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Annual Financial Report - 37 of 41

30th Mar 2011 16:52

RNS Number : 8711D

HSBC Holdings PLC

30 March 2011

25 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 2010 .....................................	3,915	1,327	3,135	11,552	5,236	25,165
Additions at cost4 ......................................	349	76	632	1,456	65	2,578
Fair value adjustments ...............................	31	24	38	-	-	93
Disposals5 ..................................................	(307)	(8)	(82)	(355)	(5,113)	(5,865)
Reclassified to held for sale ........................	(73)	(16)	(3)	(35)	-	(127)
Transfers ...................................................	(47)	(147)	199	(5)	-	-
Exchange differences .................................	(47)	(5)	(17)	(62)	(135)	(266)
Other changes ...........................................	131	422	102	(22)	-	633

At 31 December 2010 ...............................	3,952	1,673	4,004	12,529	53	22,211

Accumulated depreciation and impairment
At 1 January 2010 .....................................	(450)	(229)	(1,065)	(7,743)	(1,876)	(11,363)
Depreciation charge for the year ...............	(91)	(46)	(203)	(1,178)	(150)	(1,668)
Disposals5 ..................................................	31	-	68	344	1,956	2,399
Reclassified (from)/to held for sale ............	24	-	1	26	-	51
Transfers ...................................................	23	20	(43)	-	-	-
Impairment losses recognised ....................	(22)	-	1	(24)	-	(45)
Exchange differences .................................	5	2	5	54	45	111
Other changes ...........................................	(106)	(54)	(32)	15	2	(175)

At 31 December 2010 ...............................	(586)	(307)	(1,268)	(8,506)	(23)	(10,690)

Net carrying amount at 31 December 2010 ...............................................................	3,366	1,366	2,736	4,023	30	11,521

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

1 Including assets held on finance leases with a net book value of US$11m (2009: US$18m).

2 Including assets held on finance leases with a net book value of US$204m (2009: US$513m).

3 Including assets with a net book value of US$31m (2009: US$36m) pledged as security for liabilities.

4 At 31 December 2010, HSBC had US$593m (2009: US$878m) of contractual commitments to acquire property, plant and equipment.

5 The disposals included under 'Equipment on operating leases' relate to the sale of a subsidiary, Eversholt Rail Group, during the year.

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:

Leasehold land and buildings

	2010		2009
	Cost	Accumulated depreciation	Cost	Accumulated depreciation
	US$m	US$m	US$m	US$m

At 1 January ......................................................................	1,824	(831)	1,621	(675)
Additions ...........................................................................	181	-	175	-
Disposals ............................................................................	(81)	54	(89)	71
Depreciation charge for the year ........................................	-	(133)	-	(133)
Impairment loss recognised ................................................	-	-	-	(24)
Exchange differences .........................................................	(16)	-	86	(40)
Other changes ....................................................................	36	(23)	31	(30)

At 31 December .................................................................	1,944	(933)	1,824	(831)

Net carrying amount at 31 December .................................	1,011		993

Investment properties

Movement on the fair value of investment properties

	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 2010 .............................................................	640	184	237	1,061
Additions at cost ................................................................	240	-	-	240
Fair value adjustments ........................................................	31	24	38	93
Disposals ............................................................................	(216)	(2)	-	(218)
Transfers ...........................................................................	-	(42)	42	-
Exchange differences .........................................................	(34)	(1)	(1)	(36)
Other changes ....................................................................	6	(7)	(6)	(7)

At 31 December 2010 ........................................................	667	156	310	1,133

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

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% 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$26m (2009: US$81m; 2008: US$23m) earned by HSBC on its investment properties. Direct operating expenses of US$3m (2009: US$2m; 2008: US$2m) 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 2010 amounted to nil (2009 and 2008: nil).

At 31 December 2010, HSBC had no contractual obligations to purchase, construct, develop, maintain or enhance investment properties (2009: nil).

HSBC Holdings had no investment properties at 31 December 2010 or 2009.

HSBC properties leased to customers

HSBC properties leased to customers included US$441m at 31 December 2010 (2009: US$434m) let under operating leases, net of accumulated depreciation of US$19m (2009: US$18m). None was held by HSBC Holdings.

26 Investments in subsidiaries

Principal subsidiaries of HSBC Holdings

	At 31 December 2010
	Country of incorporation or registration	HSBC's interest in equity capital %	Issuedequitycapital	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 DollarPreference US$0.01 Third DollarPreference 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	80.40	€28m	Shares of no par value
Marks and Spencer Retail Financial Services HoldingsLimited .................................................................	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$318m	Ordinary HK$1,000
HSBC Life (International) Limited ...........................	Bermuda	100	HK$421m	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$751m	Shares of no par value
HSBC Bank (China) Company Limited .....................	PRC4	100	RMB8,000m	Ordinary CNY1.00
HSBC Bank Malaysia Berhad ....................................	Malaysia	100	RM115m	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	EGP1,511m	Ordinary EGP84.00

North America
HSBC Bank 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	-6	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	BRL5,178m	Shares of no par value
HSBC Mexico, S.A., Institución de Banca Múltiple,Grupo Financiero HSBC ........................................	Mexico	99.99	MXN5,087m	Ordinary MXN2.00
HSBC Bank (Panama) S.A. .......................................	Panama	100	US$10m	Ordinary PAB 1.00

1 Cumulative Irredeemable Preference shares.		5 Preference shares of nil par value.
2 Cumulative Redeemable Preference shares		6 Issued equity capital is less than US$1m.
3 Non-cumulative Irredeemable Preference shares.		7 Listed in Hong Kong.
4 People's Republic of China

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 30 'Debt securities in issue', 34 'Subordinated liabilities' and 38 'Non-controlling 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 2010 and 2009, 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% of the voting rights

At 31 December 2009, HSBC consolidated HSBC Private Equity Fund 3 ('HPEF3') but only had a 38.8% interest in its equity capital. HSBC had control under IAS 27 because it was the investment adviser/manager of the fund and had a significant equity interest.

