yields of the relevant benchmark treasury stocks.

6 In September 2009, HSBC Holdings redeemed its €2,000 million callable subordinated floating rate notes due 2014 at par.

33 Maturity analysis of assets and liabilities

The following is an analysis, by remaining contractual maturities at the balance sheet date, of asset and liability line items that represent amounts expected to be recovered or settled within one year, and after more than one year.

Trading assets and liabilities are excluded because they are not held for collection or settlement over the period of contractual maturity.

HSBC

	At 31 December 2009
	Due within one year	Due after more than one year	Total
	US$m	US$m	US$m
Assets
Financial assets designated at fair value ......................................................	3,786	33,395	37,181
Loans and advances to banks ......................................................................	172,916	6,865	179,781
Loans and advances to customers ...............................................................	381,967	514,264	896,231
Financial investments ................................................................................	134,824	234,334	369,158
Other financial assets .................................................................................	26,189	7,383	33,572

	719,682	796,241	1,515,923

Liabilities
Deposits by banks ......................................................................................	118,308	6,564	124,872
Customer accounts .....................................................................................	1,114,149	44,885	1,159,034
Financial liabilities designated at fair value .................................................	4,666	75,426	80,092
Debt securities in issue ................................................................................	83,590	63,306	146,896
Other financial liabilities ............................................................................	67,061	3,606	70,667
Subordinated liabilities ................................................................................	369	30,109	30,478

	1,388,143	223,896	1,612,039

	At 31 December 2008
	Due within one year	Due after more than one year	Total
	US$m	US$m	US$m
Assets
Financial assets designated at fair value ......................................................	4,735	23,798	28,533
Loans and advances to banks ......................................................................	146,268	7,498	153,766
Loans and advances to customers ...............................................................	407,582	525,286	932,868
Financial investments ................................................................................	111,027	189,208	300,235
Other financial assets .................................................................................	27,642	6,308	33,950

	697,254	752,098	1,449,352

Liabilities
Deposits by banks ......................................................................................	123,835	6,249	130,084
Customer accounts .....................................................................................	1,083,426	31,901	1,115,327
Financial liabilities designated at fair value .................................................	7,368	67,219	74,587
Debt securities in issue ................................................................................	107,094	72,599	179,693
Other financial liabilities ............................................................................	70,898	4,860	75,758
Subordinated liabilities ................................................................................	745	28,688	29,433

	1,393,366	211,516	1,604,882

HSBC Holdings

	At 31 December 2009
	Due within one year	Due after more than one year	Total
	US$m	US$m	US$m
Assets
Loans and advances to HSBC undertakings .................................................	18,067	5,145	23,212
Financial investments ................................................................................	-	2,455	2,455
Other financial assets .................................................................................	4	-	4

	18,071	7,600	25,671

Liabilities
Amounts owed to HSBC undertakings .........................................................	277	3,434	3,711
Financial liabilities designated at fair value .................................................	-	16,909	16,909
Debt securities in issue.................................................................................	-	2,839	2,839
Other financial liabilities ............................................................................	1,240	17	1,257
Subordinated liabilities ................................................................................	-	14,406	14,406

	1,517	37,605	39,122

	At 31 December 2008
	Due within one year	Due after more than one year	Total
	US$m	US$m	US$m
Assets
Loans and advances to HSBC undertakings .................................................	4,842	6,962	11,804
Financial investments ................................................................................	-	2,629	2,629
Other financial assets .................................................................................	25	-	25

	4,867	9,591	14,458

Liabilities
Amounts owed to HSBC undertakings .........................................................	176	3,866	4,042
Financial liabilities designated at fair value .................................................	1,500	14,889	16,389
Other financial liabilities ............................................................................	1,805	11	1,816
Subordinated liabilities ................................................................................	-	14,017	14,017

	3,481	32,783	36,264

34 Foreign exchange exposures

Structural foreign exchange exposures

HSBC's structural foreign exchange exposures are represented by the net asset value of its foreign exchange equity and subordinated debt investments in subsidiaries, branches, joint ventures and associates with non-US dollar functional currencies. Gains or losses on structural foreign exchange exposures are recognised in other comprehensive income. HSBC's management of its structural foreign exchange exposures is discussed in the 'Report of the Directors: Risk' on page 257.

