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Annual Financial Report - 6 of 7

8th Mar 2017 16:20

RNS Number : 9111Y
HSBC Holdings PLC
08 March 2017
 
Financial Statements
 
 
 
 
Page
Consolidated income statement
184
Consolidated statement of comprehensive income
185
Consolidated balance sheet
186
Consolidated statement of cash flows
187
Consolidated statement of changes in equity
188
HSBC Holdings income statement
190
HSBC Holdings statement of comprehensive income
190
HSBC Holdings balance sheet
191
HSBC Holdings statement of cash flows
192
HSBC Holdings statement of changes in equity
193
 
 
Notes on the Financial
Statements
 
 
 
1
Basis of preparation and significant accounting policies
194
2
Net income/(expense) from financial instruments designated at fair value
203
3
Insurance business
204
4
Operating profit
206
5
Employee compensation and benefits
206
6
Auditors' remuneration
212
7
Tax
213
8
Dividends
215
9
Earnings per share
216
10
Trading assets
216
11
Fair values of financial instruments carried at fair value
217
 
12
Fair values of financial instruments not carried at fair value
224
13
Financial assets designated at fair value
226
14
Derivatives
226
15
Financial investments
229
16
Assets pledged, collateral received and assets transferred
230
17
Interests in associates and joint ventures
231
18
Investments in subsidiaries
235
19
Structured entities
236
20
Goodwill and intangible assets
238
21
Prepayments, accrued income and other assets
241
22
Assets held for sale and liabilities of disposal groups held for sale
241
23
Trading liabilities
242
24
Financial liabilities designated at fair value
242
25
Debt securities in issue
242
26
Accruals, deferred income and other liabilities
243
27
Provisions
243
28
Subordinated liabilities
244
29
Maturity analysis of assets, liabilities and off-balance sheet commitments
247
30
Offsetting of financial assets and financial liabilities
252
31
Non-controlling interests
253
32
Called up share capital and other equity instruments
253
33
Contingent liabilities, contractual commitments
and guarantees
255
34
Lease commitments
256
35
Legal proceedings and regulatory matters
256
36
Related party transactions
262
37
Events after the balance sheet date
264
38
HSBC Holdings' subsidiaries, joint ventures and associates
265
HSBC Holdings plc Annual Report and Accounts 2016
183
Financial Statements
Consolidated income statement
for the year ended 31 December
 
 
2016
2015
2014
 
Notes
$m
$m
$m
Net interest income
 
29,813
32,531
34,705
- interest income
 
42,414
47,189
50,955
- interest expense
 
(12,601
)
(14,658
)
(16,250
)
Net fee income
 
12,777
14,705
15,957
- fee income
 
15,669
18,016
19,545
- fee expense
 
(2,892
)
(3,311
)
(3,588
)
Net trading income
 
9,452
8,723
6,760
- trading income excluding net interest income
 
8,066
6,948
4,853
- net interest income on trading activities
 
1,386
1,775
1,907
Net income/(expense) from financial instruments designated at fair value
2
(2,666
)
1,532
2,473
- changes in fair value of long-term debt and related derivatives
 
(3,975
)
863
508
- net income from other financial instruments designated at fair value
 
1,309
669
1,965
Gains less losses from financial investments
 
1,385
2,068
1,335
Dividend income
 
95
123
311
Net insurance premium income
3
9,951
10,355
11,921
Other operating income/(expense)
 
(971
)
1,055
1,131
Total operating income
 
59,836
71,092
74,593
Net insurance claims and benefits paid and movement in liabilities to policyholders
3
(11,870
)
(11,292
)
(13,345
)
Net operating income before loan impairment charges and other credit risk provisions
 
47,966
59,800
61,248
Loan impairment charges and other credit risk provisions
4
(3,400
)
(3,721
)
(3,851
)
Net operating income
 
44,566
56,079
57,397
Employee compensation and benefits
5
(18,089
)
(19,900
)
(20,366
)
General and administrative expenses
 
(16,473
)
(17,662
)
(18,565
)
Depreciation and impairment of property, plant and equipment
 
(1,229
)
(1,269
)
(1,382
)
Amortisation and impairment of intangible assets
 
(777
)
(937
)
(936
)
Goodwill impairment of Global Private Banking - Europe
20
(3,240
)
-
-
Total operating expenses
 
(39,808
)
(39,768
)
(41,249
)
Operating profit
4
4,758
16,311
16,148
Share of profit in associates and joint ventures
17
2,354
2,556
2,532
Profit before tax
 
7,112
18,867
18,680
Tax expense
7
(3,666
)
(3,771
)
(3,975
)
Profit for the year
 
3,446
15,096
14,705
Attributable to:
 
 
 
 
- ordinary shareholders of the parent company
 
1,299
12,572
13,115
- preference shareholders of the parent company
8
90
90
90
- other equity holders
8
1,090
860
483
- non-controlling interests
 
967
1,574
1,017
Profit for the year
 
3,446
15,096
14,705
 
 
$
$
$
Basic earnings per ordinary share
9
0.07
0.65
0.69
Diluted earnings per ordinary share
9
0.07
0.64
0.69
184
HSBC Holdings plc Annual Report and Accounts 2016
Consolidated statement of comprehensive income
for the year ended 31 December
 
2016
2015
2014
 
$m
$m
$m
Profit for the year
3,446
15,096
14,705
Other comprehensive income/(expense)
 
 
 
Items that will be reclassified subsequently to profit or loss when specific conditions are met:
 
 
 
Available-for-sale investments
(299
)
(3,072
)
2,972
- fair value gains/(losses)
475
(1,231
)
4,794
- fair value gains reclassified to the income statement
(895
)
(2,437
)
(1,672
)
- amounts reclassified to the income statement in respect of impairment losses
71
127
374
- income taxes
50
469
(524
)
Cash flow hedges
(68
)
(24
)
188
- fair value (losses)/gains
(297
)
704
1,512
- fair value losses/(gains) reclassified to the income statement
195
(705
)
(1,244
)
- income taxes
34
(23
)
(80
)
Share of other comprehensive income/(expense) of associates and joint ventures
54
(9
)
80
- share for the year
54
(9
)
78
- reclassified to income statement on disposal
-
-
2
Exchange differences
(8,092
)
(10,945
)
(8,903
)
- foreign exchange gains reclassified to income statement on disposal of a foreign operation
1,894
-
(21
)
- other exchange differences
(9,791
)
(11,112
)
(8,917
)
- income tax attributable to exchange differences
(195
)
167
35
Items that will not be reclassified subsequently to profit or loss:
 
 
 
Remeasurement of defined benefit asset/liability
7
101
1,985
- before income taxes
(84
)
130
2,419
- income taxes
91
(29
)
(434
)
Other comprehensive income for the year, net of tax
(8,398
)
(13,949
)
(3,678
)
Total comprehensive income for the year
(4,952
)
1,147
11,027
Attributable to:
 
 
 
- ordinary shareholders of the parent company
(6,968
)
(490
)
8,672
- preference shareholders of the parent company
90
90
90
- other equity holders
1,090
860
483
- non-controlling interests
836
687
1,782
Total comprehensive income for the year
(4,952
)
1,147
11,027
HSBC Holdings plc Annual Report and Accounts 2016
185
Financial Statements
Consolidated balance sheet
at 31 December
 
 
2016
2015
 
Notes
$m
$m
Assets
 
 
 
Cash and balances at central banks
 
128,009
98,934
Items in the course of collection from other banks
 
5,003
5,768
Hong Kong Government certificates of indebtedness
 
31,228
28,410
Trading assets
10
235,125
224,837
Financial assets designated at fair value
13
24,756
23,852
Derivatives
14
290,872
288,476
Loans and advances to banks
 
88,126
90,401
Loans and advances to customers
 
861,504
924,454
Reverse repurchase agreements - non-trading
 
160,974
146,255
Financial investments
15
436,797
428,955
Assets held for sale
22
4,389
43,900
Prepayments, accrued income and other assets
21
59,520
54,398
Current tax assets
 
1,145
1,221
Interests in associates and joint ventures
17
20,029
19,139
Goodwill and intangible assets
20
21,346
24,605
Deferred tax assets
7
6,163
6,051
Total assets at 31 Dec
 
2,374,986
2,409,656
Liabilities and equity
 
 
 
Liabilities
 
 
 
Hong Kong currency notes in circulation
 
31,228
28,410
Deposits by banks
 
59,939
54,371
Customer accounts
 
1,272,386
1,289,586
Repurchase agreements - non-trading
 
88,958
80,400
Items in the course of transmission to other banks
 
5,977
5,638
Trading liabilities
23
153,691
141,614
Financial liabilities designated at fair value
24
86,832
66,408
Derivatives
14
279,819
281,071
Debt securities in issue
25
65,915
88,949
Liabilities of disposal groups held for sale
22
2,790
36,840
Accruals, deferred income and other liabilities
26
41,501
38,116
Current tax liabilities
 
719
783
Liabilities under insurance contracts
3
75,273
69,938
Provisions
27
4,773
5,552
Deferred tax liabilities
7
1,623
1,760
Subordinated liabilities
28
20,984
22,702
Total liabilities at 31 Dec
 
2,192,408
2,212,138
Equity
 
 
 
Called up share capital
32
10,096
9,842
Share premium account
32
12,619
12,421
Other equity instruments
 
17,110
15,112
Other reserves
 
(1,234
)
7,109
Retained earnings
 
136,795
143,976
Total shareholders' equity
 
175,386
188,460
Non-controlling interests
31
7,192
9,058
Total equity at 31 Dec
 
182,578
197,518
Total liabilities and equity at 31 Dec
 
2,374,986
2,409,656
The accompanying notes on pages 194 to 271, the audited sections in 'Global businesses and regions' on pages 44 to 60, 'Risk' on pages 64 to 126, 'Capital' on pages 127 to 131 and 'Directors' Remuneration Report' on pages 153 to 170 form an integral part of these financial statements.
These financial statements were approved by the Board of Directors on 21 February 2017 and signed on its behalf by:
 
Douglas Flint
 
Iain Mackay
Group Chairman
 
Group Finance Director
186
HSBC Holdings plc Annual Report and Accounts 2016
Consolidated statement of cash flows
for the year ended 31 December
 
2016
2015
2014
Footnotes
$m
$m
$m
Profit before tax
 
7,112
18,867
18,680
Adjustments for non-cash items:
 
 
Depreciation, amortisation and impairment
 
5,212
2,181
2,251
Net gain from investing activities
 
(1,215
)
(1,935
)
(1,928
)
Share of profits in associates and joint ventures
 
(2,354
)
(2,556
)
(2,532
)
(Gain)/loss on disposal of subsidiaries, businesses, associates and joint ventures
 
1,743
-
41
Loan impairment losses gross of recoveries and other credit risk provisions
 
4,090
4,546
5,125
Provisions including pensions
 
2,482
3,472
3,609
Share-based payment expense
 
534
757
732
Other non-cash items included in profit before tax
 
(207
)
(191
)
(487
)
Elimination of exchange differences
1
15,364
18,308
24,571
Changes in operating assets and liabilities
 
 
Change in net trading securities and derivatives
 
4,395
24,384
(18,498
)
Change in loans and advances to banks and customers
 
52,868
32,971
17,813
Change in reverse repurchase agreements - non-trading
 
(13,138
)
(3,011
)
18,900
Change in financial assets designated at fair value
 
(1,235
)
2,394
3,269
Change in other assets
 
(6,591
)
9,090
4,393
Change in deposits by banks and customer accounts
 
(8,918
)
(65,907
)
(17,443
)
Change in repurchase agreements - non-trading
 
8,558
(26,481
)
(56,788
)
Change in debt securities in issue
 
(23,034
)
960
(8,133
)
Change in financial liabilities designated at fair value
 
17,802
(10,785
)
(10,734
)
Change in other liabilities
 
8,792
(4,549
)
(716
)
Dividends received from associates
 
689
879
757
Contributions paid to defined benefit plans
 
(726
)
(664
)
(681
)
Tax paid
 
(3,264
)
(3,852
)
(3,573
)
Net cash from operating activities
 
68,959
(1,122
)
(21,372
)
Purchase of financial investments
 
(457,084
)
(438,376
)
(384,199
)
Proceeds from the sale and maturity of financial investments
 
430,085
399,636
382,837
Net cash flows from the purchase and sale of property, plant and equipment
 
(1,151
)
(1,249
)
(1,389
)
Net cash inflow/(outflow) from disposal of customer and loan portfolios
 
9,194
2,023
(1,035
)
Net investment in intangible assets
 
(906
)
(954
)
(903
)
Net cash flow on disposal of subsidiaries, businesses, associates and joint ventures
2
4,802
8
(272
)
Net cash from investing activities
 
(15,060
)
(38,912
)
(4,961
)
Issue of ordinary share capital and other equity instruments
 
2,024
3,727
5,948
Net sales/(purchases) of own shares for market-making and investment purposes
 
523
331
(96
)
Purchase of treasury shares
 
(2,510
)
-
-
Redemption of preference shares and other equity instruments
 
(1,825
)
(463
)
(234
)
Subordinated loan capital issued
 
2,622
3,180
3,500
Subordinated loan capital repaid
 
(595
)
(2,157
)
(3,163
)
Dividends paid to shareholders of the parent company and non-controlling interests
 
(9,157
)
(8,195
)
(7,823
)
Net cash from financing activities
 
(8,918
)
(3,577
)
(1,868
)
Net increase/(decrease) in cash and cash equivalents
 
44,981
(43,611
)
(28,201
)
Cash and cash equivalents at 1 Jan
 
243,863
301,301
346,281
Exchange differences in respect of cash and cash equivalents
 
(14,294
)
(13,827
)
(16,779
)
Cash and cash equivalents at 31 Dec
 
274,550
243,863
301,301
Cash and cash equivalents comprise:
3
 
- cash and balances at central banks
 
128,009
98,934
129,957
- items in the course of collection from other banks
 
5,003
5,768
4,927
- loans and advances to banks of one month or less
 
77,318
70,985
89,285
- reverse repurchase agreements with banks of one month or less
 
55,551
53,971
68,930
- treasury bills, other bills and certificates of deposit less than three months
 
14,646
19,843
14,192
- less: items in the course of transmission to other banks
 
(5,977
)
(5,638
)
(5,990
)
 
 
274,550
243,863
301,301
Interest received was $42,586m (2015: $47,623m; 2014: $51,522m), interest paid was $12,027m (2015: $14,559m; 2014: $15,633m) and dividends received were $475m (2015: $914m; 2014: $1,199m).
1
Adjustment to bring changes between opening and closing balance sheet amounts to average rates. This is not done on a line-by-line basis, as details cannot be determined without unreasonable expense.
2
In July 2016, we completed the disposal of the Brazilian operations resulting in net cash inflow of $4.8bn.
3
At 31 December 2016 $35,501m (2015: $33,744m) was not available for use by HSBC, of which $21,108m (2015: $21,773m) related to mandatory deposits at central banks.
HSBC Holdings plc Annual Report and Accounts 2016
187
Financial Statements
Consolidated statement of changes in equity
for the year ended 31 December
Other reserves5
Called up share capital and share premium1
Otherequityinstru-ments2
Retainedearnings3, 4
Available- for-sale fair valuereserve
Cash flowhedgingreserve
Foreignexchangereserve
Mergerreserve6
Totalshare-holders'equity
Non-controllinginterests
Totalequity
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
At 1 Jan 2016
22,263
15,112
143,976
(189
)
34
(20,044
)
27,308
188,460
9,058
197,518
Profit for the year
-
-
2,479
-
-
-
-
2,479
967
3,446
Other comprehensive income(net of tax)
-
-
59
(271
)
(61
)
(7,994
)
-
(8,267
)
(131
)
(8,398
)
- available-for-sale investments
-
-
-
(271
)
-
-
-
(271
)
(28
)
(299
)
- cash flow hedges
-
-
-
-
(61
)
-
-
(61
)
(7
)
(68
)
- remeasurement of defined benefit asset/liability
-
-
5
-
-
-
-
5
2
7
- share of other comprehensive income of associates and joint ventures
-
-
54
-
-
-
-
54
-
54
- foreign exchange reclassified to income statement on disposal of a foreign operation
-
-
-
-
-
1,894
-
1,894
-
1,894
- exchange differences
-
-
-
-
-
(9,888
)
-
(9,888
)
(98
)
(9,986
)
Total comprehensive income for the year
-
-
2,538
(271
)
(61
)
(7,994
)
-
(5,788
)
836
(4,952
)
Shares issued under employee remuneration and share plans
452
-
(425
)
-
-
-
-
27
-
27
Shares issued in lieu of dividends and amounts arising thereon
-
-
3,040
-
-
-
-
3,040
-
3,040
Net increase in treasury shares
-
-
(2,510
)
-
-
-
-
(2,510
)
-
(2,510
)
Capital securities issued
-
1,998
-
-
-
-
-
1,998
-
1,998
Dividends to shareholders
-
-
(11,279
)
-
-
-
-
(11,279
)
(919
)
(12,198
)
Cost of share-based payment arrangements
-
-
534
-
-
-
-
534
-
534
Other movements
-
-
921
(17
)
-
-
-
904
(1,783
)
(879
)
At 31 Dec 2016
22,715
17,110
136,795
(477
)
(27
)
(28,038
)
27,308
175,386
7,192
182,578
 
 
 
 
 
 
 
 
 
 
 
At 1 Jan 2015
21,527
11,532
137,144
2,143
58
(9,265
)
27,308
190,447
9,531
199,978
Profit for the year
-
-
13,522
-
-
-
-
13,522
1,574
15,096
Other comprehensive income(net of tax)
-
-
73
(2,332
)
(24
)
(10,779
)
-
(13,062
)
(887
)
(13,949
)
- available-for-sale investments
-
-
-
(2,332
)
-
-
-
(2,332
)
(740
)
(3,072
)
- cash flow hedges
-
-
-
-
(24
)
-
-
(24
)
-
(24
)
- remeasurement of defined benefit asset/liability
-
-
82
-
-
-
-
82
19
101
- share of other comprehensive income of associates and joint ventures
-
-
(9
)
-
-
-
-
(9
)
-
(9
)
- exchange differences
-
-
-
-
-
(10,779
)
-
(10,779
)
(166
)
(10,945
)
Total comprehensive income forthe year
-
-
13,595
(2,332
)
(24
)
(10,779
)
-
460
687
1,147
Shares issued under employee remuneration and share plans
736
-
(589
)
-
-
-
-
147
-
147
Shares issued in lieu of dividends and amounts arising thereon
-
-
3,162
-
-
-
-
3,162
-
3,162
Capital securities issued
-
3,580
-
-
-
-
-
3,580
-
3,580
Dividends to shareholders
-
-
(10,660
)
-
-
-
-
(10,660
)
(697
)
(11,357
)
Cost of share-based payment arrangements
-
-
757
-
-
-
-
757
-
757
Other movements
-
-
567
-
-
-
-
567
(463
)
104
At 31 Dec 2015
22,263
15,112
143,976
(189
)
34
(20,044
)
27,308
188,460
9,058
197,518
188
HSBC Holdings plc Annual Report and Accounts 2016
Consolidated statement of changes in equity (continued)
 
 
 
 
Other reserves5
 
 
 
 
Called up share capital and share premium1
Other
equity
instru-ments2
Retained
earnings3, 4
Available- for-sale fair value
reserve
Cash flow
hedging
reserve
Foreign
exchange
reserve
Merger
reserve6
Total
share-
holders'
equity
Non-
controlling
interests
Total
equity
 
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
At 1 Jan 2014
20,550
5,851
128,728
97
(121
)
(542
)
27,308
181,871
8,588
190,459
Profit for the year
-
-
13,688
-
-
-
-
13,688
1,017
14,705
Other comprehensive income(net of tax)
-
-
2,066
2,025
189
(8,723
)
-
(4,443
)
765
(3,678
)
- available-for-sale investments
-
-
-
2,025
-
-
-
2,025
947
2,972
- cash flow hedges
-
-
-
-
189
-
-
189
(1
)
188
- remeasurement of defined benefit asset/liability
-
-
1,986
-
-
-
-
1,986
(1
)
1,985
- share of other comprehensive income of associates and joint ventures
-
-
80
-
-
-
-
80
-
80
- exchange differences
-
-
-
-
-
(8,723
)
-
(8,723
)
(180
)
(8,903
)
Total comprehensive income forthe year
-
-
15,754
2,025
189
(8,723
)
-
9,245
1,782
11,027
Shares issued under employee remuneration and share plans
977
-
(710
)
-
-
-
-
267
-
267
Shares issued in lieu of dividends and amounts arising thereon
-
-
2,709
-
-
-
-
2,709
-
2,709
Capital securities issued
-
5,681
-
-
-
-
-
5,681
-
5,681
Dividends to shareholders
-
-
(9,893
)
-
-
-
-
(9,893
)
(712
)
(10,605
)
Cost of share-based payment arrangements
-
-
732
-
-
-
-
732
-
732
Other movements
-
-
(176
)
21
(10
)
-
-
(165
)
(127
)
(292
)
At 31 Dec 2014
21,527
11,532
137,144
2,143
58
(9,265
)
27,308
190,447
9,531
199,978
1
For further details refer to Note 32.
2
During 2016, HSBC Holdings issued $2,000m of perpetual subordinated contingent convertible capital securities, after issuance costs of $6m and tax benefits of $4m. In 2015, HSBC Holdings issued $2,450m and €1,000m of perpetual subordinated contingent convertible capital securities, on which there were $12m of external issuance costs, $25m of intra-group issuance costs and $19m of tax. In 2014, HSBC Holdings issued $2,250m, $1,500m and €1,500m of perpetual subordinated contingent convertible capital securities, on which there were $13m of external issuance costs and $33m of intra-group issuance costs. Under IFRSs these issuance costs and tax benefits are classified as equity.
3
At 31 December 2016, retained earnings included 353,356,251 treasury shares (2015: 81,580,180; 2014: 85,337,430). The increase principally reflects the share buy-back initiative, with the purchase of 325,273,407 ordinary shares to reduce outstanding ordinary shares. In addition, treasury shares are also held within HSBC's Insurance business retirement funds for the benefit of policyholders or beneficiaries within employee trusts for the settlement of shares expected to be delivered under employee share schemes or bonus plans, and the market-making activities in Markets.
4
Cumulative goodwill amounting to $5,138m has been charged against reserves in respect of acquisitions of subsidiaries prior to 1 January 1998, including $3,469m charged against the merger reserve arising on the acquisition of HSBC Bank plc. The balance of $1,669m has been charged against retained earnings.
5
At 31 December 2015, our operations in Brazil were classified as held for sale (see Note 22). The cumulative amount of other reserves attributable to these operations were as follows: available-for-sale fair value reserve debit of $176m, cash flow hedging reserve credit of $34m and foreign exchange reserve debit of $2.6bn.
6
Statutory share premium relief under Section 131 of the Companies Act 1985 (the 'Act') was taken in respect of the acquisition of HSBC Bank plc in 1992, HSBC France in 2000 and HSBC Finance Corporation in 2003, and the shares issued were recorded at their nominal value only. In HSBC's consolidated financial statements the fair value differences of $8,290m in respect of HSBC France and $12,768m in respect of HSBC Finance Corporation were recognised in the merger reserve. The merger reserve created on the acquisition of HSBC Finance Corporation subsequently became attached to HSBC Overseas Holdings (UK) Limited ('HOHU'), following a number of intra-group reorganisations. During 2009, pursuant to Section 131 of the Companies Act 1985, statutory share premium relief was taken in respect of the rights issue and $15,796m was recognised in the merger reserve. The merger reserve includes a deduction of $614m in respect of costs relating to the rights issue, of which $149m was subsequently transferred to the income statement. Of this $149m, $121m was a loss arising from accounting for the agreement with the underwriters as a contingent forward contract. The merger reserve excludes the loss of $344m on a forward foreign exchange contract associated with hedging the proceeds of the rights issue.
HSBC Holdings plc Annual Report and Accounts 2016
189
Financial Statements
HSBC Holdings income statement
for the year ended 31 December
 
 
2016
2015
2014
 
Notes
$m
$m
$m
Net interest expense
 
(424
)
(438
)
(486
)
- interest income
 
1,380
866
944
- interest expense
 
(1,804
)
(1,304
)
(1,430
)
Fee (expense)/income
 
(1
)
39
47
Net trading income/(expense)
 
119
(349
)
(215
)
Net (expense)/income from financial instruments designated at fair value
2
(49
)
276
438
Dividend income from subsidiaries
 
10,436
8,469
9,077
Other operating income
 
696
654
608
Total operating income
 
10,777
8,651
9,469
Employee compensation and benefits
5
(570
)
(908
)
(681
)
General and administrative expenses
 
(4,014
)
(3,434
)
(2,522
)
Impairment of subsidiaries
 
-
(26
)
(38
)
Total operating expenses
 
(4,584
)
(4,368
)
(3,241
)
Profit before tax
 
6,193
4,283
6,228
Tax credit
 
402
570
299
Profit for the year
 
6,595
4,853
6,527
HSBC Holdings statement of comprehensive income
for the year ended 31 December
 
2016
2015
2014
 
$m
$m
$m
Profit for the year
6,595
4,853
6,527
Other comprehensive income/(expense)
Items that will be reclassified subsequently to profit or loss when specific conditions are met:
Available-for-sale investments
(72
)
(57
)
116
- fair value gains/(losses)
(83
)
(77
)
152
- income taxes
11
20
(36
)
Items that will not be reclassified subsequently to profit or loss:
Changes in fair value of financial liabilities designated at fair value due to movement in own credit risk
(896
)
-
-
- before income taxes
(1,030
)
-
-
- income taxes
134
-
-
Other comprehensive income for the year, net of tax
(968
)
(57
)
116
Total comprehensive income for the year
5,627
4,796
6,643
190
HSBC Holdings plc Annual Report and Accounts 2016
HSBC Holdings balance sheet
at 31 December
 
 
2016
2015
 
Notes
$m
$m
Assets
 
 
 
Cash and balances with HSBC undertakings
 
247
242
Derivatives
14
2,148
2,467
Loans and advances to HSBC undertakings
 
77,421
44,350
Financial investments in HSBC undertakings
 
3,590
4,285
Prepayments, accrued income and other assets
 
503
265
Current tax assets
 
631
723
Investments in subsidiaries
18
95,850
97,770
Intangible assets
 
176
75
Deferred tax assets
 
232
17
Total assets at 31 Dec
 
180,798
150,194
Liabilities and equity
 
 
 
Liabilities
 
 
 
Amounts owed to HSBC undertakings
 
2,157
2,152
Financial liabilities designated at fair value
24
30,113
19,853
Derivatives
14
5,025
2,278
Debt securities in issue
25
21,805
960
Accruals, deferred income and other liabilities
 
1,651
1,642
Deferred tax liabilities
 
-
-
Subordinated liabilities
28
15,189
15,895
Total liabilities
 
75,940
42,780
Equity
 
 
 
Called up share capital
32
10,096
9,842
Share premium account
 
12,619
12,421
Other equity instruments
 
17,004
15,020
Other reserves
 
37,483
37,907
Retained earnings
 
27,656
32,224
Total equity
 
104,858
107,414
Total liabilities and equity at 31 Dec
 
180,798
150,194
The accompanying notes on pages 194 to 271 and the audited sections in 'Global businesses and regions' on pages 44 to 60, 'Risk' on pages 64 to 126, 'Capital' on pages 127 to 131 and 'Directors' Remuneration Report' on pages 153 to 170 form an integral part of these financial statements.
These financial statements were approved by the Board of Directors on 21 February 2017 and signed on its behalf by:
 
Douglas Flint
 
Iain Mackay
Group Chairman
 
Group Finance Director
HSBC Holdings plc Annual Report and Accounts 2016
191
Financial Statements
HSBC Holdings statement of cash flows
for the year ended 31 December
 
2016
2015
2014
 
$m
$m
$m
Profit before tax
6,193
4,283
6,228
Adjustments for non-cash items:
48
114
52
- depreciation, amortisation and impairment
10
30
39
- charge for share-based payment
34
86
74
- other non-cash items included in profit before tax
4
(2
)
(61
)
Changes in operating assets and liabilities
Change in loans to HSBC undertakings
(33,069
)
(454
)
3,474
Change in net trading securities and net derivatives
3,066
1,413
483
Change in other assets
(239
)
(141
)
7
Change in debt securities in issue
(1,633
)
(49
)
(149
)
Change in financial liabilities designated at fair value
(1,229
)
(1,228
)
(694
)
Change in other liabilities
(693
)
(1,065
)
(9,071
)
Tax received
646
470
133
Net cash from operating activities
(26,910
)
3,343
463
Purchase of financial investments in HSBC undertakings
-
(276
)
(2,410
)
Proceeds from the sale and maturity of financial investments in HSBC undertakings
610
-
300
Net cash outflow from acquisition of or increase in stake of subsidiaries
(2,073
)
(2,118
)
(1,603
)
Repayment of capital from subsidiaries
3,920
790
3,505
Net investment in intangible assets
(109
)
(79
)
-
Net cash from investing activities
2,348
(1,683
)
(208
)
Issue of ordinary share capital and other equity instruments
2,381
4,216
6,559
Purchase of treasury shares
(2,510
)
-
-
Subordinated loan capital issued
2,636
3,180
3,500
Subordinated loan capital repaid
(1,781
)
(1,565
)
(1,654
)
Debt securities issued
32,080
0
-
Debt securities repaid
-
-
(1,634
)
Dividends paid on ordinary shares
(7,059
)
(6,548
)
(6,611
)
Dividends paid to holders of other equity instruments
(1,180
)
(950
)
(573
)
Net cash from financing activities
24,567
(1,667
)
(413
)
Net increase/(decrease) in cash and cash equivalents
5
(7
)
(158
)
Cash and cash equivalents at 1 January
242
249
407
Cash and cash equivalents at 31 Dec
247
242
249
Cash and cash equivalents comprise
Cash at bank with HSBC undertakings
247
242
249
Interest received was $2,605m (2015: $2,026m), interest paid was $2,910m (2015: $2,309m) and dividends received were $10,412m (2015: $8,469m).
192
HSBC Holdings plc Annual Report and Accounts 2016
HSBC Holdings statement of changes in equity
for the year ended 31 December
 
 
 
 
 
Other reserves
 
 
Called up
share
capital
Share
premium
Other
equity
instruments
Retained earnings1
Available-for-sale fair value reserve
Other
paid-in
capital2
Merger
and other
reserves
Total
share-
holders'
equity
 
$m
$m
$m
$m
$m
$m
$m
$m
At 1 Jan 2016
9,842
12,421
15,020
32,224
183
2,597
35,127
107,414
Profit for the year
-
-
-
6,595
-
-
-
6,595
Other comprehensive income (net of tax)
-
-
-
(896
)
(72
)
-
-
(968
)
- available-for-sale investments
-
-
-
-
(72
)
-
-
(72
)
- changes in fair value of financial liabilities designated at fair value due to movement in own credit risk
-
-
-
(896
)
-
-
-
(896
)
Total comprehensive income for the year
-
-
-
5,699
(72
)
-
-
5,627
Shares issued under employee share plans
35
417
-
(51
)
-
-
-
401
Shares issued in lieu of dividends and amounts arising thereon
219
(219
)
-
3,040
-
-
-
3,040
Net increase in treasury shares
-
-
-
(2,510
)
-
-
-
(2,510
)
Capital securities issued
-
1,984
-
-
-
-
1,984
Dividends to shareholders
-
-
-
(11,279
)
-
-
-
(11,279
)
Cost of share-based payment arrangements
-
-
-
34
-
-
-
34
Other movements
-
-
-
499
1
(353
)
-
147
At 31 Dec 2016
10,096
12,619
17,004
27,656
112
2,244
35,127
104,858
 
 
 
 
 
 
 
 
 
At 1 Jan 2015
9,609
11,918
11,476
34,986
240
2,089
35,127
105,445
Profit for the year
-
-
-
4,853
-
-
-
4,853
Other comprehensive income (net of tax)
-
-
-
-
(57
)
-
-
(57
)
- available-for-sale investments
-
-
-
-
(57
)
-
-
(57
)
Total comprehensive income for the year
-
-
-
4,853
(57
)
-
-
4,796
Shares issued under employee share plans
45
691
-
(59
)
-
-
-
677
Shares issued in lieu of dividends and amounts arising thereon
188
(188
)
-
3,162
-
-
-
3,162
Capital securities issued
-
-
3,544
-
-
-
-
3,544
Dividends to shareholders
-
-
-
(10,660
)
-
-
-
(10,660
)
Cost of share-based payment arrangements
-
-
-
86
-
-
-
86
Other movements
-
-
-
(144
)
-
508
-
364
At 31 Dec 2015
9,842
12,421
15,020
32,224
183
2,597
35,127
107,414
 
 
 
 
 
 
 
 
 
