30th Mar 2011 16:19
Consolidated balance sheet
Five-year summary consolidated balance sheet and selected financial information
At 31 December | |||||||||
2010US$m | 2009US$m | 2008US$m | 2007US$m | 2006US$m | |||||
ASSETS | |||||||||
Cash and balances at central banks .................................... | 57,383 | 60,655 | 52,396 | 21,765 | 12,732 | ||||
Trading assets ................................................................... | 385,052 | 421,381 | 427,329 | 445,968 | 328,147 | ||||
Financial assets designated at fair value ............................. | 37,011 | 37,181 | 28,533 | 41,564 | 20,573 | ||||
Derivatives ....................................................................... | 260,757 | 250,886 | 494,876 | 187,854 | 103,702 | ||||
Loans and advances to banks ............................................ | 208,271 | 179,781 | 153,766 | 237,366 | 185,205 | ||||
Loans and advances to customers35 ................................... | 958,366 | 896,231 | 932,868 | 981,548 | 868,133 | ||||
Financial investments ....................................................... | 400,755 | 369,158 | 300,235 | 283,000 | 204,806 | ||||
Other assets ...................................................................... | 147,094 | 149,179 | 137,462 | 155,201 | 137,460 | ||||
Total assets ...................................................................... | 2,454,689 | 2,364,452 | 2,527,465 | 2,354,266 |
1,860,758 | ||||
LIABILITIES AND EQUITY | |||||||||
Liabilities | |||||||||
Deposits by banks ............................................................. | 110,584 | 124,872 | 130,084 | 132,181 | 99,694 | ||||
Customer accounts ............................................................ | 1,227,725 | 1,159,034 | 1,115,327 | 1,096,140 | 896,834 | ||||
Trading liabilities .............................................................. | 300,703 | 268,130 | 247,652 | 314,580 | 226,608 | ||||
Financial liabilities designated at fair value ........................ | 88,133 | 80,092 | 74,587 | 89,939 | 70,211 | ||||
Derivatives ....................................................................... | 258,665 | 247,646 | 487,060 | 183,393 | 101,478 | ||||
Debt securities in issue ...................................................... | 145,401 | 146,896 | 179,693 | 246,579 | 230,325 | ||||
Liabilities under insurance contracts .................................. | 58,609 | 53,707 | 43,683 | 42,606 | 17,670 | ||||
Other liabilities ................................................................. | 109,954 | 148,414 | 149,150 | 113,432 | 103,010 | ||||
Total liabilities ................................................................. | 2,299,774 | 2,228,791 | 2,427,236 | 2,218,850 | 1,745,830 | ||||
Equity | |||||||||
Total shareholders' equity ................................................ | 147,667 | 128,299 | 93,591 | 128,160 | 108,352 | ||||
Non-controlling interests .................................................. | 7,248 | 7,362 | 6,638 | 7,256 | 6,576 | ||||
Total equity ...................................................................... | 154,915 | 135,661 | 100,229 | 135,416 | 114,928 | ||||
Total equity and liabilities ................................................. | 2,454,689 | 2,364,452 | 2,527,465 | 2,354,266 | 1,860,758 | ||||
Five-year selected financial information | |||||||||
Called up share capital ...................................................... | 8,843 | 8,705 | 6,053 | 5,915 | 5,786 | ||||
Capital resources36,37 ......................................................... | 167,555 | 155,729 | 131,460 | 152,640 | 127,074 | ||||
Undated subordinated loan capital ..................................... | 2,781 | 2,785 | 2,843 | 2,922 | 3,219 | ||||
Preferred securities and dated subordinated loan capital38 .. | 54,421 | 52,126 | 50,307 | 49,472 | 42,642 | ||||
Risk weighted assets and capital ratios36 | |||||||||
Risk weighted assets .......................................................... | 1,103,113 | 1,133,168 | 1,147,974 | 1,123,782 | 938,678 | ||||
% | % | % | % | % | |||||
Tier 1 ratio ....................................................................... | 12.1 | 10.8 | 8.3 | 9.3 | 9.4 | ||||
Total capital ratio ............................................................ | 15.2 | 13.7 | 11.4 | 13.6 | 13.5 | ||||
Financial statistics | |||||||||
Loans and advances to customers as a percentage ofcustomer accounts ......................................................... | 78.1 | 77.3 | 83.6 | 89.5 | 96.8 | ||||
Average total shareholders' equity to average total assets . | 5.53 | 4.72 | 4.87 | 5.69 | 5.97 | ||||
Net asset value per ordinary share at year-end39 (US$) ...... | 7.94 | 7.17 | 7.44 | 10.72 | 9.24 | ||||
Number of US$0.50 ordinary shares in issue (millions) ...... | 17,686 | 17,408 | 12,105 | 11,829 | 11,572 | ||||
Closing foreign exchange translation rates to US$: | |||||||||
US$1: £ ............................................................................ | 0.644 | 0.616 | 0.686 | 0.498 | 0.509 | ||||
US$1: € ............................................................................ | 0.748 | 0.694 | 0.717 | 0.679 | 0.759 | ||||
For footnotes, see page 83.