In its separate financial statements, HSBC Holdings recognises its foreign exchange gains and losses on structural foreign exchange exposures in the income statement.

Net structural foreign exchange exposures

	2009	2008
	US$m	US$m
Currency of structural exposure
Euro ......................................................................................................................................	25,284	23,137
Pound sterling ........................................................................................................................	21,369	15,319
Chinese renminbi ...................................................................................................................	13,398	11,927
Mexican pesos .......................................................................................................................	5,393	4,127
Brazilian reais ........................................................................................................................	5,234	3,381
Hong Kong dollars .................................................................................................................	3,842	3,929
Indian rupees .........................................................................................................................	3,836	3,252
Canadian dollars .....................................................................................................................	3,620	3,423
Swiss francs ............................................................................................................................	2,910	2,192
UAE dirhams .........................................................................................................................	2,209	3,472
Turkish lira ............................................................................................................................	1,741	1,505
Korean won ...........................................................................................................................	1,412	1,243
Malaysian ringgit ...................................................................................................................	1,300	1,148
Indonesian rupiah ..................................................................................................................	1,057	221
Australian dollars ...................................................................................................................	1,017	690
Argentine pesos .....................................................................................................................	675	510
Saudi riyals .............................................................................................................................	657	530
Egyptian pounds ....................................................................................................................	561	517
Singapore dollars ....................................................................................................................	556	534
Taiwanese dollars ...................................................................................................................	547	485
Vietnamese dong ....................................................................................................................	505	483
Philippine pesos ....................................................................................................................	473	445
Qatari rial ..............................................................................................................................	384	272
Costa Rican colon ..................................................................................................................	375	378
Thai baht ...............................................................................................................................	357	404
Russian rouble ........................................................................................................................	295	268
Honduran lempira ..................................................................................................................	282	341
Chilean pesos .........................................................................................................................	230	176
Japanese yen ..........................................................................................................................	228	263
Colombian pesos ....................................................................................................................	220	185
Omani rial .............................................................................................................................	210	210
South African rand .................................................................................................................	201	151
New Zealand dollars ...............................................................................................................	161	124
Jordanian dinar ......................................................................................................................	159	147
Algerian dinar ........................................................................................................................	146	27
Sri Lankan rupee ....................................................................................................................	141	96
Brunei dollars .........................................................................................................................	132	91
Bahraini dinar ........................................................................................................................	85	114
Others, each less than US$100 million ...................................................................................	587	518

Total .....................................................................................................................................	101,789	86,235

Shareholders' equity would decrease by US$2,222 million (2008: US$1,830 million) if euro and sterling foreign currency exchange rates weakened by 5 per cent relative to the US dollar.

35 Assets charged as security for liabilities and collateral accepted as security for assets

Financial assets pledged to secure liabilities were as follows:

	Assets pledged at 31 December
	2009	2008
	US$m	US$m

Treasury bills and other eligible securities ...............................................................................	3,970	3,434
Loans and advances to banks .................................................................................................	6,767	6,949
Loans and advances to customers ...........................................................................................	77,699	70,209
Debt securities .......................................................................................................................	203,766	185,224
Equity shares .........................................................................................................................	7,305	4,326
Other .....................................................................................................................................	646	439

	300,153	270,581

These transactions are conducted under terms that are usual and customary to collateralised transactions, including, where relevant, standard securities lending and repurchase agreements.

Collateral accepted as security for assets

The fair value of assets accepted as collateral that HSBC is permitted to sell or repledge in the absence of default is US$362,560 million (2008: US$290,469 million). The fair value of any such collateral that has been sold or repledged was US$215,940 million (2008: US$159,256 million). HSBC is obliged to return equivalent securities.

These transactions are conducted under terms that are usual and customary to standard securities borrowing and reverse repurchase agreements.