On 30 November 2010, the Group completed the sale of an 80.1% interest in HSBC Private Equity (Asia) Limited ('HPEA') to HPEA's management. As a result, the Group no longer controls HPEF3. The Group previously consolidated HPEF 3 by virtue of its control over HPEA, which in turn controlled HPEF3. Upon deconsolidation, the group retains its 38.8% interest in HPEF3 as an available for sale investment. HPEF3 has been renamed The Headland Private Equity Fund 3 Limited.

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

	Carrying value of totalconsolidated assets		Nature of SPE
	2010	2009
	US$bn	US$bn

Barion Funding Limited .......................................................	4.5	4.4	Structured investment conduit
Bryant Park Funding LLC ...................................................	3.0	3.8	Conduit
HSBC Affinity Corporation I ..............................................	4.2	4.9	Securitisation
HSBC Auto Receivables Corporation ...................................	-	1.3	Securitisation
HSBC Corporate Money Fund (Euro) ..................................	-	0.8	Money market fund
HSBC Funding Inc V ............................................................	5.4	5.3	Securitisation
HSBC Home Equity Loan Corporation I ..............................	2.8	3.1	Securitisation
HSBC Home Equity Loan Corporation II ............................	2.8	3.3	Securitisation
HSBC Investor Prime Money Market Fund .........................	-	10.7	Money market fund
HSBC Receivables Funding, Inc I .........................................	3.7	5.4	Securitisation
HSBC Receivables Inc Funding II .........................................	2.0	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 ..................................................	3.9	4.3	Structured investment conduit
Mazarin Funding Limited .....................................................	10.3	11.3	Structured investment conduit
Metrix Funding Ltd .............................................................	1.4	3.7	Securitisation
Metrix Securities plc ............................................................	1.0	4.2	Securitisation
Regency Assets Limited .......................................................	6.3	6.8	Conduit
Solitaire Funding Ltd ...........................................................	13.5	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$10.6bn. For further details, see 'Special purpose entities' on page 361.

In each of the above cases, HSBC has less than 50% 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. The consolidation of SPEs sponsored by HSBC is discussed on page 251.

Acquisitions

There were minor acquisitions and increases in investment in subsidiaries which increased goodwill by US$16m.

27 Other assets

	2010	2009
	US$m	US$m

Bullion ....................................................................................................................................	18,446	13,757
Assets held for sale ..................................................................................................................	1,991	3,118
Reinsurers' share of liabilities under insurance contracts (Note 32) ..........................................	1,865	2,069
Endorsements and acceptances ................................................................................................	10,116	9,311
Other accounts ........................................................................................................................	10,833	16,279

	43,251	44,534

At 31 December 2010, 'Assets held for sale' included US$520m related to the sale of a majority interest in the UK‑based global real estate and infrastructure private equity fund management business to the unit's senior management team. The transaction is expected to complete in the first half of 2011. Associated liabilities of US$86m are included in 'Other Liabilities'.

Non-current assets held for sale

	2010	2009
	US$m	US$m

Interests in associates ..............................................................................................................	-	105
Property, plant and equipment ................................................................................................	1,333	1,639
Investment properties .............................................................................................................	9	1
Financial assets .......................................................................................................................	116	1,359
Other ......................................................................................................................................	3	14

	1,461	3,118

The property, plant and equipment classified as held for sale is the result of repossession of property that had been pledged as collateral by customers. Substantially all of these assets are disposed of within 12 months of acquisition. The majority arose within the geographical segment of North America. At 31 December 2009, property, plant and equipment held for sale also included US$257m in relation to the proposed sale of 452 Fifth Avenue and 1 W. 39th Street in New York and US$370m in relation to the proposed sale of 103 Champs Elysées and 15 Rue Vernet in Paris. On completion of these transactions in 2010 gains of US$56m and US$194m respectively were recognised within 'Other operating income'.

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

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

28 Trading liabilities

	2010 US$m	2009 US$m

Deposits by banks ...................................................................................................................	38,678	41,165
Customer accounts ..................................................................................................................	125,684	99,306
Other debt securities in issue (Note 30) ...................................................................................	33,726	37,592
Other liabilities - net short positions in securities....................................................................	102,615	90,067

	300,703	268,130

At 31 December 2010, the cumulative amount of change in fair value attributable to changes in HSBC credit risk was a gain of US$142m (2009: gain of US$119m).

29 Financial liabilities designated at fair value

HSBC

	2010	2009
	US$m	US$m

Deposits by banks and customer accounts ................................................................................	6,527	6,586
Liabilities to customers under investment contracts ................................................................	11,700	10,865
Debt securities in issue (Note 30) ............................................................................................	46,091	38,208
Subordinated liabilities (Note 34) .............................................................................................	19,395	20,180
Preferred securities (Note 34) .................................................................................................	4,420	4,253

	88,133	80,092

The carrying amount at 31 December 2010 of financial liabilities designated at fair value was US$1,631m more than the contractual amount at maturity (2009: US$1,346m more). The cumulative amount of the change in fair value attributable to changes in credit risk was a gain of US$1,279m (2009: gain of US$1,510m).

HSBC Holdings

	2010	2009
	US$m	US$m
Subordinated liabilities (Note 34):
- owed to third parties .........................................................................................................	12,029	12,549
- owed to HSBC undertakings ..............................................................................................	4,259	4,360

	16,288	16,909

The carrying amount at 31 December 2010 of financial liabilities designated at fair value was US$855m more than the contractual amount at maturity (2009: US$769m more). The cumulative amount of the change in fair value attributable to changes in credit risk was a gain of US$439m (2009: gain of US$191m).