A more detailed consolidated balance sheet is contained in the Financial Statements on page 240.
Movement in 2010
Total assets amounted to US$2.5 trillion, 4% higher than at 31 December 2009. Excluding the effect of currency movements, underlying total assets increased by 5%. This reflected higher mortgage lending in Hong Kong and the UK, strong demand for commercial loans and a rise in trading assets in North America and Asia as a result of customer demand, supported by improved liquidity generated by higher deposits and our debt issuance programme.
The Group's reported tier 1 ratio increased from 10.8% to 12.1% due to the contribution from profits attributable to shareholders for the year net of dividends paid, the issue of hybrid capital securities net of redemptions, and a reduction in the reported level of risk-weighted assets ('RWA's). The latter was driven by a decline in some retail portfolio exposures in North America as a result of run-off, partly offset by the effect of lending growth in Asia. Market risk RWAs decreased as a result of reduced volatility and continuing exposure management. For more details of capital and RWAs, see page 177.
The following commentary is on an underlying basis.
Assets
Cash and balances at central banks decreased by 4% as a result of lower year-end cash balances in North America as excess liquidity was redeployed into highly-rated government debt securities. This was partly offset by higher year-end cash balances in Europe.
Trading assets fell by 6%, due to the deconsolidation of the Constant Net Asset Value ('CNAV') funds totalling US$44bn (see Note 43 on the Financial Statements). This was offset, in part, by higher issuance of and customer demand for government and government agency debt securities, particularly in North America and Asia, and an increase in holdings of equities to hedge derivative positions arising from a rise in client trading activity. Higher customer-driven trading volumes also resulted in an increase in reverse repo balances in North America; this was partly offset by a reduction in reverse repo balances in Europe due to market uncertainty.
Strong increase in loans and advances to customers and customer accounts, notably in Asia, drove balance sheet growth.
Financial assets designated at fair value grew by 3% due to an increase in volumes in equity funds and a rise in the fair value of equity securities held within the insurance business, particularly in Europe and Hong Kong, as market values recovered and client risk appetite returned. This was partly offset by the sale of European government debt securities by Balance Sheet Management.
Derivative assets rose by 8%. This was driven by increases in the fair value of interest rate contracts as a result of downward shifts of major yield curves, offset by higher netting from increased trading with clearing houses. The notional value of outstanding contracts also rose, reflecting an increase in the number of open transactions compared with 2009.
Loans and advances to banks increased by 16% due to higher placements with commercial and central banks in Europe and Latin America.
Loans and advances to customers grew by 8% as we targeted commercial loans and, in the improved economic conditions, demand grew from customers, notably in Asia. The increase in demand for credit, along with competitive pricing, also drove continued growth in mortgage lending in Hong Kong and the UK, though mortgage balances declined in North America as the Consumer Lending and Mortgage Services portfolios continued to run off and credit card lending fell.