36 Minority interests

	2009	2008
	US$m	US$m

Minority interests attributable to holders of ordinary shares in subsidiaries .............................	4,665	4,227
Preference shares issued by subsidiaries ...................................................................................	2,697	2,411

	7,362	6,638

Preference shares issued by subsidiaries

		2009	2008
		US$m	US$m

US$575m	6.36% non-cumulative preferred stock, Series B1 ..........................................	559	559
US$518m	Floating rate non-cumulative preferred stock, Series F2 ................................	518	518
US$374m	Floating rate non-cumulative preferred stock, Series G3 ................................	374	374
US$374m	6.50% non-cumulative preferred stock, Series H3 .........................................	374	374
CAD250m	Non-cumulative 5 year rate reset class 1 preferred shares, Series E4 ..............	238	-
CAD175m	Non-cumulative redeemable class 1 preferred shares, Series C5 ......................	167	143
CAD175m	Non-cumulative class 1 preferred shares, Series D5 ........................................	167	143
US$150m	Depositary shares each representing 25% interest in a share of adjustable-rate cumulative preferred stock, Series D6 .................................	150	150
US$150m	Cumulative preferred stock7 .........................................................................	150	150

		2,697	2,411

1 The Series B preferred stock is redeemable at the option of HSBC Finance Corporation, in whole or in part, from 24 June 2010 at par.

2 The Series F preferred stock is redeemable at par at the option of HSBC USA Inc., in whole or in part, on any dividend payment date on or after 7 April 2010.

3 The Series G and Series H preferred stock are redeemable at par at the option of HSBC USA Inc., in whole or in part, at any time from 1 January 2011 and 1 July 2011, respectively.

4 The Series E preferred shares are redeemable at par at the option of HSBC Bank Canada, in whole or in part from 30 June 2014.

5 The Series C and Series D preferred shares are redeemable at a declining premium above par at the option of HSBC Bank Canada, in whole or in part, from 30 June 2010 and 31 December 2010, respectively.

6 The preferred stock has been redeemable at the option of HSBC USA Inc., in whole or in part, from 1 July 1999 at par.

7 The preferred stock has been redeemable at the option of HSBC USA Inc., in whole or in part, from 1 October 2007 at par.

All redemptions are subject to prior notification to the Financial Services Authority and, where relevant, the local banking regulator.

37 Called up share capital and other equity instruments

Authorised

The concept of authorised share capital was abolished under the UK Companies Act 2006 with effect from 1 October 2009 and consequential amendments to the Company's Articles of Association were approved by shareholders at the 2009 Annual General Meeting.

At 31 December 2008, the authorised ordinary share capital of HSBC Holdings was US$7,500 million divided into 15,000 million ordinary shares of US$0.50 each.

At 31 December 2008, the authorised preference share capital of HSBC Holdings was 10 million non-cumulative preference shares of £0.01 each, 10 million non-cumulative preference shares of US$0.01 each, and 10 million non-cumulative preference shares of €0.01 each.

At 31 December 2008, the authorised non-voting deferred share capital of HSBC Holdings was £301,500 divided into 301,500 non-voting deferred shares of £1 each.

Issued

	2009	2008
	US$m	US$m

HSBC Holdings ordinary shares1 .............................................................................................	8,705	6,053

	Number	US$m
HSBC Holdings ordinary shares1
At 1 January 2009 .................................................................................................................	12,105,265,082	6,053
Shares issued under HSBC employee share plans .....................................................................	7,476,952	4
Shares issued in lieu of dividends .............................................................................................	235,225,669	118
Shares issued in respect of rights issue2 ...................................................................................	5,060,239,065	2,530

At 31 December 2009 ...........................................................................................................	17,408,206,768	8,705

At 1 January 2008 .................................................................................................................	11,829,052,317	5,915
Shares issued under HSBC Finance share plans ........................................................................	65,198	-
Shares issued under HSBC employee share plans .....................................................................	40,578,468	20
Shares issued in lieu of dividends .............................................................................................	235,569,099	118

At 31 December 2008 ...........................................................................................................	12,105,265,082	6,053

1 All ordinary shares in issue confer identical rights in respect of capital, dividends, voting and otherwise.

2 See Note 41 for details of the rights issue.

	Number	US$m
HSBC Holdings non-cumulative preference shares of US$0.01 each

At 1 January 2009 and 31 December 2009 ............................................................................	1,450,000	-