30 Debt securities in issue

	2010	2009
	US$m	US$m

Bonds and medium-term notes ................................................................................................	162,948	160,295
Other debt securities in issue ....................................................................................................	62,270	62,401

	225,218	222,696
Of which debt securities in issue reported as:
- trading liabilities (Note 28) ...............................................................................................	(33,726)	(37,592)
- financial liabilities designated at fair value (Note 29) ........................................................	(46,091)	(38,208)

	145,401	146,896

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:

Bonds and medium-term notes

HSBC

	2010	2009
	US$m	US$m
Fixed rate
Secured financing:
0.01% to 3.99%: until 2068 ................................................................................................	6,666	5,929
4.00% to 4.99%: until 2013 ................................................................................................	1,956	1,948
5.00% to 5.99%: until 2022 ................................................................................................	387	1,315
7.00% to 7.99%: until 2019 ................................................................................................	209	9
8.00% to 9.99%: until 2028 ................................................................................................	394	417
10.00% or higher: until 2011 ..............................................................................................	-	43
Other fixed rate senior debt:
0.01% to 3.99%: until 2057 ................................................................................................	39,596	22,554
4.00% to 4.99%: until 2046 ................................................................................................	12,854	15,754
5.00% to 5.99%: until 2021 ................................................................................................	19,011	25,619
6.00% to 6.99%: until 2033 ................................................................................................	11,008	11,066
7.00% to 7.99%: until 2032 ................................................................................................	3,124	3,900
8.00% to 9.99%: until 2036 ................................................................................................	254	1,737
10.00% or higher: until 2021 ..............................................................................................	337	280

	95,796	90,571

Variable interest rate
Secured financings - 0.01% to 13.99%: until 2068 ..................................................................	8,448	13,971
FHLB advances - 0.01% to 0.99%: until 2036 ........................................................................	1,000	1,000
Other variable interest rate senior debt - 0.01% to 12.99%: until 2068 ..................................	53,301	50,258

	62,749	65,229

Structured notes
Interest rate linked ..................................................................................................................	4	5
Equity, equity index or credit-linked ........................................................................................	4,399	4,490

	4,403	4,495

	162,948	160,295

HSBC Holdings

	2010	2009
	US$m	US$m

Fixed rate senior debt, unsecured:
4.00% to 4.99%: until 2014 ................................................................................................	1,664	1,791
6.00% to 6.99%: until 2024 ................................................................................................	1,004	1,048

	2,668	2,839

31 Other liabilities

	HSBC		HSBC Holdings
	2010	2009	2010	2009
	US$m	US$m	US$m	US$m

Amounts due to investors in funds consolidated by HSBC ...	840	48,193	-	-
Obligations under finance leases (Note 42) .........................	454	644	-	-
Dividend declared and payable by HSBC Holdings (Note 11) .......................................................................................	1,203	1,231	1,203	1,231
Endorsements and acceptances ...........................................	10,123	9,313	-	-
Other liabilities ..................................................................	15,430	9,259	29	26

	28,050	68,640	1,232	1,257

32 Liabilities under insurance contracts

	Gross	Reinsurers' share	Net
	US$m	US$m	US$m
At 31 December 2010
Non-life insurance liabilities
Unearned premium provision .......................................................................	727	(129)	598
Notified claims .............................................................................................	879	(230)	649
Claims incurred but not reported ...................................................................	745	(75)	670
Other ...........................................................................................................	105	2	107

	2,456	(432)	2,024

Life insurance liabilities to policyholders
Life (non-linked) ..........................................................................................	23,583	(673)	22,910
Investment contracts with discretionary participation features1 ....................	22,074	-	22,074
Life (linked) .................................................................................................	10,496	(760)	9,736

	56,153	(1,433)	54,720

	58,609	(1,865)	56,744

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

	53,707	(2,069)	51,638

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

Movement on non-life insurance liabilities

	Gross	Reinsurers' share	Net
	US$m	US$m	US$m
2010
Unearned premium reserve ('UPR')
At 1 January .................................................................................................	833	(135)	698
Changes in UPR recognised as (income)/expense ..........................................	(83)	(12)	(95)
Gross written premiums ............................................................................	1,192	(172)	1,020
Gross earned premiums .............................................................................	(1,275)	160	(1,115)

Exchange differences and other movements .................................................	(23)	18	(5)

At 31 December ...........................................................................................	727	(129)	598

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

Claims paid in current year ...........................................................................	(815)	114	(701)
Claims incurred in respect of current year .....................................................	519	(111)	408
Claims incurred in respect of prior years .......................................................	106	11	117
Exchange differences and other movements .................................................	97	8	105

At 31 December ...........................................................................................	1,624	(305)	1,319
Notified claims .........................................................................................	879	(230)	649
Claims incurred but not reported ...............................................................	745	(75)	670

Other ...........................................................................................................	105	2	107

Total non-life insurance liabilities ................................................................	2,456	(432)	2,024

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

Life insurance liabilities to policyholders

	Gross	Reinsurers' share	Net
	US$m	US$m	US$m
2010
Life (non-linked)
At 1 January .................................................................................................	20,979	(771)	20,208
Benefits paid ................................................................................................	(1,355)	143	(1,212)
Increase in liabilities to policyholders ...........................................................	5,108	(201)	4,907
Exchange differences and other movements .................................................	(1,149)	156	(993)

At 31 December ...........................................................................................	23,583	(673)	22,910

Investment contracts with discretionary participation features
At 1 January .................................................................................................	21,014	-	21,014
Benefits paid ................................................................................................	(2,023)	-	(2,023)
Increase in liabilities to policyholders ...........................................................	3,716	-	3,716
Exchange differences and other movements1 ................................................	(633)	-	(633)

At 31 December ...........................................................................................	22,074	-	22,074

Life (linked)
At 1 January .................................................................................................	8,986	(831)	8,155
Benefits paid ................................................................................................	(507)	45	(462)
Increase in liabilities to policyholders ...........................................................	2,520	99	2,619
Exchange differences and other movements2 ................................................	(503)	(73)	(576)

At 31 December ...........................................................................................	10,496	(760)	9,736

Total liabilities to policyholders ...................................................................	56,153	(1,433)	54,720

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

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.