Financial investments rose by 9%, mainly in North America and Europe, as Balance Sheet Management redeployed cash into available-for-sale treasury bills and government agency debt securities. This was partly offset by a decline in financial investments in Asia, as a result of disposals and debt securities that matured and were not replaced to support growth in commercial lending.
Liabilities
Deposits by banks decreased by 8%, reflecting a notable decline in central bank deposits in Europe which was partly offset by an increase in central bank deposits in Asia.
Customer accounts were 7% higher, driven by an overall increase in savings and current accounts across most regions, particularly in Asia and Europe. Growth in Premier and online savings contributed to a significant increase in current account balances as customers responded well to targeted promotional campaigns.
Trading liabilities increased by 16%. Higher repo balances in North America were reported as a result of increased trading volumes of treasury and corporate bonds driven by market volatility in the bond market. In Europe, short bond and equity positions used to hedge derivative transactions increased, reflecting higher client demand.
Financial liabilities designated at fair value rose by 12% due to debt issuances by HSBC entities in Europe during 2010.
Derivative businesses are managed within market risk limits and, as a consequence, the increase in the value of derivative liabilities broadly matched that of derivative assets.
Debt securities in issue were in line with 2009, as new issuances of medium-term notes by HSBC entities in Europe during 2010 were offset by lower funding requirements in North America as the consumer finance portfolios in run-off declined.
Liabilities under insurance contracts grew by 12%. This was driven by strong life insurance sales in Hong Kong following the launch of several new products, and gains on unit-linked products as investment market values improved.
Other liabilities were 26% lower than at 31 December 2009 due to the deconsolidation of the CNAV funds (see 'Trading assets' above).
Equity
Total shareholders' equity increased by 17%, driven by profits generated during the year and the issue of Perpetual Subordinated Capital Securities, a form of tier 1 hybrid capital securities, in June 2010. In addition, the negative balance on the available-for‑sale reserve declined from US$10.0bn at 31 December 2009 to US$4.1bn at 31 December 2010, largely reflecting improvements in the market value of assets.
Reconciliation of reported and underlying assets and liabilities
31 December 2010 compared with 31 December 2009 | |||||||||||||
31 Dec 09 as reported |
| Currency Translation40 |
| 31 Dec 09 at 31 Dec 10 exchange rates |
| Under- lying change |
| 31 Dec 10 as reported |
| Reported change |
| Under- lying change | |
HSBC | US$m | US$m | US$m | US$m | US$m |
| % |
| % | ||||
Cash and balances atcentral banks ..... | 60,655 | (731) | 59,924 | (2,541) | 57,383 | (5) | (4) | ||||||
Trading assets ....... | 421,381 | (12,483) | 408,898 | (23,846) | 385,052 | (9) | (6) | ||||||
Financial assets designatedat fair value ....... | 37,181 | (1,134) | 36,047 | 964 | 37,011 | - | 3 | ||||||
Derivative assets ... | 250,886 | (9,285) | 241,601 | 19,156 | 260,757 | 4 | 8 | ||||||
Loans and advances to banks ............ | 179,781 | (5) | 179,776 | 28,495 | 208,271 | 16 | 16 | ||||||
Loans and advances tocustomers .......... | 896,231 | (10,788) | 885,443 | 72,923 | 958,366 | 7 | 8 | ||||||
Financial investments ....... | 369,158 | (268) | 368,890 | 31,865 | 400,755 | 9 | 9 | ||||||
Other assets .......... | 149,179 | (1,826) | 147,353 | (259) | 147,094 | (1) | - | ||||||
Total assets ........... | 2,364,452 | (36,520) | 2,327,932 | 126,757 | 2,454,689 | 4 | 5 | ||||||
Deposits by banks . | 124,872 | (4,182) | 120,690 | (10,106) | 110,584 | (11) | (8) | ||||||
Customer accounts | 1,159,034 | (8,064) | 1,150,970 | 76,755 | 1,227,725 | 6 | 7 | ||||||
Trading liabilities .. | 268,130 | (8,660) | 259,470 | 41,233 | 300,703 | 12 | 16 | ||||||
Financial liabilities designatedat fair value ....... | 80,092 | (1,570) | 78,522 | 9,611 | 88,133 | 10 | 12 | ||||||
Derivative liabilities .......................... | 247,646 | (9,262) | 238,384 | 20,281 | 258,665 | 4 | 9 | ||||||