At 1 Jan 2014
9,415
11,135
5,828
35,406
124
2,052
35,127
99,087
Profit for the year
-
-
-
6,527
-
-
-
6,527
Other comprehensive income (net of tax)
-
-
-
-
116
-
-
116
- available-for-sale investments
-
-
-
-
116
-
-
116
Total comprehensive income for the year
-
-
-
6,527
116
-
-
6,643
Shares issued under employee share plans
60
917
-
(53
)
-
-
-
924
Shares issued in lieu of dividends and amounts arising thereon
134
(134
)
-
2,709
-
-
-
2,709
Capital securities issued
-
-
5,648
-
-
-
-
5,648
Dividends to shareholders
-
-
-
(9,893
)
-
-
-
(9,893
)
Cost of share-based payment arrangements
-
-
-
74
-
-
-
74
Other movements
-
-
-
216
-
37
-
253
At 31 Dec 2014
9,609
11,918
11,476
34,986
240
2,089
35,127
105,445
Dividends per ordinary share at 31 December 2016 were $0.51 (2015: $0.50; 2014:$0.49).
1
At 31 December 2016, retained earnings included 325,499,152 ($2,499m) of treasury shares (2015: 67,881 ($1m); 2014: 179,419 ($3m)). The increase principally reflects the share buy-back initiative, with the purchase of 325,273,407 ordinary shares ($2,497m) to reduce outstanding ordinary shares. In addition, treasury shares are held to fund employee share plans.
2
Other paid-in capital arises from the exercise and lapse of share options granted to employees of HSBC Holdings subsidiaries.
HSBC Holdings plc Annual Report and Accounts 2016
193
Notes on the Financial Statements
1
Basis of preparation and significant accounting policies
1.1
Basis of preparation
(a)
Compliance with International Financial Reporting Standards
The consolidated financial statements of HSBC and the separate financial statements of HSBC Holdings have been prepared in accordance with IFRSs as issued by the IASB, including interpretations ('IFRICS') issued by the IFRS Interpretations Committee, and as endorsed by the European Union ('EU'). At 31 December 2016, there were no unendorsed standards effective for the year ended 31 December 2016 affecting these consolidated and separate financial statements, and HSBC's application of IFRSs results in no differences between IFRSs as issued by the IASB and IFRSs as endorsed by the EU.
Standards adopted during the year ended 31 December 2016
There were no new standards applied during the year ended 31 December 2016 by HSBC.
The requirements of IFRS 9 'Financial Instruments' relating to the presentation of gains and losses on financial liabilities designated at fair value were adopted in the separate financial statements of HSBC Holdings. As a result, the effects of changes in those liabilities' credit risk is presented in other comprehensive income with the remaining effect presented in profit or loss. In accordance with the transitional requirements of IFRS 9, comparatives have not been restated. Adoption increased profit before tax by $896m with the opposite effect on other comprehensive income, with no effect on net assets.
During 2016, HSBC adopted a number of interpretations and amendments to standards which had an insignificant effect on the consolidated financial statements of HSBC and the separate financial statements of HSBC Holdings.
(b)
Differences between IFRSs and Hong Kong Financial Reporting Standards
There are no significant differences between IFRSs and Hong Kong Financial Reporting Standards in terms of their application to HSBC and consequently there would be no significant differences had the financial statements been prepared in accordance with Hong Kong Financial Reporting Standards. The Notes on the Financial Statements, taken together with the Report of the Directors, include the aggregate of all disclosures necessary to satisfy IFRSs and Hong Kong reporting requirements.
(c)
Future accounting developments
Minor amendments to IFRSs
The IASB has published a number of minor amendments to IFRSs in the 'Annual Improvements to IFRSs 2012-2014' and in a series of stand-alone amendments, one of which has not yet been endorsed for use in the EU. HSBC has not early adopted any of the amendments effective after 31 December 2016 and it expects they will have an insignificant effect, when adopted, on the consolidated financial statements of HSBC and the separate financial statements of HSBC Holdings.
Major new IFRSs
The IASB has published IFRS 9 'Financial Instruments', IFRS 15 'Revenue from Contracts with Customers' and IFRS 16 'Leases'. IFRS 9 and IFRS 15 have been endorsed for use in the EU and IFRS 16 has not yet been endorsed.
IFRS 9 'Financial Instruments'
In July 2014, the IASB issued IFRS 9 'Financial Instruments', which is the comprehensive standard to replace IAS 39 'Financial Instruments: Recognition and Measurement', and includes requirements for classification and measurement of financial assets and liabilities, impairment of financial assets and hedge accounting.
Classification and measurement
The classification and measurement of financial assets will depend on how these are managed (the entity's business model) and their contractual cash flow characteristics. These factors determine whether the financial assets are measured at amortised cost, fair value through other comprehensive income ('FVOCI') or fair value through profit or loss ('FVPL'). The combined effect of the application of the business model and the contractual cash flow characteristics tests may result in some differences in the population of financial assets measured at amortised cost or fair value compared with IAS 39. However, based on an assessment of financial assets performed to date and expectations around changes to balance sheet composition, HSBC expects that the overall impact of any change will not be significant.
For financial liabilities designated to be measured at fair value, gains or losses relating to changes in the entity's own credit risk are to be included in other comprehensive income.
Impairment
The impairment requirements apply to financial assets measured at amortised cost and FVOCI, and lease receivables and certain loan commitments and financial guarantee contracts. At initial recognition, an impairment allowance (or provision in the case of commitments and guarantees) is required for expected credit losses ('ECL') resulting from default events that are possible within the next 12 months ('12-month ECL'). In the event of a significant increase in credit risk, an allowance (or provision) is required for ECL resulting from all possible default events over the expected life of the financial instrument ('lifetime ECL'). Financial assets where 12‑month ECL is recognised are in 'stage 1'; financial assets that are considered to have experienced a significant increase in credit risk are in 'stage 2'; and financial assets for which there is objective evidence of impairment, so are considered to be in default or otherwise credit impaired, are in 'stage 3'.
The assessment of credit risk and the estimation of ECL are required to be unbiased and probability-weighted, and should incorporate all available information relevant to the assessment, including information about past events, current conditions and reasonable and supportable forecasts of economic conditions at the reporting date. In addition, the estimation of ECL should take into account the time value of money. As a result, the recognition and measurement of impairment is intended to be more forward-looking than under IAS 39, and the resulting impairment charge will tend to be more volatile. IFRS 9 will also tend to result in an increase in the total level of impairment allowances, since all financial assets will be assessed for at least 12-month ECL and the population of financial assets to which lifetime ECL applies is likely to be larger than the population for which there is objective evidence of impairment in accordance with IAS 39.
194
HSBC Holdings plc Annual Report and Accounts 2016
Hedge accounting
The general hedge accounting requirements aim to simplify hedge accounting, creating a stronger link with risk management strategy and permitting hedge accounting to be applied to a greater variety of hedging instruments and risks. However they do not explicitly address macro hedge accounting strategies, which are particularly important for banks. As a result, IFRS 9 includes an accounting policy choice to remain with IAS 39 hedge accounting.
Based on the analysis performed to date, HSBC expects to exercise the accounting policy choice to continue IAS 39 hedge accounting and therefore is not currently planning to change hedge accounting, although it will implement the revised hedge accounting disclosures required by the related amendments to IFRS 7 'Financial Instruments: Disclosures'.
Transition
The classification and measurement and impairment requirements are applied retrospectively by adjusting the opening balance sheet at the date of initial application, with no requirement to restate comparative periods. HSBC does not intend to restate comparatives. The mandatory application date for the standard as a whole is 1 January 2018, but it is possible to apply the revised presentation for certain liabilities measured at fair value from an earlier date. HSBC has early adopted the revised presentation of fair value gains and losses relating to an entity's own credit risk on certain liabilities in the separate financial statements of HSBC Holdings from 1 January 2016, and since interim financial statements have been issued during 2016 without adoption, will adopt new requirements in the consolidated financial statements from 1 January 2017. If this presentation was applied in the consolidated financial statements at 31 December 2016, the effect would be to increase profit before tax with the opposite effect on other comprehensive income based on the change in fair value attributable to changes in HSBC's credit risk for the year, with no effect on net assets. Further information on the change in fair value attributable to changes in credit risk, including HSBC's credit risk, is disclosed in Note 24. HSBC is assessing the impact that the impairment requirements will have on the financial statements.
The joint Global Risk and Global Finance IFRS 9 Implementation Programme continues to progress with the documentation of Group accounting policy, the development of operating and system target operating models and the development, build and testing of risk modelling methodologies for the calculation of impairment nearing completion. HSBC intends to perform a parallel run during the second half of 2017 to gain a better understanding of the potential effect of the new standard and for the governance framework to gain experience. HSBC intends to quantify the potential impact of IFRS 9 once it is practicable to provide reliable estimates, which will be no later than in the Annual Report and Accounts 2017. Until reliable estimates of the impact are available, particularly on the interaction with the regulatory capital requirements, further information on the expected impact on the financial position and on capital planning cannot be provided. Further information about the application of IFRS 9 by HSBC is available on pages 347 to 352 of the Annual Report and Accounts 2015.
IFRS 15 'Revenue from Contracts with Customers'
In May 2014, the IASB issued IFRS 15 'Revenue from Contracts with Customers'. The original effective date of IFRS 15 has been delayed by one year and the standard is now effective for annual periods beginning on or after 1 January 2018 with early application permitted. IFRS 15 provides a principles-based approach for revenue recognition, and introduces the concept of recognising revenue for performance obligations as they are satisfied. The standard should be applied retrospectively, with certain practical expedients available. HSBC has assessed the impact of IFRS 15 and expects that the standard will have no significant effect, when applied, on the consolidated financial statements of HSBC and the separate financial statements of HSBC Holdings.
IFRS 16 'Leases'
In January 2016, the IASB issued IFRS 16 'Leases' with an effective date for annual periods beginning on or after 1 January 2019. IFRS 16 results in lessees accounting for most leases within the scope of the standard in a manner similar to the way in which finance leases are currently accounted for under IAS 17 'Leases'. Lessees will recognise a 'right of use' asset and a corresponding financial liability on the balance sheet. The asset will be amortised over the length of the lease and the financial liability measured at amortised cost. Lessor accounting remains substantially the same as under IAS 17. HSBC is currently assessing the impact of IFRS 16, and it is not practicable to quantify the effect at the date of the publication of these financial statements. Existing operating lease commitments are set out in Note 34.
(d)
Foreign currencies
HSBC's consolidated financial statements are presented in US dollars because the US dollar and currencies linked to it form the major currency bloc in which HSBC transacts and funds its business. The US dollar is also HSBC Holdings' functional currency because the US dollar and currencies linked to it are the most significant currencies relevant to the underlying transactions, events and conditions of its subsidiaries, as well as representing a significant proportion of its funds generated from financing activities.
Transactions in foreign currencies are recorded at the rate of exchange on the date of the transaction. Assets and liabilities denominated in foreign currencies are translated at the rate of exchange at the balance sheet date except non-monetary assets and liabilities measured at historical cost that are translated using the rate of exchange at the initial transaction date. Exchange differences are included in other comprehensive income or in the income statement depending on where the gain or loss on the underlying item is recognised.
In the consolidated financial statements, the assets, liabilities and results of foreign operations whose functional currency is not US dollars are translated into the Group's presentation currency at the reporting date. Exchange differences arising are recognised in other comprehensive income. On disposal of a foreign operation, exchange differences previously recognised in other comprehensive income are reclassified to the income statement.
(e)
Presentation of information
Certain disclosures required by IFRSs have been included in the audited sections of this Annual Report and Accounts as follows:
•
segmental disclosures are included in the 'Report of the Directors: Financial Review' on pages 30 to 63;
•
disclosures concerning the nature and extent of risks relating to insurance contracts and financial instruments are included in the 'Report of the Directors: Risk' on pages 64 to 126;
•
capital disclosures are included in the 'Report of the Directors: Capital' on pages 127 to 131; and
HSBC Holdings plc Annual Report and Accounts 2016
195
Notes on the Financial Statements
•
disclosures relating to HSBC's securitisation activities and structured products are included in the 'Report of the Directors: Risk' on pages 64 to 126.
In accordance with HSBC's policy to provide disclosures that help investors and other stakeholders understand the Group's performance, financial position and changes to them, the information provided in the Notes on the Financial Statements and the Report of the Directors goes beyond the minimum levels required by accounting standards, statutory and regulatory requirements and listing rules. In addition, HSBC follows the British Bankers' Association Code for Financial Reporting Disclosure ('the BBA Code'). The BBA Code aims to increase the quality and comparability of UK banks' disclosures and sets out five disclosure principles together with supporting guidance. In line with the principles of the BBA Code, HSBC assesses good practice recommendations issued from time to time by relevant regulators and standard setters and will assess the applicability and relevance of such guidance, enhancing disclosures where appropriate.
(f)
Critical accounting estimates and judgements
The preparation of financial information requires the use of estimates and judgements about future conditions. In view of the inherent uncertainties and the high level of subjectivity involved in the recognition or measurement of items highlighted as the critical accounting estimates and judgements in section 1.2 below, it is possible that the outcomes in the next financial year could differ from those on which management's estimates are based, resulting in materially different conclusions from those reached by management for the purposes of these Financial Statements. Management's selection of HSBC's accounting policies which contain critical estimates and judgements reflects the materiality of the items to which the policies are applied and the high degree of judgement and estimation uncertainty involved.
(g)
Segmental analysis
HSBC's chief operating decision-maker is the Group Chief Executive, supported by the Group Management Board ('GMB'), which operates as a general management committee under the direct authority of the Board, and operating segments are reported in a manner consistent with the internal reporting provided to the Group Chief Executive and the GMB.
Measurement of segmental assets, liabilities, income and expenses is in accordance with the Group's accounting policies. Segmental income and expenses include transfers between segments, and these transfers are conducted at arm's length. Shared costs are included in segments on the basis of the actual recharges made.
(h)
Going concern
The financial statements are prepared on a going concern basis, as the Directors are satisfied that the Group and parent company have the resources to continue in business for the foreseeable future. In making this assessment, the Directors have considered a wide range of information relating to present and future conditions, including future projections of profitability, cash flows and capital resources.
1.2
Summary of significant accounting policies
(a)
Consolidation and related policies
Investments in subsidiaries
Where an entity is governed by voting rights, HSBC consolidates when it holds, directly or indirectly, the necessary voting rights to pass resolutions by the governing body. In all other cases, the assessment of control is more complex and requires judgement of other factors, including having exposure to variability of returns, power to direct relevant activities and whether power is held as agent or principal.
Business combinations are accounted for using the acquisition method. The amount of non-controlling interest is measured either at fair value or at the non-controlling interest's proportionate share of the acquiree's identifiable net assets. This election is made for each business combination.
HSBC Holdings' investments in subsidiaries are stated at cost less impairment losses.
Goodwill
Goodwill is allocated to cash-generating units ('CGUs') for the purpose of impairment testing, which is undertaken at the lowest level at which goodwill is monitored for internal management purposes. HSBC's CGUs are based on geographical regions subdivided by global business, except for Global Banking and Markets, for which goodwill is monitored on a global basis.
Impairment testing is performed at least once a year, or whenever there is an indication of impairment, by comparing the recoverable amount of a CGU with its carrying amount.
Goodwill is included in a disposal group if the disposal group is a CGU to which goodwill has been allocated or it is an operation within such a CGU. The amount of goodwill included in a disposal group is measured on the basis of the relative values of the operation disposed of and the portion of the CGU retained.
Critical accounting estimates and judgements
The review of goodwill for impairment reflects management's best estimate of the future cash flows of the CGUs and the rates used to discount these cash flows, both of which are subject to uncertain factors as follows:
•
The future cash flows of the CGUs are sensitive to the cash flows projected for the periods for which detailed forecasts are available and to assumptions regarding the long-term pattern of sustainable cash flows thereafter. Forecasts are compared with actual performance and verifiable economic data, but they reflect management's view of future business prospects at the time of the assessment.
•
The rates used to discount future expected cash flows can have a significant effect on their valuation and are based on the costs of capital assigned to individual CGUs. The cost of capital percentage is generally derived from a capital asset pricing model, which incorporates inputs reflecting a number of financial and economic variables, including the risk-free interest rate in the country concerned and a premium for the risk of the business being evaluated. These variables are subject to fluctuations in external market rates and economic conditions beyond management's control, are subject to uncertainty and require the exercise of significant judgement.
The accuracy of forecast cash flows is subject to a high degree of uncertainty in volatile market conditions. In such circumstances, management retests goodwill for impairment more frequently than once a year when indicators of impairment exist to ensure that the assumptions on which the cash flow forecasts are based continue to reflect current market conditions and management's best estimate of future business prospects.
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HSBC sponsored structured entities
HSBC is considered to sponsor another entity if, in addition to ongoing involvement with the entity, it had a key role in establishing that entity or in bringing together relevant counterparties so the transaction that is the purpose of the entity could occur. HSBC is generally not considered a sponsor if the only involvement with the entity is merely administrative.
Interests in associates and joint arrangements
Joint arrangements are investments in which HSBC, together with one or more parties, has joint control. Depending on HSBC's rights and obligations, the joint arrangement is classified as either a joint operation or a joint venture. HSBC classifies investments in entities over which it has significant influence, and that are neither subsidiaries nor joint arrangements, as associates.
HSBC recognises its share of the assets, liabilities and results in a joint operation. Investments in associates and interests in joint ventures are recognised using the equity method. The attributable share of the results and reserves of joint ventures and associates are included in the consolidated financial statements of HSBC based on either financial statements made up to 31 December or pro-rated amounts adjusted for any material transactions or events occurring between the date the financial statements are available and 31 December.
Investments in associates and joint ventures are assessed at each reporting date and tested for impairment when there is an indication that the investment may be impaired. Goodwill on acquisitions of interests in joint ventures and associates is not tested separately for impairment but is assessed as part of the carrying amount of the investment.
Critical accounting estimates and judgements
Impairment testing of investments in associates involves significant judgement in determining the value in use, and in particular estimating the present values of cash flows expected to arise from continuing to hold the investment. The most significant judgements relate to the impairment testing of our investment in Bank of Communications Co., Limited ('BoCom'). Key assumptions used in estimating BoCom's value in use, the sensitivity of the value in use calculation to different assumptions and a sensitivity analysis that shows the changes in key assumptions that would reduce the excess of value in use over the carrying amount (the 'headroom') to nil are described in Note 17.
(b)
Income and expense
Operating income
Interest income and expense
Interest income and expense for all financial instruments, excluding those classified as held for trading or designated at fair value are recognised in 'Interest income' and 'Interest expense' in the income statement using the effective interest method. However, as an exception to this, interest on debt securities issued by HSBC that are designated under the fair value option and derivatives managed in conjunction with those debt securities are included in interest expense.
Interest on impaired financial assets is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.
Non-interest income and expense
Fee income is earned from a diverse range of services provided by HSBC to its customers. Fee income is accounted for as follows:
•
income earned on the execution of a significant act is recognised as revenue when the act is completed (for example, fees arising from negotiating a transaction, such as the acquisition of shares, for a third party); and
•
income earned from the provision of services is recognised as revenue as the services are provided (for example, asset management services).
Net trading income comprises all gains and losses from changes in the fair value of financial assets and financial liabilities held for trading, together with the related interest income, expense and dividends.
Dividend income is recognised when the right to receive payment is established. This is the ex-dividend date for listed equity securities, and usually the date when shareholders approve the dividend for unlisted equity securities.
Net income/(expense) from financial instruments designated at fair value includes all gains and losses from changes in the fair value of financial assets and liabilities designated at fair value through profit or loss, including derivatives that are managed in conjunction with those financial assets and liabilities, and liabilities under investment contracts. Interest income, interest expense and dividend income in respect of those financial instruments are also included, except for interest arising from debt securities issued by HSBC and derivatives managed in conjunction with those debt securities, which is recognised in 'Interest expense'.
The accounting policies for insurance premium income are disclosed in Note 1.2(f).
(c)
Valuation of financial instruments
All financial instruments are initially recognised at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of a financial instrument on initial recognition is generally its transaction price (that is, the fair value of the consideration given or received). However, if there is a difference between the transaction price and the fair value of financial instruments whose fair value is based on a quoted price in an active market or a valuation technique that uses only data from observable markets, HSBC recognises the difference as a trading gain or loss at inception ('day 1 gain or loss'). In all other cases, the entire day 1 gain or loss is deferred and recognised in the income statement over the life of the transaction until the transaction matures or is closed out, the valuation inputs become observable or HSBC enters into an offsetting transaction.
The fair value of financial instruments is generally measured on an individual basis. However, in cases where HSBC manages a group of financial assets and liabilities according to its net market or credit risk exposure, the fair value of the group of financial instruments is measured on a net basis but the underlying financial assets and liabilities are presented separately in the financial statements, unless they satisfy the IFRS offsetting criteria.
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Notes on the Financial Statements
Critical accounting estimates and judgements
The majority of valuation techniques employ only observable market data. However, certain financial instruments are valued on the basis of valuation techniques that feature one or more significant market inputs that are unobservable, and for them the measurement of fair value is more judgemental. An instrument in its entirety is classified as valued using significant unobservable inputs if, in the opinion of management, a significant proportion of the instrument's inception profit or greater than 5% of the instrument's valuation is driven by unobservable inputs. 'Unobservable' in this context means that there is little or no current market data available from which to determine the price at which an arm's length transaction would be likely to occur. It generally does not mean that there is no data available at all upon which to base a determination of fair value (consensus pricing data may, for example, be used).
(d)
Financial instruments measured at amortised cost
Loans and advances to banks and customers, held-to-maturity investments and most financial liabilities are measured at amortised cost. The carrying value of these financial assets at initial recognition includes any directly attributable transactions costs. If the initial fair value is lower than the cash amount advanced, such as in the case of some leveraged finance and syndicated lending activities, the difference is deferred and recognised over the life of the loan (as described in paragraph (c) above) through the recognition of interest income, unless the loan becomes impaired.
HSBC may commit to underwriting loans on fixed contractual terms for specified periods of time. When the loan arising from the lending commitment is expected to be held for trading, the commitment to lend is recorded as a derivative. When HSBC intends to hold the loan, a provision on the loan commitment is only recorded where it is probable that HSBC will incur a loss.
Impairment of loans and advances
Losses for impaired loans are recognised when there is objective evidence that impairment of a loan or portfolio of loans has occurred. Losses which may arise from future events are not recognised.
Individually assessed loans and advances
The factors considered in determining whether a loan is individually significant for the purposes of assessing impairment include the size of the loan, the number of loans in the portfolio, the importance of the individual loan relationship and how this is managed. Loans that are determined to be individually significant will be individually assessed for impairment, except when volumes of defaults and losses are sufficient to justify treatment under a collective methodology.
Loans considered as individually significant are typically to corporate and commercial customers, are for larger amounts and are managed on an individual basis. For these loans, HSBC considers on a case-by-case basis at each balance sheet date whether there is any objective evidence that a loan is impaired.
The determination of the realisable value of security is based on the most recently updated market value at the time the impairment assessment is performed. The value is not adjusted for expected future changes in market prices, though adjustments are made to reflect local conditions such as forced sale discounts.
Impairment losses are calculated by discounting the expected future cash flows of a loan, which include expected future receipts of contractual interest, at the loan's original effective interest rate or an approximation thereof, and comparing the resultant present value with the loan's current carrying amount.
Collectively assessed loans and advances
Impairment is assessed collectively to cover losses which have been incurred but have not yet been identified on loans subject to individual assessment or for homogeneous groups of loans that are not considered individually significant, generally retail lending portfolios.
Incurred but not yet identified impairment
Individually assessed loans for which no evidence of impairment has been specifically identified on an individual basis are grouped together according to their credit risk characteristics for a collective impairment assessment. This assessment captures impairment losses that HSBC has incurred as a result of events occurring before the balance sheet date which HSBC is not able to identify on an individual loan basis, and that can be reliably estimated. When information becomes available which identifies losses on individual loans within a group, those loans are removed from the group and assessed individually.
Homogeneous groups of loans and advances
Statistical methods are used to determine collective impairment losses for homogeneous groups of loans not considered individually significant. The methods used to calculate collective allowances are set out below:
•
When appropriate empirical information is available, HSBC utilises roll-rate methodology, which employs statistical analyses of historical data and experience of delinquency and default to reliably estimate the amount of the loans that will eventually be written off as a result of the events occurring before the balance sheet date. Individual loans are grouped using ranges of past due days, and statistical estimates are made of the likelihood that loans in each range will progress through the various stages of delinquency and become irrecoverable. Additionally, individual loans are segmented based on their credit characteristics, such as industry sector, loan grade or product. In applying this methodology, adjustments are made to estimate the periods of time between a loss event occurring, for example because of a missed payment, and its confirmation through write-off (known as the loss identification period). Current economic conditions are also evaluated when calculating the appropriate level of allowance required to cover inherent loss. In certain highly developed markets, models also take into account behavioural and account management trends as revealed in, for example, bankruptcy and rescheduling statistics.
•
When the portfolio size is small or when information is insufficient or not reliable enough to adopt a roll-rate methodology, HSBC adopts a basic formulaic approach based on historical loss rate experience, or a discounted cash flow model. Where a basic formulaic approach is undertaken, the period between a loss event occurring and its identification is estimated by local management, and is typically between six and 12 months.
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Write-off of loans and advances
Loans (and the related impairment allowance accounts) are normally written off, either partially or in full, when there is no realistic prospect of recovery. Where loans are secured, this is generally after receipt of any proceeds from the realisation of security. In circumstances where the net realisable value of any collateral has been determined and there is no reasonable expectation of further recovery, write-off may be earlier.
Reversals of impairment
If the amount of an impairment loss decreases in a subsequent period, and the decrease can be related objectively to an event occurring after the impairment was recognised, the excess is written back by reducing the loan impairment allowance account accordingly. The write-back is recognised in the income statement.
Assets acquired in exchange for loans
When non-financial assets acquired in exchange for loans as part of an orderly realisation are held for sale, these assets are recorded as 'Assets held for sale.'
Renegotiated loans
Loans subject to collective impairment assessment whose terms have been renegotiated are no longer considered past due, but are treated as up-to-date loans for measurement purposes once a minimum number of payments required has been received. Where collectively assessed loan portfolios include significant levels of renegotiated loans, these loans are segregated from other parts of the loan portfolio for the purposes of collective impairment assessment to reflect their risk profile. Loans subject to individual impairment assessment, whose terms have been renegotiated, are subject to ongoing review to determine whether they remain impaired. The carrying amounts of loans that have been classified as renegotiated retain this classification until maturity or derecognition.
A loan that is renegotiated is derecognised if the existing agreement is cancelled and a new agreement made on substantially different terms or if the terms of an existing agreement are modified such that the renegotiated loan is substantially a different financial instrument. Any new loans that arise following derecognition events will continue to be disclosed as renegotiated loans and are assessed for impairment as above.
Critical accounting estimates and judgements
Loan impairment allowances represent management's best estimate of losses incurred in the loan portfolios at the balance sheet date. Management is required to exercise judgement in making assumptions and estimates when calculating loan impairment allowances on both individually and collectively assessed loans and advances.
Collective impairment allowances are subject to estimation uncertainty, in part because it is not practicable to identify losses on an individual loan basis due to the large number of individually insignificant loans in the portfolio. The estimation methods include the use of statistical analyses of historical information, supplemented with significant management judgement, to assess whether current economic and credit conditions are such that the actual level of incurred losses is likely to be greater or less than historical experience. Where changes in economic, regulatory or behavioural conditions result in the most recent trends in portfolio risk factors being not fully reflected in the statistical models, risk factors are taken into account by adjusting the impairment allowances derived solely from historical loss experience.
Risk factors include loan portfolio growth, product mix, unemployment rates, bankruptcy trends, geographical concentrations, loan product features, economic conditions such as national and local trends in housing markets, the level of interest rates, portfolio seasoning, account management policies and practices, changes in laws and regulations, and other influences on customer payment patterns. Different factors are applied in different regions and countries to reflect local economic conditions, laws and regulations. The methodology and the assumptions used in calculating impairment losses are reviewed regularly in the light of differences between loss estimates and actual loss experience. For example, roll rates, loss rates and the expected timing of future recoveries are regularly benchmarked against actual outcomes to ensure they remain appropriate.
For individually assessed loans, judgement is required in determining whether there is objective evidence that a loss event has occurred and, if so, the measurement of the impairment allowance. In determining whether there is objective evidence that a loss event has occurred, judgement is exercised in evaluating all relevant information on indicators of impairment, including the consideration of whether payments are contractually past due and the consideration of other factors indicating deterioration in the financial condition and outlook of borrowers affecting their ability to pay.
A higher level of judgement is required for loans to borrowers showing signs of financial difficulty in market sectors experiencing economic stress, particularly where the likelihood of repayment is affected by the prospects for refinancing or the sale of a specified asset. For those loans where objective evidence of impairment exists, management determines the size of the allowance required based on a range of factors such as the realisable value of security, the likely dividend available on liquidation or bankruptcy, the viability of the customer's business model and the capacity to trade successfully out of financial difficulties and generate sufficient cash flow to service debt obligations.
HSBC might provide loan forbearance to borrowers experiencing financial difficulties by agreeing to modify the contractual payment terms of loans in order to improve the management of customer relationships, maximise collection opportunities or avoid default or repossession. Where forbearance activities are significant, higher levels of judgement and estimation uncertainty are involved in determining their effects on loan impairment allowances. Judgements are involved in differentiating the credit risk characteristics of forbearance cases, including those which return to performing status following renegotiation. Where collectively assessed loan portfolios include significant levels of loan forbearance, portfolios are segmented to reflect the different credit risk characteristics of forbearance cases, and estimates are made of the incurred losses inherent within each forbearance portfolio segment. Forbearance activities take place in both retail and wholesale loan portfolios, but our largest concentration is in the US, in HSBC Finance's CML run-off portfolio.
The exercise of judgement requires the use of assumptions which are highly subjective and very sensitive to the risk factors, in particular to changes in economic and credit conditions across a large number of geographical areas. Many of the factors have a high degree of interdependency and there is no single factor to which our loan impairment allowances as a whole are sensitive.
Non-trading reverse repurchase and repurchase agreements
When securities are sold subject to a commitment to repurchase them at a predetermined price ('repos'), they remain on the balance sheet and a liability is recorded in respect of the consideration received. Securities purchased under commitments to resell ('reverse repos') are not recognised on the balance sheet and an asset is recorded in respect of the initial consideration paid. Non-trading repos and reverse repos are measured at amortised cost. The difference between the sale and repurchase price or between the purchase and resale price is treated as interest and recognised in net interest income over the life of the agreement.
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Notes on the Financial Statements
(e)
Financial instruments measured at fair value
Available-for-sale financial assets
Available-for-sale financial assets are recognised on the trade date when HSBC enters into contractual arrangements to purchase those instruments, and are normally derecognised when the securities are either sold or redeemed. They are subsequently remeasured at fair value, and changes therein are recognised in other comprehensive income until the assets are either sold or become impaired. Upon disposal, the cumulative gains or losses in other comprehensive income are recognised in the income statement as 'Gains less losses from financial investments'.
Impairment of available-for-sale financial assets
Available-for-sale financial assets are assessed at each balance sheet date for objective evidence of impairment. Impairment losses are recognised in the income statement within 'Loan impairment charges and other credit risk provisions' for debt instruments and within 'Gains less losses from financial investments' for equities.
Available-for-sale debt securities
In assessing objective evidence of impairment at the reporting date, HSBC considers all available evidence, including observable data or information about events specifically relating to the securities which may result in a shortfall in the recovery of future cash flows. A subsequent decline in the fair value of the instrument is recognised in the income statement when there is objective evidence of impairment as a result of decreases in the estimated future cash flows. Where there is no further objective evidence of impairment, the decline in the fair value of the financial asset is recognised in other comprehensive income. If the fair value of a debt security increases in a subsequent period, and the increase can be objectively related to an event occurring after the impairment loss was recognised in the income statement, or the instrument is no longer impaired, the impairment loss is reversed through the income statement.
Available-for-sale equity securities
A significant or prolonged decline in the fair value of the equity below its cost is objective evidence of impairment. In assessing whether it is significant, the decline in fair value is evaluated against the original cost of the asset at initial recognition. In assessing whether it is prolonged, the decline is evaluated against the continuous period in which the fair value of the asset has been below its original cost at initial recognition.
All subsequent increases in the fair value of the instrument are treated as a revaluation and are recognised in other comprehensive income. Subsequent decreases in the fair value of the available-for-sale equity security are recognised in the income statement to the extent that further cumulative impairment losses have been incurred. Impairment losses recognised on the equity security are not reversed through the income statement.
Financial instruments designated at fair value
Financial instruments, other than those held for trading, are classified in this category if they meet one or more of the criteria set out below, and are so designated irrevocably at inception:
•
the use of the designation removes or significantly reduces an accounting mismatch;
•
when a group of financial assets, liabilities or both is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy; and
•
where financial instruments contain one or more non-closely related embedded derivatives.
Designated financial assets are recognised when HSBC enters into contracts with counterparties, which is generally on trade date, and are normally derecognised when the rights to the cash flows expire or are transferred. Designated financial liabilities are recognised when HSBC enters into contracts with counterparties, which is generally on settlement date, and are normally derecognised when extinguished. Subsequent changes in fair values are recognised in the income statement in 'Net income/(expense) from financial instruments designated at fair value'.
Under this criterion, the main classes of financial instruments designated by HSBC are:
Long-term debt issues
The interest and/or foreign exchange exposure on certain fixed rate debt securities issued has been matched with the interest and/or foreign exchange exposure on certain swaps as part of a documented risk management strategy.
Financial assets and financial liabilities under unit-linked and non-linked investment contracts
A contract under which HSBC does not accept significant insurance risk from another party is not classified as an insurance contract, other than investment contracts with discretionary participation features ('DPF'), but is accounted for as a financial liability. See Note 1.2(f) for investment contracts with DPF and contracts where HSBC accepts significant insurance risk. Customer liabilities under linked and certain non-linked investment contracts issued by insurance subsidiaries and the corresponding financial assets are designated at fair value. Liabilities are at least equivalent to the surrender or transfer value which is calculated by reference to the value of the relevant underlying funds or indices. Premiums receivable and amounts withdrawn are accounted for as increases or decreases in the liability recorded in respect of investment contracts. The incremental costs directly related to the acquisition of new investment contracts or renewing existing investment contracts are deferred and amortised over the period during which the investment management services are provided.
Derivatives
Derivatives are financial instruments that derive their value from the price of underlying items such as equities, interest rates or other indices. Derivatives are recognised initially and are subsequently measured at fair value. Derivatives are classified as assets when their fair value is positive or as liabilities when their fair value is negative; this includes embedded derivatives which are bifurcated from the host contract when they meet the definition of a derivative on a stand-alone basis.
Gains and losses from changes in the fair value of derivatives that do not qualify for hedge accounting are reported in 'Net trading income'. Gains and losses on derivatives managed in conjunction with financial instruments designated at fair value are reported in 'Net income/(expense) from financial instruments designated at fair value' together with the gains and losses on the economically
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hedged items. Where the derivatives are managed with debt securities issued by HSBC that are designated at fair value, the contractual interest is shown in 'Interest expense' together with the interest payable on the issued debt.
Hedge accounting
When derivatives are held for risk management purposes they are designated in hedge relationships where the required criteria for documentation and hedge effectiveness are met. HSBC enters into fair value hedges, cash flow hedges or hedges of net investments in foreign operations as appropriate to the risk being hedged.
Fair value hedge
Changes in the fair value of derivatives are recorded in the income statement, along with changes in the fair value of the hedged assets or liabilities attributable to the hedged risk. If a hedge relationship no longer meets the criteria for hedge accounting, hedge accounting is discontinued; the cumulative adjustment to the carrying amount of the hedged item is amortised to the income statement on a recalculated effective interest rate over the residual period to maturity, unless the hedged item has been derecognised, in which case it is recognised in the income statement immediately.
Cash flow hedge
The effective portion of changes in the fair value of derivatives is recognised in other comprehensive income; the ineffective portion of the change in fair value is recognised immediately in the income statement within 'Net trading income'. The accumulated gains and losses recognised in other comprehensive income are reclassified to the income statement in the same periods in which the hedged item affects profit or loss. In hedges of forecast transactions that result in recognition of a non-financial asset or liability, previous gains and losses recognised in other comprehensive income are included in the initial measurement of the asset or liability. When a hedge relationship is discontinued, or partially discontinued, any cumulative gain or loss recognised in other comprehensive income remains in equity until the forecast transaction is recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss previously recognised in other comprehensive income is immediately reclassified to the income statement.
Net investment hedge
Hedges of net investments in foreign operations are accounted for in a similar way to cash flow hedges. A gain or loss on the effective portion of the hedging instrument is recognised in other comprehensive income; the residual change in fair value is recognised immediately in the income statement. Gains and losses previously recognised in other comprehensive income are reclassified to the income statement on the disposal, or part disposal, of the foreign operation.
Derivatives that do not qualify for hedge accounting
Non-qualifying hedges are derivatives entered into as economic hedges of assets and liabilities for which hedge accounting was not applied.
(f)
Insurance contracts
A contract is classified as an insurance contract where HSBC accepts significant insurance risk from another party by agreeing to compensate that party on the occurrence of a specified uncertain future event. An insurance contract may also transfer financial risk, but is accounted for as an insurance contract if the insurance risk is significant. In addition, HSBC issues investment contracts with DPF which are also accounted for as insurance contracts as required by IFRS 4 'Insurance Contracts'.
Net insurance premium income
Premiums for life insurance contracts are accounted for when receivable, except in unit-linked insurance contracts where premiums are accounted for when liabilities are established.
Reinsurance premiums are accounted for in the same accounting period as the premiums for the direct insurance contracts to which they relate.
Net insurance claims and benefits paid and movements in liabilities to policyholders
Gross insurance claims for life insurance contracts reflect the total cost of claims arising during the year, including claim handling costs and any policyholder bonuses allocated in anticipation of a bonus declaration.
Maturity claims are recognised when due for payment. Surrenders are recognised when paid or at an earlier date on which, following notification, the policy ceases to be included within the calculation of the related insurance liabilities. Death claims are recognised when notified.
Reinsurance recoveries are accounted for in the same period as the related claim.
Liabilities under insurance contracts
Liabilities under non-linked life insurance contracts are calculated by each life insurance operation based on local actuarial principles. Liabilities under unit-linked life insurance contracts are at least equivalent to the surrender or transfer value, which is calculated by reference to the value of the relevant underlying funds or indices.
Future profit participation on insurance contracts with DPF
Where contracts provide discretionary profit participation benefits to policyholders, liabilities for these contracts include provisions for the future discretionary benefits to policyholders. These provisions reflect the actual performance of the investment portfolio to date and management's expectation of the future performance of the assets backing the contracts, as well as other experience factors such as mortality, lapses and operational efficiency, where appropriate. The benefits to policyholders may be determined by the contractual terms, regulation, or past distribution policy.
Investment contracts with DPF
While investment contracts with DPF are financial instruments, they continue to be treated as insurance contracts as required by IFRS 4. The Group therefore recognises the premiums for these contracts as revenue and recognises as an expense the resulting increase in the carrying amount of the liability.
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In the case of net unrealised investment gains on these contracts, whose discretionary benefits principally reflect the actual performance of the investment portfolio, the corresponding increase in the liabilities is recognised in either the income statement or other comprehensive income, following the treatment of the unrealised gains on the relevant assets. In the case of net unrealised losses, a deferred participating asset is recognised only to the extent that its recoverability is highly probable. Movements in the liabilities arising from realised gains and losses on relevant assets are recognised in the income statement.
Present value of in-force long-term insurance business
HSBC recognises the value placed on insurance contracts and investment contracts with DPF, which are classified as long-term and in-force at the balance sheet date, as an asset. The asset represents the present value of the equity holders' interest in the issuing insurance companies' profits expected to emerge from these contracts written at the balance sheet date. The present value of in-force business ('PVIF') is determined by discounting those expected future profits using appropriate assumptions in assessing factors such as future mortality, lapse rates and levels of expenses, and a risk discount rate that reflects the risk premium attributable to the respective contracts. The PVIF incorporates allowances for both non-market risk and the value of financial options and guarantees. The PVIF asset is presented gross of attributable tax in the balance sheet and movements in the PVIF asset are included in 'Other operating income' on a gross of tax basis.
(g)
Employee compensation and benefits
Share-based payments
HSBC enters into both equity-settled and cash-settled share-based payment arrangements with its employees as compensation for services provided by employees.
The vesting period for these schemes may commence before the grant date if the employees have started to render services in respect of the award before the grant date. Expenses are recognised when the employee starts to render service to which the award relates.
Cancellations result from the failure to meet a non-vesting condition during the vesting period, and are treated as an acceleration of vesting recognised immediately in the income statement. Failure to meet a vesting condition by the employee is not treated as a cancellation, and the amount of expense recognised for the award is adjusted to reflect the number of awards expected to vest.
Post-employment benefit plans
HSBC operates a number of pension schemes (including defined benefit and defined contribution) and post-employment benefit schemes.
Payments to defined contribution plans are charged as an expense as the employees render service.
Defined benefit pension obligations are calculated using the projected unit credit method. The net charge to the income statement mainly comprises the service cost and the net interest on the net defined benefit asset or liability, and is presented in operating expenses.
Re-measurements of the net defined benefit asset or liability, which comprise actuarial gains and losses, return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognised immediately in other comprehensive income. The net defined benefit asset or liability represents the present value of defined benefit obligations reduced by the fair value of plan assets, after applying the asset ceiling test, where the net defined benefit surplus is limited to the present value of available refunds and reductions in future contributions to the plan.
The cost of obligations arising from other post-employment plans are accounted for on the same basis as defined benefit pension plans.
(h)
Tax
Income tax comprises current tax and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised in other comprehensive income or directly in equity, in which case the tax is recognised in the same statement as the related item appears.
Current tax is the tax expected to be payable on the taxable profit for the year and any adjustment to tax payable in respect of previous years. HSBC provides for potential current tax liabilities that may arise on the basis of the amounts expected to be paid to the tax authorities.
Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the balance sheet, and the amounts attributed to such assets and liabilities for tax purposes. Deferred tax is calculated using the tax rates expected to apply in the periods in which the assets will be realised or the liabilities settled.
Current and deferred tax is calculated based on tax rates and laws enacted, or substantively enacted, by the balance sheet date.
Critical accounting estimates and judgements
The recognition of a deferred tax asset relies on an assessment of the probability and sufficiency of future taxable profits, future reversals of existing taxable temporary differences and ongoing tax planning strategies. In the absence of a history of taxable profits, the most significant judgements relate to expected future profitability and to the applicability of tax planning strategies, including corporate reorganisations.
(i)
Provisions, contingent liabilities and guarantees
Provisions
Provisions are recognised when it is probable that an outflow of economic benefits will be required to settle a present legal or constructive obligation that has arisen as a result of past events and for which a reliable estimate can be made.
202
HSBC Holdings plc Annual Report and Accounts 2016
Critical accounting estimates and judgements
Judgement is involved in determining whether a present obligation exists and in estimating the probability, timing and amount of any outflows. Professional expert advice is taken on the assessment of litigation, property (including onerous contracts) and similar obligations. Provisions for legal proceedings and regulatory matters typically require a higher degree of judgement than other types of provisions. When matters are at an early stage, accounting judgements can be difficult because of the high degree of uncertainty associated with determining whether a present obligation exists, and estimating the probability and amount of any outflows that may arise. As matters progress, management and legal advisers evaluate on an ongoing basis whether provisions should be recognised, revising previous judgements and estimates as appropriate. At more advanced stages, it is typically easier to make judgements and estimates around a better defined set of possible outcomes. However, the amount provisioned can remain very sensitive to the assumptions used. There could be a wide range of possible outcomes for any pending legal proceedings, investigations or inquiries. As a result, it is often not practicable to quantify a range of possible outcomes for individual matters. It is also not practicable to meaningfully quantify ranges of potential outcomes in aggregate for these types of provisions because of the diverse nature and circumstances of such matters and the wide range of uncertainties involved. Provisions for customer remediation also require significant levels of estimation and judgement. The amounts of provisions recognised depend on a number of different assumptions, such as, the volume of inbound complaints, the projected period of inbound complaint volumes, the decay rate of complaint volumes, the population identified as systemically mis-sold and the number of policies per customer complaint.
Contingent liabilities, contractual commitments and guarantees
Contingent liabilities
Contingent liabilities, which include certain guarantees and letters of credit pledged as collateral security, and contingent liabilities related to legal proceedings or regulatory matters, are not recognised in the financial statements but are disclosed unless the probability of settlement is remote.
Financial guarantee contracts
Liabilities under financial guarantee contracts which are not classified as insurance contracts are recorded initially at their fair value, which is generally the fee received or present value of the fee receivable.
HSBC Holdings has issued financial guarantees and similar contracts to other Group entities. HSBC elects to account for certain guarantees as insurance contracts in HSBC Holdings' financial statements, in which case they are measured and recognised as insurance liabilities. This election is made on a contract by contract basis, and is irrevocable.
2 Net income/(expense) from financial instruments designated at fair value
 