33 Provisions

	2010	2009
	US$m	US$m

At 1 January ...........................................................................................................................	1,965	1,730
Additional provisions/increase in provisions ............................................................................	812	894
Provisions utilised ...................................................................................................................	(564)	(684)
Amounts reversed ...................................................................................................................	(132)	(225)
Exchange differences and other movements ............................................................................	57	250

At 31 December ......................................................................................................................	2,138	1,965

Provisions include US$1,257m (2009: US$1,025m) relating to legal proceedings, investigations and regulatory matters, US$405m (2009: US$449m) relating to costs arising from contingent liabilities and contractual commitments; and US$118m (2009: US$158m) relating to provisions for onerous property contracts.

34 Subordinated liabilities

HSBC

	2010	2009
	US$m	US$m
Subordinated liabilities
At amortised cost ................................................................................................................	33,387	30,478
- subordinated liabilities ......................................................................................................	28,309	23,893
- preferred securities ..........................................................................................................	5,078	6,585

Designated at fair value (Note 29) .......................................................................................	23,815	24,433
- subordinated liabilities ......................................................................................................	19,395	20,180
- preferred securities ..........................................................................................................	4,420	4,253


	57,202	54,911

Subordinated liabilities
HSBC Holdings ....................................................................................................................	22,878	23,048
Other HSBC ........................................................................................................................	34,324	31,863

	57,202	54,911

HSBC's subordinated liabilities

		2010	2009
		US$m	US$m

Amounts owed to third parties by HSBC Holdings (see page 349) ................................		22,878	23,048

Other HSBC subordinated liabilities
US$2,939m	6.676% senior subordinated notes 20211 ........................................................	2,174	-
€1,400m	5.3687% non-cumulative step-up perpetual preferred securities2 ....................	1,843	1,804
US$1,250m	4.875% subordinated notes 2020 ...................................................................	1,252	-
US$1,250m	4.61% non-cumulative step-up perpetual preferred securities2 ........................	1,185	1,077
£700m	5.844% non-cumulative step-up perpetual preferred securities3 ......................	1,087	1,136
€800m	Callable subordinated floating rate notes 20164 ..............................................	1,070	1,152
US$1,000m	4.625% subordinated notes 2014 ...................................................................	1,009	1,002
US$1,000m	5.911% trust preferred securities 20355 .........................................................	994	993
US$1,000m	5.875% subordinated notes 2034 ...................................................................	971	950
€750m	5.13% non-cumulative step-up perpetual preferred securities2 ........................	958	960
£600m	4.75% subordinated notes 2046 .....................................................................	919	961
US$900m	10.176% non-cumulative step-up perpetual preferred securities, series 22 .......	891	890
€600m	4.25% callable subordinated notes 20164 ........................................................	823	904
€600m	8.03% non-cumulative step-up perpetual preferred securities2 ........................	801	862
£500m	4.75% callable subordinated notes 20206 ........................................................	774	785
£500m	8.208% non-cumulative step-up perpetual preferred securities2 ......................	772	806
US$750m	Undated floating rate primary capital notes ...................................................	750	750
US$750m	5.00% subordinated notes 2020 .....................................................................	747	-
£500m	5.375% subordinated notes 2033 ...................................................................	729	776
US$750m	5.625% subordinated notes 2035 ...................................................................	728	712
US$700m	7.00% subordinated notes 2039 .....................................................................	694	688
€500m	Callable subordinated floating rate notes 20207 ..............................................	592	639
£350m	Callable subordinated variable coupon notes 20178..........................................	562	608
£350m	5.00% callable subordinated notes 20239 ........................................................	547	550
US$500m	6.00% subordinated notes 2017 .....................................................................	526	521
£350m	5.375% callable subordinated step-up notes 203010 ........................................	510	531
US$500m	Undated floating rate primary capital notes ...................................................	500	500
£300m	6.5% subordinated notes 2023 .......................................................................	462	483
US$450m	Callable subordinated floating rate notes 201611 .............................................	450	449
£300m	5.862% non-cumulative step-up perpetual preferred securities3 ......................	434	412
CAD400m	4.80% subordinated notes 2022 .....................................................................	417	382
US$400m	Primary capital undated floating rate notes ....................................................	407	407
US$400m	Primary capital undated floating rate notes (second series) ............................	403	404
US$400m	Primary capital undated floating rate notes (third series) ...............................	400	400
£225m	6.25% subordinated notes 2041 .....................................................................	347	363
US$300m	7.65% subordinated notes 2025 .....................................................................	342	312
US$300m	6.95% subordinated notes 2011 .....................................................................	310	321
BRL500m	Subordinated certificates of deposit 2016 .......................................................	301	287
US$300m	Undated floating rate primary capital notes, series 3 ......................................	300	300
US$300m	Callable subordinated floating rate notes 201712 .............................................	300	299
US$250m	Non-convertible subordinated obligations 2019...............................................	248	247
BRL383m	Subordinated certificates of deposit 2015 .......................................................	231	220
US$250m	7.20% subordinated debentures 2097 ..............................................................	213	213
AUD200m	Callable subordinated floating rate notes 201613 .............................................	204	180
AUD200m	Callable subordinated floating rate notes 2020 ...............................................	204	-
US$200m	7.808% capital securities 2026 ......................................................................	200	200
US$200m	8.38% capital securities 2027 ........................................................................	200	200
CAD200m	4.94% subordinated debentures 2021 ..............................................................	200	190
US$1,350m	9.547% non-cumulative step-up perpetual preferred securities, series 114 .......	-	1,349
	Other subordinated liabilities each less than US$200m ...................................	3,343	3,688

		34,324	31,863

		57,202	54,911

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 of up to 10.176%.