At 1 January 2008 and 31 December 2008 ............................................................................	1,450,000	-

Dividends on the HSBC Holdings non-cumulative dollar preference shares in issue are paid quarterly at the sole and absolute discretion of the Board of Directors. The Board of Directors will not declare a dividend on the preference shares in issue if payment of the dividend would cause HSBC Holdings not to meet the applicable capital adequacy requirements of the FSA or the profit of HSBC Holdings available for distribution as dividends is not sufficient to enable HSBC Holdings to pay in full both dividends on the preference shares in issue and dividends on any other shares that are scheduled to be paid on the same date and that have an equal right to dividends. HSBC Holdings may not declare or pay dividends on any class of its shares ranking lower in the right to dividends than the preference shares in issue nor redeem nor purchase in any manner any of its other shares ranking equal with or lower than the preference shares in issue unless it has paid in full, or set aside an amount to provide for payment in full, the dividends on the preference shares in issue for the then-current dividend period. The preference shares in issue carry no rights to conversion into ordinary shares of HSBC Holdings. Holders of the preference shares in issue will only be entitled to attend and vote at general meetings of shareholders of HSBC Holdings if the dividend payable on the preference shares in issue has not been paid in full for four consecutive dividend payment dates. In such circumstances, holders of the preference shares in issue will be entitled to vote on all matters put to general meetings until such time as HSBC Holdings has paid a full dividend on the preference shares in issue. HSBC Holdings may redeem the preference shares in issue in whole at any time on or after 16 December 2010, subject to prior notification to the FSA.

HSBC Holdings non-voting deferred shares

The 301,500 non-voting deferred shares were in issue throughout 2008 and 2009 and are held by a subsidiary of HSBC Holdings. Holders of the non-voting deferred shares are not entitled to receive dividends on these shares. On winding-up or other return of capital, holders are entitled to receive the amount paid up on their shares after distribution to ordinary shareholders of £10 million in respect of each ordinary share held by them.

Other equity instruments

On 9 April 2008, HSBC Holdings issued, in bearer form, 88 million 8.125 per cent Perpetual Subordinated Capital Securities ('Capital Securities'), each with a par value of US$25 and with an aggregate nominal value of US$2,200 million. The securities were issued at par value, raising US$2,133 million, net of issuance costs. The Capital Securities were issued to support the development of and to strengthen further HSBC's capital base. Coupon payments on the Capital Securities are paid quarterly in arrears from 15 July 2008 and may be deferred at the discretion of HSBC Holdings. The Capital Securities have no fixed maturity and are redeemable at HSBC's option on or after 15 April 2013 at their principal amounts together with any accrued, unpaid and deferred coupon payments. While any coupon payments are unpaid or deferred, HSBC Holdings will not declare, pay dividends or make distributions or similar periodic payments in respect of, or repurchase, redeem or otherwise acquire any securities of lower or equal rank. At the Company's discretion, and subject to certain conditions being satisfied, the Capital Securities may be exchanged on any coupon payment date for non-cumulative preference shares to be issued by HSBC Holdings and which would rank pari passu with the dollar preference shares in issue at 2 March 2009. The preference shares will be issued at a nominal value of US$0.01 per share and a premium of US$24.99 per share, with both such amounts being subscribed and fully paid.

Shares under option

Details of the options outstanding to subscribe for HSBC Holdings ordinary shares under the HSBC Holdings Group Share Option Plan, HSBC Holdings Executive Share Option Scheme, the HSBC Share Plan and HSBC Holdings savings-related share option plans are given in Note 10. In aggregate, options outstanding under these plans were as follows:

	Number of HSBC Holdings ordinary shares	Period of exercise	Exercise price

31 December 20091.......................................	270,742,989	2010 to 2015	£3.3116 - 8.4024
	50,938,242	2010 to 2015	HK$37.8797 - 94.5057
	3,283,710	2010 to 2015	€3.6361 - 9.5912
	12,073,216	2010 to 2015	US$4.8876 - 12.0958