2016
2015
2014
 
$m
$m
$m
Net income/(expense) arising on:
 
 
 
Financial assets
 
 
 
Financial assets held to meet liabilities under insurance and investment contracts
1,480
531
2,300
Other financial assets designated at fair value
90
89
131
Derivatives managed with other financial assets designated at fair value
(43
)
13
(19
)
 
1,527
633
2,412
Financial liabilities
 
 
 
Liabilities to customers under investment contracts
(218
)
34
(435
)
HSBC's long-term debt issued and related derivatives
(3,975
)
863
508
- changes in own credit spread on long-term debt
(1,792
)
1,002
417
- derivatives managed in conjunction with HSBC's issued debt securities
(1,367
)
(1,997
)
333
- other changes in fair value
(816
)
1,858
(242
)
Other financial liabilities designated at fair value
(6
)
3
(23
)
Derivatives managed with other financial liabilities designated at fair value
6
(1
)
11
 
(4,193
)
899
61
Year ended 31 Dec
(2,666
)
1,532
2,473
HSBC Holdings
Net income/(expense) arising on HSBC Holdings' long-term debt issued and related derivatives
 
 
2016
2015
2014
 
Footnotes
$m
$m
$m
Net income/(expense) arising on:
 
 
 
 
- changes in own credit spread on long-term debt
1
-
348
339
- derivatives managed in conjunction with HSBC Holdings' issued debt securities
 
(642
)
(927
)
126
- other changes in fair value
 
593
855
(27
)
Year ended 31 Dec
 
(49
)
276
438
1
From 1 January 2016, HSBC Holdings adopted, in its separate financial statements, the requirements of IFRS 9 'Financial Instruments' relating to the presentation of gains and losses on financial liabilities designated at fair value. As a result, the effects of changes in those liabilities' credit risk is presented in other comprehensive income with the remaining effect presented in profit or loss.
HSBC Holdings plc Annual Report and Accounts 2016
203
Notes on the Financial Statements
3 Insurance business
Net insurance premium income
 
Non-linked
insurance
Linked life
insurance
Investment contracts
with DPF1
Total
 
$m
$m
$m
$m
Gross insurance premium income
8,036
675
1,877
10,588
Reinsurers' share of gross insurance premium income
(629
)
(8
)
-
(637
)
Year ended 31 Dec 2016
7,407
667
1,877
9,951
 
 
 
 
 
Gross insurance premium income
7,506
1,409
2,097
11,012
Reinsurers' share of gross insurance premium income
(648
)
(9
)
-
(657
)
Year ended 31 Dec 2015
6,858
1,400
2,097
10,355
 
 
 
 
 
Gross insurance premium income
7,705
2,195
2,470
12,370
Reinsurers' share of gross insurance premium income
(441
)
(8
)
-
(449
)
Year ended 31 Dec 2014
7,264
2,187
2,470
11,921
1
Discretionary participation features.
Net insurance claims and benefits paid and movement in liabilities to policyholders
 
Non-linked
insurance
Linked life
insurance
Investment
contracts
with DPF1
Total
 
$m
$m
$m
$m
Gross claims and benefits paid and movement in liabilities
8,778
1,321
2,409
12,508
- claims, benefits and surrenders paid
2,828
749
2,017
5,594
- movement in liabilities
5,950
572
392
6,914
Reinsurers' share of claims and benefits paid and movement in liabilities
(560
)
(78
)
-
(638
)
- claims, benefits and surrenders paid
(112
)
(14
)
-
(126
)
- movement in liabilities
(448
)
(64
)
-
(512
)
Year ended 31 Dec 2016
8,218
1,243
2,409
11,870
 
 
 
 
 
Gross claims and benefits paid and movement in liabilities
7,746
1,398
2,728
11,872
- claims, benefits and surrenders paid
3,200
1,869
2,101
7,170
- movement in liabilities
4,546
(471
)
627
4,702
Reinsurers' share of claims and benefits paid and movement in liabilities
(575
)
(5
)
-
(580
)
- claims, benefits and surrenders paid
(153
)
(64
)
-
(217
)
- movement in liabilities
(422
)
59
-
(363
)
Year ended 31 Dec 2015
7,171
1,393
2,728
11,292
 
 
 
 
 
Gross claims and benefits paid and movement in liabilities
7,770
2,765
3,188
13,723
- claims, benefits and surrenders paid
3,575
1,499
2,215
7,289
- movement in liabilities
4,195
1,266
973
6,434
Reinsurers' share of claims and benefits paid and movement in liabilities
(411
)
33
-
(378
)
- claims, benefits and surrenders paid
(176
)
(88
)
-
(264
)
- movement in liabilities
(235
)
121
-
(114
)
Year ended 31 Dec 2014
7,359
2,798
3,188
13,345
1
Discretionary participation features.
204
HSBC Holdings plc Annual Report and Accounts 2016
Liabilities under insurance contracts
 
 
Non-linked
insurance
Linked life
insurance
Investment
contracts
with DPF1
Total
 
Footnotes
$m
$m
$m
$m
Gross liabilities under insurance contracts at 1 Jan 2016
 
40,538
6,791
22,609
69,938
Claims and benefits paid
 
(2,828
)
(749
)
(2,017
)
(5,594
)
Increase in liabilities to policyholders
 
8,778
1,321
2,409
12,508
Disposals/transfers to held-for-sale
 
-
-
-
-
Exchange differences and other movements
2
(445
)
(414
)
(720
)
(1,579
)
Gross liabilities under insurance contracts at 31 Dec 2016
 
46,043
6,949
22,281
75,273
Reinsurers' share of liabilities under insurance contracts
 
(1,500
)
(320
)
-
(1,820
)
Net liabilities under insurance contracts at 31 Dec 2016
 
44,543
6,629
22,281
73,453
 
 
 
 
 
 
Gross liabilities under insurance contracts at 1 Jan 2015
 
36,973
11,820
25,068
73,861
Claims and benefits paid
 
(3,200
)
(1,869
)
(2,101
)
(7,170
)
Increase in liabilities to policyholders
 
7,746
1,398
2,728
11,872
Disposals/transfers to held-for-sale
 
(443
)
(4,594
)
-
(5,037
)
Exchange differences and other movements
2
(538
)
36
(3,086
)
(3,588
)
Gross liabilities under insurance contracts at 31 Dec 2015
 
40,538
6,791
22,609
69,938
Reinsurers' share of liabilities under insurance contracts
 
(1,115
)
(263
)
-
(1,378
)
Net liabilities under insurance contracts at 31 Dec 2015
 
39,423
6,528
22,609
68,560
1
Discretionary participation features.
2
'Exchange differences and other movements' includes movements in liabilities arising from net unrealised investment gains recognised in other comprehensive income.
The key factors contributing to the movement in liabilities to policyholders included 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.
HSBC Holdings plc Annual Report and Accounts 2016
205
Notes on the Financial Statements
4 Operating profit
Operating profit is stated after the following items:
 
2016
2015
2014
 
$m
$m
$m
Income
 
 
Interest recognised on impaired financial assets
574
934
1,137
Fees earned on financial assets that are not at fair value through profit or loss (other than amounts included in determining the effective interest rate)
7,732
8,736
9,438
Fees earned on trust and other fiduciary activities
2,543
3,052
3,253
Expense
Interest on financial instruments, excluding interest on financial liabilities held for trading or designated at fair value
(11,858
)
(13,680
)
(15,322
)
Fees payable on financial liabilities that are not at fair value through profit or loss (other than amounts included in determining the effective interest rate)
(1,214
)
(1,251
)
(1,427
)
Fees payable relating to trust and other fiduciary activities
(129
)
(166
)
(185
)
Payments under lease and sublease agreements
(969
)
(1,190
)
(1,548
)
- minimum lease payments
(945
)
(1,058
)
(1,199
)
- contingent rents and sublease payments
(24
)
(132
)
(349
)
UK bank levy
(922
)
(1,421
)
(1,066
)
Restructuring provisions
(415
)
(430
)
(147
)
Gains/(losses)
Impairment of available-for-sale equity securities
(36
)
(111
)
(373
)
Gains/(losses) recognised on assets held for sale
(206
)
(244
)
220
Gains on the partial sale of shareholding in Industrial Bank
-
1,372
-
Loss on disposal of Brazilian operations
(1,743
)
-
-
Loan impairment charges and other credit risk provisions
(3,400
)
(3,721
)
(3,851
)
- net impairment charge on loans and advances
(3,350
)
(3,592
)
(4,055
)
- release of impairment on available-for-sale debt securities
63
17
319
- other credit risk provisions
(113
)
(146
)
(115
)
External net operating income is attributed to countries on the basis of the location of the branch responsible for reporting the results or advancing the funds:
 
 
2016
2015
2014
 
Footnote
$m
$m
$m
External net operating income by country
1
47,966
59,800
61,248
- UK
9,495
14,132
14,392
- Hong Kong
12,864
14,447
12,656
- US
5,094
5,541
5,736
- France
2,571
2,706
2,538
- other countries
17,942
22,974
25,926
- of which: Brazil
(204
)
3,546
4,817
1
Net operating income before loan impairment charges and other credit risk provisions, also referred to as revenue.
5 Employee compensation and benefits
 
2016
2015
2014
 
$m
$m
$m
Wages and salaries
15,735
17,245
17,477
Social security costs
1,312
1,600
1,666
Post-employment benefits
1,042
1,055
1,223
Year ended 31 Dec
18,089
19,900
20,366
Average number of persons employed by HSBC during the year by global business
 
2016
2015
2014
Retail Banking and Wealth Management
137,234
155,859
156,397
Commercial Banking
45,912
51,007
50,519
Global Banking and Markets
47,623
49,912
47,219
Global Private Banking
8,322
8,934
8,799
Corporate Centre
7,842
2,721
1,833
Year ended 31 Dec
246,933
268,433
264,767
206
HSBC Holdings plc Annual Report and Accounts 2016
Average number of persons employed by HSBC during the year by geographical region
 
Footnote
2016
2015
2014
Europe
1
71,196
68,408
68,163
Asia
 
122,282
121,438
116,492
Middle East and North Africa
1
12,021
14,467
14,477
North America
 
20,353
21,506
21,983
Latin America
 
21,081
42,614
43,652
Year ended 31 Dec
 
246,933
268,433
264,767
1
2015 and 2014 figures are restated for the changes explained on page 44.
Reconciliation of total incentive awards granted to income statement charge
 
2016
2015
2014
 
$m
$m
$m
Total incentive awards approved and granted for the current year
3,035
3,462
3,660
Less: deferred bonuses awarded, expected to be recognised in future periods
(323
)
(387
)
(359
)
Total incentives awarded and recognised in the current year
2,712
3,075
3,301
Add: current year charges for deferred bonuses from previous years
371
483
425
Other
(128
)
(40
)
(114
)
Income statement charge for incentive awards
2,955
3,518
3,612
Year in which income statement is expected to reflect deferred bonuses
 
Charge recognised
Expected charge
 
2016
2015
2014
2017
2018 and beyond
 
$m
$m
$m
$m
$m
Variable compensation from 2016 bonus pool
152
-
-
137
186
Variable compensation from 2015 bonus pool
168
253
-
128
76
Variable compensation from 2014 bonus pool and earlier
203
483
670
88
28
Total
523
736
670
353
290
Cash awards
163
168
150
102
98
Equity awards
360
568
520
251
192
Share-based payments
'Wages and salaries' includes the effect of share-based payments arrangements, of which $534m were equity settled (2015: $757m; 2014: $732m), as follows:
 
2016
2015
2014
 
$m
$m
$m
Restricted share awards
591
748
738
Savings-related and other share award option plans
33
43
36
Year ended 31 Dec
624
791
774
HSBC share awards
Award
Policy
Restricted share awards (including annual incentive awards delivered in shares) and GPSP
• An assessment of performance over the relevant period ending on 31 December is used to determine the amount of the award to be granted.
• Deferred awards generally require employees to remain in employment over the vesting period and are not subject to performance conditions after the grant date.
• Deferred share awards generally vest over a period of three years and GPSP awards vest after five years.
• Vested shares may be subject to a retention requirement post-vesting. GPSP awards are retained until cessation of employment.
• Awards granted from 2010 onwards are subject to a malus provision prior to vesting.
• Awards granted to Material Risk Takers from 2015 onwards are subject to clawback post vesting.
International Employee Share Purchase Plan ('ShareMatch')
• The plan was first introduced in Hong Kong in 2013 and now includes employees based in 25 jurisdictions.
• Shares are purchased in the market each quarter up to a maximum value of £750, or the equivalent in local currency.
• Matching awards are added at a ratio of one free share for every three purchased.
• Matching awards vest subject to continued employment and the retention of the purchased shares for a maximum period of two years and nine months.
HSBC Holdings plc Annual Report and Accounts 2016
207
Notes on the Financial Statements
Movement on HSBC share awards
 
2016
2015
 
Number
Number
 
(000s)
(000s)
Restricted share awards outstanding at 1 Jan
118,665
116,483
Additions during the year
94,981
80,749
Released in the year
(76,552
)
(75,235
)
Forfeited in the year
(13,928
)
(3,332
)
Restricted share awards outstanding at 31 Dec
123,166
118,665
Weighted average fair value of awards granted ($)
7.25
9.67
HSBC share option plans
Main plans
Policy
Savings-related share option plans ('Sharesave')
• Two plans: the UK Plan and the International Plan. The last grant of options under the International Plan was in 2012.
• From 2014, eligible employees can save up to £500 per month with the option to use the savings to acquire shares.
• Exercisable within six months following either the third or fifth anniversaries of the commencement of a three-year or five-year contract, respectively.
• The exercise price is set at a 20% (2015: 20%) discount to the market value immediately preceding the date of invitation.
HSBC Holdings Group share option plan
• Plan ceased in May 2005.
• Exercisable between the third and 10th anniversaries of the date of grant.
Calculation of fair values
The fair values of share options are calculated using a Black-Scholes model. The fair value of a share award is based on the share price at the date of the grant.
Movement on HSBC share option plans
 
 
Savings-relatedshare option plans
HSBC Holdings Groupshare option plan
 
 
Number
WAEP1
Number
WAEP1
 
Footnotes
(000s)
£
(000s)
£
Outstanding at 1 Jan 2016
 
74,775
4.36
-
-
Granted during the year
2
15,044
4.40
-
-
Exercised during the year
3
(4,354
)
5.02
-
-
Expired during the year
 
(15,438
)
4.47
-
-
Outstanding at 31 Dec 2016
 
70,027
4.30
-
-
Weighted average remaining contractual life (years)
 
2.91
 
-
 
 
 
 
 
 
 
Outstanding at 1 Jan 2015
 
66,366
4.89
6,374
7.29
Granted during the year
2
52,629
4.05
-
-
Exercised during the year
3
(21,120
)
4.45
-
-
Expired during the year
 
(23,100
)
5.11
(6,374
)
7.29
Outstanding at 31 Dec 2015
 
74,775
4.36
-
-
Weighted average remaining contractual life (years)
 
3.92
 
-
 
1
Weighted average exercise price.
2
The weighted average fair value of options granted during the year was $1.28 (2015: $1.09).
3
The weighted average share price at the date the options were exercised was $6.98 (2015: $8.50) and $0 (2015: $0) for the savings-related share option plans and HSBC Holdings Group share option plan, respectively.
Post-employment benefit plans
The Group operates pension plans throughout the world for its employees. 'Pension risk management' on page 84 contains details of the policies and practices associated with these pension plans. Some are defined benefit plans, of which the largest is the HSBC Bank (UK) Pension Scheme ('the principal plan').
The principal plan
The principal plan has a defined benefit section and a defined contribution section. The defined benefit section was closed to future benefit accrual in 2015, with defined benefits earned by employees at that date continuing to be linked to their salary while they remain employed by HSBC Bank. The plan is overseen by an independent corporate trustee, who has a fiduciary responsibility for the operation of the plan. Its assets are held separately from the assets of the Group.
The investment strategy of the plan is to hold the majority of assets in bonds, with the remainder in a diverse range of investments. It also includes some interest rate swaps to reduce interest rate risk and inflation swaps to reduce inflation risk.
208
HSBC Holdings plc Annual Report and Accounts 2016
The latest funding valuation of the plan at 31 December 2014 was carried out by Colin G Singer, of Willis Towers Watson Limited, who is a Fellow of the UK Institute and Faculty of Actuaries, using the projected unit credit method. At that date, the market value of the plan's assets was £24.6bn ($30.3bn) and this exceeded the value placed on its liabilities on an ongoing basis by £520m ($641m), giving a funding level of 102%. The main differences between the assumptions used for assessing the liabilities for this funding valuation and those used for IAS 19 (see 'Key actuarial assumptions' section below) are more prudent discount rate, inflation and longevity assumptions.
Although the plan was in surplus at the valuation date, HSBC agreed to make further contributions to the plan to support a lower-risk investment strategy over the longer term. These contributions amounted to £128m ($158m) in 2016 and are expected to amount to £64m ($79m) in each of 2017, 2018 and 2019, and £160m ($197m) in each of 2020 and 2021.
The chart below shows the expected profile of future benefits payable from the plan.
Future benefit payments ($bn)
The actuary also assessed the value of the liabilities if the plan were to be stopped and an insurance company asked to secure all future pension payments. This is generally larger than the amount needed on the ongoing basis described above because an insurance company would use more prudent assumptions and include an explicit allowance for the future administrative expenses of the plan. Under this approach, the amount of assets needed was estimated to be £31bn ($38bn) at 31 December 2014.
Income statement charge
 
2016
2015
2014
 
$m
$m
$m
Defined benefit pension plans
218
256
469
Defined contribution pension plans
783
793
687
Pension plans
1,001
1,049
1,156
Defined benefit and contribution healthcare plans
41
6
67
Year ended 31 Dec
1,042
1,055
1,223
Net assets/(liabilities) recognised on the balance sheet in respect of defined benefit plans
 
Fair value ofplan assets
Present value of defined benefitobligations
Effect oflimit on plansurpluses
Total
 
$m
$m
$m
$m
Defined benefit pension plans
42,397
(39,747
)
(24
)
2,626
Defined benefit healthcare plans
118
(711
)
-
(593
)
At 31 Dec 2016
42,515
(40,458
)
(24
)
2,033
Total employee benefit liabilities(within 'Accruals, deferred income and other liabilities')
(2,681
)
Total employee benefit assets(within 'Prepayments, accrued income and other assets')
4,714
 
 
 
 
 
Defined benefit pension plans
41,424
(38,326
)
(14
)
3,084
Defined benefit healthcare plans
141
(762
)
-
(621
)
At 31 Dec 2015
41,565
(39,088
)
(14
)
2,463
Total employee benefit liabilities(within 'Accruals, deferred income and other liabilities')
 
 
 
(2,809
)
Total employee benefit assets(within 'Prepayments, accrued income and other assets')
 
 
 
5,272
HSBC Holdings plc Annual Report and Accounts 2016
209
Notes on the Financial Statements
Defined benefit pension plans
Net asset/(liability) under defined benefit pension plans
 
Fair value of plan assets
 
Present value of defined benefit obligations
 
Effect of the asset ceiling
 
Net defined benefit asset/(liability)
 
 
Principal
plan
Other
plans
Principal
plan
Other
plans
Principal
plan
Other
plans
Principal
plan
Other
plans
 
$m
$m
$m
$m
$m
$m
$m
$m
At 1 Jan 2016
32,670
8,754
(27,675
)
(10,651
)
-
(14
)
4,995
(1,911
)
Current service cost
-
-
(70
)
(235
)
-
-
(70
)
(235
)
Past service cost and gains/(losses) from settlements
-
(1
)
-
(39
)
-
-
-
(40
)
Service cost
-
(1
)
(70
)
(274
)
-
-
(70
)
(275
)
Net interest income/(cost) on the net defined benefit asset/(liability)
1,085
294
(914
)
(337
)
-
(1
)
171
(44
)
Re-measurement effects recognised in other comprehensive income
6,449
671
(6,886
)
(299
)
-
(8
)
(437
)
364
- return on plan assets (excluding interest income)
6,449
671
-
-
-
-
6,449
671
- actuarial gains/(losses)
-
-
(7,029
)
(152
)
-
(8
)
(7,029
)
(160
)
- other changes
-
-
143
(147
)
-
-
143
(147
)
Exchange differences
(6,097
)
(534
)
5,254
410
-
(1
)
(843
)
(125
)
Contributions by HSBC
347
379
-
-
-
-
347
379
- normal
64
207
-
-
-
-
64
207
- special
283
172
-
-
-
-
283
172
Contributions by employees
-
30
-
(30
)
-
-
-
-
Benefits paid
(970
)
(623
)
970
698
-
-
-
75
Administrative costs and taxes paid by plan
(42
)
(15
)
42
15
-
-
-
-
At 31 Dec 2016
33,442
8,955
(29,279
)
(10,468
)
-
(24
)
4,163
(1,537
)
Present value of defined benefit obligation relating to:
 
 
 
 
 
 
 
 
- actives
(7,066
)
(5,066
)
- deferreds
(9,219
)
(2,306
)
- pensioners
(12,994
)
(3,096
)
 
 
 
 
 
 
 
 
 
At 1 Jan 2015
35,244
9,580
(30,480
)
(11,582
)
-
(17
)
4,764
(2,019
)
Current service cost
-
-
(129
)
(268
)
-
-
(129
)
(268
)
Past service cost and gains/(losses) from settlements
-
(3
)
(53
)
71
-
-
(53
)
68
Service cost
-
(3
)
(182
)
(197
)
-
-
(182
)
(200
)
Net interest income/(cost) on the net defined benefit asset/(liability)
1,265
322
(1,088
)
(371
)
-
(2
)
177
(51
)
Re-measurement effects recognised in other comprehensive income
(1,521
)
(394
)
1,642
339
-
(30
)
121
(85
)
- return on plan assets (excluding interest income)
(1,521
)
(394
)
-
-
-
-
(1,521
)
(394
)
- actuarial gains/(losses)
-
-
1,392
339
-
(30
)
1,392
309
- other changes
-
-
250
-
-
-
250
-
Exchange differences
(1,704
)
(458
)
1,443
529
-
35
(261
)
106
Contributions by HSBC
376
279
-
-
-
-
376
279
- normal
159
227
-
-
-
-
159
227
- special
217
52
-
-
-
-
217
52
Contributions by employees
17
35
(17
)
(35
)
-
-
-
-
Benefits paid
(970
)
(590
)
970
649
-
-
-
59
Administrative costs and taxes paid by plan
(37
)
(17
)
37
17
-
-
-
-
At 31 Dec 2015
32,670
8,754
(27,675
)
(10,651
)
-
(14
)
4,995
(1,911
)
Present value of defined benefit obligation relating to:
 
 
 
 
 
 
 
 
- actives
 
 
(6,310
)
(5,350
)
 
 
 
 
- deferreds
 
 
(7,919
)
(2,239
)
 
 
 
 
- pensioners
 
 
(13,446
)
(3,062
)
 
 
 
 
HSBC expects to make $425m of contributions to defined benefit pension plans during 2017. Benefits expected to be paid from the plans to retirees over each of the next five years, and in aggregate for the five years thereafter, are as follows:
Benefits expected to be paid from plans
 
 
 
2017
2018
2019
2020
2021
2022-2026
 
Footnote
$m
$m
$m
$m
$m
$m
The principal plan
1
917
948
979
1,012
1,045
5,533
Other plans
1
427
468
489
505
536
2,492
1
The duration of the defined benefit obligation is 19.0 years for the principal plan under the disclosure assumptions adopted (2015: 17.0 years) and 13.9 years for all other plans combined (2015: 13.9 years).
210
HSBC Holdings plc Annual Report and Accounts 2016
Fair value of plan assets by asset classes
 