1 Approximately 25% of the 6.676% senior subordinated notes 2021 is held by HSBC Holdings.

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

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

4 On 15 February 2011, HSBC gave notice to holders of its €800m callable subordinated floating rate notes 2016 and its €600m 4.25% callable subordinated notes 2016 that it will call and redeem the notes at par on 29 March 2011 and 18 March 2011, respectively.

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

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

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

8 The interest rate on the callable subordinated variable coupon notes 2017 is fixed at 5.75% 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%.

9 The interest rate on the 5.00% 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%.

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

11 The interest margin on the US$450m callable subordinated floating rate notes 2016 increases by 0.5% from July 2011.

12 The interest margin on the callable subordinated floating rate notes 2017 increases by 0.5% from July 2012.

13 The interest margin on the callable subordinated floating rate notes 2016 increases by 0.5% from May 2011.

14 In June 2010, HSBC redeemed its 9.547% non-cumulative step-up preferred securities, series 1 at par.

Footnotes 4 to 13 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 six issues of non-cumulative step-up perpetual preferred securities (footnote 2) 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 tier 1 hybrid 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, 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 tier 1 hybrid 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

	2010	2009
	US$m	US$m
Subordinated liabilities:
-. at amortised cost .............................................................................................................	13,313	14,406
-. designated at fair value (Note 29) ....................................................................................	16,288	16,909

	29,601	31,315

HSBC Holdings' subordinated liabilities

		2010 US$m	2009 US$m
Amounts owed to third parties
US$2,500m	6.5% subordinated notes 2037 .......................................................................	2,695	2,659
€1,750m	6.0% subordinated notes 2019 .......................................................................	2,578	2,835
€1,600m	6.25% subordinated notes 2018 .....................................................................	2,142	2,306
US$2,000m	6.5% subordinated notes 2036 .......................................................................	2,050	2,052
£900m	6.375% callable subordinated notes 20221 ......................................................	1,493	1,517
US$1,400m	5.25% subordinated notes 2012 .....................................................................	1,492	1,488
US$1,500m	6.8% subordinated notes 2038 .......................................................................	1,485	1,484
€1,000m	5.375% subordinated notes 2012 ...................................................................	1,405	1,549
£900m	6.0% subordinated notes 2040 .......................................................................	1,372	-
£750m	7.0% subordinated notes 2038 .......................................................................	1,210	1,267
£650m	6.75% subordinated notes 2028 .....................................................................	1,000	1,043
£650m	5.75% subordinated notes 2027 .....................................................................	971	1,000
€700m	3.625% callable subordinated notes 20202 ......................................................	928	1,005
US$750m	Callable subordinated floating rate notes 20163 ..............................................	750	750
US$488m	7.625% subordinated notes 2032 ...................................................................	582	587
£250m	9.875% subordinated bonds 20184 ..................................................................	467	496
US$222m	7.35% subordinated notes 2032 .....................................................................	258	260
US$750m	Callable subordinated floating rate notes 20155 ..............................................	-	750

		22,878	23,048

Amounts owed to HSBC undertakings
€1,400m	5.3687% fixed/floating subordinated notes 2043 - HSBC Capital Funding (Euro 2) LP ................................................................	1,957	2,042
US$1,250m	4.61% fixed/floating subordinated notes 2043 - HSBC Capital Funding (Dollar 2) LP ..............................................................	1,274	1,223
€750m	5.13% fixed/floating subordinated notes 2044 - HSBC Capital Funding (Euro 3) LP ................................................................	1,028	1,095
US$900m	10.176% subordinated step-up cumulative notes 2040 - HSBC Capital Funding (Dollar 1) LP ..............................................................	891	890
€600m	8.03% subordinated step-up cumulative notes 2040 - HSBC Capital Funding (Euro 1) LP ................................................................	801	862
£500m	8.208% subordinated step-up cumulative notes 2040 - HSBC Capital Funding (Sterling 1) LP ............................................................	772	806
US$1,350m	9.547% subordinated step-up cumulative notes 2040 - HSBC Capital Funding (Dollar 1) LP6 ............................................................	-	1,349

		6,723	8,267

		29,601	31,315

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

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

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

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

5 In March 2010, HSBC Holdings redeemed its US$750m callable subordinated floating rate notes due 2015 at par.

6 In June 2010, HSBC Holdings redeemed its 9.547% subordinated step-up cumulative notes 2040 - HSBC Capital Funding (Dollar 1) LP at par.

35 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.

Maturity analysis of assets and liabilities

HSBC

	At 31 December 2010			At 31 December 2009
	Due within one year	Due aftermore thanone year	Total	Due withinone year	Due aftermore thanone year	Total
	US$m	US$m	US$m	US$m	US$m	US$m
Assets
Financial assets designated at fair value ........	3,030	33,981	37,011	3,786	33,395	37,181
Loans and advances to banks .......................	200,098	8,173	208,271	172,916	6,865	179,781
Loans and advances to customers ................	424,713	533,653	958,366	381,967	514,264	896,231
Financial investments ..................................	149,954	250,801	400,755	134,824	234,334	369,158
Other financial assets ..................................	19,417	5,519	24,936	26,189	7,383	33,572

	797,212	832,127	1,629,339	719,682	796,241	1,515,923

Liabilities
Deposits by banks ........................................	105,462	5,122	110,584	118,308	6,564	124,872
Customer accounts ......................................	1,181,095	46,630	1,227,725	1,114,149	44,885	1,159,034
Financial liabilities designated at fair value ...	10,141	77,992	88,133	4,666	75,426	80,092
Debt securities in issue .................................	86,096	59,305	145,401	83,590	63,306	146,896
Other financial liabilities .............................	24,865	4,792	29,657	67,061	3,606	70,667
Subordinated liabilities .................................	791	32,596	33,387	369	30,109	30,478