Debt securities in issue .................. | 146,896 | (1,066) | 145,830 | (429) | 145,401 | (1) | - | ||||||
Liabilities under insurancecontracts ........... | 53,707 | (1,593) | 52,114 | 6,495 | 58,609 | 9 | 12 | ||||||
Other liabilities ..... | 148,414 | (431) | 147,983 | (38,029) | 109,954 | (26) | (26) | ||||||
Total liabilities ...... | 2,228,791 | (34,828) | 2,193,963 | 105,811 | 2,299,774 | 3 | 5 | ||||||
Total shareholders' equity ................ | 128,299 | (1,679) | 126,620 | 21,047 | 147,667 | 15 | 17 | ||||||
Non-controlling interests ............ | 7,362 | (13) | 7,349 | (101) | 7,248 | (2) | (1) | ||||||
Total equity .......... | 135,661 | (1,692) | 133,969 | 20,946 | 154,915 | 14 | 16 | ||||||
Total equity and liabilities ............ | 2,364,452 | (36,520) | 2,327,932 | 126,757 | 2,454,689 | 4 | 5 | ||||||
For footnote, see page 83.
In 2010, the effect of acquisitions was not material.
Economic profit
Our internal performance measures include economic profit/(loss), a calculation which compares the return on financial capital invested in HSBC by our shareholders with the cost of that capital. We price our cost of capital internally and the difference between that cost and the post-tax profit attributable to ordinary shareholders represents the amount of economic profit/(loss) generated. Economic profit/(loss) generated is used by management as one input in deciding where to allocate capital and other resources.
In order to concentrate on external factors rather than measurement bases, we emphasise the trend in economic profit/(loss) ahead of absolute amounts within business units. Our long-term cost of capital is reviewed annually and for 2010 it was revised to 11% from the 10% used in 2009. We use a Capital Asset Pricing Model to determine our cost of capital. The main drivers of the increase were an increase in the risk free rate and an increase in the betas used in the calculation. The following commentary is on a reported basis.
Our economic loss decreased by US$4.7bn to US$3.3bn as a result of an increase in profit attributable to shareholders. This was predominantly driven by lower loan impairment charges across all regions and customer groups, notably in the US due to lower balances and decreased delinquency rates in Card and Retail Services, and the run-off of the Consumer Lending and mortgage services portfolio.
The increase in average invested capital reflected higher retained earnings and a significant decrease in reserves representing unrealised losses on available-for-sale securities due to a slowing in the rate of anticipated losses in the underlying collateral pools.
The return on invested capital increased by 4.6 percentage points, although it remained below our benchmark cost of capital. The economic spread improved by 3.6 percentage points, the result of an increase in return on invested capital, partly offset by the rise in the cost of capital in 2010.
2010 | 2009 | ||||||
US$m | %41 | US$m | %40 | ||||
Average total shareholders' equity ............................................................ | 138,224 | 115,431 |
| ||||
Adjusted by: | |||||||
Goodwill previously amortised or written off ......................................... | 8,123 | 8,123 | |||||
Property revaluation reserves ............................................................... | (813) | (799) | |||||
Reserves representing unrealised losses on effective cash flow hedges .... | 100 | 385 | |||||
Reserves representing unrealised losses on available-for-sale securities ... | 6,129 | 16,189 | |||||
Preference shares and other equity instruments ..................................... | (5,473) | (3,538) | |||||
Average invested capital42 ......................................................................... | 146,290 | 135,791 | |||||
Return on invested capital43 ...................................................................... | 12,746 | 8.7 | 5,565 | 4.1 | |||
Benchmark cost of capital ........................................................................ | (16,092) | (11.0) | (13,579) | (10.0) | |||
Economic loss and spread ......................................................................... | (3,346) | (2.3) | (8,014) | (5.9) | |||
For footnotes, see page 83.
Related Shares:
HSBC Holdings