31 Dec 2016
31 Dec 2015
 
Value
Quotedmarket pricein activemarket
No quotedmarket pricein activemarket
ThereofHSBC1
Value
Quotedmarket pricein activemarket
No quotedmarket pricein activemarket
ThereofHSBC1
 
$m
$m
$m
$m
$m
$m
$m
$m
The principal plan
 
 
 
 
 
 
 
 
Fair value of plan assets
33,442
29,379
4,063
878
32,670
29,370
3,300
513
- equities
5,386
4,722
664
-
5,730
4,990
740
-
- bonds
23,426
23,426
-
-
22,704
22,704
-
-
- derivatives
2,107
-
2,107
878
1,011
-
1,011
513
- other
2,523
1,231
1,292
-
3,225
1,676
1,549
-
Other plans
 
 
 
 
Fair value of plan assets
8,955
7,631
1,324
239
8,754
7,882
872
148
- equities
2,255
1,502
753
-
2,434
1,900
534
1
- bonds
5,811
5,592
219
5
5,719
5,458
261
2
- derivatives
(89
)
44
(133
)
(85
)
7
-
7
1
- other
978
493
485
319
594
524
70
144
1
The fair value of plan assets includes derivatives entered into with HSBC Bank plc as detailed in Note 36.
Post-employment defined benefit plans' principal actuarial financial assumptions
HSBC determines the discount rates to be applied to its obligations in consultation with the plans' local actuaries, on the basis of current average yields of high quality (AA-rated or equivalent) debt instruments with maturities consistent with those of the defined benefit obligations.
Key actuarial assumptions for the principal plan
 
Discount rate
Inflation rate
Rate of increase for pensions
Rate of pay increase
 
%
%
%
%
UK
 
 
 
 
At 31 Dec 2016
2.50
3.50
3.20
4.00
At 31 Dec 2015
3.70
3.20
3.00
3.70
At 31 Dec 2014
3.70
3.20
3.00
3.70
Mortality tables and average life expectancy at age 65 for the principal plan
 
Mortality
table
Life expectancy at age 65 for
a male member currently:
Life expectancy at age 65 for
a female member currently:
 
 
Aged 65
Aged 45
Aged 65
Aged 45
UK
 
 
 
 
 
At 31 Dec 2016
SAPS S21
22.4
24.1
24.7
26.6
At 31 Dec 2015
SAPS S12
23.6
25.0
24.9
26.7
1
Self-administered Pension Scheme ('SAPS') S2 table (Males: 'All Pensioners' version, Females: 'Normal Pensions' version) with a multiplier of 0.98 for both male and female pensioners. Improvements are projected in accordance with the Continuous Mortality Investigation ('CMI) core projection model 2015 with a long-term rate of improvement of 1.25% per annum. Separate tables assuming lighter mortality have been applied to higher paid pensioners.
2
Self-administered Pension Scheme ('SAPS') Light table with a multiplier of 1.01 for male pensioners and 1.02 for female pensioners. Improvements are projected in accordance with the Continuous Mortality Investigation ('CMI') core projection model 2015 with a long-term rate of improvement of 1.25% per annum.
The effect of changes in key assumptions on the principal plan
 
Impact on HSBC Bank (UK) Pension Scheme Obligation
 
Financial impact of increase
Financial impact of decrease
 
2016
2015
2016
2015
 
$m
$m
$m
$m
Discount rate - increase/decrease of 0.25%
(1,322
)
(1,107
)
1,419
1,180
Inflation rate - increase/decrease of 0.25%
735
747
(1,048
)
(855
)
Pension payments and deferred pensions - increase/decrease of 0.25%
1,305
990
(1,255
)
(937
)
Pay - increase/decrease of 0.25%
143
119
(139
)
(119
)
Change in mortality - increase of 1 year
1,326
670
n/a
n/a
HSBC Holdings plc Annual Report and Accounts 2016
211
Notes on the Financial Statements
HSBC Holdings
Employee compensation and benefit expense in respect of HSBC Holdings' employees in 2016 amounted to $571m (2015: $908m). The average number of persons employed during 2016 was 1,660 (2015: 2,656). Employees who are members of defined benefit pension plans are principally members of either the HSBC Bank (UK) Pension Scheme or the HSBC International Staff Retirement Benefits Scheme. HSBC Holdings pays contributions to such plans for its own employees in accordance with the schedules of contributions determined by the trustees of the plans and recognises these contributions as an expense as they fall due.
From 1 July 2016 employment costs of most employees are recognised by the ServCo group and the ServCo group has started providing services to HSBC Holdings. HSBC Holdings recognised a management charge of $406m for these services which is included under 'General and administrative expenses'.
Directors' emoluments
Details of directors' emoluments, pensions and their interests are disclosed in the Directors' Remuneration Report on page 153.
6 Auditors' remuneration
 
 
2016
2015
2014
 
Footnotes
$m
$m
$m
Audit fees payable to PwC/KPMG
1, 2
65.7
62.0
40.6
Other audit fees payable
 
1.6
1.2
1.2
Year ended 31 Dec
 
67.3
63.2
41.8
 
 
 
 
 
 
 Fees payable by HSBC to PwC/KPMG2
 
 
 
2016
2015
2014
 
 
Footnotes
$m
$m
$m
 
Fees for HSBC Holdings' statutory audit
3
14.0
13.1
13.4
 
Fees for other services provided to HSBC
 
97.1
85.1
62.5
 
- audit of HSBC's subsidiaries
4
51.7
48.9
27.2
 
- audit-related assurance services
5
20.6
16.6
22.6
 
- taxation-related services:
 
 
taxation compliance services
 
1.9
1.0
1.5
 
taxation advisory services
 
0.4
0.9
0.8
 
- other assurance services
6
4.5
2.8
0.7
 
- other non-audit services
6
18.0
14.9
9.7
 
Year ended 31 Dec
 
111.1
98.2
75.9
No fees were payable by HSBC to PwC or KPMG as principal auditor for the following types of services: internal audit services and services related to litigation, recruitment and remuneration.
 
 
 
 
 
 
 Fees payable by HSBC's associated pension schemes to PwC/KPMG2
 
 
 
2016
2015
2014
 
 
 
$000
$000
$000
 
Audit of HSBC's associated pension schemes
 
208
352
322
 
Audit related assurance services
 
4
5
5
 
Year ended 31 Dec
 
212
357
327
1
Included within the 2016 audit fees payable is a final fee adjustment of $4.2m related to the prior year audit in respect of overruns.
2
PwC became the Group's principal auditor in 2015. KPMG was the principal auditor during 2014.
3
Fees payable to PwC and KPMG for the statutory audit of the consolidated financial statements of HSBC and the separate financial statements of HSBC Holdings. They include amounts payable for services relating to the consolidation returns of HSBC Holdings' subsidiaries which are clearly identifiable as being in support of the Group audit opinion.
4
Fees payable for the statutory audit of the financial statements of HSBC's subsidiaries, including the 2016 changes in scope and additional procedures performed due to the technology systems and data access controls matter as described on page 174.
5
Including services for assurance and other services that relate to statutory and regulatory filings, including comfort letters and interim reviews and work performed related to the implementation of IFRS 9.
6
Including other permitted services relating to advisory, corporate finance transactions, etc.
No fees were payable by HSBC's associated pension schemes to PwC or KPMG as principal auditor for the following types of services: audit-related assurance services, internal audit services, other assurance services, services related to corporate finance transactions, valuation and actuarial services, litigation, recruitment and remuneration, and information technology.
In addition to the above, the estimated fees paid to PwC by third parties other than HSBC amount to $4.3m (PwC 2015: $2.4m; KPMG 2014: $3.6m). In these cases, HSBC is connected with the contracting party and may therefore be involved in appointing PwC. These fees arise from services such as auditing mutual funds managed by HSBC and reviewing the financial position of corporate concerns which borrow from HSBC.
Fees payable for non-audit services for HSBC Holdings are not disclosed separately because such fees are disclosed on a consolidated basis for the HSBC Group.
212
HSBC Holdings plc Annual Report and Accounts 2016
7 Tax
Tax expense
 
 
2016
2015
2014
 
Footnotes
$m
$m
$m
Current tax
1
3,669
3,797
3,950
- for this year
 
3,525
3,882
4,477
- adjustments in respect of prior years
 
144
(85
)
(527
)
Deferred tax
 
(3
)
(26
)
25
- origination and reversal of temporary differences
 
(111
)
(153
)
(477
)
- effect of changes in tax rates
 
(4
)
110
83
- adjustments in respect of prior years
 
112
17
419
Year ended 31 Dec
 
3,666
3,771
3,975
1
Current tax included Hong Kong profits tax of $1,118m (2015: $1,294m; 2014: $1,135m). The Hong Kong tax rate applying to the profits of subsidiaries assessable in Hong Kong was 16.5% (2015: 16.5%; 2014: 16.5%).
Tax reconciliation
The tax charged to the income statement differs from the tax charge that would apply if all profits had been taxed at the UK corporation tax rate as follows:
 
2016
2015
2014
 
$m
%
$m
%
$m
%
Profit before tax
7,112
 
18,867
 
18,680
 
Tax expense
 
 
 
 
 
 
Taxation at UK corporation tax rate of 20.0% (2015: 20.25%; 2014: 21.5%)
1,422
20.0
3,821
20.25
4,016
21.50
Impact of differently taxed overseas profits in overseas locations
43
0.6
71
0.4
33
0.2
Items increasing tax charge in 2016 not in 2015:
- non-deductible goodwill write-down
648
9.1
-
-
-
-
- non-deductible loss and taxes suffered on Brazil disposal
464
6.5
-
-
-
-
- UK tax losses not recognised
305
4.3
-
-
-
-
- adjustments in respect of prior period liabilities
256
3.6
(68
)
(0.4
)
(108
)
(0.6
)
- UK Banking Surcharge
199
2.8
-
-
-
-
- non-UK tax losses not recognised
147
2.1
-
-
-
-
Other items increasing tax charge in 2016:
- local taxes and overseas withholding taxes
434
6.1
416
2.2
434
2.3
- other permanent disallowables
438
6.2
421
2.2
476
2.5
- bank levy
170
2.4
286
1.5
229
1.2
- non-deductible UK customer compensation
162
2.3
87
0.5
-
-
- other items
-
-
(116
)
(0.6
)
(22
)
(0.1
)
- non-deductible regulatory settlements
20
0.3
184
1.0
264
1.4
Items reducing tax charge in 2016:
 
 
 
 
 
 
- non-taxable income and gains
(577
)
(8.1
)
(501
)
(2.7
)
(668
)
(3.5
)
- effect of profits in associates and joint ventures
(461
)
(6.5
)
(508
)
(2.7
)
(547
)
(2.9
)
- change in tax rates
(4
)
(0.1
)
110
0.6
22
0.1
Non-taxable income and gains - Industrial Bank
-
-
(227
)
(1.2
)
-
-
US deferred tax temporary differences previously not recognised
-
-
(184
)
(1.0
)
(154
)
(0.8
)
Other deferred tax temporary differences previously not recognised
-
-
(21
)
(0.1
)
-
-
Year ended 31 Dec
3,666
51.6
3,771
20.0
3,975
21.3
The Group's profits are taxed at different rates depending on the country in which the profits arise. The key applicable tax rates include Hong Kong (16.5%), USA (35%) and UK (20%). If the Group's profits were taxed at the statutory rates of the countries in which the profits arise then the tax rate for the year would have been 20.6% (2015: 20.65%). The effective tax rate for the year was 51.6% (2015: 20%) and was significantly higher than 2015 due to the non-deductible goodwill write-down and loss on disposal of Brazil, tax losses not recognised, adjustments in respect of prior periods and the 8% UK banking surcharge, which became applicable from 1 January 2016.
Accounting for taxes involves some estimation because the tax law is uncertain and its application requires a degree of judgement, which authorities may dispute. Liabilities are recognised based on best estimates of the probable outcome, taking into account external advice where appropriate. We do not expect significant liabilities to arise in excess of the amounts provided. HSBC only recognises current and deferred tax assets where recovery is probable.
HSBC Holdings plc Annual Report and Accounts 2016
213
Notes on the Financial Statements
Movement of deferred tax assets and liabilities
 
 
Loanimpairmentprovisions
Unused taxlosses andtax credits
Derivatives,FVOD1and otherinvestments
Insurancebusiness
Expenseprovisions
Other
Total
 
Footnotes
$m
$m
$m
$m
$m
$m
$m
Assets
 
1,351
1,388
1,400
-
1,271
1,050
6,460
Liabilities
 
-
-
(230
)
(1,056
)
-
(883
)
(2,169
)
At 1 Jan 2016
 
1,351
1,388
1,170
(1,056
)
1,271
167
4,291
Income statement
3
(279
)
876
18
(123
)
(370
)
(314
)
(192
)
Other comprehensive income
 
-
-
28
-
-
259
287
Equity
 
-
-
-
-
-
20
20
Foreign exchange and other adjustments
 
(122
)
(52
)
(49
)
9
(8
)
356
134
At 31 Dec 2016
 
950
2,212
1,167
(1,170
)
893
488
4,540
Assets
2
950
2,212
1,441
-
893
1,857
7,353
Liabilities
2
-
-
(274
)
(1,170
)
-
(1,369
)
(2,813
)
 
 
 
 
 
 
 
 
 
Assets
 
2,264
1,332
1,764
-
1,244
836
7,440
Liabilities
 
-
-
(233
)
(861
)
-
(759
)
(1,853
)
At 1 Jan 2015
 
2,264
1,332
1,531
(861
)
1,244
77
5,587
Income statement
 
45
379
(557
)
(143
)
418
(116
)
26
Other comprehensive income
 
-
-
22
-
156
321
499
Reclassification to 'Assets held for sale'
(673
)
(186
)
76
87
(386
)
(136
)
(1,218
)
Equity
 
-
-
-
-
-
4
4
Foreign exchange and other adjustments
 
(285
)
(137
)
98
(139
)
(161
)
17
(607
)
At 31 Dec 2015
 
1,351
1,388
1,170
(1,056
)
1,271
167
4,291
Assets
2
1,351
1,388
1,400
-
1,271
1,050
6,460
Liabilities
2
-
-
(230
)
(1,056
)
-
(883
)
(2,169
)
1
Fair value of own debt.
2
After netting off balances within countries, the balances as disclosed in the accounts are as follows: deferred tax assets $6,163m (2015: $6,051m); and deferred tax liabilities $1,623m (2015: $1,760m).
3
Excludes a tax credit of $195m relating to deferred tax balances in Brazil, which were included within 'Assets held for sale' prior to disposal.
In applying judgement in recognising deferred tax assets, management has critically assessed all available information, including future business profit projections and the track record of meeting forecasts.
The net deferred tax asset of $4.5bn (2015: $4.3bn) includes $4.8bn (2015: $4.5bn) deferred tax assets relating to the US, of which $2bn deferred tax asset relates to US tax losses that expire in 16-20 years. Management expects the US deferred tax asset to be substantially recovered in six to seven years, with the majority recovered in the first five years. The most recent financial forecasts approved by management covers a five-year period and the forecasts have been extrapolated beyond five years by assuming that performance remains constant after the fifth year. The forecasts also include additional tax losses in 2017 - these losses expire in 2037 and are expected to be utilised by 2023.
The US reported a loss for the current period, mainly due to the Household International class action litigation settlement. Excluding the Household International class action settlement the US would have reported a profit for the current year. In addition, the US reported a profit in 2014 and 2015. Management does not expect the current year loss to adversely impact future deferred tax asset recovery to a significant extent.
The US deferred tax asset has been calculated using the current federal tax rate of 35%. Any possible future reduction of the US federal tax rate from 35% would reduce the value of the US deferred tax assets and create a tax charge in the period in which any change in the tax rate is enacted. This tax charge should be ultimately offset by the benefit of reduced US tax charges in future years.
Unrecognised deferred tax
The amount of gross temporary differences, unused tax losses and tax credits for which no deferred tax asset is recognised in the balance sheet was $18.2bn (2015: $15.5bn). These amounts included unused state losses arising in the Group's US operations of $12.3bn (2015: $11.3bn). Of the total amounts unrecognised, $4.9bn (2015: $3.1bn) had no expiry date, $1.0bn (2015: $0.9bn) was scheduled to expire within 10 years and the remaining balance is expected to expire after 10 years.
Deferred tax is not recognised in respect of the Group's investments in subsidiaries and branches where HSBC is able to control the timing of remittance or other realisation and where remittance or realisation is not probable in the foreseeable future. The aggregate temporary differences relating to unrecognised deferred tax liabilities arising on investments in subsidiaries and branches is $10.6bn (2015: $9.1bn) and the corresponding unrecognised deferred tax liability is $0.7bn (2015: $0.6bn).
214
HSBC Holdings plc Annual Report and Accounts 2016
8 Dividends
Dividends to shareholders of the parent company
 
2016
2015
2014
 
Per
share
$
Total
$m
Settled
in scrip
$m
Per
share
$
Total
$m
Settled
in scrip $m
Per
share
$
Total
$m
Settled
in scrip $m
Dividends paid on ordinary shares
In respect of previous year:
- fourth interim dividend
0.21
4,137
408
0.20
3,845
2,011
0.19
3,582
1,827
In respect of current year:
- first interim dividend
0.10
1,981
703
0.10
1,951
231
0.10
1,906
284
- second interim dividend
0.10
1,991
994
0.10
1,956
160
0.10
1,914
372
- third interim dividend
0.10
1,990
935
0.10
1,958
760
0.10
1,918
226
Total
0.51
10,099
3,040
0.50
9,710
3,162
0.49
9,320
2,709
Total dividends on preference shares classified as equity (paid quarterly)
62.00
90
62.00
90
62.00
90
Total coupons on capital securities classified as equity
 
 
 
2016
2015
2014
 
 
 
 
Total
Total
Total
 
Footnotes
First call date
Per security
$m
$m
$m
Perpetual subordinated capital securities
1, 3
 
 
 
 
 
- $2,200m
 
Apr 2013
$2.032
179
179
179
- $3,800m
 
Dec 2015
$2.000
304
304
304
Perpetual subordinated contingent convertible securities
2, 3
 
 
 
 
 
- $2,250m issued at 6.375%
 
Sep 2024
$63.750
143
143
-
- $1,500m issued at 5.625%
 
Jan 2020
$56.250
84
70
-
- €1,500m issued at 5.250%
 
Sep 2022
€52.500
88
86
-
- $2,450m issued at 6.375%
 
Mar 2025
$63.750
156
78
-
- €1,000m issued at 6.000%
 
Sep 2023
€60.000
67
-
-
- $2,000m issued at 6.875%
 
Jun 2021
$68.750
69
-
-
Total
 
 
 
1,090
860
483
1
Discretionary coupons are paid quarterly on the perpetual subordinated capital securities, in denominations of $25 per security.
2
Discretionary coupons are paid semi-annually on the perpetual subordinated contingent convertible securities, in denominations of 1,000 per security.
3
Further details of these securities can be found in Note 32.
After the end of the year, the Directors declared a fourth interim dividend in respect of the financial year ended 31 December 2016 of $0.21 per ordinary share, a distribution of approximately $4,172m. The fourth interim dividend will be payable on 6 April 2017 to holders on the Principal Register in the UK, the Hong Kong Overseas Branch Register or the Bermuda Overseas Branch Register on 24 February 2017. No liability was recorded in the financial statements in respect of the fourth interim dividend for 2016.
On 17 January 2017, HSBC paid a coupon on its $2,200m subordinated capital securities of $0.508 per security, a distribution of $45m. On 17 January 2017, HSBC paid a coupon on its $1,500m subordinated contingent convertible securities of $28.125 per security, a distribution of $42m. No liability was recorded in the balance sheet at 31 December 2016 in respect of these coupon payments.
HSBC Holdings plc Annual Report and Accounts 2016
215
Notes on the Financial Statements
9 Earnings per share
Basic earnings per ordinary share is calculated by dividing the profit attributable to ordinary shareholders of the parent company by the weighted average number of ordinary shares outstanding, excluding own shares held. Diluted earnings per ordinary share is calculated by dividing the basic earnings, which require no adjustment for the effects of dilutive potential ordinary shares, by the weighted average number of ordinary shares outstanding, excluding own shares held, plus the weighted average number of ordinary shares that would be issued on conversion of dilutive potential ordinary shares.
Profit attributable to the ordinary shareholders of the parent company
 
2016
2015
2014
 
$m
$m
$m
Profit attributable to shareholders of the parent company
2,479
13,522
13,688
Dividend payable on preference shares classified as equity
(90
)
(90
)
(90
)
Coupon payable on capital securities classified as equity
(1,090
)
(860
)
(483
)
Year ended 31 Dec
1,299
12,572
13,115
Basic and diluted earnings per share
 
 
2016
2015
2014
 
 
Profit
Numberof shares
Pershare
Profit
Number
of shares
Per
share
Profit
Number
of shares
Per
share
 
Footnote
$m
(millions)
$
$m
(millions)
$
$m
(millions)
$
Basic
1
1,299
19,753
0.07
12,572
19,380
0.65
13,115
18,960
0.69
Effect of dilutive potential ordinary shares
 
92
 
137
 
 
96
 
Diluted
1
1,299
19,845
0.07
12,572
19,517
0.64
13,115
19,056
0.69
1
Weighted average number of ordinary shares outstanding (basic) or assuming dilution (diluted).
The weighted average number of dilutive potential ordinary shares excludes 10m employee share options that were anti‑dilutive (2015: 7m; 2014: 6m).
10 Trading assets
 
 
2016
2015
 
Footnote
$m
$m
Treasury and other eligible bills
 
14,451
7,829
Debt securities
 
94,054
99,038
Equity securities
 
63,604
66,491
Trading securities
 
172,109
173,358
Loans and advances to banks
1
24,769
22,303
Loans and advances to customers
1
38,247
29,176
At 31 Dec
 
235,125
224,837
1
Loans and advances to banks and customers include settlement accounts, stock borrowing, reverse repos and other amounts.
 
 
 
 
 
 Trading Securities1
 
 
 
2016
2015
 
 
Footnotes
$m
$m
 
US Treasury and US Government agencies
2
17,010
14,833
 
UK Government
 
9,493
10,177
 
Hong Kong Government
 
7,970
6,495
 
Other governments
 
49,229
48,567
 
Asset-backed securities
3
2,668
3,135
 
Corporate debt and other securities
 
22,135
23,660
 
Equity securities
 
63,604
66,491
 
At 31 Dec
 
172,109
173,358
1
Included within these figures are debt securities issued by banks and other financial institutions of $14,630m (2015: $16,403m), of which $789m (2015: $1,034m) are guaranteed by various governments.
2
Includes securities that are supported by an explicit guarantee issued by the US Government.
3
Excludes asset-backed securities included under US Treasury and US Government agencies.
216
HSBC Holdings plc Annual Report and Accounts 2016
11 Fair values of financial instruments carried at fair value
Control framework
Fair values are subject to a control framework designed to ensure that they are either determined or validated by a function independent of the risk taker.
Where fair values are determined by reference to externally quoted prices or observable pricing inputs to models, independent price determination or validation is used. For inactive markets, HSBC sources alternative market information, with greater weight given to information that is considered to be more relevant and reliable. Examples of the factors considered are price observability, instrument comparability, consistency of data sources, underlying data accuracy and timing of prices.
For fair values determined using valuation models, the control framework includes development or validation by independent support functions of the model logic, inputs, model outputs and adjustments. Valuation models are subject to a process of due diligence before becoming operational and are calibrated against external market data on an ongoing basis.
Changes in fair value are generally subject to a profit and loss analysis process and are disaggregated into high-level categories including portfolio changes, market movements and other fair value adjustments.
The majority of financial instruments measured at fair value are in GB&M. GB&M's fair value governance structure comprises its Finance function, Valuation Committees and a Valuation Committee Review Group. Finance is responsible for establishing procedures governing valuation and ensuring fair values are in compliance with accounting standards. The fair values are reviewed by the Valuation Committees, which consist of independent support functions. These Committees are overseen by the Valuation Committee Review Group, which considers all material subjective valuations.
Financial liabilities measured at fair value
In certain circumstances, HSBC records its own debt in issue at fair value, based on quoted prices in an active market for the specific instrument. When quoted market prices are unavailable, the own debt in issue is valued using valuation techniques, the inputs for which are either based on quoted prices in an inactive market for the instrument or are estimated by comparison with quoted prices in an active market for similar instruments. In both cases, the fair value includes the effect of applying the credit spread which is appropriate to HSBC's liabilities. The change in fair value of issued debt securities attributable to the Group's own credit spread is computed as follows: for each security at each reporting date, an externally verifiable price is obtained or a price is derived using credit spreads for similar securities for the same issuer. Then, using discounted cash flow, each security is valued using a Libor-based discount curve. The difference in the valuations is attributable to the Group's own credit spread. This methodology is applied consistently across all securities.
Structured notes issued and certain other hybrid instruments are included within trading liabilities and are measured at fair value. The credit spread applied to these instruments is derived from the spreads at which HSBC issues structured notes.
Gains and losses arising from changes in the credit spread of liabilities issued by HSBC reverse over the contractual life of the debt, provided that the debt is not repaid at a premium or a discount.
Fair value hierarchy
Fair values of financial assets and liabilities are determined according to the following hierarchy:
•
Level 1 - valuation technique using quoted market price: financial instruments with quoted prices for identical instruments in active markets that HSBC can access at the measurement date.
•
Level 2 - valuation technique using observable inputs: financial instruments with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using models where all significant inputs are observable.
•
Level 3 - valuation technique with significant unobservable inputs: financial instruments valued using valuation techniques where one or more significant inputs are unobservable.
Financial instruments carried at fair value and bases of valuation
 
2016
2015
 
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
 
$m
$m
$m
$m
$m
$m
$m
$m
Recurring fair value measurementsat 31 Dec
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
Trading assets
133,744
94,892
6,489
235,125
133,095
84,886
6,856
224,837
Financial assets designated at fair value
19,882
4,144
730
24,756
18,947
4,431
474
23,852
Derivatives
1,076
287,044
2,752
290,872
1,922
284,292
2,262
288,476
Financial investments: available for sale
274,655
111,743
3,476
389,874
262,929
117,197
4,727
384,853
Liabilities
 
 
 
 
 
 
 
 
Trading liabilities
45,171
104,938
3,582
153,691
41,462
95,867
4,285
141,614
Financial liabilities designated at fair value
4,248
82,547
37
86,832
5,260
61,145
3
66,408
Derivatives
1,554
275,965
2,300
279,819
2,243
277,618
1,210
281,071
HSBC Holdings plc Annual Report and Accounts 2016
217
Notes on the Financial Statements
Transfers between Level 1 and Level 2 fair values
 
Assets
Liabilities
 
Availablefor sale
Held for trading
Designatedat fair value
Derivatives
Held for trading
Designatedat fair value
Derivatives
 
$m
$m
$m
$m
$m
$m
$m
At 31 Dec 2016
 
 
 
 
 
 
 
Transfers from Level 1 to Level 2
162
1,614
122
465
2,699
-
209
Transfers from Level 2 to Level 1
1,314
-
-
-
341
-
-
 
 
 
 
 
 
 
 
At 31 Dec 2015
 
 
 
 
 
 
 
Transfers from Level 1 to Level 2
-
67
-
56
1,563
857
100
Transfers from Level 2 to Level 1
-
487
-
2
515
2
-
Transfers between levels of the fair value hierarchy are deemed to occur at the end of each semi-annual reporting period.
Fair value adjustments
Fair value adjustments are adopted when HSBC determines there are additional factors considered by market participants that are not incorporated within the valuation model. Movements in the level of fair value adjustments do not necessarily result in the recognition of profits or losses within the income statement, such as when models are enhanced and fair value adjustments may no longer be required.
Global Banking and Markets fair value adjustments
 
2016
2015
 
$m
$m
Type of adjustment
 
 
Risk-related
1,131
1,402
- bid-offer
416
477
- uncertainty
87
95
- credit valuation adjustment ('CVA')
633
853
- debit valuation adjustment ('DVA')
(437
)
(465
)
- funding fair value adjustment ('FFVA')
429
442
- other
3
-
Model-related
14
97
- model limitation
14
92
- other
-
5
Inception profit (Day 1 P&L reserves) (Note 14)
99
97
At 31 Dec
1,244
1,596
Fair value adjustments declined by $352m during the year. The most significant movement was a decline of $220m in respect of the credit valuation adjustment, driven by the disposal of Brazilian operations, refinements to modelling methodology and as a result of tightening credit spreads.
Bid-offer
IFRS 13 'Fair value measurement' requires use of the price within the bid-offer spread that is most representative of fair value. Valuation models will typically generate mid-market values. The bid-offer adjustment reflects the extent to which bid-offer costs would be incurred if substantially all residual net portfolio market risks were closed using available hedging instruments or by disposing of or unwinding the position.
Uncertainty
Certain model inputs may be less readily determinable from market data, and/or the choice of model itself may be more subjective. In these circumstances an adjustment may be necessary to reflect the likelihood that market participants would adopt more conservative values for uncertain parameters and/or model assumptions than those used in HSBC's valuation model.
Credit and debit valuation adjustments
The CVA is an adjustment to the valuation of over-the-counter ('OTC') derivative contracts to reflect the possibility that the counterparty may default and that HSBC may not receive the full market value of the transactions.
The DVA is an adjustment to the valuation of OTC derivative contracts to reflect the possibility that HSBC may default, and that it may not pay the full market value of the transactions.
HSBC calculates a separate CVA and DVA for each legal entity, and for each counterparty to which the entity has exposure. With the exception of central clearing parties, all third-party counterparties are included in the CVA and DVA calculations, and these adjustments are not netted across Group entities.
HSBC calculates the CVA by applying the probability of default ('PD') of the counterparty, conditional on the non-default of HSBC, to HSBC's expected positive exposure to the counterparty and multiplying the result by the loss expected in the event of default. Conversely, HSBC calculates the DVA by applying the PD of HSBC, conditional on the non-default of the counterparty, to the expected positive exposure of the counterparty to HSBC and multiplying the result by the loss expected in the event of default. Both calculations are performed over the life of the potential exposure.
For most products HSBC uses a simulation methodology, which incorporates a range of potential exposures over the life of the portfolio, to calculate the expected positive exposure to a counterparty. The simulation methodology includes credit mitigants, such as counterparty netting agreements and collateral agreements with the counterparty.
218
HSBC Holdings plc Annual Report and Accounts 2016
The methodologies do not, in general, account for 'wrong-way risk' which arises when the underlying value of the derivative prior to any CVA is positively correlated to the PD of the counterparty. When there is significant wrong-way risk, a trade-specific approach is applied to reflect this risk in the valuation.
Funding fair value adjustment
The FFVA is calculated by applying future market funding spreads to the expected future funding exposure of any uncollateralised component of the OTC derivative portfolio. The expected future funding exposure is calculated by a simulation methodology, where available, and is adjusted for events that may terminate the exposure, such as the default of HSBC or the counterparty. The FFVA and DVA are calculated independently.
Model limitation
Models used for portfolio valuation purposes may be based upon a simplified set of assumptions that do not capture all current and future material market characteristics. In these circumstances, model limitation adjustments are adopted.
Inception profit (Day 1 P&L reserves)
Inception profit adjustments are adopted when the fair value estimated by a valuation model is based on one or more significant unobservable inputs. The accounting for inception profit adjustments is discussed in Note 1.
Fair value valuation bases
Financial instruments measured at fair value using a valuation technique with significant unobservable inputs - Level 3
 
 
Assets
Liabilities
 
Available
for sale
Held for trading
Designated at fair value
Derivatives
Total
Held for trading
Designated at fair value
Derivatives
Total
 
$m
$m
$m
$m
$m
$m
$m
$m
$m
Private equity including strategic investments
2,435
49
712
-
3,196
25
-
-
25
Asset-backed securities
761
789
-
-
1,550
-
-
-
-
Loans held for securitisation
-
28
-
-
28
-
-
-
-
Structured notes
-
2
-
-
2
3,557
-
-
3,557
Derivatives with monolines
-
-
-
175
175
-
-
-
-
Other derivatives
-
-
-
2,577
2,577
-
-
2,300
2,300
Other portfolios
280
5,621
18
-
5,919
-
37
-
37
At 31 Dec 2016
3,476
6,489
730
2,752
13,447
3,582
37
2,300
5,919
 
 
 
 
 
 
 
 
 
 
Private equity including strategic investments
3,443
55
453
-
3,951
35
-
-
35
Asset-backed securities
1,053
531
-
-
1,584
-
-
-
-
Loans held for securitisation
-
30
-
-
30
-
-
-
-
Structured notes
-
4
-
-
4
4,250
-
-
4,250
Derivatives with monolines
-
-
-
196
196
-
-
-
-
Other derivatives
-
-
-
2,066
2,066
-
-
1,210
1,210
Other portfolios
231
6,236
21
-
6,488
-
3
-
3
At 31 Dec 2015
4,727
6,856
474
2,262
14,319
4,285
3
1,210
5,498
Level 3 instruments are present in both ongoing and legacy businesses. Loans held for securitisation, derivatives with monolines, certain 'other derivatives' and predominantly all Level 3 ABSs are legacy positions. HSBC has the capability to hold these positions.
Private equity including strategic investments
The investment's fair value is estimated: on the basis of an analysis of the investee's financial position and results, risk profile, prospects and other factors; by reference to market valuations for similar entities quoted in an active market; or the price at which similar companies have changed ownership.
Asset-backed securities
While quoted market prices are generally used to determine the fair value of these securities, valuation models are used to substantiate the reliability of the limited market data available and to identify whether any adjustments to quoted market prices are required. For certain ABSs such as residential mortgage-backed securities, the valuation uses an industry standard model with assumptions relating to prepayment speeds, default rates and loss severity based on collateral type, and performance, as appropriate. The valuations output is benchmarked for consistency against observable data for securities of a similar nature.
Structured notes
The fair value of Level 3 structured notes is derived from the fair value of the underlying debt security, and the fair value of the embedded derivative is determined as described in the paragraph below on derivatives. These structured notes comprise principally equity-linked notes issued by HSBC which provide the counterparty with a return linked to the performance of equity securities and other portfolios. Examples of the unobservable parameters include long-dated equity volatilities and correlations between equity prices, and interest and foreign exchange rates.
Derivatives
OTC derivative valuation models calculate the present value of expected future cash flows, based upon 'no-arbitrage' principles. For many vanilla derivative products, the modelling approaches used are standard across the industry. For more complex derivative products, there may be some differences in market practice. Inputs to valuation models are determined from observable market data wherever possible, including prices available from exchanges, dealers, brokers or providers of consensus pricing. Certain inputs may not be observable in the market directly, but can be determined from observable prices via model calibration procedures or estimated from historical data or other sources.
HSBC Holdings plc Annual Report and Accounts 2016
219
Notes on the Financial Statements
Reconciliation of fair value measurements in Level 3 of the fair value hierarchy
Movement in Level 3 financial instruments
 