31 December 2008 ..........................................	211,226,573	2009 to 2015	£5.3496 - 9.642
	11,344,167	2009 to 2014	HK$103.4401 - 108.4483
	1,304,119	2009 to 2014	€8.6720 - 11.0062
	7,382,145	2009 to 2014	US$13.3290 - 14.7478

31 December 2007 ..........................................	240,726,775	2008 to 2015	£5.3496 - 9.642
	12,839,412	2008 to 2013	HK$103.4401 - 108.4483
	823,472	2008 to 2013	€10.4217 - 11.0062
	6,324,920	2008 to 2013	US$13.3290 - 14.7478

1 During 2009, the number and prices of unexercised share options were adjusted for the rights issue.

HSBC France and subsidiary company plans

Following the acquisition of HSBC France in 2000, outstanding employee share options over HSBC France shares vested. On exercise of the options, the HSBC France shares are exchangeable for HSBC Holdings ordinary shares. As a consequence of the rights issue, the ratio of HSBC Holdings ordinary shares exchangeable for each HSBC France share was adjusted from 13 to 14.917916.

During 2009, no HSBC France shares were issued following the exercise of employee share options (2008: 221,154) and no shares were exchanged for HSBC Holdings ordinary shares (2008: 2,875,002 HSBC Holdings ordinary shares). During 2009, 183,627 options over HSBC France shares lapsed (2008: nil). At 31 December 2009, the HSBC Holdings Employee Benefit Trust 2001 (No. 1) held 9,963,718 (2008: 8,790,276) HSBC Holdings ordinary shares which may be exchanged for HSBC France shares arising from the exercise of options.

HSBC France options effectively outstanding over HSBC Holdings ordinary shares under this arrangement were as follows:

	Number of HSBC France shares exchangeable for HSBC Holdings ordinary shares	Period of exercise	Exercise price

31 December 2009 .............................................	604,250	2010	€142.50
31 December 2008 ...............................................	787,877	2009 to 2010	€81.71 - 142.50
31 December 2007 ...............................................	1,009,031	2008 to 2010	€73.48 - 142.50

HSBC Private Bank France plan

There are also outstanding options over the shares of HSBC Private Bank France, a subsidiary of HSBC France.

On exercise of the options, the HSBC Private Bank France shares are exchangeable for HSBC Holdings ordinary shares. As a consequence of the rights issue, the ratio of HSBC Holdings ordinary shares exchangeable for each HSBC Private Bank France share was adjusted from 1.83 to 2.099984. During 2009, 33,456 (2008: 7,000) HSBC Private Bank France shares were issued following the exercise of employee share options and exchanged for 70,248 (2008: 12,810) HSBC Holdings ordinary shares, such shares being delivered from The CCF Employee Benefit Trust 2001 (Private Banking France). During 2009, 9,000 options over HSBC Private Bank France shares lapsed (2008: nil). At 31 December 2009, The CCF Employee Benefit Trust 2001 (Private Banking France) held 998,783 (2008: 943,142) HSBC Holdings ordinary shares which may be exchanged for HSBC Private Bank France shares arising from the exercise of options.

HSBC Private Bank France options effectively outstanding over HSBC Holdings ordinary shares under this arrangement were as follows:

	Number of HSBC Private Bank France shares exchangeable for HSBC Holdings ordinary shares	Period of exercise	Exercise price

31 December 2009 .............................................	291,520	2010 to 2012	€12.44 - 22.22
31 December 2008 ...............................................	333,976	2009 to 2012	€10.84 - 22.22
31 December 2007 ...............................................	340,976	2008 to 2012	€10.84 - 22.22

HSBC Finance

Following the acquisition of HSBC Finance in 2003, all outstanding options and equity-based awards over HSBC Finance common shares were converted into rights to receive HSBC Holdings ordinary shares in the same ratio as the share exchange offer for HSBC Finance (2.675 HSBC Holdings ordinary shares for each HSBC Finance common share) and the exercise prices per share adjusted accordingly. During 2009, 20,000 options (2008: 327,635) over HSBC Holdings ordinary shares were exercised and 20,000 (2008: 169,138) HSBC Holdings ordinary shares delivered from The HSBC (Household) Employee Benefit Trust 2003 to satisfy the exercise of these options. During 2009, options over 5,606,714 (2008: 718,793) HSBC Holdings ordinary shares lapsed. In April 2009, 195,000 ADSs held in the Trust were cancelled, increasing the number of HSBC Holdings ordinary shares held by 975,000. At 31 December 2009, the Trust held a total of 2,642,279 (2008: 1,687,279) HSBC Holdings ordinary shares and 1,455 (2008: 196,455) ADSs, which may be used to satisfy the exercise of these options and equity-based awards under the HSBC Finance share plans. Each ADS represents five HSBC Holdings ordinary shares.