	1,408,450	226,437	1,634,887	1,388,143	223,896	1,612,039

HSBC Holdings

	At 31 December 2010			At 31 December 2009
	Due withinone year	Due aftermore thanone year	Total	Due withinone year	Due aftermore thanone year	Total
	US$m	US$m	US$m	US$m	US$m	US$m
Assets
Loans and advances to HSBC undertakings ..	13,691	7,547	21,238	18,067	5,145	23,212
Financial investments ..................................	-	2,025	2,025	-	2,455	2,455
Other financial assets ..................................	1	-	1	4	-	4

	13,692	9,572	23,264	18,071	7,600	25,671

Liabilities
Amounts owed to HSBC undertakings ..........	1,480	1,452	2,932	277	3,434	3,711
Financial liabilities designated at fair value ...	-	16,288	16,288	-	16,909	16,909
Debt securities in issue .................................	-	2,668	2,668	-	2,839	2,839
Other financial liabilities .............................	1,782	-	1,782	1,240	17	1,257
Subordinated liabilities .................................	-	13,313	13,313	-	14,406	14,406

	3,262	33,721	36,983	1,517	37,605	39,122

36 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 149.

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

	2010	2009
	US$m	US$m
Currency of structural exposure
Pound sterling .........................................................................................................................	23,247	21,369
Euro ........................................................................................................................................	23,222	25,284
Chinese renminbi ....................................................................................................................	17,454	13,398
Brazilian reais .........................................................................................................................	6,004	5,234
Mexican pesos ........................................................................................................................	5,991	5,393
Indian rupees ...........................................................................................................................	4,754	3,836
Canadian dollars ......................................................................................................................	4,012	3,620
Swiss francs .............................................................................................................................	3,357	2,910
Hong Kong dollars ..................................................................................................................	2,659	3,842
UAE dirhams ..........................................................................................................................	2,469	2,209
Turkish lira .............................................................................................................................	1,854	1,741
Malaysian ringgit ....................................................................................................................	1,619	1,300
Korean won ............................................................................................................................	1,456	1,412
Taiwanese dollars ....................................................................................................................	1,429	547
Australian dollars ....................................................................................................................	1,381	1,017
Indonesian rupiah ....................................................................................................................	1,190	1,057
Saudi riyals ..............................................................................................................................	907	657
Argentine pesos ......................................................................................................................	881	675
Egyptian pounds .....................................................................................................................	642	561
Philippine pesos ......................................................................................................................	635	473
Vietnamese dong .....................................................................................................................	621	505
Singapore dollars .....................................................................................................................	596	556
Qatari rial ...............................................................................................................................	510	384
Thai baht ................................................................................................................................	424	357
Costa Rican colon ...................................................................................................................	416	375
Honduran lempira ...................................................................................................................	291	282
Japanese yen ...........................................................................................................................	267	228
Colombian pesos .....................................................................................................................	266	220
Russian rouble .........................................................................................................................	257	295
Chilean pesos ..........................................................................................................................	249	230
South African rand ..................................................................................................................	238	201
Omani rial ...............................................................................................................................	234	210
Brunei dollars ..........................................................................................................................	227	132
Jordanian dinar ........................................................................................................................	181	159
New Zealand dollars ................................................................................................................	172	161
Algerian dinar .........................................................................................................................	155	146
Sri Lankan rupee .....................................................................................................................	136	141
Bahraini dinar .........................................................................................................................	133	85
Kazakh tenge ..........................................................................................................................	109	64
Others, each less than US$100m .............................................................................................	658	523

Total ......................................................................................................................................	111,303	101,789

Shareholders' equity would decrease by US$2,213m (2009: US$2,222m) if euro and sterling foreign currency exchange rates weakened by 5% relative to the US dollar.

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

Financial assets pledged to secure liabilities

	Assets pledged at 31 December
	2010	2009
	US$m	US$m

Treasury bills and other eligible securities ................................................................................	5,859	3,970
Loans and advances to banks ...................................................................................................	11,773	6,767
Loans and advances to customers ............................................................................................	60,500	77,699
Debt securities .........................................................................................................................	214,126	203,766
Equity shares ...........................................................................................................................	7,216	7,305
Other ......................................................................................................................................	931	646

	300,405	300,153

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$333,921m (2009: US$362,560m). The fair value of any such collateral that has been sold or repledged was US$205,470m (2009: US$215,940m). 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.

38 Non-controlling interests

	2010	2009
	US$m	US$m

Non-controlling interests attributable to holders of ordinary shares in subsidiaries ...................	4,522	4,665
Preference shares issued by subsidiaries ....................................................................................	2,726	2,697

	7,248	7,362

Preference shares issued by subsidiaries

		2010	2009
		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 ...............	251	238
CAD175m	Non-cumulative redeemable class 1 preferred shares, Series C5 .......................	175	167
CAD175m	Non-cumulative class 1 preferred shares, Series D5 .........................................	175	167
US$150m	Depositary shares each representing 25% interest in a share ofadjustable-rate cumulative preferred stock, Series D6 ..................................	150	150
US$150m	Cumulative preferred stock7 ...........................................................................	150	150

		2,726	2,697

1 The Series B preferred stock has been 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 has been redeemable at par at the option of HSBC USA, Inc., in whole or in part, on any dividend payment date from 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 commencing 30 June 2014 and on 30 June every five years thereafter.