 
Assets
Liabilities
 
 
Availablefor sale
Held for trading
Designatedat fair value
Derivatives
Held for trading
Designatedat fair value
Derivatives
 
Footnote
$m
$m
$m
$m
$m
$m
$m
At 1 Jan 2016
 
4,727
6,856
474
2,262
4,285
3
1,210
Total gains/(losses) recognised in profit or loss
 
178
31
25
1,107
337
(1
)
1,428
- trading income/(expense) excluding net interest income
 
-
31
-
1,107
337
-
1,428
- net income/(expense) from other financial instruments designated at fair value
 
-
-
25
-
-
(1
)
-
- gains less losses from financial investments
 
91
-
-
-
-
-
-
- loan impairment charges and other credit risk provisions ('LICs')
 
87
-
-
-
-
-
-
Total gains/(losses) recognised in other comprehensive income ('OCI')
1
(162
)
(610
)
(8
)
(335
)
(130
)
(1
)
(240
)
- available-for-sale investments: fair value gains/(losses)
 
123
-
-
-
-
-
-
- cash flow hedges: fair value gains/(losses)
 
-
-
-
-
-
-
12
- exchange differences
 
(285
)
(610
)
(8
)
(335
)
(130
)
(1
)
(252
)
Purchases
 
350
823
359
-
20
6
-
New issuances
 
-
-
-
-
1,882
-
-
Sales
 
(1,212
)
(1,760
)
(7
)
-
(40
)
(2
)
-
Settlements
 
(177
)
(311
)
(113
)
(107
)
(1,907
)
-
(239
)
Transfers out
 
(947
)
(199
)
(2
)
(187
)
(920
)
-
(229
)
Transfers in
 
719
1,659
2
12
55
32
370
At 31 Dec 2016
 
3,476
6,489
730
2,752
3,582
37
2,300
Unrealised gains/(losses) recognised in profitor loss relating to assets and liabilities held at31 Dec 2016
 
87
(170
)
21
364
(143
)
1
(335
)
- trading income/(expense) excluding net interest income
 
-
(170
)
-
364
(143
)
-
(335
)
- net income/(expense) from other financial instruments designated at fair value
 
-
-
21
-
-
1
-
- loan impairment charges and other credit risk provisions
 
87
-
-
-
-
-
-
 
 
 
 
 
 
 
 
 
At 1 Jan 2015
 
4,988
6,468
726
2,924
6,139
-
1,907
Total gains/(losses) recognised in profit or loss
 
(34
)
109
30
95
(573
)
(1
)
(209
)
- trading income/(expense) excluding net interest income
 
-
109
-
95
(573
)
-
(209
)
- net income from other financial instruments designated at fair value
 
-
-
30
-
-
(1
)
-
- gains less losses from financial investments
 
(269
)
-
-
-
-
-
-
- loan impairment charges and other credit risk provisions ('LICs')
 
235
-
-
-
-
-
-
Total gains/(losses) recognised in othercomprehensive income ('OCI')
1
226
(192
)
(11
)
(126
)
(118
)
(1
)
(64
)
- available-for-sale investments: fair value gains/(losses)
 
393
-
-
-
-
-
-
- cash flow hedges: fair value gains/(losses)
 
-
-
-
(4
)
-
-
-
- exchange differences
 
(167
)
(192
)
(11
)
(122
)
(118
)
(1
)
(64
)
Purchases
 
594
1,745
250
-
2
9
-
New issuances
 
-
-
-
-
1,471
-
-
Sales
 
(757
)
(1,206
)
(50
)
-
(66
)
(4
)
-
Settlements
 
(32
)
(146
)
(135
)
(38
)
(1,260
)
-
(241
)
Transfers out
 
(1,471
)
(206
)
(336
)
(1,015
)
(1,743
)
-
(283
)
Transfers in
 
1,231
284
-
422
433
-
100
At 31 Dec 2015
 
4,727
6,856
474
2,262
4,285
3
1,210
Unrealised gains/(losses) recognised in profit or loss relating to assets and liabilities held at 31 Dec 2015
 
235
(9
)
12
89
384
(1
)
267
- trading income/(expense) excluding net interest income
 
-
(9
)
-
89
384
-
267
- net income from other financial instruments designated at fair value
 
-
-
12
-
-
(1
)
-
- loan impairment charges and other credit risk provisions
 
235
-
-
-
-
-
-
1
Included in 'Available-for-sale investments: fair value gains/(losses)' and 'Exchange differences' in the consolidated statement of comprehensive income.
220
HSBC Holdings plc Annual Report and Accounts 2016
Effect of changes in significant unobservable assumptions to reasonably possible alternatives
Sensitivity of Level 3 fair values to reasonably possible alternative assumptions
 
 
2016
2015
 
 
Reflected in profit or loss
Reflected in OCI
Reflected in profit or loss
Reflected in OCI
 
 
Favourablechanges
Un-favourablechanges
Favourablechanges
Un-favourablechanges
Favourablechanges
Un-favourablechanges
Favourablechanges
Un-favourablechanges
 
Footnote
$m
$m
$m
$m
$m
$m
$m
$m
Derivatives, trading assets and trading liabilities
1
238
(177
)
-
-
335
(215
)
-
-
Financial assets and liabilities designated at fair value
 
48
(38
)
-
-
24
(24
)
-
-
Financial investments: available for sale
 
72
(36
)
170
(149
)
35
(30
)
230
(243
)
At 31 Dec
 
358
(251
)
170
(149
)
394
(269
)
230
(243
)
1
Derivatives, trading assets and trading liabilities are presented as one category to reflect the manner in which these instruments are risk managed.
Sensitivity of Level 3 fair values to reasonably possible alternative assumptions by instrument type
 
2016
2015
 
Reflected in profit or loss
Reflected in OCI
Reflected in profit or loss
Reflected in OCI
 
Favourablechanges
Un-favourablechanges
Favourablechanges
Un-favourablechanges
Favourablechanges
Un-favourablechanges
Favourablechanges
Un-favourablechanges
 
$m
$m
$m
$m
$m
$m
$m
$m
Private equity including strategic investments
112
(73
)
121
(106
)
54
(53
)
152
(171
)
Asset-backed securities
43
(15
)
33
(27
)
18
(12
)
57
(51
)
Loans held for securitisation
1
(1
)
-
-
1
(1
)
-
-
Structured notes
10
(7
)
-
-
15
(11
)
-
-
Derivatives with monolines
3
(3
)
-
-
11
(11
)
-
-
Other derivatives
141
(94
)
-
-
179
(87
)
-
-
Other portfolios
48
(58
)
16
(16
)
116
(94
)
21
(21
)
At 31 Dec
358
(251
)
170
(149
)
394
(269
)
230
(243
)
The sensitivity analysis aims to measure a range of fair values consistent with the application of a 95% confidence interval. Methodologies take account of the nature of the valuation technique employed, as well as the availability and reliability of observable proxy and historical data.
When the fair value of a financial instrument is affected by more than one unobservable assumption, the above table reflects the most favourable or the most unfavourable change from varying the assumptions individually.
HSBC Holdings plc Annual Report and Accounts 2016
221
Notes on the Financial Statements
Key unobservable inputs to Level 3 financial instruments
Quantitative information about significant unobservable inputs in Level 3 valuations
 
 
Fair value
 
 
2016
2015
 
 
Assets
Liabilities
Valuationtechniques
Key unobservableinputs
Full rangeof inputs
Core rangeof inputs1 
Full rangeof inputs
Core rangeof inputs1 
 
Footnotes
$m
$m
 
 
Lower
Higher
Lower
Higher
Lower
Higher
Lower
Higher
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Private equity includingstrategic investments
 
3,196
25
See page 224
See page 224
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Asset-backed securities
2
1,550
-
 
 
 
 
 
 
 
 
 
 
- CLO/CDO
 
498
-
Market proxy
Prepayment rate
2
%
7
%
2
%
7
%
1
%
6
%
1
%
6
%
 
 
 
 
Market proxy
Bid quotes
0
101
42
94
3
147
54
117
other ABSs
 
1,052
-
Market proxy
Bid quotes
0
96
57
90
0
147
44
109
Loans held for securitisation
 
28
-
 
 
 
 
 
 
 
 
 
 
Structured notes
 
2
3,557
 
 
 
 
 
 
 
 
 
 
- equity-linked notes
 
-
3,090
Model -Option model
Equity volatility
11
%
96
%
16
%
36
%
12
%
72
%
19
%
43
%
 
 
-
300
Model - Option model
Equity correlation
33
%
94
%
46
%
81
%
35
%
93
%
43
%
79
%
- fund-linked notes
 
-
9
Model - Option model
Fund volatility
6
%
11
%
6
%
11
%
6
%
8
%
6
%
8
%
- FX-linked notes
 
-
87
Model - Option model
FX volatility
3
%
29
%
5
%
18
%
5
%
35
%
5
%
20
%
- other
 
2
71
 
 
 
 
 
 
 
 
 
 
Derivatives with monolines
 
175
-
Model - Discountedcash flow
Credit spread
2
%
2
%
2
%
2
%
4
%
4
%
4
%
4
%
Other derivatives
 
2,577
2,300
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
- securitisation swaps
 
711
1,117
Model - Discountedcash flow
Prepaymentrate
0
%
90
%
8
%
27
%
0
%
90
%
14
%
71
%
- long-dated swaptions
 
1,236
109
Model - Option model
IR volatility
8
%
101
%
21
%
39
%
3
%
66
%
20
%
41
%
- other
 
204
108
 
 
 
 
 
 
 
 
 
 
FX derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
- FX options
 
240
364
Model - Option model
FX Volatility
0.6
%
25
%
7
%
12
%
0.5
%
35
%
5
%
14
%
- other
 
4
2
 
 
 
 
 
 
 
 
 
 
Equity derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
- long-dated single stock options
 
103
165
Model - Option model
Equity volatility
11
%
83
%
16
%
36
%
8
%
104
%
18
%
44
%
- other
 
55
388
 
 
 
 
 
 
 
 
 
 
Credit derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
- other
 
24
47
 
 
 
 
 
 
 
 
 
 
Other portfolios
 
5,919
37
 
 
 
 
 
 
 
 
 
 
- structured certificates
 
4,446
-
Model - Discounted cash flow
Credit volatility
3
%
4
%
3
%
4
%
2
%
4
%
2
%
4
%
- EM corporate debt
 
124
-
Market proxy
Bid quotes
96
144
113
113
70
124
100
123
- other
3
1,349
37
 
 
 
 
 
 
 
 
 
 
At 31 Dec 2016
 
13,447
5,919
 
 
 
 
 
 
 
 
 
 
1
The core range of inputs is the estimated range within which 90% of the inputs fall.
2
Collateralised loan obligation/collateralised debt obligation.
3
'Other' includes a range of smaller asset holdings.
222
HSBC Holdings plc Annual Report and Accounts 2016
Private equity including strategic investments
Given the bespoke nature of the analysis in respect of each holding, it is not practical to quote a range of key unobservable inputs.
Prepayment rates
Prepayment rates are a measure of the anticipated future speed at which a loan portfolio will be repaid in advance of the due date. They vary according to the nature of the loan portfolio and expectations of future market conditions, and may be estimated using a variety of evidence, such as prepayment rates implied from proxy observable security prices, current or historical prepayment rates and macroeconomic modelling.
Market proxy
Market proxy pricing may be used for an instrument when specific market pricing is not available but there is evidence from instruments with common characteristics. In some cases it might be possible to identify a specific proxy, but more generally evidence across a wider range of instruments will be used to understand the factors that influence current market pricing and the manner of that influence.
Volatility
Volatility is a measure of the anticipated future variability of a market price. It varies by underlying reference market price, and by strike and maturity of the option.
Certain volatilities, typically those of a longer-dated nature, are unobservable and are estimated from observable data. The range of unobservable volatilities reflects the wide variation in volatility inputs by reference market price. The core range is significantly narrower than the full range because these examples with extreme volatilities occur relatively rarely within the HSBC portfolio.
Correlation
Correlation is a measure of the inter-relationship between two market prices and is expressed as a number between minus one and one. It is used to value more complex instruments where the payout is dependent upon more than one market price. There is a wide range of instruments for which correlation is an input, and consequently a wide range of both same-asset correlations and cross-asset correlations is used. In general, the range of same-asset correlations will be narrower than the range of cross-asset correlations.
Unobservable correlations may be estimated based upon a range of evidence, including consensus pricing services, HSBC trade prices, proxy correlations and examination of historical price relationships. The range of unobservable correlations quoted in the table reflects the wide variation in correlation inputs by market price pair.
Credit spread
Credit spread is the premium over a benchmark interest rate required by the market to accept lower credit quality. In a discounted cash flow model, the credit spread increases the discount factors applied to future cash flows, thereby reducing the value of an asset. Credit spreads may be implied from market prices and may not be observable in more illiquid markets.
Inter-relationships between key unobservable inputs
Key unobservable inputs to Level 3 financial instruments may not be independent of each other. As described above, market variables may be correlated. This correlation typically reflects the manner in which different markets tend to react to macroeconomic or other events. Furthermore, the effect of changing market variables on the HSBC portfolio will depend on HSBC's net risk position in respect of each variable.
HSBC Holdings
Basis of valuing HSBC Holdings' financial assets and liabilities measured at fair value
 
2016
2015
 
$m
$m
Valuation technique using observable inputs: Level 2
 
 
Assets at 31 Dec
 
 
- derivatives
2,148
2,467
- available for sale
3,590
4,285
Liabilities at 31 Dec
- designated at fair value
30,113
19,853
- derivatives
5,025
2,278
HSBC Holdings plc Annual Report and Accounts 2016
223
Notes on the Financial Statements
12 Fair values of financial instruments not carried at fair value
Fair values of financial instruments not carried at fair value and bases of valuation
 
 
Fair value
 
Carrying
amount
Quoted market
price
Level 1
Observable
inputs
Level 2
Significant
unobservable
inputs
Level 3
Total
 
$m
$m
$m
$m
$m
At 31 Dec 2016
 
 
 
 
 
Assets
 
 
 
 
 
Loans and advances to banks
88,126
-
85,568
2,572
88,140
Loans and advances to customers
861,504
-
15,670
845,894
861,564
Reverse repurchase agreements - non-trading
160,974
-
159,504
1,527
161,031
Financial investments - debt securities
46,923
1,190
46,014
19
47,223
Liabilities
Deposits by banks
59,939
-
59,883
42
59,925
Customer accounts
1,272,386
-
1,262,540
10,136
1,272,676
Repurchase agreements - non-trading
88,958
-
88,939
-
88,939
Debt securities in issue
65,915
-
66,386
-
66,386
Subordinated liabilities
20,984
-
23,264
292
23,556
 
 
 
 
 
 
At 31 Dec 2015
 
 
 
 
 
Assets
Loans and advances to banks
90,401
-
88,156
2,255
90,411
Loans and advances to customers
924,454
-
12,412
910,057
922,469
Reverse repurchase agreements - non-trading
146,255
-
145,307
959
146,266
Financial investments - debt securities
44,102
1,163
44,076
19
45,258
Liabilities
Deposits by banks
54,371
-
54,295
76
54,371
Customer accounts
1,289,586
-
1,280,368
9,421
1,289,789
Repurchase agreements - non-trading
80,400
-
80,400
-
80,400
Debt securities in issue
88,949
-
89,023
-
89,023
Subordinated liabilities
22,702
-
24,344
649
24,993
Fair values of selected financial instruments not carried at fair value and bases of valuation - assets and disposal groups held
for sale
 
 
Fair value
 
Carrying
amount
Quoted market
price
Level 1
Observable
inputs
Level 2
Significant
unobservable
inputs
Level 3
Total
 
$m
$m
$m
$m
$m
At 31 Dec 2016
 
 
 
 
 
Loans and advances to customers
3,756
-
241
3,306
3,547
Customer accounts
2,713
-
2,713
-
2,713
 
 
 
 
 
 
At 31 Dec 2015
 
 
 
 
 
Loans and advances to customers
21,109
-
4,068
16,884
20,952
Customer accounts
16,682
-
15,578
1,104
16,682
Other financial instruments not carried at fair value are typically short-term in nature and reprice to current market rates frequently. Accordingly, their carrying amount is a reasonable approximation of fair value. They include cash and balances at central banks, items in the course of collection from and transmission to other banks, Hong Kong Government certificates of indebtedness and Hong Kong currency notes in circulation, all of which are measured at amortised cost.
224
HSBC Holdings plc Annual Report and Accounts 2016
Carrying amount and fair value of loans and advances to customers by industry sector
 
Carrying amount
Fair value
 
Not Impaired
Impaired
Total
Not Impaired
Impaired
Total
 
$m
$m
$m
$m
$m
$m
Loans and advances to customers
 
 
 
 
 
 
- personal
332,574
5,252
337,826
330,167
4,597
334,764
- corporate and commercial
453,151
7,058
460,209
456,816
6,393
463,209
- financial
63,316
153
63,469
63,411
180
63,591
At 31 Dec 2016
849,041
12,463
861,504
850,394
11,170
861,564
 
 
 
 
 
 
 
Loans and advances to customers
 
 
 
 
 
 
- personal
361,716
9,487
371,203
359,559
9,024
368,583
- corporate and commercial
485,933
7,145
493,078
487,196
6,592
493,788
- financial
60,049
124
60,173
59,941
157
60,098
At 31 Dec 2015
907,698
16,756
924,454
906,696
15,773
922,469
Loans and advances to customers are classified as not impaired or impaired in accordance with the criteria described on page 90.
Valuation
Fair value is an estimate of the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It does not reflect the economic benefits and costs that HSBC expects to flow from an instrument's cash flow over its expected future life. Our valuation methodologies and assumptions in determining fair values for which no observable market prices are available may differ from those of other companies.
Loans and advances to banks and customers
To determine the fair value of loans and advances to banks and customers, loans are segregated, as far as possible, into portfolios of similar characteristics. Fair values are based on observable market transactions, when available. When they are unavailable, fair values are estimated using valuation models incorporating a range of input assumptions. These assumptions may include: value estimates from third-party brokers reflecting over-the-counter trading activity; forward-looking discounted cash flow models, taking account of expected customer prepayment rates, using assumptions that HSBC believes are consistent with those that would be used by market participants in valuing such loans; new business rates estimates for similar loans; and trading inputs from other market participants including observed primary and secondary trades. From time to time, we may engage a third party valuation specialist to measure the fair value of a pool of loans.
The fair value of loans reflects impairments at the balance sheet date and estimates of market participants' expectations of credit losses over the life of the loans, and the fair value effect of repricing between origination and the balance sheet date. For impaired loans, fair value is estimated by discounting the future cash flows over the time period they are expected to be recovered.
Financial investments
The fair values of listed financial investments are determined using bid market prices. The fair values of unlisted financial investments are determined using valuation techniques that incorporate the prices and future earnings streams of equivalent quoted securities.
Deposits by banks and customer accounts
The fair values of on demand deposits are approximated by their carrying value. For deposits with longer-term maturities, fair values are estimated using discounted cash flows, applying current rates offered for deposits of similar remaining maturities.
Debt securities in issue and subordinated liabilities
Fair values are determined using quoted market prices at the balance sheet date where available, or by reference to quoted market prices for similar instruments.
Repurchase and reverse repurchase agreements - non-trading
Fair values approximate carrying amounts as balances are generally short dated.
HSBC Holdings
The methods used by HSBC Holdings to determine fair values of financial instruments for the purpose of measurement and disclosure are described above.
Fair values of HSBC Holdings' financial instruments not carried at fair value on the balance sheet
 
 
2016
2015
 
 
Carryingamount
Fairvalue1
Carryingamount
Fairvalue1
 
 
$m
$m
$m
$m
Assets at 31 Dec
 
 
 
 
 
Loans and advances to HSBC undertakings
 
77,421
79,985
44,350
45,180
Liabilities at 31 Dec
 
 
 
 
 
Amounts owed to HSBC undertakings
 
2,157
2,156
2,152
2,152
Debt securities in issue
 
21,805
23,147
960
1,224
Subordinated liabilities
 
15,189
17,715
15,895
18,297
1
Fair values were determined using valuation techniques with observable inputs (Level 2).
HSBC Holdings plc Annual Report and Accounts 2016
225
Notes on the Financial Statements
13 Financial assets designated at fair value
 
 
2016
2015
 
 
$m
$m
Securities
 
24,677
23,732
- treasury and other eligible bills
 
204
396
- debt securities
 
4,189
4,341
- equity securities
 
20,284
18,995
Loans and advances to banks and customers
 
79
120
At 31 Dec
 
24,756
23,852
 
 
 
 
 
 Securities1
 
 
 
2016
2015
 
 
Footnotes
$m
$m
 
US Treasury and US Government agencies
2
104
145
 
UK Government
 
41
103
 
Hong Kong Government
 
16
33
 
Other governments
 
747
1,020
 
Asset-backed securities
3
20
25
 
Corporate debt and other securities
 
3,465
3,411
 
Equities
 
20,284
18,995
 
At 31 Dec
 
24,677
23,732
1
Included within these figures are debt securities issued by banks and other financial institutions of $1,766m (2015: $1,536m), of which $19m (2015: $35m) are guaranteed by various governments.
2
Includes securities that are supported by an explicit guarantee issued by the US Government.
3
Excludes asset-backed securities included under US Treasury and US Government agencies.
14 Derivatives
Notional contract amounts and fair values of derivatives by product contract type held by HSBC
 
Notional contract amount
Fair value - Assets
Fair value - Liabilities
 
Trading
Hedging
Trading
Hedging
Total
Trading
Hedging
Total
 
$m
$m
$m
$m
$m
$m
$m
$m
Foreign exchange
5,819,814
26,281
126,185
1,228
127,413
118,813
968
119,781
Interest rate
13,729,757
215,006
253,398
1,987
255,385
245,941
4,081
250,022
Equities
472,169
-
7,410
-
7,410
9,240
-
9,240
Credit
448,220
-
5,199
-
5,199
5,767
-
5,767
Commodity and other
62,009
-
2,020
-
2,020
1,564
-
1,564
Gross total fair values
20,531,969
241,287
394,212
3,215
397,427
381,325
5,049
386,374
Offset (Note 30)
(106,555
)
(106,555
)
At 31 Dec 2016
20,531,969
241,287
394,212
3,215
290,872
381,325
5,049
279,819
 
 
 
 
 
 
 
 
 
Foreign exchange
5,658,030
32,324
95,201
1,140
96,341
94,843
755
95,598
Interest rate
14,462,113
212,923
277,496
1,658
279,154
267,609
3,758
271,367
Equities
501,834
-
8,732
-
8,732
10,383
-
10,383
Credit
463,344
-
6,961
-
6,961
6,884
-
6,884
Commodity and other
51,683
-
3,148
-
3,148
2,699
-
2,699
Gross total fair values
21,137,004
245,247
391,538
2,798
394,336
382,418
4,513
386,931
Offset (Note 30)
 
 
 
 
(105,860
)
 
 
(105,860
)
At 31 Dec 2015
21,137,004
245,247
391,538
2,798
288,476
382,418
4,513
281,071
The notional contract amounts of derivatives held for trading purposes and derivatives designated in qualifying hedge accounting indicate the nominal value of transactions outstanding at the balance sheet date; they do not represent amounts at risk.
Derivative assets increased during 2016, driven by changes in foreign exchange rates and yield curve movements.
226
HSBC Holdings plc Annual Report and Accounts 2016
Notional contract amounts and fair values of derivatives by product contract type held by HSBC Holdings with subsidiaries
 
Notional contract amount
Fair value - Assets
Fair value - Liabilities
 
Trading
Hedging
Trading
Hedging
Total
Trading
Hedging
Total
 
$m
$m
$m
$m
$m
$m
$m
$m
Foreign exchange
23,442
1,120
223
-
223
3,201
239
3,440
Interest rate
26,858
24,356
1,478
447
1,925
639
946
1,585
At 31 Dec 2016
50,300
25,476
1,701
447
2,148
3,840
1,185
5,025
 
 
 
 
 
 
 
 
 
Foreign exchange
19,036
1,120
390
-
390
2,065
213
2,278
Interest rate
10,150
5,132
1,600
477
2,077
-
-
-
At 31 Dec 2015
29,186
6,252
1,990
477
2,467
2,065
213
2,278
Use of derivatives
For details regarding use of derivatives, see page 116 under 'Market Risk'.
Trading derivatives
Most of HSBC's derivative transactions relate to sales and trading activities. Sales activities include the structuring and marketing of derivative products to customers to enable them to take, transfer, modify or reduce current or expected risks. Trading activities include market-making and risk management. Market-making entails quoting bid and offer prices to other market participants for the purpose of generating revenues based on spread and volume. Risk management activity is undertaken to manage the risk arising from client transactions, with the principal purpose of retaining client margin. Other derivatives classified as held for trading include non-qualifying hedging derivatives.
Substantially all of HSBC Holdings' derivatives entered into with subsidiaries are managed in conjunction with financial liabilities designated at fair value.
Derivatives valued using models with unobservable inputs
The difference between the fair value at initial recognition (the transaction price) and the value that would have been derived had valuation techniques used for subsequent measurement been applied at initial recognition, less subsequent releases, is as follows:
Unamortised balance of derivatives valued using models with significant unobservable inputs
 
 
2016
2015
 
Footnote
$m
$m
Unamortised balance at 1 Jan
 
97
114
Deferral on new transactions
 
156
196
Recognised in the income statement during the year:
 
(140
)
(207
)
- amortisation
 
(70
)
(121
)
- subsequent to unobservable inputs becoming observable
 
(5
)
(2
)
- maturity, termination or offsetting derivative
 
(65
)
(84
)
Exchange differences
 
(13
)
(6
)
Other
 
(1
)
-
Unamortised balance at 31 Dec
1
99
97
1
This amount is yet to be recognised in the consolidated income statement.
Hedge accounting derivatives
Fair value hedges
HSBC's fair value hedges principally consist of interest rate swaps that are used to protect against changes in the fair value of fixed-rate long-term financial instruments due to movements in market interest rates.
Notional contract amounts and fair values of derivatives designated as fair value hedges by product type
 
2016
2015
 
Notional
Assets
Liabilities
Notional
Assets
Liabilities
 
$m
$m
$m
$m
$m
$m
HSBC
 
 
 
 
 
 
Foreign exchange
618
10
22
196
2
-
Interest rate
124,361
1,078
3,726
105,127
672
3,395
At 31 Dec
124,979
1,088
3,748
105,323
674
3,395
HSBC Holdings
 
 
 
 
 
 
Foreign exchange
1,120
-
239
1,120
-
213
Interest rate
24,356
447
946
5,132
477
-
At 31 Dec
25,476
447
1,185
6,252
477
213
HSBC Holdings plc Annual Report and Accounts 2016
227
Notes on the Financial Statements
Gains or losses arising from fair value hedges
 
2016
2015
2014
 
$m
$m
$m
HSBC
 
 
 
Gains/(losses):
 
 
 
- on hedging instruments
(439
)
40
(2,542
)
- on the hedged items attributable to the hedged risk
462
(51
)
2,561
Year ended 31 Dec
23
(11
)
19
HSBC Holdings
 
 
 
Gains/(losses):
 
 
 
- on hedging instruments
(909
)
(4
)
423
- on the hedged items attributable to the hedged risk
926
6
(422
)
Year ended 31 Dec
17
2
1
Cash flow hedges
HSBC's cash flow hedges consist principally of interest rate swaps, futures and cross-currency swaps that are used to protect against exposures to variability in future interest cash flows on non-trading assets and liabilities which bear interest at variable rates or which are expected to be re-funded or reinvested in the future. The amounts and timing of future cash flows, representing both principal and interest flows, are projected for each portfolio of financial assets and liabilities on the basis of their contractual terms and other relevant factors, including estimates of prepayments and defaults. The aggregate principal balances and interest cash flows across all portfolios over time form the basis for identifying gains and losses on the effective portions of derivatives designated as cash flow hedges of forecast transactions.
Notional contract amounts and fair values of derivatives designated as cash flow hedges by product held by HSBC
 
2016
2015
 
Notional
Assets
Liabilities
Notional
Assets
Liabilities
 
$m
$m
$m
$m
$m
$m
Foreign Exchange
25,663
1,081
939
32,128
1,027
748
Interest rate
90,645
909
355
107,796
986
363
At 31 Dec
116,308
1,990
1,294
139,924
2,013
1,111
Forecast principal balances on which interest cash flows are expected to arise
 
3 months
or less
More than 3 months
but less than 1 year
5 years or less
but more than 1 year
More than
5 years
 
$m
$m
$m
$m
Net cash inflows/(outflows) exposure
 
 
 
 
Assets
83,472
79,749
57,553
2,750
Liabilities
(13,169
)
(12,977
)
(11,761
)
(1,502
)
At 31 Dec 2016
70,303
66,772
45,792
1,248
 
 
 
 
 
Net cash inflows/(outflows) exposure
 
 
 
 
Assets
94,256
93,528
62,664
971
Liabilities
(16,241
)
(17,179
)
(11,681
)
(3,326
)
At 31 Dec 2015
78,015
76,349
50,983
(2,355
)
This table reflects the interest rate repricing profile of the underlying hedged items. During the year to 31 December 2016 a loss of $5m (2015: gain of $15m; 2014: gain of $34m) was recognised due to hedge ineffectiveness. A gain of $129m was recognised in respect of amounts reclassified from other comprehensive income to the income statement for partially discontinued macro cash flow hedges, where the hedged forecast transactions are no longer expected to occur (2015: nil; 2014: nil).
Hedges of net investments in foreign operations
The Group applies hedge accounting in respect of certain consolidated net investments. Hedging is undertaken using forward foreign exchange contracts or by financing with foreign currency borrowings. At 31 December 2016, the fair values of outstanding financial instruments designated as hedges of net investments in foreign operations were assets of $137m (2015: $111m), liabilities of $7m (2015: $12m) and notional contract values of $3,544m (2015: $4,210m). Ineffectiveness recognised in 'Net trading income' in the year ended 31 December 2016 was nil (2015: nil; 2014: nil).
228
HSBC Holdings plc Annual Report and Accounts 2016
15 Financial investments
Carrying amount of financial investments
 
 
2016
2015
 
Footnote
$m
$m
Available for sale securities at fair value
 
389,874
384,853
- treasury and other eligible bills
 
99,226
104,551
- debt securities
 
285,981
274,467
- equity securities
 
4,667
5,835
Held to maturity securities at amortised cost
 
46,923
44,102
- debt securities
1
46,923
44,102
At 31 Dec
 
436,797
428,955
1
Fair value $47.2bn (2015: $45.3bn).
Financial investments at amortised cost and fair value
 
 
2016
2015
 
 
Amortised cost
Fair value1
Amortised cost
Fair value1
 
Footnotes
$m
$m
$m
$m
US Treasury
57,135
56,625
61,585
61,779
US Government agencies
2
15,790
15,682
22,910
22,843
US Government sponsored entities
2
14,397
14,442
10,365
10,627
UK Government
27,506
28,480
27,250
27,316
Hong Kong Government
62,500
62,475
53,676
53,674
Other governments
140,943
142,594
141,329
143,370
Asset-backed securities
3
10,246
9,392
14,239
13,375
Corporate debt and other securities
100,180
102,741
89,860
91,292
Equities
3,042
4,667
4,057
5,835
At 31 Dec
431,739
437,098
425,271
430,111
1
Included within 'Fair value' figures are debt securities issued by banks and other financial institutions of $69bn (2015: $61bn), of which $20bn (2015: $18bn) are guaranteed by various governments.
2
Includes securities that are supported by an explicit guarantee issued by the US Government.
3
Excludes asset-backed securities included under US Government agencies and sponsored entities.
Maturities of investments in debt securities at their carrying amount
 
1 year or less
5 years or less
but over
1 year
10 years or less
but over
5 years
Over 10 years
Total
 
$m
$m
$m
$m
$m
Available for sale
64,155
142,700
45,385
33,741
285,981
Held to maturity
2,502
10,210
10,348
23,863
46,923
At 31 Dec 2016
66,657
152,910
55,733
57,604
332,904
 
 
 
 
 
 
Available for sale
61,664
131,023
42,140
39,640
274,467
Held to maturity
2,428
10,242
8,881
22,551
44,102
At 31 Dec 2015
64,092
141,265
51,021
62,191
318,569
HSBC Holdings plc Annual Report and Accounts 2016
229
Notes on the Financial Statements
Contractual maturities and weighted average yields of investment debt securities
 