Options (and, in 2008 and 2007, equity-based awards) outstanding over HSBC Holdings ordinary shares under the HSBC Finance share plans were as follows:

	Number of HSBC Holdings ordinary shares	Period of exercise	Exercise price

31 December 20091 ...........................................	18,105,959	2010 to 2012	US$9.29 - 18.62
31 December 2008 ...............................................	20,681,582	2009 to 2012	US$10.66 - 21.37
31 December 2007 ...............................................	21,728,010	2008 to 2012	nil - US$21.37

1 During 2009, the number and prices of unexercised share options were adjusted for the rights issue.

Bank of Bermuda plan

Following the acquisition of Bank of Bermuda in 2004, all outstanding employee share options over Bank of Bermuda shares were converted into rights to receive HSBC Holdings ordinary shares based on the consideration of US$40 for each Bank of Bermuda share and the average closing price of HSBC Holdings ordinary shares, derived from the London Stock Exchange Daily Official List, for the five business days preceding the closing date of the acquisition. During 2009, options over 18,153 HSBC Holdings ordinary shares were exercised (2008: 12,847) and satisfied by delivery from the HSBC (Bank of Bermuda) Employee Benefit Trust 2004. During 2009, options over 24,673 (2008: 95,915) HSBC Holdings ordinary shares lapsed. At 31 December 2009, the HSBC (Bank of Bermuda) Employee Benefit Trust 2004 held 2,113,611 (2008: 1,877,056) HSBC Holdings ordinary shares which may be used to satisfy the exercise of options.

Options outstanding over HSBC Holdings ordinary shares under the Bank of Bermuda share plans were as follows:

	Number of HSBC Holdings ordinary shares	Period of exercise	Exercise price

31 December 20091.............................	2,481,702	2010 to 2013	US$6.13 - 15.99
31 December 2008 ................................	2,205,321	2009 to 2013	US$7.04 - 18.35
31 December 2007 ................................	2,314,083	2008 to 2013	US$7.04 - 18.35

1 During 2009, the number and prices of unexercised share options were adjusted for the rights issue.

Maximum obligation to deliver HSBC Holdings ordinary shares

At 31 December 2009, the maximum obligation to deliver HSBC Holdings ordinary shares under all of the above option arrangements, together with awards of Performance Shares and Restricted Shares under the HSBC Holdings Restricted Share Plan 2000 and the HSBC Share Plan, was 559,960,290 (2008: 400,887,713). The total number of shares at 31 December 2009 held by employee benefit trusts that may be used to satisfy such obligations to deliver HSBC Holdings ordinary shares was 134,903,061 (2008: 164,985,811).

38 Notes on the statement of cash flows

Non-cash items included in profit before tax

	HSBC			HSBC Holdings
	2009	2008	2007	2009	2008
	US$m	US$m	US$m	US$m	US$m

Depreciation, amortisation and impairment .......	2,538	13,367	2,522	5,947	3,601
Gains arising from dilution of interests in associates.........................................................	-	-	(1,092)	-	-
Revaluations on investment property .................	24	92	(152)	-	-
Share-based payment expense .............................	683	819	870	21	14
Loan impairment losses gross of recoveries and other credit risk provisions .............................	27,378	25,771	18,247	-	-
Provisions ..........................................................	669	591	989	-	-
Impairment of financial investments ..................	358	1,042	42	-	-
Charge for defined benefit plans .........................	192	490	727	-	-
Accretion of discounts and amortisation of premiums ........................................................	(458)	(867)	(452)	6	4

	31,384	41,305	21,701	5,974	3,619

This information is provided by RNS

The company news service from the London Stock Exchange

END

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