5 The Series C and Series D preferred shares have been 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.

39 Called up share capital and other equity instruments

Issued and fully paid

	2010	2009
	US$m	US$m

HSBC Holdings ordinary shares1 ..............................................................................................	8,843	8,705

	Number	US$m
HSBC Holdings ordinary shares of US$0.50 each
At 1 January 2010 ..................................................................................................................	17,408,206,768	8,705
Shares issued under HSBC employee share plans ......................................................................	25,001,734	12
Shares issued in lieu of dividends ..............................................................................................	252,947,400	126

At 31 December 2010 .............................................................................................................	17,686,155,902	8,843

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 issue ......................................................................................	5,060,239,065	2,530

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

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

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

At 1 January 2010 and 31 December 2010 ..............................................................................	1,450,000	-

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

Dividends on the HSBC Holdings non-cumulative dollar preference shares ('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 Dollar 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 Dollar 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 Dollar Preference Shares in issue nor redeem nor purchase in any manner any of its other shares ranking equal with or lower than the Dollar 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 Dollar Preference Shares in issue for the then-current dividend period. The Dollar Preference Shares in issue carry no rights to conversion into ordinary shares of HSBC Holdings. Holders of the Dollar 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 Dollar Preference Shares in issue has not been paid in full for four consecutive dividend payment dates. In such circumstances, holders of the Dollar 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 Dollar Preference Shares in issue. HSBC Holdings may redeem the Dollar 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-cumulative preference shares of £0.01 each

On 29 December 2010 HSBC Holdings issued one non-cumulative sterling preference share of £0.01 ('Sterling Preference Share') to facilitate the cancellation of the non-voting deferred shares and comply with the provisions of the Companies (Authorised Minimum) Regulations 2009. Dividends on the Sterling Preference Share in issue are paid quarterly at the sole and absolute discretion of the Board. The Sterling Preference Share in issue carries no rights to conversion into ordinary shares of HSBC Holdings and no rights to attend and vote at general meetings of shareholders of HSBC Holdings. HSBC Holdings may redeem the Sterling Preference Share in issue in whole at any time at the option of the Company.

HSBC Holdings non-voting deferred shares

301,500 non-voting deferred shares of £1 each were in issue throughout 2009 and up to 29 December 2010 and were held by a subsidiary of HSBC Holdings. As part of a technical internal capital reorganisation necessitated by the amended EU Capital Requirements Directive 2, which applied to HSBC Holdings from 31 December 2010, all of the non-voting deferred shares of £1 each were cancelled.

Other equity instruments

On 9 April 2008, HSBC Holdings issued, in bearer form, 88m 8.125% Perpetual Subordinated Capital Securities ('Capital Securities'), each with a par value of US$25 and with an aggregate nominal value of US$2,200m. The Capital Securities were issued at par value, raising US$2,133m, 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 and sterling preference shares in issue. 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.

During June 2010, HSBC Holdings issued, in bearer form, 152m 8.00% of Perpetual Subordinated Capital Securities, Series 2 ('Capital Securities, Series 2'), each with a par value of US$25 and with an aggregate nominal value of US$3,800m. The Capital Securities, Series 2 were issued at par value, raising US$3,718m, net of issuance costs. These securities were issued on substantially the same terms as the Capital Securities issued in 2008. Coupon payments on the Capital Securities, Series 2 are paid quarterly in arrears from 15 September 2010 and may be deferred at the discretion of HSBC Holdings. The Capital Securities, Series 2 have no fixed maturity and are redeemable at HSBC's option on or after 15 December 2015 at their principal amounts together with any accrued, unpaid and deferred coupon payments. At the Company's discretion, and subject to certain conditions being satisfied, the Capital Securities, Series 2 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 and sterling preference shares in issue. 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 9.

Aggregate options outstanding under these plans

	Number of HSBC Holdings ordinary shares	Period of exercise	Exercise price

31 December 2010 .........................................	249,242,968	2011 to 2016	£3.3116 - 8.4024
	47,428,892	2011 to 2016	HK$37.8797 - 94.5057
	3,128,508	2011 to 2016	€3.6361 - 9.5912
	10,899,415	2011 to 2016	US$4.8876 - 12.0958

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

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 were exchangeable for HSBC Holdings ordinary shares at the ratio of 14.917916 HSBC Holdings ordinary shares for each HSBC France.

During 2010, no employee share options (2009: nil) were exercised and no HSBC France shares were issued and exchanged for HSBC Holdings ordinary shares (2009: nil). During 2010, 604,250 options over HSBC France shares lapsed (2009: 183,627). At 31 December 2010, there are no employee share options outstanding and the HSBC Holdings Employee Benefit Trust 2001 (No. 1) held no (2009: 9,963,718) HSBC Holdings ordinary shares to exchange for HSBC France shares arising from the exercise of options.

HSBC France options effectively outstanding over HSBC Holdings ordinary shares

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

31 December 2010 ...............................................	-	-	-
31 December 2009 .................................................	604,250	2010	€142.50
31 December 2008 .................................................	787,877	2009 to 2010	€81.71 - 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 at the ratio of 2.099984 HSBC Holdings ordinary shares for each HSBC Private Bank France share. During 2010, 4,420 (2009: 33,456) HSBC Private Bank France shares were issued following the exercise of employee share options and exchanged for 9,281 (2009: 70,248) HSBC Holdings ordinary shares, such shares being delivered from The CCF Employee Benefit Trust 2001 (Private Banking France). During 2010, no options over HSBC Private Bank France shares lapsed (2009: 9,000). At 31 December 2010, The CCF Employee Benefit Trust 2001 (Private Banking France) held 989,502 (2009: 998,783) 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

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

31 December 2010 ...............................................	287,100	2011 to 2012	€20.80 - 22.22
31 December 2009 .................................................	291,520	2010 to 2012	€12.44 - 22.22
31 December 2008 .................................................	333,976	2009 to 2012	€10.84 - 22.22