1 year or less
 
5 years or less
but over
1 year
 
10 years or less
but over
5 years
 
Over 10 years
 
 
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
 
$m
%
$m
%
$m
%
$m
%
Available for sale
US Treasury
5,896
1.0
22,807
1.5
19,063
1.9
4,024
3.0
US Government agencies
2
9.5
118
3.3
95
2.5
6,844
2.2
US Government-sponsored agencies
200
3.3
3,138
2.8
1,173
2.4
5,829
2.3
UK Government
2,913
1.3
6,742
0.9
10,132
1.2
547
3.4
Hong Kong Government
357
0.7
1,143
1.2
-
-
-
-
Other governments
42,513
1.8
61,734
2.4
8,151
3.0
1,480
6.5
Asset-backed securities
41
1.8
837
1.2
1,196
1.6
8,166
2.1
Corporate debt and other securities
11,641
2.0
43,936
1.6
4,524
3.7
7,316
4.2
Total amortised cost at 31 Dec 2016
63,563
140,455
44,334
34,206
Total carrying value
64,155
142,700
45,385
33,741
Held to maturity
US Treasury
22
4.8
61
4.8
46
5.0
124
4.2
US Government agencies
-
-
6
1.8
36
3.3
8,690
2.3
US Government-sponsored agencies
-
-
299
2.2
393
2.8
3,364
2.9
Hong Kong Government
26
0.3
18
3.0
23
1.5
7
1.4
Other governments
41
5.6
318
4.0
169
3.9
805
4.3
Asset-backed securities
-
-
-
-
-
-
5
7.0
Corporate debt and other securities
2,413
3.2
9,508
3.6
9,681
3.4
10,868
3.9
Total amortised cost at 31 Dec 2016
2,502
10,210
10,348
23,863
Total carrying value
2,502
10,210
10,348
23,863
The maturity distributions of ABSs are presented in the above table on the basis of contractual maturity dates. The weighted average yield for each range of maturities is calculated by dividing the annualised interest income for the year ended 31 December 2016 by the book amount of available-for-sale debt securities at that date. The yields do not include the effect of related derivatives.
16 Assets pledged, collateral received and assets transferred
Assets pledged
Financial assets pledged as collateral
 
2016
2015
 
$m
$m
Treasury bills and other eligible securities
7,151
5,941
Loans and advances to banks
17,444
15,582
Loans and advances to customers
74,109
88,927
Debt securities
80,063
69,470
Equity securities
2,655
4,644
Other
1,838
213
Assets pledged at 31 Dec
183,260
184,777
Assets pledged as collateral include all assets categorised as encumbered in the disclosure on page 76.
The amount of assets pledged to secure liabilities may be greater than the book value of assets utilised as collateral. For example, in the case of securitisations and covered bonds, the amount of liabilities issued plus mandatory over-collateralisation is less than the book value of the pool of assets available for use as collateral. This is also the case where assets are placed with a custodian or a settlement agent which has a floating charge over all the assets placed to secure any liabilities under settlement accounts.
These transactions are conducted under terms that are usual and customary to collateralised transactions including, where relevant, standard securities lending and borrowing, repurchase agreements and derivative margining. HSBC places both cash and non-cash collateral in relation to derivative transactions.
Financial assets pledged as collateral which the counterparty has the right to sell or repledge
 
2016
2015
 
$m
$m
Trading assets
37,141
32,633
Financial investments
4,044
8,050
At 31 Dec
41,185
40,683
230
HSBC Holdings plc Annual Report and Accounts 2016
Collateral received
The fair value of assets accepted as collateral, relating primarily to standard securities lending, reverse repurchase agreements and derivative margining, that HSBC is permitted to sell or repledge in the absence of default was $250,919m (2015: $222,065m). The fair value of any such collateral sold or repledged was $149,185m (2015: $139,532m).
HSBC is obliged to return equivalent securities. These transactions are conducted under terms that are usual and customary to standard securities lending, reverse repurchase agreements and derivative margining.
Assets transferred
The assets pledged include transfers to third parties that do not qualify for derecognition, notably secured borrowings such as debt securities held by counterparties as collateral under repurchase agreements and equity securities lent under securities lending agreements. The transferred asset collateral continues to be recognised in full and a related liability, reflecting the Group's obligation to repurchase the assets for a fixed price at a future date is also recognised on the balance sheet. The Group is unable to use, sell or pledge the transferred assets for the duration of the transaction, and remains exposed to interest rate risk and credit risk on these pledged assets. With the exception of 'Other sales' in the table below, the counterparty's recourse is not limited to the transferred assets.
Transferred financial assets not qualifying for full derecognition and associated financial liabilities
 
Carrying amount of:
Fair value of:
 
 
Transferred assets
Associated liabilities
Transferred assets
Associated liabilities
Net
position
 
$m
$m
$m
$m
$m
At 31 Dec 2016
 
 
 
 
 
Repurchase agreements
40,364
39,568
 
 
 
Securities lending agreements
3,324
2,655
 
 
 
Other sales (recourse to transferred assets only)
2,441
2,466
2,455
2,458
(3
)
 
 
 
 
 
 
At 31 Dec 2015
 
 
 
 
 
Repurchase agreements
36,153
35,913
 
 
 
Securities lending agreements
5,275
5,704
 
 
 
Other sales (recourse to transferred assets only)
2,717
2,768
2,720
2,726
(6
)
17 Interests in associates and joint ventures
Associates
At 31 December 2016, the carrying amount of HSBC's interests in associates was $19,874m (2015: $18,900m).
Principal associates of HSBC
 
 
2016
2015
 
 
Carryingamount
Fairvalue1
Carryingamount
Fairvalue1
 
 
$m
$m
$m
$m
Bank of Communications Co., Limited
 
15,765
10,207
15,344
9,940
The Saudi British Bank
 
3,280
3,999
3,021
3,957
At 31 Dec
 
19,045
14,206
18,365
13,897
1
The fair values are based on the quoted market prices of the shares held (Level 1 in the fair value hierarchy).
 
 
At 31 Dec 2016
 
 
Country of
incorporation and
principal place of business
Principal
activity
HSBC's
interest
%
 
Footnote
Bank of Communications Co., Limited
1
PRC
Banking services
19.03
The Saudi British Bank
 
Saudi Arabia
Banking services
40.00
1
People's Republic of China.
A list of all associates and joint ventures is set out on page 271.
Bank of Communications Co., Limited
The Group's significant influence in Bank of Communications Co., Limited ('BoCom') was established via representation on BoCom's board of directors and a technical cooperation and exchange programme ('TCEP'). Under the TCEP, a number of HSBC staff have been seconded to assist in the maintenance of BoCom's financial and operating policies.
HSBC Holdings plc Annual Report and Accounts 2016
231
Notes on the Financial Statements
Impairment testing
At 31 December 2016, the fair value of HSBC's investment in BoCom had been below the carrying amount for approximately 56 months. As a result, the Group performed an impairment test on the carrying amount of the investment in BoCom, which confirmed there was no impairment at 31 December 2016.
 
At 31 Dec 2016
At 31 Dec 2015
 
VIU
Carrying value
Fairvalue
VIU
Carrying value
Fairvalue
 
$bn
$bn
$bn
$bn
$bn
$bn
Bank of Communications Co., Limited
16.1
15.8
10.2
17.0
15.3
9.9
Basis of recoverable amount
The impairment test was performed by comparing the recoverable amount of BoCom, determined by a value in use ('VIU') calculation, with its carrying amount. The VIU calculation uses discounted cash flow projections based on management's estimates of earnings. Cash flows beyond the short to medium term are extrapolated in perpetuity using a long-term growth rate. An imputed capital maintenance charge ('CMC') is calculated to reflect expected regulatory capital requirements, and is deducted from forecast cash flows. The principal inputs to the CMC calculation include estimates of asset growth, the ratio of risk-weighted assets to total assets, and the expected regulatory capital requirements. Management judgement is required in estimating the future cash flows of BoCom.
Key assumptions in value in use calculation
The assumptions we used in our VIU calculation were:
•
Long-term profit growth rate 5% (2015: 5%) for periods after 2019, which does not exceed forecast GDP growth in mainland China.
•
Long-term asset growth rate: 4% (2015: 4%) for periods after 2019, which is the rate that assets are expected to grow to achieve long-term profit growth of 5%.
•
Discount rate: 13% (2015: 13%), which is derived from a range of values obtained by applying a capital asset pricing model ('CAPM') calculation for BoCom, using market data. Management also compares rates derived from the CAPM with discount rates from external sources, and HSBC's discount rate for evaluating investments in mainland China. The discount rate used was within the range of 10.2% to 15.0% (2015: 10.1% to 14.2%) indicated by the CAPM and external sources.
•
Loan impairment charge as a percentage of customer advances: a range from 0.72% to 0.87% (2015: 0.71% to 0.78%) in the short to medium term, based on forecasts disclosed by external analysts. For periods after 2019, the ratio is 0.70% (2015: 0.70%), slightly higher than the historical average.
•
Risk-weighted assets as a percentage of total assets: 62% for all forecast periods (2015: 67%). This is consistent with the medium-term forecasts disclosed by external analysts.
•
Cost-income ratio: 40% (2015: 41%) in the short to medium term. The ratios were consistent with the short- to medium-term range forecasts of 39.9% to 40.2% (2015: 40.3% to 40.7%) disclosed by external analysts.
The following table shows the change to each key assumption in the VIU calculation that on its own would reduce the headroom to nil.
Key assumption
Changes to key assumption to reduce headroom to nil
•
Long-term profit growth rate
•
Decrease by 13 basis points
•
Long-term asset growth rate
•
Increase by 14 basis points
•
Discount rate
•
Increase by 17 basis points
•
Loan impairment charge as a percentage of customer advances
•
Increase by 3 basis points
•
Risk-weighted assets as a percentage of total assets
•
Increase by 95 basis points
•
Cost-income ratio
•
Increase by 60 basis points
232
HSBC Holdings plc Annual Report and Accounts 2016
The following table illustrates the effect on VIU of reasonably possible changes to key assumptions. This reflects the sensitivity of the VIU to each key assumption on its own, and it is possible that more than one favourable and/or unfavourable change will occur at the same time.
Sensitivity of VIU to reasonably possible changes in key assumptions
 
 
 
 
 
Favourable change
Unfavourable change
 
Increasein VIU
VIU
DecreaseIn VIU
VIU
 
bps
$bn
$bn
bps
$bn
$bn
At 31 Dec 2016
Long-term profit growth rate
-
-
16.1
(150
)
(3.3
)
12.8
Long-term asset growth rate
(80
)
1.8
17.8
-
-
16.1
Discount rate
(100
)
2.3
18.4
-
-
16.1
Loan impairment charge as a percentage of customer advances
-
-
16.1
2016-19: 0.93%2020 onwards: 0.80%
(1.1
)
15.0
Risk-weighted assets as a percentage of total assets
(30
)
0.1
16.2
170
(0.6
)
15.5
Cost-income ratio
(170
)
0.9
17.0
250
(1.4
)
14.7
 
 
 
 
 
 
 
At 31 Dec 2015
Long-term profit growth rate
100
3.2
20.3
(210
)
(4.7
)
12.3
Long-term asset growth rate
(50
)
1.2
18.2
100
(2.8
)
14.3
Discount rate
(150
)
4.2
21.2
110
(2.1
)
14.9
Loan impairment charge as a percentage of customer advances
70throughout
0.1
17.2
2015-18: 0.85%2019 onwards: 0.75%
(0.7
)
16.4
Risk-weighted assets as a percentage of total assets
(350
)
1.2
18.2
10
-
17
Cost income ratio
(250
)
1.5
18.5
120
(0.7
)
16.4
Considering the interrelationship of the changes set out in the table above, management estimates that the reasonably possible range of VIU is $10.8bn to $19.0bn.
Selected financial information of BoCom
The statutory accounting reference date of BoCom is 31 December. For the year ended 31 December 2016, HSBC included the associate's results on the basis of financial statements for the 12 months ended 30 September 2016, taking into account changes in the subsequent period from 1 October 2016 to 31 December 2016 that would have materially affected the results.
Selected balance sheet information of BoCom
 
At 30 Sep
 
2016
2015
 
$m
$m
Cash and balances at central banks
137,844
144,702
Loans and advances to banks and other financial institutions
101,436
110,915
Loans and advances to customers
566,126
560,503
Other financial assets
311,207
244,722
Other assets
48,922
49,246
Total assets
1,165,535
1,110,088
Deposits by banks and other financial institutions
297,442
261,211
Customer accounts
680,915
691,959
Other financial liabilities
69,954
46,932
Other liabilities
27,860
29,329
Total liabilities
1,076,171
1,029,431
Total equity
89,364
80,657
Reconciliation of BoCom's total shareholders' equity to the carrying amount in HSBC's consolidated financial statements
 
At 30 Sep
 
2016
2015
 
$m
$m
HSBC's share of total shareholders' equity
15,285
14,824
Add: Goodwill and other intangible assets
480
520
Carrying amount
15,765
15,344
HSBC Holdings plc Annual Report and Accounts 2016
233
Notes on the Financial Statements
Selected income statement information of BoCom
 
For the 12 months ended 30 Sep
 
2016
2015
 
$m
$m
Net interest income
20,614
22,397
Net fee and commission income
5,493
5,432
Loan impairment charges
(4,284
)
(3,772
)
Depreciation and amortisation
(1,216
)
(1,012
)
Tax expense
(2,800
)
(2,976
)
Profit for the year
10,151
10,634
Other comprehensive income
875
377
Total comprehensive income
11,026
11,011
Dividends received from BoCom
580
624
Summarised aggregate financial information for all associates excluding BoCom
 
 
 
2016
2015
 
$m
$m
Carrying amount
4,109
3,556
HSBC's share of:
- total assets
20,757
21,645
- total liabilities
16,661
18,166
- revenues
923
821
- profit or loss from continuing operations
454
508
Joint ventures
At 31 December 2016, the carrying amount of HSBC's interests in joint ventures was $155m (2015: $239m).
Associates and joint ventures
For the year ended 31 December 2016, HSBC's share of associates' and joint ventures' tax on profit was $542m (2015: $575m). This is included within 'Share of profit in associates and joint ventures' in the 'Consolidated income statement'.
Movements in interests in associates and joint ventures
 
 
2016
2015
 
Footnote
$m
$m
At 1 Jan
 
19,139
18,181
Additions
 
76
3
Disposals
 
(25
)
(8
)
Share of results
 
2,354
2,556
Dividends
 
(751
)
(879
)
Exchange differences
 
(1,115
)
(718
)
Share of other comprehensive income of associates and joint ventures
 
54
(9
)
Other movements
 
297
13
At 31 Dec
1
20,029
19,139
1
Includes goodwill of $488m (2015: $593m).
234
HSBC Holdings plc Annual Report and Accounts 2016
18 Investments in subsidiaries
Principal subsidiaries of HSBC Holdings
 
At 31 Dec 2016
 
Country of incorporation or registration
HSBC's interest %
 
 
Share class
Europe
 
 
 
HSBC Bank plc
England and Wales
100
£1 Ordinary and Preferred Ordinary, $0.01 Non-cumulative third Dollar Preference Shares
HSBC France
France
99.99
€5 Actions
HSBC Assurances Vie (France)
France
100
287.50 EUR Ordinary shares
HSBC Private Banking Holdings (Suisse) SA
Switzerland
100
CHF1,000 Ordinary
HSBC Trinkaus & Burkhardt AG
Germany
80.65
Stückaktien no par value
Asia
 
 
 
Hang Seng Bank Limited
Hong Kong
62.14
HK$5 Ordinary
HSBC Bank Australia Limited
Australia
100
Ordinary no par value
HSBC Bank (China) Company Limited
PRC4
100
CNY1 Ordinary
HSBC Bank Malaysia Berhad
Malaysia
100
RM0.50 Ordinary
HSBC Bank (Taiwan) Limited
Taiwan
100
TWD10 Ordinary
HSBC Life (International) Limited
Bermuda
100
HK$1 Ordinary
The Hongkong and Shanghai Banking Corporation Limited
Hong Kong
100
HK$2.50 Ordinary$1 CIP1, CRP2 and NIP3 
HSBC Bank (Singapore) Limited
Singapore
100
SGD100 Ordinary
Middle East and North Africa
 
 
 
HSBC Bank Middle East Limited
United Arab Emirates
100
$1 Ordinary and $1 CRP2
HSBC Bank Egypt S.A.E.
Egypt
94.53
EGP84 Ordinary
North America
 
 
 
HSBC Bank Canada
Canada
100
Common no par value and Preference no par value
HSBC Bank USA, N.A.
USA
100
$100 Common and $0.01 Preference
HSBC Securities (USA) Inc.
USA
100
$0.05 Common
Latin America
 
 
 
HSBC Mexico, S.A., Institución de Banca Múltiple, Grupo Financiero HSBC
Mexico
99.99
MXN2 Ordinary
1
Cumulative Irredeemable Preference shares.
2
Cumulative Redeemable Preference shares.
3
Non-cumulative Irredeemable Preference shares.
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 Notes 25 'Debt securities in issue', 28 'Subordinated liabilities' and 31 'Non-controlling interests', respectively.
A list of all related undertakings is set out on pages 265 to 271. 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 North Africa, and HSBC Life (International) Limited, which operates mainly in Hong Kong.
HSBC is structured as a network of regional banks and locally incorporated regulated banking entities. Each bank is separately capitalised in accordance with applicable prudential requirements and maintains a capital buffer consistent with the Group's risk appetite for the relevant country or region. HSBC's capital management process is incorporated in the Annual Operating Plan, which is approved by the Board.
HSBC Holdings is the primary provider of equity capital to its subsidiaries and also provides them with non-equity capital where necessary. These investments are substantially funded by HSBC Holdings' issuance of equity and non-equity capital and by profit retention. As part of its capital management process, HSBC Holdings seeks to maintain a balance between the composition of its capital and its investment in subsidiaries. Subject to this, there is no current or foreseen impediment to HSBC Holdings' ability to provide funding for such investments. During 2016, consistent with the Group's capital plan, the Group's subsidiaries did not experience any significant restrictions on paying dividends or repaying loans and advances. Also, there are no foreseen restrictions envisaged with regard to planned dividends or payments. However, the ability of subsidiaries to pay dividends or advance monies to HSBC Holdings depends on, among other things, their respective local regulatory capital and banking requirements, exchange controls, statutory reserves, and financial and operating performance.
The amount of guarantees by HSBC Holdings in favour of other HSBC Group entities is set out in Note 33.
Information on structured entities consolidated by HSBC where HSBC owns less than 50% of the voting rights is included in Note 19 'Structured entities'. In each of these cases, HSBC controls and consolidates an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.
HSBC Holdings plc Annual Report and Accounts 2016
235
Notes on the Financial Statements
Subsidiaries with significant non-controlling interests
 
2016
2015
Hang Seng Bank Limited
 
 
Proportion of ownership interests and voting rights held by non-controlling interests
37.86%
37.86%
Place of business
Hong Kong
Hong Kong
 
$m
$m
Profit attributable to non-controlling interests
814
1,364
Accumulated non-controlling interests of the subsidiary
5,792
5,866
Dividends paid to non-controlling interests
811
523
Summarised financial information:
 
 
- total assets
175,242
169,813
- total liabilities
159,035
153,458
- net operating income before loan impairment
3,937
5,411
- profit for the year
2,148
3,604
- total comprehensive income for the year
2,044
1,636
19 Structured entities
HSBC is mainly involved with both consolidated and unconsolidated structured entities through the securitisation of financial assets, conduits and investment funds, established either by HSBC or a third party.
Consolidated structured entities
Total assets of HSBC's consolidated structured entities, split by entity type
 
Conduits
Securitisations
HSBCmanaged funds
Other
Total
 
$bn
$bn
$bn
$bn
$bn
At 31 Dec 2016
15.8
5.7
4.8
3.7
30.0
At 31 Dec 2015
25.9
5.6
8.2
5.7
45.4
Conduits
HSBC has established and manages two types of conduits: securities investment conduits ('SICs') and multi-seller conduits.
Securities investment conduits
The SICs purchase highly rated ABSs to facilitate tailored investment opportunities.
•
Solitaire - At 31 December 2016, Solitaire, HSBC's principal SIC held $4.7bn of ABSs (2015: $6.2bn). These are included within the disclosures of ABSs on page 105. It is currently funded entirely by commercial paper ('CP') issued to HSBC. Although HSBC continues to provide a liquidity facility, Solitaire has no need to draw on it as long as HSBC purchases its issued CP, which HSBC intends to do for the foreseeable future. At 31 December 2016, HSBC held $6.1bn of CP (2015: $8.0bn).
•
Mazarin, Barion and Malachite - All three SICs are predominantly funded by repurchase agreements and medium-term notes. HSBC is exposed to the par value of Mazarin assets through the provision of a liquidity facility equal to the lesser of the amortised cost of issued debt and the amortised cost of non-defaulted assets. At 31 December 2016, this amounted to $1.0bn (2015: $1.8bn). HSBC's primary exposure to Barion and Malachite is represented by the amortised cost of the debt required to support the non-cash assets of the vehicles. At 31 December 2016, this amounted to $0.8bn (2015: $1.4bn). For all three SICs first loss protection is provided through the capital notes issued by these vehicles, which are held substantially by third parties. At 31 December 2016, HSBC held 12.2% of the capital notes (2015: 7.2%) issued by these vehicles with a par value of $69.5m (2015: $55.2m) and a carrying amount of $27.9m (2015: $24.7m).
Multi-seller conduit
HSBC's multi-seller conduit was established to provide access to flexible market-based sources of finance for its clients. Currently, HSBC bears risk equal to the transaction-specific liquidity facility offered to the multi-seller conduit, amounting to $10.2bn at 31 December 2016 (2015: $19.8bn). First loss protection is provided by the originator of the assets, and not by HSBC, through transaction-specific credit enhancements. A layer of secondary loss protection is provided by HSBC in the form of programme-wide enhancement facilities.
Securitisations
HSBC uses structured entities to securitise customer loans and advances it originates in order to diversify its sources of funding for asset origination and capital efficiency purposes. The loans and advances are transferred by HSBC to the structured entities for cash or synthetically through credit default swaps, and the structured entities issue debt securities to investors.
HSBC managed funds
HSBC has established a number of money market and non-money market funds. Where it is deemed to be acting as principal rather than agent in its role as investment manager, HSBC controls these funds.
236
HSBC Holdings plc Annual Report and Accounts 2016
Other
HSBC has also entered into a number of transactions in the normal course of business which include asset and structured finance transactions where it has control of the structured entity. In addition, HSBC is deemed to control a number of third-party managed funds through its involvement as a principal in the funds.
Unconsolidated structured entities
The term 'unconsolidated structured entities' refers to all structured entities not controlled by HSBC. The Group enters into transactions with unconsolidated structured entities in the normal course of business to facilitate customer transactions and for specific investment opportunities.
Nature and risks associated with HSBC interests in unconsolidated structured entities
 
Securitisations
HSBCmanaged funds
Non-HSBCmanaged funds
Other
Total
 
$bn
$bn
$bn
$bn
$bn
Total assets of the entities
14.4
200.6
2,016.5
106.3
2,337.8
Total assets in relation to HSBC's interests in the unconsolidated structured entities
2.4
7.1
8.3
10.1
27.9
- trading assets
-
0.4
0.1
2.1
2.6
- financial assets designated at fair value
-
5.9
7.5
-
13.4
- derivatives
-
-
-
3.9
3.9
- loans and advances to banks
-
-
-
0.4
0.4
- loans and advances to customers
2.4
-
-
3.2
5.6
- financial investments
-
0.8
0.7
0.2
1.7
- other assets
-
-
-
0.3
0.3
Total liabilities in relation to HSBC's interests in the unconsolidated structured entities
-
-
-
0.3
0.3
- derivatives
-
-
-
0.1
0.1
- other liabilities
-
-
-
0.2
0.2
HSBC's maximum exposure at 31 Dec 2016
2.4
7.1
11
13.5
34
 
 
 
 
 
 
Total assets of the entities
12.9
227.9
2,003.1
139.9
2,383.8
Total assets in relation to HSBC's interests in the unconsolidated structured entities
1.4
5.6
8.0
9.8
24.8
- trading assets
-
0.1
0.2
2.6
2.9
- financial assets designated at fair value
-
5.3
6.6
-
11.9
- derivatives
-
-
-
3.8
3.8
- loans and advances to banks
-
-
-
0.1
0.1
- loans and advances to customers
1.1
-
0.1
2.9
4.1
- financial investments
0.3
0.2
1.1
0.2
1.8
- other assets
-
-
-
0.2
0.2
Total liabilities in relation to HSBC's interests in the unconsolidated structured entities
-
-
-
0.1
0.1
- other liabilities
-
-
-
0.1
0.1
HSBC's maximum exposure at 31 Dec 2015
3.5
5.6
8.0
14.6
31.7
The maximum exposure to loss from HSBC's interests in unconsolidated structured entities represents the maximum loss it could incur as a result of its involvement with these entities regardless of the probability of the loss being incurred.
•
For commitments, guarantees and written credit default swaps, the maximum exposure to loss is the notional amount of potential future losses.
•
For retained and purchased investments in and loans to unconsolidated structured entities, the maximum exposure to loss is the carrying value of these interests at the balance sheet reporting date.
The maximum exposure to loss is stated gross of the effects of hedging and collateral arrangements entered into to mitigate HSBC's exposure to loss.
Securitisations
HSBC has interests in unconsolidated securitisation vehicles through holding notes issued by these entities. In addition, HSBC has investments in ABSs issued by third party structured entities as set out on page 105.
HSBC managed funds
HSBC establishes and manages money market funds and non-money market investment funds to provide customers with investment opportunities. Further information on funds under management is provided on page 61.
HSBC, as fund manager, may be entitled to receive management and performance fees based on the assets under management. HSBC may also retain units in these funds.
Non-HSBC managed funds
HSBC purchases and holds units of third-party managed funds in order to facilitate business and meet customer needs. In addition, HSBC enters into derivative contracts to facilitate risk management solutions for non-HSBC managed funds. Note 14 provides information on derivatives entered into by HSBC.
HSBC Holdings plc Annual Report and Accounts 2016
237
Notes on the Financial Statements
Other
HSBC has established structured entities in the normal course of business, such as structured credit transactions for customers, to provide finance to public and private sector infrastructure projects, and for asset and structured finance transactions.
HSBC sponsored structured entities
The amount of assets transferred to and income received from such sponsored entities during 2016 and 2015 were not significant.
20 Goodwill and intangible assets
 
 
2016
2015
 
Footnote
$m
$m
Goodwill
 
12,330
16,294
Present value of in-force long-term insurance business
 
6,502
5,685
Other intangible assets
1
2,514
2,626
At 31 Dec
 
21,346
24,605
1
Included within other intangible assets is internally generated software with a net carrying value of $1,982m (2015: $1,934m).
Movement analysis of goodwill
 
2016
2015
 
$m
$m
Gross amount
 
 
At 1 Jan
22,187
25,092
Exchange differences
(562
)
(1,610
)
Reclassified to held for sale
(183
)
(1,319
)
Other
3
24
At 31 Dec
21,445
22,187
Accumulated impairment losses
 
 
At 1 Jan
(5,893
)
(5,923
)
Impairment losses
(3,240
)
-
Other
18
30
At 31 Dec
(9,115
)
(5,893
)
Net carrying amount at 31 Dec
12,330
16,294
Impairment testing
The Group's impairment test in respect of goodwill allocated to each cash generating unit (CGU) is performed as at 1 July each year. A review for indicators of impairment is undertaken at each subsequent quarter-end and as at 31 December 2016. Subsequent to the1 July 2016 annual test the CGU for Global Banking and Markets was amended from a regional to a global basis. This change is discussed further below.
30 June and 31 December 2016 impairment indicators review
At 30 June 2016, we reviewed the inputs used in our 2015 impairment tests in the light of current economic and market conditions. As a result, impairment tests were performed for Global Private Banking - Europe and Global Banking and Markets - Europe. Following these tests an impairment of $0.8bn was recognised in respect of the Global Private Banking - Europe.
At 31 December 2016, we reviewed the inputs used in our 1 July 2016 impairment test and identified that indicators of impairment existed within the Global Private Banking - Europe CGU. There were no indicators of impairment in respect of our other CGUs at this time. Refreshed cash flow projections that became available for Global Private Banking - Europe were significantly adverse when compared to those used in the 1 July 2016 impairment test. The reduction in cash flow forecasts is driven by the continuing repositioning of the business and lower net new money and associated return on asset expectations. As a result, an impairment test was performed resulting in an impairment of $2.4bn.
The assumptions and results of the Global Private Banking - Europe tests are presented below:
 
Carrying amount
of which goodwill
Value in use
Impairment
Discount
rate
Nominal
growth rate beyond initial cash flow projections
 
$bn
$bn
$bn
$bn
%
%
30 Jun 2016
4.4
3.3
3.6
(0.8
)
9.7
2.8
31 Dec 2016
3.5
2.4
1.1
(2.4
)
9.7
2.8
2016 impairment recognised
 
 
 
(3.2
)
 
 
Basis of the recoverable amount
The recoverable amount of all CGUs to which goodwill has been allocated was equal to its value in use (VIU) at each respective testing date for 2015 and 2016. For each CGU, the VIU is calculated by discounting management's cash flow projections for the CGU. The key assumptions used in the VIU calculation for each significant CGU are discussed below.
238
HSBC Holdings plc Annual Report and Accounts 2016
Key assumptions in VIU calculation
 
 
Goodwill at
1 Jul 2016
Discount
rate
Nominal growth rate beyond initial cash flow projections
Goodwill at
1 Jul 2015
Goodwill at
31 Dec 2015
Discount
rate
Nominal
growth rate beyond initial cash flow projections
 
Footnote
$m
%
%
$m
$m
%
%
Cash-generating unit
 
 
 
 
 
 
 
 
Europe
 
RBWM
 
3,446
8.9
3.6
3,562
6.9
3.3
GB&M
 
2,520
10.7
3.8
2,690
9.9
3.5
CMB
 
2,517
9.7
3.8
2,603
9.0
3.6
North America
 
GB&M
1
918
10.0
4.6
929
931
10.0
4.3
Latin America
 
RBWM
 
584
11.0
7.4
792
11.0
6.9
1
GB&M North America comparative discount rate and nominal growth rate beyond initial cash flow project rates are as at 31 December 2015.
At 1 July 2016, aggregate goodwill of $3,025m (1 July 2015: $2,787m) had been allocated to CGUs that were not considered individually significant. The Group's CGUs do not carry on their balance sheets any significant intangible assets with indefinite useful lives, other than goodwill.
Management's judgement in estimating the cash flows of a CGU: The cash flow projections for each CGU are based on plans approved by the GMB. For the goodwill impairment test conducted at 1 July 2016, management's cash flow projections until the end of 2020 were used.
Discount rate: The rate used to discount the cash flows is based on the cost of capital assigned to each CGU, which is derived using a capital asset pricing model ('CAPM'). CAPM depends on a number of inputs reflecting financial and economic variables, including the risk-free rate and a premium to reflect the inherent risk of the business being evaluated. These variables are based on the market's assessment of the economic variables and management's judgement. The discount rates for each CGU are refined to reflect the rates of inflation for the countries within which the CGU operate. In addition, for the purposes of testing goodwill for impairment, management supplements this process by comparing the discount rates derived using the internally generated CAPM, with cost of capital rates produced by external sources for businesses operating in similar markets. For the purpose of goodwill testing as at 1 July 2016, all European CGUs include a 100bps uplift to reflect the increased risk in European markets following the UK referendum on membership of the EU.
Nominal long-term growth rate: The long-term growth rate is used to extrapolate the cash flows in perpetuity because of the long‑term perspective within the Group of business units making up the CGUs. These growth rates reflect GDP and inflation for the countries within which the CGU operates or derives revenue from.
Global Banking and Markets CGU basis
As described on page 44, the Group has changed its operating segments from a geographical region to a global businesses basis, and this change prompted a review of the goodwill allocation. Following this review it has been determined that Global Banking and Markets should be assessed as a single CGU rather than on a regional basis reflecting the global management and customer base of this business. An analysis was performed and Global Banking and Markets is considered to have significant headroom to support its goodwill. All other CGUs remain unchanged.
Sensitivities of key assumptions in calculating VIU
At 1 July 2016, Retail Banking and Wealth Management - Europe was sensitive to reasonably possible adverse changes in the discount rate, growth rate or management's projections of cash flows assumptions supporting the recoverable amount. Changes in one or more of these assumptions could cause an impairment to be recognised. In making an estimate of reasonably possible changes to assumptions, management considers the available evidence in respect of each input to the model such as the external range of discount rates observable, historical performance against forecast and risks attaching to the key assumptions underlying cash flow projections.
The following table presents a summary of the key assumptions underlying the most sensitive inputs to the model for this CGU; the key risks attached; and details of a reasonably possible change to assumptions where, in the opinion of management, these could result in an impairment.
HSBC Holdings plc Annual Report and Accounts 2016
239
Notes on the Financial Statements
Reasonably possible changes in key assumptions
 
Input
Key assumptions
Associated risks
Reasonably possible change
Cash-generating unit
 
 
 
 
RBWM - Europe
Cash flow projections
•
Level of interest rates and yield curves.
•
Competitors' position within the market.
•
Level and change in unemployment rates.
•
Uncertain regulatory environment.
•
Customer remediation and regulatory actions.
•
Cash flow projections decrease by 10%. This does not result in an impairment.
 
Discount
rate
•
Discount rate used is a reasonable estimate of a suitable market rate for the profile of the business.
•
External evidence suggests that the rate used is not appropriate to the business.
•
Discount rate increases by 100bps.
 