HSBC Finance plan

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 2010, 306,964 options (2009: 20,000) over HSBC Holdings ordinary shares were exercised and 306,964 (2009: 20,000) HSBC Holdings ordinary shares delivered from The HSBC (Household) Employee Benefit Trust 2003 to satisfy the exercise of these options. During 2010, options over 6,681,169 (2009: 5,606,714) HSBC Holdings ordinary shares lapsed. At 31 December 2010, the Trust held a total of 2,335,315 (2009: 2,642,279) HSBC Holdings ordinary shares and 1,455 (2009: 1,455) 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 outstanding over HSBC Holdings ordinary shares under the HSBC Finance share plan

	Number of HSBC Holdings ordinary shares	Period of exercise	Exercise price

31 December 2010 ...............................................	11,117,826	2011 to 2012	US$9.29 - 18.62
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

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

HSBC Bank Bermuda plans

Following the acquisition of HSBC Bank Bermuda in 2004, all outstanding employee share options over HSBC Bank Bermuda shares were converted into rights to receive HSBC Holdings ordinary shares based on the consideration of US$40 for each HSBC Bank 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 2010, options over 4,781 HSBC Holdings ordinary shares were exercised (2009: 18,153) and satisfied by delivery from the HSBC (Bank of Bermuda) Employee Benefit Trust 2004. During 2010, options over 137,888 (2009: 24,673) HSBC Holdings ordinary shares lapsed. At 31 December 2010, the HSBC (Bank of Bermuda) Employee Benefit Trust 2004 held 2,108,830 (2009: 2,113,611) HSBC Holdings ordinary shares which may be used to satisfy the exercise of options.

Options outstanding over HSBC Holdings ordinary shares under the HSBC Bank Bermuda share plan

	Number of HSBC Holdings ordinary shares	Period of exercise	Exercise price

31 December 2010 ...............................................	2,339,033	2011 to 2013	US$9.32 - 15.99
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

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 2010, 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 Share Plan, was 558,187,326 (2009: 559,960,290). The total number of shares at 31 December 2010 held by employee benefit trusts that may be used to satisfy such obligations to deliver HSBC Holdings ordinary shares was 79,541,700 (2009: 134,903,061).

40 Notes on the statement of cash flows

Non-cash items included in profit before tax

	HSBC			HSBC Holdings
	2010	2009	2008	2010	2009
	US$m	US$m	US$m	US$m	US$m

Depreciation, amortisation and impairment ............	2,801	2,538	13,367	2	5,947
Gains arising from dilution of interests in associates	(188)	-	-	-	-
Revaluations on investment property ......................	(93)	24	92	-	-
Share-based payment expense ..................................	812	683	819	28	21
Loan impairment losses gross of recoveries andother credit risk provisions ..................................	15,059	27,378	25,771	-	-
Provisions ...............................................................	680	669	591	-	-
Impairment of financial investments .......................	105	358	1,042	113	-
Charge for defined benefit plans ..............................	526	192	490	-	-
Accretion of discounts and amortisation of premiums .............................................................................	(815)	(458)	(867)	42	6

	18,887	31,384	41,305	185	5,974

Change in operating assets

	HSBC			HSBC Holdings
	2010	2009	2008	2010	2009
	US$m	US$m	US$m	US$m	US$m

Change in loans to HSBC undertakings ....................	-	-	-	1,974	(11,408)
Change in prepayments and accrued income ............	457	3,198	4,178	(5)	(44)
Change in net trading securities and net derivatives .	60,337	15,388	(23,293)	1,119	354
Change in loans and advances to banks ....................	5,213	(30,354)	22,596	-	-
Change in loans and advances to customers .............	(79,283)	6,149	7,279	-	-
Change in financial assets designated at fair value ....	154	(8,911)	12,757	-	-
Change in other assets .............................................	(145)	(6,273)	(5,394)	3	21

	(13,267)	(20,803)	18,123	3,091	(11,077)

Change in operating liabilities

	HSBC			HSBC Holdings
	2010	2009	2008	2010	2009
	US$m	US$m	US$m	US$m	US$m

Change in accruals and deferred income ...................	716	(2,258)	(6,169)	147	131
Change in deposits by banks ....................................	(14,288)	(5,216)	(3,038)	-	-
Change in customer accounts ...................................	68,691	41,983	32,372	-	-
Change in debt securities in issue ..............................	(1,495)	(32,797)	(67,152)	(171)	21
Change in financial liabilities designated at fair value .............................................................................	5,659	7,430	(15,352)	(621)	2,411
Change in other liabilities ........................................	(17,011)	5,503	(4,074)	(1,109)	(523)

	42,272	14,645	(63,413)	(1,754)	2,040

Cash and cash equivalents

	HSBC			HSBC Holdings
	2010	2009	2008	2010	2009
	US$m	US$m	US$m	US$m	US$m

Cash at bank with HSBC undertakings ......................		-	-	459	224
Cash and balances at central banks ...........................	57,383	60,655	52,396	-	-
Items in the course of collection from other banks ..	6,072	6,395	6,003	-	-
Loans and advances to banks of one month or less ..	189,197	160,673	165,066	-	-
Treasury bills, other bills and certificates of depositless than three months .........................................	28,087	28,777	62,639	-	-
Less: items in the course of transmission toother banks ..........................................................	(6,663)	(5,734)	(7,232)	-	-

	274,076	250,766	278,872	459	224

Interest and dividends

	HSBC			HSBC Holdings
	2010	2009	2008	2010	2009
	US$m	US$m	US$m	US$m	US$m

Interest paid ............................................................	(21,405)	(29,030)	(60,342)	(2,363)	(2,513)
Interest received ......................................................	63,696	74,062	107,019	1,405	1,560
Dividends received ...................................................	563	1,023	1,876	7,008	7,488

The amount of cash and cash equivalents not available for use by HSBC at 31 December 2010 was US$37,413m (2009: US$19,119m), of which US$28,780m (2009: US$11,595m) related to mandatory deposits at central banks.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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