Long-term growth rates
•
Business growth will reflect GDP growth rates in the long term.
•
Growth does not match GDP or there is a fall in GDP forecasts.
•
Real GDP growth does not occur or is not reflected in performance.
Sensitivity of VIU to reasonably possible changes in key assumptions and changes to current assumptions to achieve nil headroom
At 1 Jul 2016
RBWM - Europe
In $ billions (unless otherwise stated)
$bn
Carrying amount
16.6
VIU
19.7
Reasonably possible change in key assumption
Discount rate - bps
100
Cash flows - %
(10
)
Long-term growth rates - bps
(162
)
Impact on VIU
Discount rate
(3.1
)
Cash flows
(2.0
)
Long-term growth rates
(3.9
)
Cumulative impact of all changes
(7.3
)
Changes to current assumptions to achieve nil headroom
Discount rate - bps
102
Cash flows - %
(15.8
)
Long-term growth rates - bps
(122
)
Present value of in-force long-term insurance business
When calculating the present value of in-force insurance business ('PVIF'), expected cash flows are projected after adjusting for a variety of assumptions made by each insurance operation to reflect local market conditions and management's judgement of future trends, and after applying risk margins to reflect any uncertainty in the underlying assumptions. Variations in actual experience and changes to assumptions can contribute to volatility in the results of the insurance business.
Actuarial Control Committees of each key insurance entity meet on a quarterly basis to review and approve PVIF assumptions. All changes to non-economic assumptions, economic assumptions that are not observable and model methodology must be approved by the Actuarial Control Committee.
Movements in PVIF
 
 
2016
2015
 
Footnotes
$m
$m
PVIF at 1 Jan
 
5,685
5,307
Change in PVIF of long-term insurance business
 
902
799
- value of new business written during the year
 
900
809
- expected return
1
(532
)
(552
)
- assumption changes and experience variances (see below)
 
513
504
- other adjustments
 
21
38
Transfer of assets classified as held for sale
2
(45
)
(219
)
Exchange differences and other
 
(40
)
(202
)
PVIF at 31 Dec
 
6,502
5,685
1
'Expected return' represents the unwinding of the discount rate and reversal of expected cash flows for the period.
2
Relates to the Brazilian insurance operations which were classified as held for sale in 2015.
Assumption changes and experience adjustments
Included within this line item are:
•
$279m (2015: $114m), directly offsetting interest rate-driven changes to liabilities under insurance contracts.
•
$301m (2015: $209m), reflecting the future sharing of returns with policyholders on contracts with discretionary participation features ('DPF'), to the extent this sharing is not already included in liabilities under insurance contracts.
•
$(67)m (2015: $181m), driven by other changes in assumptions and experience variances to projected future profits.
240
HSBC Holdings plc Annual Report and Accounts 2016
Key assumptions used in the computation of PVIF for main life insurance operations
Economic assumptions are set in a way that is consistent with observable market values. The valuation of PVIF is sensitive to observed market movements and the impact of such changes is included in the sensitivities presented below.
 
2016
2015
 
Hong Kong
France1
Hong Kong
France1
 
%
%
%
%
Weighted average risk free rate
2.09
0.99
1.82
1.57
Weighted average risk discount rate
6.34
1.84
6.81
2.55
Expense inflation
3.00
1.66
3.00
1.70
1
For 2016, the calculation of France's PVIF assumes a risk discount rate of 1.84% (2015: 2.55%) plus a risk margin of $101m (2015: $51m).
Sensitivity to changes in economic assumptions
The Group sets the risk discount rate applied to the PVIF calculation by starting from a risk-free rate curve and adding explicit allowances for risks not reflected in the best estimate cash flow modelling. Where the insurance operations provide options and guarantees to policyholders the cost of these options and guarantees is an explicit reduction to PVIF, unless it is already allowed for as an explicit addition to the technical provisions required by regulators. See page 123 for further details of these guarantees and the impact of changes in economic assumptions on our insurance manufacturing subsidiaries.
Sensitivity to changes in non-economic assumptions
Policyholder liabilities and PVIF are determined by reference to non-economic assumptions including mortality and/or morbidity, lapse rates and expense rates. See page 125 for further details on the impact of changes in non-economic assumptions on our insurance manufacturing operations.
21 Prepayments, accrued income and other assets
 
2016
2015
 
$m
$m
Prepayments and accrued income
7,335
7,765
Bullion
15,406
11,501
Endorsements and acceptances
8,574
9,149
Reinsurers' share of liabilities under insurance contracts (Note 3)
1,820
1,378
Employee benefit assets (Note 5)
4,714
5,272
Other accounts
12,298
9,410
Property, plant and equipment
9,373
9,923
At 31 Dec
59,520
54,398
Prepayments, accrued income and other assets include $26,927 (2015: $25,310m) of financial assets, the majority of which are measured at amortised cost.
22 Assets held for sale and liabilities of disposal groups held for sale
Assets held for sale and liabilities of disposal groups held for sale
 
2016
2015
 
$m
$m
Held for sale at 31 Dec
 
 
Disposal groups
1,882
41,715
Non-current assets held for sale
2,507
2,185
Total assets
4,389
43,900
Liabilities of disposal groups
2,790
36,840
Disposal groups
Brazil
On 1 July 2016, we completed the sale of our operations in Brazil to Banco Bradesco S.A. for a cash consideration of $4.8bn. This resulted in a loss on disposal of $1.7bn which includes the reclassification of cumulative foreign exchange differences of $1.9bn.
HSBC Holdings plc Annual Report and Accounts 2016
241
Notes on the Financial Statements
23 Trading liabilities
 
 
2016
2015
 
Footnotes
$m
$m
Deposits by banks
1
24,827
27,054
Customer accounts
1, 2
45,085
40,208
Other debt securities in issue (Note 25)
3
32,656
30,525
Other liabilities - net short positions in securities
 
51,123
43,827
At 31 Dec
 
153,691
141,614
1
'Deposits by banks' and 'Customer accounts' include repos, settlement accounts, stock lending and other amounts.
2
Structured deposits placed at HSBC Bank USA and HSBC Trust Company (Delaware) National Association are insured by the Federal Deposit Insurance Corporation, a US government agency, up to $250,000 per depositor.
3
'Other debt securities in issue' comprises structured notes issued by HSBC for which market risks are actively managed as part of trading portfolios.
At 31 December 2016, the cumulative amount of change in fair value attributable to changes in HSBC's credit risk was a gain of $2m (2015: gain of $122m).
24 Financial liabilities designated at fair value
HSBC
 
2016
2015
 
$m
$m
Deposits by banks and customer accounts
135
193
Liabilities to customers under investment contracts
6,002
6,027
Debt securities in issue (Note 25)
57,112
37,678
Subordinated liabilities (Note 28)
23,172
21,168
Preferred securities (Note 28)
411
1,342
At 31 Dec
86,832
66,408
The carrying amount of financial liabilities designated at fair value was $4,413m more than the contractual amount at maturity(2015: $4,147m more). The cumulative own credit loss recognised was $1,672m (2015: gain of $158m).
HSBC Holdings
 
2016
2015
 
$m
$m
Debt securities in issue (Note 25)
16,766
7,897
Subordinated liabilities (Note 28)
13,347
11,956
At 31 Dec
30,113
19,853
The carrying amount of financial liabilities designated at fair value was $2,681m more than the contractual amount at maturity(2015: $2,127m more). The cumulative amount of change in fair value attributable to changes in credit risk was a loss of$1,202m (2015: loss of $172m).
25 Debt securities in issue
HSBC
 
2016
2015
 
$m
$m
Bonds and medium-term notes
133,721
128,348
Other debt securities in issue
21,962
28,804
Total debt securities in issue
155,683
157,152
Included within:
- trading liabilities (Note 23)
(32,656
)
(30,525
)
- financial liabilities designated at fair value (Note 24)
(57,112
)
(37,678
)
At 31 Dec
65,915
88,949
HSBC Holdings
 
2016
2015
 
$m
$m
Debt securities
38,571
8,857
Included within:
- financial liabilities designated at fair value (Note 24)
(16,766
)
(7,897
)
At 31 Dec
21,805
960
242
HSBC Holdings plc Annual Report and Accounts 2016
26 Accruals, deferred income and other liabilities
 
2016
2015
 
$m
$m
Accruals and deferred income
10,770
11,129
Endorsements and acceptances
8,567
9,135
Employee benefit liabilities (Note 5)
2,681
2,809
Other liabilities
19,483
15,043
At 31 Dec
41,501
38,116
Accruals, deferred income and other liabilities include $30,932m (2015: $29,358m) of financial liabilities, the majority of which are measured at amortised cost.
27 Provisions
 
Restructuring
costs
Contractual
commitments
Legal proceedings
and regulatory
matters
Customer
remediation
Other
provisions
Total
 
$m
$m
$m
$m
$m
$m
At 1 Jan 2016
463
240
3,174
1,340
335
5,552
Additions
415
141
1,258
762
208
2,784
Amounts utilised
(168
)
(1
)
(1,831
)
(680
)
(118
)
(2,798
)
Unused amounts reversed
(115
)
(97
)
(165
)
(94
)
(96
)
(567
)
Unwinding of discounts
-
-
-
-
6
6
Exchange and other movements
(44
)
15
-
(204
)
29
(204
)
At 31 Dec 2016
551
298
2,436
1,124
364
4,773
 
 
 
 
 
 
 
At 1 Jan 2015
197
234
2,184
1,831
552
4,998
Additions
430
120
2,153
765
138
3,606
Amounts utilised
(95
)
(2
)
(619
)
(856
)
(159
)
(1,731
)
Unused amounts reversed
(29
)
(15
)
(95
)
(170
)
(133
)
(442
)
Unwinding of discounts
-
-
40
6
-
46
Exchange and other movements
(40
)
(97
)
(489
)
(236
)
(63
)
(925
)
At 31 Dec 2015
463
240
3,174
1,340
335
5,552
Further details of 'Legal proceedings and regulatory matters' are set out in Note 35. Legal proceedings include: civil court, arbitration or tribunal proceedings brought against HSBC companies (whether by way of claim or counterclaim); or civil disputes that may, if not settled, result in court, arbitration or tribunal proceedings. Regulatory matters refers to investigations, reviews and other actions carried out by, or in response to the actions of, regulators or law enforcement agencies in connection with alleged wrongdoing by HSBC.
Customer remediation refers to HSBC's activities to compensate customers for losses or damages associated with a failure to comply with regulations or to treat customers fairly. Customer remediation is often initiated by HSBC in response to customer complaints and/or industry developments in sales practices, and is not necessarily initiated by regulatory action. Further details of customer remediation are set out in this note.
Payment protection insurance
At 31 December 2016, a provision of $919m (2015: $1,039m) was held relating to the estimated liability for redress in respect of the possible mis-selling of payment protection insurance ('PPI') policies in previous years. Cumulative provisions made since the Judicial Review ruling in the first half of 2011 amount to $5.1bn, of which $4.1bn has been paid as at 31 December 2016.
An increase in provisions of $492m was recognised during the year, primarily reflecting a delay to the inception of the expected time bar on inbound complaints; and an anticipated adjustment to the redress parameters surrounding 'Plevin' (a 2014 decision of the UK Supreme Court which held that, judged on its own facts, non-disclosure of the amounts of commissions payable in connection with the sale of PPI to a customer created an unfair relationship under the provisions of the UK Consumer Credit Act).
The estimated liability for redress is calculated on the basis of the total premiums paid by the customer plus simple interest of 8% per annum (or the rate inherent in the related loan product where higher). The basis for calculating the redress liability is the same for single premium and regular premium policies. Future estimated redress levels are based on the historically observed redress per policy.
A total of 5.4 million PPI policies have been sold since 2000, generating estimated revenues of $3.5bn at 2016 average exchange rates. The gross written premiums on these policies were approximately $4.6bn.
At 31 December 2016, the estimated total complaints expected to be received were 2.0 million, representing 37% of total policies sold. It is estimated that contact will be made with regard to 2.4 million policies, representing 45% of total policies sold. This estimate includes inbound complaints as well as the group's proactive contact exercise on certain policies ('outbound contact').
The following table details the cumulative number of complaints received at 31 December 2016 and the number of claims expected in the future:
HSBC Holdings plc Annual Report and Accounts 2016
243
Notes on the Financial Statements
Cumulative PPI complaints received to 31 December 2016 and future claims expected
 
Footnotes
Cumulative actual to
31 Dec 2016
Future
expected
Inbound complaints (000s of policies)
1
1,363
320
Outbound contact (000s of policies)
 
725
-
Response rate to outbound contact
 
42%
n/a
Average uphold rate per claim
2
76%
84%
Average redress per claim ($)
 
2,670
2,702
Complaints to Financial Ombudsman Service (000s of policies)
 
138
47
Average uphold rate per Financial Ombudsman Service claim
 
41%
55%
1
Excludes invalid claims for which no PPI policy exists.
2
Claims include inbound and responses to outbound contact.
A 100,000 increase/decrease in the total inbound complaints would increase/decrease the redress provision by approximately $203m at 2016 average exchange rates.
Each 1% increase/decrease in the response rate to our outbound contact exercise would increase/decrease the redress provision by approximately $12m.
28 Subordinated liabilities
HSBC
 
2016
2015
 
$m
$m
At amortised cost
20,984
22,702
- subordinated liabilities
19,230
20,773
- preferred securities
1,754
1,929
Designated at fair value (Note 24)
23,583
22,510
- subordinated liabilities
23,172
21,168
- preferred securities
411
1,342
At 31 Dec
44,567
45,212
Issued by HSBC subsidiaries
16,860
19,150
Issued by HSBC Holdings
27,707
26,062
HSBC's subordinated liabilities
Subordinated liabilities rank behind senior obligations and generally count towards the capital base of HSBC. Capital securities may be called and redeemed by HSBC subject to prior notification to the PRA and, where relevant, the consent of the local banking regulator. If not redeemed at the first call date, coupons payable may step up or become floating rate based on interbank rates. On capital securities other than floating rate notes, interest is payable at fixed rates of up to 10.176%.
The balance sheet amounts disclosed below are presented on an IFRSs basis and do not reflect the amount that the instruments contribute to regulatory capital due to the inclusion of issuance costs, regulatory amortisation and regulatory eligibility limits prescribed in the grandfathering provisions under CRD IV.
244
HSBC Holdings plc Annual Report and Accounts 2016
HSBC's subordinated liabilities in issue
 
 
First call
Maturity
2016
2015
 
Footnotes
date
date
$m
$m
Additional tier 1 capital securities guaranteed by HSBC Holdings plc
1
 
 
 
 
€750m
5.13% non-cumulative step-up perpetual preferred securities
2
Mar 2016
 
-
856
$900m
10.176% non-cumulative step-up perpetual preferred securities, series 2
 
Jun 2030
 
891
891
 
 
 
 
 
891
1,747
Additional tier 1 capital securities guaranteed by HSBC Bank plc
1
 
 
 
 
£300m
5.862% non-cumulative step-up perpetual preferred securities
 
Apr 2020
 
411
488
£700m
5.844% non-cumulative step-up perpetual preferred securities
 
Nov 2031
 
863
1,038
 
 
 
 
 
1,274
1,526
Tier 2 securities issued by HSBC Bank plc
 
 
 
 
 
£350m
5.00% callable subordinated notes
3
Mar 2018
Mar 2023
466
562
£300m
6.50% subordinated notes
 
-
Jul 2023
369
444
£350m
5.375% callable subordinated step-up notes
4
Nov 2025
Nov 2030
489
569
£500m
5.375% subordinated notes
 
-
Aug 2033
750
846
£225m
6.25% subordinated notes
 
-
Jan 2041
276
332
£600m
4.75% subordinated notes
 
-
Mar 2046
731
879
$300m
7.65% subordinated notes
 
-
May 2025
372
386
$750m
Undated floating rate primary capital notes
 
Jun 1990
 
750
750
$500m
Undated floating rate primary capital notes
 
Sep 1990
 
500
500
$300m
Undated floating rate primary capital notes, series 3
 
Jun 1992
 
300
300
 
 
 
 
 
5,003
5,568
Tier 2 securities issued by The Hongkong and Shanghai Banking Corporation Ltd
 
 
 
 
 
$400m
Primary capital undated floating rate notes
5
Aug 1990
 
-
401
$400m
Primary capital undated floating rate notes (third series)
 
Jul 1991
 
400
400
 
 
 
 
 
400
801
Tier 2 securities issued by HSBC Bank Malaysia Berhad
 
 
 
 
 
MYR500m
4.35% subordinated bonds
 
Jun 2017
Jun 2022
112
116
MYR500m
5.05% subordinated bonds
 
Nov 2022
Nov 2027
112
116
 
 
 
 
 
224
232
Tier 2 securities issued by HSBC USA Inc.
 
 
 
 
 
$750m
5.00% subordinated notes
 
-
Sep 2020
748
747
$250m
7.20% subordinated debentures
 
-
Jul 2097
220
220
 
Other subordinated liabilities each less than $150m
6
 
 
284
299
 
 
 
 
 
1,252
1,266
Tier 2 securities issued by HSBC Bank USA, N.A.
 
 
 
 
 
$500m
6.00% subordinated notes
 
-
Aug 2017
498
502
$1,250m
4.875% subordinated notes
 
-
Aug 2020
1,257
1,258
$1,000m
5.875% subordinated notes
 
-
Nov 2034
1,137
1,142
$750m
5.625% subordinated notes
 
-
Aug 2035
862
850
$700m
7.00% subordinated notes
 
-
Jan 2039
701
691
 
 
 
 
 
4,455
4,443
Tier 2 securities issued by HSBC Finance Corporation
 
 
 
 
 
$2,939m
6.676% senior subordinated notes
7
-
Jan 2021
2,192
2,188
 
 
 
 
 
 
 
Tier 2 securities issued by HSBC Bank Canada
 
 
 
 
 
CAD400m
4.80% subordinated debentures
 
Apr 2017
Apr 2022
299
298
CAD200m
4.94% subordinated debentures
5
Mar 2016
Mar 2021
-
144
 
Other subordinated liabilities each less than $150m
 
Oct 1996
Nov 2083
29
29
 
 
 
 
 
328
471
Securities issued by HSBC Mexico, S.A.
 
 
 
 
 
$300m
Non-convertible subordinated obligations
8, 9
Jun 2014
Jun 2019
240
240
 
Other subordinated liabilities each less than $150m
8
 
 
198
236
 
 
 
 
 
438
476
Securities issued by other HSBC subsidiaries
 
 
 
 
 
Other subordinated liabilities each less than $200m
6
 
 
403
432
Subordinated liabilities issued by HSBC subsidiaries at 31 Dec
 
 
 
16,860
19,150
1
See paragraph below, 'Guaranteed by HSBC Holdings or HSBC Bank plc'.
2
In February 2016, HSBC gave notice that it will call and redeem the €750m 5.13% non-cumulative step-up perpetual preferred securities.
3
The interest rate payable after March 2018 is the sum of the gross redemption yield of the then prevailing five-year UK gilt plus 1.80 percentage points.
4
The interest rate payable after November 2025 is the sum of the three-month sterling Libor plus 1.50 percentage points.
5
In January 2016, HSBC called and redeemed $400m Primary capital undated floating rate notes and CAD200m 4.94% subordinated debentures.
6
Some securities included here are ineligible for inclusion in the capital base of HSBC in accordance with CRD IV rules.
7
Approximately $731m of the senior subordinated notes are held by HSBC Holdings.
8
These securities are ineligible for inclusion in the capital base of HSBC in accordance with CRD IV rules.
9
Approximately $60m of the subordinated obligations are held by HSBC Holdings.
HSBC Holdings plc Annual Report and Accounts 2016
245
Notes on the Financial Statements
HSBC Holdings
 
2016
2015
 
$m
$m
At amortised cost
15,189
15,895
Designated at fair value (Note 24)
13,347
11,956
At 31 Dec
28,536
27,851
HSBC Holdings' subordinated liabilities
 
 
First call
Maturity
2016
2015
 
Footnotes
date
date
$m
$m
Tier 2 securities issued by HSBC Holdings plc
 
 
 
 
 
Amounts owed to third parties
 
 
 
 
 
$488m
7.625% subordinated notes
1
-
May 2032
528
531
$222m
7.35% subordinated notes
1
-
Nov 2032
278
278
$2,000m
6.5% subordinated notes
1
-
May 2036
2,029
2,029
$2,500m
6.5% subordinated notes
1
-
Sep 2037
3,170
3,085
$1,500m
6.8% subordinated notes
1
-
Jun 2038
1,487
1,487
$2,000m
4.25% subordinated notes
2,4
-
 Mar 2024
2,060
2,078
$1,500m
5.25% subordinated notes
2,4
-
Mar 2044
1,747
1,735
$1,500m
4.25% subordinated notes
2
-
Jun 2025
1,539
1,529
$1,500m
4.375% subordinated notes
2
-
 Nov 2026
1,520
-
£900m
6.375% callable subordinated notes
1,3
Oct 2017
Oct 2022
1,163
1,432
£650m
5.75% subordinated notes
2
-
Dec 2027
932
1,079
£650m
6.75% subordinated notes
2
-
Sep 2028
793
955
£750m
7.0% subordinated notes
2
-
Apr 2038
971
1,159
£900m
6.0% subordinated notes
2
-
Mar 2040
1,086
1,310
€1,600m
6.25% subordinated notes
2
-
Mar 2018
1,693
1,748
€1,750m
6.0% subordinated notes
2
-
Jun 2019
2,168
2,284
€1,500m
3.0% subordinated notes
2
-
Jun 2025
1,716
1,691
€1,500m
3.125% subordinated notes
2
-
Jun 2028
1,139
-
€1,500m
3.375% subordinated notes
2,4
Jan 2019
Jan 2024
1,626
1,694
27,645
26,104
Amounts owed to HSBC undertakings
€750m
5.13% fixed/floating subordinated notes
Mar 2016
Dec 2044
-
856
$900m
10.176% subordinated step-up cumulative notes
Jun 2030
Jun 2040
891
891
891
1,747
At 31 Dec
28,536
27,851
1
Amounts owed to third parties represent securities included in the capital base of HSBC as tier 2 securities in accordance with the grandfathering provisions under CRD IV rules.
2
These securities are included in the capital base of HSBC as fully CRD IV compliant tier 2 securities on an end point basis.
3
The interest rate payable after October 2017 is the sum of the three-month sterling Libor plus 1.3 percentage points.
4
These subordinated notes are measured at amortised cost in HSBC Holdings, where the interest rate risk is hedged using a fair value hedge, while they are measured at fair value in the Group.
Additional tier 1 capital securities
Additional tier 1 capital securities are perpetual subordinated securities on which coupon payments may be deferred or cancelled at the discretion of HSBC Holdings. The securities presented in this Note are accounted for as liabilities because HSBC has an obligation to pay dividends in perpetuity. See Note 35 for additional tier 1 capital securities accounted for as equity.
The additional tier 1 securities presented in this section do not meet the identifying criteria in full for recognition as tier 1 capital under CRD IV but are eligible as regulatory capital subject to grandfathering limits and progressive phase-out.
Guaranteed by HSBC Holdings or HSBC Bank plc
These capital securities were issued by the Jersey limited partnerships and proceeds lent to the respective guarantors by the limited partnerships in the form of subordinated notes. They qualify as additional tier 1 capital for HSBC under CRD IV by virtue of the application of grandfathering provisions, and the two capital securities guaranteed by HSBC Bank plc ('HSBC Bank') also qualify as additional tier 1 capital for HSBC Bank (on a solo and a consolidated basis) under CRD IV by virtue of the same grandfathering process.
These preferred securities, together with the guarantee, are intended to provide investors with economic rights equivalent to the rights that they would have had if they had purchased non-cumulative perpetual preference shares of the relevant issuer. There are limitations on the payment of distributions if such payments are 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 or HSBC Bank has insufficient distributable reserves (as defined).
HSBC Holdings and HSBC Bank have individually covenanted that if prevented under certain circumstances from paying distributions on the preferred securities in full, they will not pay dividends or other distributions in respect of their ordinary shares, or repurchase or redeem their ordinary shares, until the distribution on the preferred securities has been paid in full.
Preference shares of HSBC Holdings that have economic terms equal in all material respects to the preferred securities and their guarantee together will be substituted for the preferred securities guaranteed by HSBC Holdings if the total capital ratio of HSBC Holdings falls below the regulatory minimum required, or the Directors expect it to in the near term.
246
HSBC Holdings plc Annual Report and Accounts 2016
Preference shares of HSBC Bank that have economic terms equal in all material respects to the preferred securities and their guarantee together will be substituted for the preferred securities guaranteed by HSBC Bank if any of the two issues of preferred securities are outstanding in April 2049 or November 2048, respectively; or the total capital ratio of HSBC Bank on a solo and consolidated basis falls below the regulatory minimum required, or the Directors expect it to in the near term.
Tier 2 capital securities
These capital securities are included within HSBC's regulatory capital base as tier 2 capital under CRD IV by virtue of the application of grandfathering provisions (with the exception of identified HSBC Holding securities which are compliant with CRD IV end point rules). Tier 2 capital securities are either perpetual subordinated securities or dated securities on which there is an obligation to pay coupons. In accordance with CRD IV, the capital contribution of all tier 2 securities is amortised for regulatory purposes in their final five years before maturity.
29 Maturity analysis of assets, liabilities and off-balance sheet commitments
The table on page 248 provides an analysis of consolidated total assets, liabilities and off-balance sheet commitments by residual contractual maturity at the balance sheet date. These balances are included in the maturity analysis as follows:
•
Trading assets and liabilities (including trading derivatives but excluding reverse repos, repos and debt securities in issue) are included in the 'Due not more than 1 month' time bucket, because trading balances are typically held for short periods of time.
•
Financial assets and liabilities with no contractual maturity (such as equity securities) are included in the 'Due over 5 years' time bucket. Undated or perpetual instruments are classified based on the contractual notice period which the counterparty of the instrument is entitled to give. Where there is no contractual notice period, undated or perpetual contracts are included in the 'Due over 5 years' time bucket.
•
Non-financial assets and liabilities with no contractual maturity are included in the 'Due over 5 years' time bucket.
•
Financial instruments included within assets and liabilities of disposal groups held for sale are classified on the basis of the contractual maturity of the underlying instruments and not on the basis of the disposal transaction.
•
Liabilities under insurance contracts are included in the 'Due over 5 years' time bucket. Liabilities under investment contracts are classified in accordance with their contractual maturity. Undated investment contracts are included in the 'Due over 5 years' time bucket, however, such contracts are subject to surrender and transfer options by the policyholders.
•
Loan and other credit-related commitments are classified on the basis of the earliest date they can be drawn down.
HSBC Holdings plc Annual Report and Accounts 2016
247
Notes on the Financial Statements
HSBC
Maturity analysis of assets, liabilities and off-balance sheet commitments
 
 
 
 
 
 
Due notmore than1 month
Due over1 monthbut notmore than3 months
Due over3 monthsbut notmore than6 months
Due over6 monthsbut notmore than9 months
Due over
9 months
but not
more than
1 year
Due over
1 year
but not
more than
2 years
Due over
2 years
but not
more than
5 years
Due over
5 years
Total
 
$m
$m
$m
$m
$m
$m
$m
$m
$m
Financial assets
 
 
 
 
 
 
 
 
 
Cash and balances at central banks
128,009
-
-
-
-
-
-
-
128,009
Items in the course of collection from other banks
5,003
-
-
-
-
-
-
-
5,003
Hong Kong Government certificates of indebtedness
31,228
-
-
-
-
-
-
-
31,228
Trading assets
232,550
758
230
415
1,172
-
-
-
235,125
Financial assets designated at fair value
176
182
75
178
363
749
2,486
20,547
24,756
Derivatives
287,749
149
207
96
110
704
1,056
801
290,872
Loans and advances to banks
59,636
13,404
4,494
2,375
1,765
2,879
2,298
1,275
88,126
Loans and advances to customers
167,531
61,693
47,664
30,115
30,362
85,144
192,787
246,208
861,504
- personal
39,295
7,812
6,723
5,928
6,799
22,664
53,620
194,985
337,826
- corporate and commercial
108,906
48,333
35,180
21,317
19,573
54,739
126,890
45,271
460,209
- financial
19,330
5,548
5,761
2,870
3,990
7,741
12,277
5,952
63,469
Reverse repurchase agreements- non-trading
115,942
25,525
10,378
5,220
2,350
479
1,080
-
160,974
Financial investments
36,932
59,826
30,403
16,800
19,564
50,255
104,933
118,084
436,797
Assets held for sale
893
1,663
120
64
64
205
682
283
3,974
Accrued income and other financial assets
15,992
6,387
1,617
343
398
216
351
1,624
26,928
Financial assets at 31 Dec 2016
1,081,641
169,587
95,188
55,606
56,148
140,631
305,673
388,822
2,293,296
Non-financial assets
-
-
-
-
-
-
-
81,690
81,690
Total assets at 31 Dec 2016
1,081,641
169,587
95,188
55,606
56,148
140,631
305,673
470,512
2,374,986
Off-balance sheet commitments received
 
 
 
 
 
 
 
 
 
Loan and other credit-related commitments
2,813
-
2,050
-
-
110
-
-
4,973
Financial liabilities
 
 
 
 
 
 
 
 
 
Hong Kong currency notes in circulation
31,228
-
-
-
-
-
-
-
31,228
Deposits by banks
46,306
4,075
2,085
665
489
422
4,842
1,055
59,939
Customer accounts1
1,180,641
45,245
19,187
10,277
8,325
4,709
3,500
502
1,272,386
- personal
590,654
22,222
12,024
5,823
4,786
3,484
2,483
121
641,597
- corporate and commercial
436,666
17,460
6,178
3,951
3,082
1,200
967
360
469,864
- financial
153,321
5,563
985
503
457
25
50
21
160,925
Repurchase agreements- non-trading
82,330
2,707
2,871
50
-
-
1,000
-
88,958
Items in the course of transmission to other banks
5,977
-
-
-
-
-
-
-
5,977
Trading liabilities
121,707
2,053
1,423
1,845
3,013
6,219
9,010
8,421
153,691
Financial liabilities designated atfair value
1,659
958
1,396
3
1,701
5,046
17,989
58,080
86,832
- debt securities in issue: covered bonds
1,587
-
303
-
-
207
1,348
2,558
6,003
- debt securities in issue: unsecured
25
15
1,091
3
1,700
4,839
14,056
29,380
51,109
- subordinated liabilities and preferred securities
-
-
-
-
-
-
2,578
21,005
23,583
- other
47
943
2
-
1
-
7
5,137
6,137
Derivatives
274,965
39
39
112
273
506
1,471
2,414
279,819
Debt securities in issue
4,708
8,598
8,280
5,996
4,610
10,953
19,432
3,338
65,915
- covered bonds
-
-
1
71
1
3
24
26
126
- otherwise secured
3,207
823
893
114
329
1,882
2,680
1,181
11,109
- unsecured
1,501
7,775
7,386
5,811
4,280
9,068
16,728
2,131
54,680
Liabilities of disposal groups held for sale
2,472
107
113
36
34
7
21
-
2,790
Accruals and other financial liabilities
16,580
8,065
2,279
797
485
878
1,278
568
30,930
Subordinated liabilities
12
-
143
61
497
1,788
5,056
13,427
20,984
Total financial liabilities at
31 Dec 2016
1,768,585
71,847
37,816
19,842
19,427
30,528
63,599
87,805
2,099,449
Non-financial liabilities
-
-
-
-
-
-
-
92,959
92,959
Total liabilities at 31 Dec 2016
1,768,585
71,847
37,816
19,842
19,427
30,528
63,599
180,764
2,192,408
Off-balance sheet commitments given
 
 
 
 
 
 
 
 
 
Loan and other credit-related commitments:
466,780
39,922
14,909
12,537
36,281
11,241
45,778
28,395
655,843
- personal
158,054
4,932
5,297
287
4,063
1,129
788
9,260
183,810
- corporate and commercial
259,231
33,421
9,248
11,592
26,829
7,242
40,740
15,173
403,476
- financial
49,495
1,569
364
658
5,389
2,870
4,250
3,962
68,557
248
HSBC Holdings plc Annual Report and Accounts 2016
Maturity analysis of assets, liabilities and off-balance sheet commitments (continued)
 
Due not
more than
1 month
Due over
1 month
but not
more than
3 months
Due over
3 months
but not
more than
6 months
Due over
6 months
but not
more than
9 months
Due over
9 months
but not
more than
1 year
Due over
1 year
but not
more than
2 years
Due over
2 years
but not
more than
5 years
Due over
5 years
Total
 
$m
$m
$m
$m
$m
$m
$m
$m
$m
Financial assets
 
 
 
 
 
 
 
 
 
Cash and balances at central banks
98,934
-
-
-
-
-
-
-
98,934
Items in the course of collection from other banks
5,768
-
-
-
-
-
-
-
5,768
Hong Kong Government certificates of indebtedness
28,410
-
-
-
-
-
-
-
28,410
Trading assets
224,691
34
-
-
-
112
-
-
224,837
Financial assets designated at fair value
429
194
222
83
390
896
2,603
19,035
23,852
Derivatives
285,797
215
223
198
33
499
841
670
288,476
Loans and advances to banks
57,296
14,530
4,063
1,964
2,499
5,134
3,274
1,641
90,401
Loans and advances to customers
176,862
69,638
54,730
33,095
34,774
81,560
201,253
272,542
924,454
- personal
39,191
8,328
8,510
7,457
9,350
22,438
57,283
218,646
371,203
- corporate and commercial
123,901
54,711
40,489
21,081
21,811
50,355
131,166
49,564
493,078
- financial
13,770
6,599
5,731
4,557
3,613
8,767
12,804
4,332
60,173
Reverse repurchase agreements
- non-trading
110,478
21,978
7,220
2,786
580
2,985
228
-
146,255
Financial investments
35,104
59,098
36,897
19,102
17,293
48,634
94,549
118,278
428,955
Assets held for sale
15,816
2,628
2,544
1,218
2,611
4,675
6,365
4,422
40,279
Accrued income and other financial assets
12,732
6,682
1,995
483
395
463
445
2,115
25,310
Financial assets at 31 Dec 2015
1,052,317
174,997
107,894
58,929
58,575
144,958
309,558
418,703
2,325,931
Non-financial assets
-
-
-
-
-
-
-
83,725
83,725
Total assets at 31 Dec 2015
1,052,317
174,997
107,894
58,929
58,575
144,958
309,558
502,428
2,409,656
Off-balance sheet commitments received
 
 
 
 
 
 
 
 
 
Loan and other credit-related commitments
3,472
-
2,149
-
-
111
-
-
5,732
Financial liabilities
 
 
 
 
 
 
 
 
 
Hong Kong currency notes in circulation
28,410
-
-
-
-
-
-
-
28,410
Deposits by banks
46,693
2,225
1,049
325
116
712
3,182
69
54,371
Customer accounts1
1,185,091
50,831
21,397
10,421
10,869
6,596
3,852
529
1,289,586
- personal
574,468
27,646
13,032
7,371
7,990
3,566
2,920
354
637,347
- corporate and commercial
459,813
18,802
7,314
2,479
2,495
2,926
828
156
494,813
- financial
150,810
4,383
1,051
571
384
104
104
19
157,426
Repurchase agreements - non-trading
73,478
3,788
1,816
164
154
-
500
500
80,400
Items in the course of transmission to other banks
5,638
-
-
-
-
-
-
-
5,638
Trading liabilities
111,691
1,471
1,529
882
2,184
4,344
10,105
9,408
141,614
Financial liabilities designated at
fair value
2,036
1,822
2,943
342
1,900
4,930
14,316
38,119
66,408
- debt securities in issue: covered bonds
-
-
-
-
-
2,012
1,608
2,577
6,197
- debt securities in issue: unsecured
1,972
973
2,926
342
1,786
2,918
9,819
10,745
31,481
- subordinated liabilities and preferred securities
-
848
-
-
-
-
2,773
18,889
22,510
- other
64
1
17
-
114
-
116
5,908
6,220
Derivatives
276,765
34
251
213
52
524
1,063
2,169
281,071
Debt securities in issue
16,536
9,326
16,295
5,542
1,365
10,754
22,866
6,265
88,949
- covered bonds
-
-
1
-
1
83
17
33
135
- otherwise secured
8,436
173
195
206
173
2,082
4,354
1,118
16,737
- unsecured
8,100
9,153
16,099
5,336
1,191
8,589
18,495
5,114
72,077
Liabilities of disposal groups held
for sale
20,350
1,416
1,548
1,344
1,246
5,050
1,484
115
32,553
Accruals and other financial liabilities
14,802
7,965
2,467
659
421
925
1,454
665
29,358
Subordinated liabilities
-
401
-
-
34
650
4,579
17,038
22,702
Total financial liabilities at 31 Dec 2015
1,781,490
79,279
49,295
19,892
18,341
34,485
63,401
74,877
2,121,060
Non-financial liabilities
-
-
-
-
-
-
-
91,078
91,078
Total liabilities at 31 Dec 2015
1,781,490
79,279
49,295
19,892
18,341
34,485
63,401
165,955
2,212,138
Off-balance sheet commitments given
 
 
 
 
 
 
 
 
 
Loan and other credit-related commitments
472,277
45,792
16,271
9,798
47,122
11,325
48,756
15,089
666,430
- personal
161,843
11,547
6,333
963
19,607
1,207
425
1,018
202,943
- corporate and commercial
272,044
32,764
9,126
8,372
23,984
8,227
38,838
12,558
405,913
- financial
38,390
1,481
812
463
3,531
1,891
9,493
1,513
57,574
1
'Customer accounts' includes $343,782m (2015: $342,908m) insured by guarantee schemes.
HSBC Holdings plc Annual Report and Accounts 2016
249
Notes on the Financial Statements
HSBC Holdings
Maturity analysis of assets, liabilities and off-balance sheet commitments
 
Due not
more than
1 month
Due over
1 month
but not
more than
3 months
Due over
3 months
but not
more than
6 months
Due over
6 months
but not
more than
9 months
Due over
9 months
but not
more than
1 year
Due over
1 year
but not
more than
2 years
Due over
2 years
but not
more than
5 years
Due over
5 years
Total
 
$m
$m
$m
$m
$m
$m
$m
$m
$m
Financial assets
 
 
 
 
 
 
 
 
 
Cash at bank and in hand:
 
 
 
 
 
 
 
 
 
- balances with HSBC undertakings
247
-
-
-
-
-
-
-
247
Derivatives
1,702
-
-
-
-
-
93
353
2,148
Loans and advances to HSBC undertakings
16,372
-
-
-
-
167
14,204
46,678
77,421
Financial investments in HSBC undertakings
40
2
-
-
-
-
838
2,710
3,590
Accrued income and other financial assets
12
-
-
-
-
-
-
107
119
Total financial assets at
31 Dec 2016
18,373
2
-
-
-
167
15,135
49,848
83,525
Non-financial assets
-
-
-
-
-
-
-
97,273
97,273
Total assets at 31 Dec 2016
18,373
2
-
-
-
167
15,135
147,121
180,798
Financial liabilities
Amounts owed to HSBC undertakings
2,052
-
-
-
-
-
105
-
2,157
Financial liabilities designated at fair value
-
-
-
-
-
2,167
5,845
22,101
30,113
- debt securities in issue
-
-
-
-
-
-
5,845
10,921
16,766
- subordinated liabilities and preferred securities
-
-
-
-
-
2,167
-
11,180
13,347
Derivatives
3,841
-
-
-
-
-
592
592
5,025
Debt securities in issue
-
-
-
-
-
953
4,822
16,030
21,805
Accruals and other financial liabilities
75
1,268
142
22
-
-
-
-
1,507
Subordinated liabilities
-
-
-
-
-
1,693
-
13,496
15,189
Total financial liabilities at
31 Dec 2016
5,968
1,268
142
22
-
4,813
11,364
52,219
75,796
Non-financial liabilities
-
-
-
-
-
-
-
144
144
Total liabilities at 31 Dec 2016
5,968
1,268
142
22
-
4,813
11,364
52,363
75,940
Off-balance sheet commitments given
Undrawn formal standby facilities, credit lines and other commitments to lend
-
-
-
-
-
-
-
-
-
250
HSBC Holdings plc Annual Report and Accounts 2016
Maturity analysis of assets, liabilities and off-balance sheet commitments (continued)
 
Due not
more than
1 month
Due over
1 month
but not
more than
3 months
Due over
3 months
but not
more than
6 months
Due over
6 months
but not
more than
9 months
Due over
9 months
but not
more than
1 year
Due over
1 year
but not
more than
2 years
Due over
2 years
but not
more than
5 years
Due over
5 years
Total
 
$m
$m
$m
$m
$m
$m
$m
$m
$m
Financial assets
 
 
 
 
 
 
 
 
 
Cash at bank and in hand:
 
 
 
 
 
 
 
 
 
- balances with HSBC undertakings
242
-
-
-
-
-
-
-
242
Derivatives
1,990
-
-
-
-
-
109
368
2,467
Loans and advances to HSBC undertakings
7,805
2,629
4,618
-
-
-
-
29,298
44,350
Financial investments in HSBC undertakings
40
6
-
-
-
-
-
4,239
4,285
Accrued income and other financial assets
7
-
-
-
-
-
-
109
116
Total financial assets at 31 Dec 2015
10,084
2,635
4,618
-
-
-
109
34,014
51,460
Non-financial assets
-
-
-
-
-
-
-
98,734
98,734
Total assets at 31 Dec 2015
10,084
2,635
4,618
-
-
-
109
132,748
150,194
Financial liabilities
Amounts owed to HSBC undertakings
1,629
-
-
-
-
415
-
108
2,152
Financial liabilities designated at fair value
-
960
-
-
-
-
2,285
16,608
19,853
- debt securities in issue
-
-
-
-
-
-
-
6,937
7,897
- subordinated liabilities and preferred securities
-
-
-
-
-
-
2,285
9,671
11,956
Derivatives
2,065
-
-
-
-
-
213
-
2,278
Debt securities in issue
-
-
-
-
-
-
-
960
960
Accruals and other financial liabilities
1,231
195
132
20
-
-
-
-
1,578
Subordinated liabilities
-
-
-
-
-
-
1,749
14,146
15,895
Total financial liabilities at 31 Dec 2015
4,928
1,155
132
20
-
415
4,247
31,822
42,716
Non-financial liabilities
-
-
-
-
-
-
-
64
64
Total liabilities at 31 Dec 2015
4,925
1,155
132
20
-
415
4,247
31,886
42,780
Off-balance sheet commitments given
Undrawn formal standby facilities, credit lines and other commitments
to lend
-
-
-
-
-
-
-
-
-
HSBC Holdings plc Annual Report and Accounts 2016
251
Notes on the Financial Statements
30 Offsetting of financial assets and financial liabilities
The 'Amounts not set off in the balance sheet' include transactions where:
•
the counterparty has an offsetting exposure with HSBC and a master netting or similar arrangement is in place with a right to set off only in the event of default, insolvency or bankruptcy, or the offset criteria are otherwise not satisfied; and
•
in the case of derivatives and reverse repurchase/repurchase, stock borrowing/lending and similar agreements, cash and non-cash collateral has been received/pledged.
For risk management purposes, the net amounts of loans and advances to customers are subject to limits, which are monitored and the relevant customer agreements are subject to review and updated, as necessary, to ensure that the legal right to set off remains appropriate.
 
 
Amounts subject to enforceable netting arrangements
Amounts not
subject to
enforceable
netting
arrangements5
Total
 
 
 
 
 
Amounts not set off in the
balance sheet
 
 
 
Gross
amounts
Amounts
offset
Net amounts
in the balance sheet
Financial
instruments
Non-cash
collateral
Cash
collateral
Net
amount
 
Footnotes
$m
$m
$m
$m
$m
$m
$m
$m
$m
Financial assets
 
 
 
 
 
 
 
 
 
 
Derivatives (Note 14)
1
387,999
(106,555
)
281,444
(210,067
)
(11,647
)
(40,188
)
19,542
9,428
290,872
Reverse repos, stock borrowing and similar agreements classified as:
2
 
 
 
 
 
 
 
 
 
- trading assets
 
9,859
-
9,859
(475
)
(9,383
)
-
1
348
10,207
- non-trading assets
 
222,485
(87,929
)
134,556
(4,779
)
(129,373
)
(215
)
189
26,418
160,974
Loans and advances to customers
3
46,296
(14,602
)
31,694
(24,459
)
-
(248
)
6,987
743
32,437
At 31 Dec 2016
 
666,639
(209,086
)
457,553
(239,780
)
(150,403
)
(40,651
)
26,719
36,937
494,490
 
 
 
 
 
 
 
 
 
 
 
Derivatives (Note 14)
1
385,682
(105,860
)
279,822
(215,531
)
(8,621
)
(34,040
)
21,630
8,654
288,476
Reverse repos, stock borrowing and similar agreements classified as:
2
 
 
 
 
 
 
 
 
 
- trading assets
 
7,496
-
7,496
-
(7,495
)
-
1
60
7,556
- non-trading assets
 
200,921
(77,925
)
122,996
(544
)
(121,981
)
(270
)
201
23,259
146,255
Loans and advances to customers
3
77,547
(31,643
)
45,904
(40,790
)
-
-
5,114
1,487
47,391
At 31 Dec 2015
 
671,646
(215,428
)
456,218
(256,865
)
(138,097
)
(34,310
)
26,946
33,460
489,678
 
 
 
 
 
 
 
 
 
 
 
Financial liabilities
 
 
 
 
 
 
 
 
 
 
Derivatives (Note 14)
1
378,571
(106,555
)
272,016
(210,035
)
(15,512
)
(33,754
)
12,715
7,803
279,819
Repos, stock lending and similar agreements classified as:
2
 
 
 
 
 
 
 
 
 
- trading liabilities
 
5,034
-
5,034
(475
)
(4,515
)
-
44
37
5,071
- non-trading liabilities
 
148,443
(87,929
)
60,514
(6,202
)
(54,126
)
(146
)
40
28,444
88,958
Customer accounts
4
45,422
(14,602
)
30,820
(24,459
)
-
(248
)
6,113
228
31,048
At 31 Dec 2016
 
577,470
(209,086
)
368,384
(241,171
)
(74,153
)
(34,148
)
18,912
36,512
404,896
 
 
 
 
 
 
 
 
 
 
 
Derivatives (Note 14)
1
377,930
(105,860
)
272,070
(215,508
)
(13,629
)
(30,063
)
12,870
9,001
281,071
Repos, stock lending and similar agreements classified as:
2
 
 
 
 
 
 
 
 
 
- trading liabilities
 
9,300
-
9,300
-
(9,299
)
-
1
1
9,301
- non-trading liabilities
 
126,740
(77,925
)
48,815
(2,034
)
(46,731
)
(26
)
24
31,585
80,400
Customer accounts
4
83,085
(31,643
)
51,442
(40,790
)
-
(1
)
10,651
729
52,171
At 31 Dec 2015
 
597,055
(215,428
)
381,627
(258,332
)
(69,659
)
(30,090
)
23,546
41,316
422,943
1
At 31 December 2016, the amount of cash margin received that had been offset against the gross derivatives assets was $3,720m (2015: $4,135m). The amount of cash margin paid that had been offset against the gross derivatives liabilities was $5,862m (2015: $4,224m).
2
For the amount of repos, reverse repos, stock lending, stock borrowing and similar agreements recognised on the balance sheet within 'Trading assets' $10,207m (2015: $7,556m) and 'Trading liabilities' $5,071m (2015: $9,301m), see the 'Funding sources and uses' table on page 107.
3
At 31 December 2016, the total amount of 'Loans and advances to customers' was $861,504m (2015: $924,454m) of which $31,694m (2015: $45,904m) was subject to offsetting.
4
At 31 December 2016, the total amount of 'Customer accounts' was $1,272,386m (2015: $1,289,586m) of which $30,820m (2015: $51,442m) was subject to offsetting.
5
These exposures continue to be secured by financial collateral, but we may not have sought or been able to obtain a legal opinion evidencing enforceability of the right of offset.
252
HSBC Holdings plc Annual Report and Accounts 2016
31 Non-controlling interests
 
2016
2015
 
$m
$m
Non-controlling interests attributable to holders of ordinary shares in subsidiaries
6,932
6,981
Preferred securities issued by subsidiaries
260
2,077
At 31 Dec
7,192
9,058
Hang Seng Bank Limited is the only subsidiary in the Group that gives rise to significant non-controlling interest. For summarised financial information of Hang Seng Bank Limited see Note 18 'Investment in subsidiaries'.
Preferred securities issued by subsidiaries
Preferred securities are securities for which there is no obligation to pay a dividend and, if the dividend is not paid, it may not be cumulative. Such securities do not generally carry voting rights but rank higher than ordinary shares for dividend payments and in the event of a winding-up. These securities have no stated maturity date but may be called and redeemed by the issuer, subject to prior notification to the PRA and, where relevant, the consent of the local banking regulator.
All non-cumulative preferred securities are classified as additional tier 1 capital.
Preferred securities issued by HSBC's subsidiaries
 
 
Footnotes
First call
date
2016
2015
 
 
$m
$m
HSBC USA Inc.
 
 
 
 
$518m
Floating rate non-cumulative preferred stock, series F
1
Apr 2010
-
518
$374m
Floating rate non-cumulative preferred stock, series G
1
Jan 2011
-
374
$374m
6.50% non-cumulative preferred stock, series H
2
Jul 2011
-
374
HSBC Finance Corporation
 
$575m
6.36% non-cumulative preferred stock, series B
2
Jun 2010
-
559
HSBC Bank Canada
 
C$175m
Non-cumulative redeemable class 1 preferred shares, series C
 
Jun 2010
130
126
C$175m
Non-cumulative class 1 preferred shares, series D
 
Dec 2010
130
126
At 31 Dec
 
260
2,077
1
In June 2016, HSBC redeemed its floating non-cumulative preferred stock, series F and G for $892m.
2
In June 2016, HSBC redeemed its non-cumulated preferred stock, series H and B, for $949m.
32 Called up share capital and other equity instruments
Called up share capital and share premium
HSBC Holdings ordinary shares of $0.50 each, issued and fully paid
 
 
2016
2015
 
Footnote
Number
$m
Number
$m
At 1 Jan
 
19,685,096,934
9,842
19,217,874,260
9,609
Shares issued under HSBC employee share plans
 
69,187,052
35
91,265,909
45
Shares issued in lieu of dividends
 
437,302,228
219
375,956,765
188
At 31 Dec
1
20,191,586,214
10,096
19,685,096,934
9,842
HSBC Holdings non-cumulative preference shares of $0.01 each
 
 
2016
2015
 
Footnote
Number
$m
Number
$m
At 1 Jan and 31 Dec
2
1,450,000
-
1,450,000
-
HSBC Holdings share premium
 
2016
2015
 
$m
$m
At 31 Dec
12,619
12,421
Total called up share capital and share premium
 
2016
2015
 
$m
$m
At 31 Dec
22,715
22,263
1
All HSBC Holdings ordinary shares in issue, excluding 325,273,407 shares held in treasury, confer identical rights, including in respect of capital, dividends and voting.
2
Included in the capital base of HSBC as additional tier 1 capital in accordance with the CRD IV rules, by virtue of the application of grandfathering provisions.
HSBC Holdings plc Annual Report and Accounts 2016
253
Notes on the Financial Statements
HSBC Holdings non-cumulative preference shares of $0.01
HSBC Holdings pays dividends on non-cumulative preference shares of $0.01 each ('dollar preference shares') quarterly, at the sole and absolute discretion of the Board. The Board will not declare a dividend on them if this would stop the company from meeting the PRA's capital adequacy requirements, or if profit available for distribution as dividends is insufficient to also pay dividends on other shares that are equally entitled and scheduled on the same date.
HSBC Holdings may not declare or pay dividends on shares ranking lower in the right to dividends than dollar preference shares, or redeem or purchase any of its other shares ranking equal or lower than dollar preference shares, unless it has fully paid, or set aside an amount to fully pay, the dividends on the dollar preference shares for the then current dividend period.
The dollar preference shares carry no rights to conversion into ordinary shares. Holders of dollar preference shares are only entitled to attend and vote at shareholder meetings if dividends on these shares have not been paid in full on four consecutive dividend payment dates. In such circumstances, holders of these shares are entitled to vote at shareholder meetings until HSBC Holdings has paid a full dividend on them. Since 16 December 2010, HSBC Holdings has been able to redeem dollar preference shares at any time, subject to prior notification to the PRA.
HSBC Holdings non-cumulative preference share of £0.01
The one non-cumulative sterling preference share of £0.01 ('sterling preference share') has been in issue since 29 December 2010 and is held by a subsidiary of HSBC Holdings. Dividends are paid quarterly at the sole and absolute discretion of the Board. The sterling preference share carries no rights of conversion into ordinary shares of HSBC Holdings and no rights to attend and vote at shareholder meetings of HSBC Holdings. HSBC Holdings may redeem it at any time.
Other equity instruments
HSBC Holdings includes three types of additional tier 1 capital securities in its tier 1 capital. Two are presented in this Note and are accounted for as equity because HSBC does not have an obligation to transfer cash or a variable number of its own ordinary shares to holders under any circumstances outside its control. See Note 28 for additional tier 1 securities accounted for as liabilities.
Additional tier 1 capital securities
Additional tier 1 capital securities are perpetual subordinated securities on which coupon payments may be deferred at HSBC Holdings' discretion. While any coupon payments are unpaid or deferred, HSBC Holdings will not declare or pay dividends or make distributions or similar periodic payments in respect of any securities of lower or equal rank, or repurchase or redeem them. Such securities do not generally carry voting rights but rank higher than ordinary shares for coupon payments, and in the event of a winding-up. They do not meet the identifying criteria in full for recognition as tier 1 capital under CRD IV but are eligible as regulatory capital subject to grandfathering limits and progressive phase-out.
At HSBC Holdings' 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 ranking pari passu with the dollar and sterling preference shares in issue. The preference shares would be issued at a nominal value of $0.01 per share and a premium of $24.99 per share, with both amounts being subscribed and fully paid. These securities may be called and redeemed by HSBC subject to prior notification to the PRA.
HSBC's additional tier 1 capital securities in issue which are accounted for in equity
 
 
First calldate
2016
2015
 
 
$m
$m
$2,200m
8.125% perpetual subordinated capital securities
Apr 2013
2,133
2,133
$3,800m
8.00% perpetual subordinated capital securities, Series 2
Dec 2015
3,718
3,718
At 31 Dec
 
5,851
5,851
Additional tier 1 capital - contingent convertible securities
During 2016, HSBC continued to issue contingent convertible securities that are included in HSBC's capital base as fully CRD IV compliant additional tier 1 capital securities on an end point basis. The net proceeds of the issuances will be used for general corporate purposes and to further strengthen the capital base to meet requirements under CRD IV. These securities bear a fixed rate of interest until their initial call dates. After the initial call dates, if they are not redeemed, the securities will bear interest at rates fixed periodically in advance for five-year periods based on prevailing market rates. Interest on the contingent convertible securities will be due and payable only at the sole discretion of HSBC, and HSBC has sole and absolute discretion at all times to cancel for any reason (in whole or in part) any interest payment that would otherwise be payable on any payment date. Distributions will not be paid if they are prohibited under UK banking regulations or if the company has insufficient reserves or fails to meet the solvency conditions defined in the securities' terms.
The contingent convertible securities are undated and are repayable, at the option of HSBC, in whole at the initial call date, or on any fifth anniversary after this date. In addition, the securities are repayable at the option of HSBC in whole for certain regulatory or tax reasons. Any repayments require the prior consent of the PRA. These securities rank pari passu with HSBC's dollar and sterling preference shares and are therefore ahead of ordinary shares. The contingent convertible securities will be converted into fully paid ordinary shares of HSBC at a pre-determined price, should HSBC's consolidated end point CET1 ratio fall below 7.0%. Therefore, in accordance with the terms of the securities, if the end point CET1 ratio breaches the 7.0% trigger, the securities will convert into ordinary shares at fixed contractual conversion prices in the issuance currencies of the relevant securities, equivalent to £2.70 at the prevailing rate of exchange on the issuance date, subject to certain anti-dilution adjustments.
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HSBC's additional tier 1 capital - contingent convertible securities in issue which are accounted for in equity
 
 
First calldate
2016
2015
 
 
$m
$m
$2,250m
6.375% perpetual subordinated contingent convertible securities
Sep 2024
2,244
2,244
$1,500m
5.625% perpetual subordinated contingent convertible securities
Jan 2020
1,494
1,494
€1,500m
5.25% perpetual subordinated contingent convertible securities
Sep 2022
1,943
1,943
$2,450m
6.375% perpetual subordinated contingent convertible securities
Mar 2025
2,459
2,459
€1,000m
6.000% perpetual subordinated contingent convertible securities
Sep 2023
1,121
1,121
$2,000m
6.875% perpetual subordinated contingent convertible securities
Jun 2021
1,998
-
At 31 Dec
 
11,259
9,261
Shares under option
For details of the options outstanding to subscribe for HSBC Holdings ordinary shares under the HSBC Holdings savings-related share option plans, see Note 5.
Aggregate options outstanding under these plans
31 Dec 2016
31 Dec 2015
Number of
HSBC Holdings
ordinary shares
Period of exercise
Exercise price
Number of
HSBC Holdings
ordinary shares
Period of exercise
Exercise price
69,217,725
2016 to 2022
£4.0472-5.4738
72,840,810
2015 to 2021
£4.0472-5.4738
504,467
2016 to 2018
HK$55.4701-63.9864
1,114,830
2015 to 2018
HK$55.4701-63.9864
86,916
2016 to 2018
€5.3532-5.7974
153,610
2015 to 2018
€5.3532-6.0657
217,738
2016 to 2018
$7.1456-8.2094
665,445
2015 to 2018
$7.1456-8.2094
Maximum obligation to deliver HSBC Holdings ordinary shares
At 31 December 2016, the maximum obligation to deliver HSBC Holdings ordinary shares under all of the above option arrangements and the HSBC International Employee Share Purchase Plan, together with GPSP awards and restricted share awards granted under the HSBC Share Plan and/or the HSBC Share Plan 2011, was 198,483,750 (2015: 193,178,906). The total number of shares at 31 December 2016 held by employee benefit trusts that may be used to satisfy such obligations to deliver HSBC Holdings ordinary shares was 3,997,619 (2015: 4,753,747).
33 Contingent liabilities, contractual commitments and guarantees
 
HSBC
HSBC Holdings1
 
2016
2015
2016
2015
 
$m
$m
$m
$m
Guarantees and other contingent liabilities:
 
 
 
 
- financial guarantees and similar contracts
37,072
46,116
7,619
68,333
- other guarantees
44,394
39,739
-
-
- other contingent liabilities
553
490
-
-
At 31 Dec
82,019
86,345
7,619
68,333
Commitments:
 
 
- documentary credits and short-term trade-related transactions
9,190
10,168
-
-
- forward asset purchases and forward deposits placed
5,386
981
-
-
- standby facilities, credit lines and other commitments to lend
641,267
655,281
-
-
At 31 Dec
655,843
666,430
-
-
1
Guarantees by HSBC Holdings are all in favour of other Group entities.
The above table discloses the nominal principal amounts, which represents the maximum amounts at risk should the contracts be fully drawn upon and clients default. As a significant portion of guarantees and commitments is expected to expire without being drawn upon, the total of the nominal principal amounts is not indicative of future liquidity requirements.
Approximately half the guarantees have a term of less than one year, while guarantees with terms of more than one year are subject to HSBC's annual credit review process.
Contingent liabilities arising from legal proceedings, regulatory and other matters against Group companies are disclosed in Notes 27 and 35.
Financial Services Compensation Scheme
The Financial Services Compensation Scheme ('FSCS') has provided compensation to consumers following the collapse of a number of deposit takers. The compensation paid out to consumers is currently funded through loans from HM Treasury, which at 31 December 2016 stood at approximately £15.7bn ($19.3bn). The Group could be liable to pay a proportion of the outstanding amount that the FSCS has borrowed from HM Treasury. The ultimate FSCS levy to the industry as a result of the collapses cannot currently be estimated reliably as it is dependent on various uncertain factors including the potential recoveries of assets by the FSCS and changes in the level of protected deposits and the population of FSCS members at the time.
Associates
HSBC's share of associates' contingent liabilities amounted to $35.3bn at 31 December 2016 (2015: $39.2bn). No matters arose where HSBC was severally liable.
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255
Notes on the Financial Statements
34 Lease commitments
Operating lease commitments
At 31 December 2016, future minimum lease payments under non-cancellable operating leases for land, buildings and equipment were $3,893m (2015: $5,333m).
Finance lease receivables
HSBC leases a variety of assets to third parties under finance leases, including transport assets (such as aircraft), property and general plant and machinery. At the end of lease terms, assets may be sold to third parties or leased for further terms. Rentals are calculated to recover the cost of assets less their residual value, and earn finance income.
 
2016
2015
 
Total futureminimumpayments
Unearnedfinanceincome
Presentvalue
Total futureminimumpayments
Unearnedfinanceincome
Presentvalue
 
$m
$m
$m
$m
$m
$m
Lease receivables:
No later than one year
3,248
(330
)
2,918
3,382
(332
)
3,050
Later than one year and no later than five years
6,563
(702
)
5,861
7,219
(837
)
6,382
Later than five years
4,548
(633
)
3,915
4,897
(702
)
4,195
At 31 Dec
14,359
(1,665
)
12,694
15,498
(1,871
)
13,627
35 Legal proceedings and regulatory matters
HSBC is party to legal proceedings and regulatory matters in a number of jurisdictions arising out of its normal business operations. Apart from the matters described below, HSBC considers that none of these matters are material. The recognition of provisions is determined in accordance with the accounting policies set out in Note 1. While the outcome of legal proceedings and regulatory matters is inherently uncertain, management believes that, based on the information available to it, appropriate provisions have been made in respect of these matters as at 31 December 2016 (see Note 27). Where an individual provision is material, the fact that a provision has been made is stated and quantified, except to the extent doing so would be seriously prejudicial. Any provision recognised does not constitute an admission of wrongdoing or legal liability. It is not practicable to provide an aggregate estimate of potential liability for our legal proceedings and regulatory matters as a class of contingent liabilities.
Securities litigation
Household International, Inc. ('Household International') and certain former officers were named as defendants in a securities class action lawsuit, Jaffe v. Household International, Inc., et al., filed in the US District Court for the Northern District of Illinois (the 'Illinois District Court') in August 2002. The complaint asserted claims under the US Securities Exchange Act and alleged that the defendants knowingly or recklessly made false and misleading statements of material fact relating to Household International's Consumer Lending operations (some of which ultimately led to a 2002 settlement with 46 states and the District of Columbia) and certain accounting practices, as evidenced by an August 2002 restatement of previously reported consolidated financial statements. A class was certified on behalf of all persons who acquired and disposed of Household International common stock between July 1999 and October 2002. In April 2009, a jury trial was decided partly in favour of the plaintiffs and, in October 2013, the Illinois District Court entered a partial final judgment against the defendants in the amount of approximately $2.5bn (including pre-judgment interest). The defendants appealed the partial final judgment and, in May 2015, the US Court of Appeals for the Seventh Circuit reversed the partial final judgment of the Illinois District Court and remanded the case for a new trial on loss causation.
In June 2016, HSBC reached an agreement to pay $1.6bn to settle all claims. Final court approval of the settlement and a final court order of dismissal with prejudice was granted in November 2016.
Bernard L. Madoff Investment Securities LLC
Bernard L. Madoff ('Madoff') was arrested in December 2008 and later pleaded guilty to running a Ponzi scheme. His firm, Bernard L. Madoff Investment Securities LLC ('Madoff Securities'), is being liquidated in the US by a trustee (the 'Trustee').
Various non-US HSBC companies provided custodial, administration and similar services to a number of funds incorporated outside the US whose assets were invested with Madoff Securities. Based on information provided by Madoff Securities, as at 30 November 2008, the purported aggregate value of these funds was $8.4bn, including fictitious profits reported by Madoff.
Based on information available to HSBC, the funds' actual transfers to Madoff Securities minus their actual withdrawals from Madoff Securities during the time HSBC serviced the funds are estimated to have totalled approximately $4bn. Various HSBC companies have been named as defendants in lawsuits arising out of Madoff Securities' fraud.
US/UK litigation: The Trustee has brought lawsuits against various HSBC companies in the US Bankruptcy Court and in the English High Court, seeking recovery of transfers from Madoff Securities to HSBC in an amount not yet pleaded or determined. HSBC and other parties to the action have moved to dismiss the Trustee's US actions. The US Bankruptcy Court granted HSBC's motion to dismiss with respect to certain of the Trustee's claims in November 2016, though this ruling is subject to appeal.
The deadline by which the Trustee must serve HSBC with his English action has been extended to September 2017 for UK-based defendants and November 2017 for all other defendants.
Alpha Prime Fund Ltd ('Alpha Prime') and Senator Fund SPC ('Senator'), co-defendants in one of the Trustee's US actions, have each brought cross-claims against certain HSBC defendants. In December 2016, the US Bankruptcy Court granted HSBC's motion to dismiss the cross-claims and Alpha Prime and Senator's failure to appeal renders the court's ruling final.
Fairfield Sentry Limited, Fairfield Sigma Limited and Fairfield Lambda Limited (together, 'Fairfield') (in liquidation since July 2009) have brought lawsuits in the US and the British Virgin Islands ('BVI') against fund shareholders, including HSBC companies that
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acted as nominees for clients, seeking restitution of redemption payments. In October 2016, the liquidators for Fairfield ('Fairfield Liquidators') filed a motion seeking leave to amend their complaints in the US Bankruptcy Court. Briefing on the defendants' opposition to the Liquidators' motion and the defendants' own motion to dismiss is underway. In January 2017, the defendants filed their consolidated motion to dismiss and opposition to the Fairfield Liquidators' motion seeking leave to amend. 
In December 2014, three additional actions were filed in the US. A purported class of direct investors in Madoff Securities asserted common law claims against various HSBC companies in the United States District Court for the Southern District of New York (the 'New York District Court'). In September 2016, the New York District Court granted HSBC's motion to dismiss this action and the plaintiffs' failure to appeal renders the court's ruling final. Two investors in Hermes International Fund Limited ('Hermes') also asserted common law claims against various HSBC companies in the New York District Court. HSBC's motion to dismiss this action remains pending. In addition, SPV Optimal SUS Ltd ('SPV OSUS'), the purported assignee of the Madoff-invested company, Optimal Strategic US Equity Ltd ('Optimal'), filed a lawsuit in New York state court against various HSBC companies and others, seeking damages on various alleged grounds, including breach of fiduciary duty and breach of trust. This action has been stayed pending the issuance of a potentially dispositive decision in an action initiated by Optimal regarding the validity of the assignment of its claims to SPV OSUS.
BVI litigation: Beginning in October 2009, the Fairfield Liquidators commenced lawsuits against fund shareholders, including HSBC companies that acted as nominees for clients, seeking recovery of redemption payments. In March 2016, the BVI court denied a motion brought by certain non-HSBC defendants challenging the Fairfield Liquidators' authorisation to pursue their US claims, which those defendants have appealed. In August 2016, the Fairfield Liquidators voluntarily discontinued their actions against the HSBC defendants.
Bermuda litigation: In January 2009, Kingate Global Fund Limited and Kingate Euro Fund Limited (together, 'Kingate') brought an action against HSBC Bank Bermuda Limited ('HBBM') for recovery of funds held in Kingate's accounts, fees and dividends. This action is pending, but is not expected to move forward until the resolution of the Trustee's US actions against Kingate and HBBM.
Thema Fund Limited ('Thema') and Hermes each brought three actions in 2009. The first set of actions seeks recovery of funds in frozen accounts held at HSBC Institutional Trust Services (Bermuda) Limited. The second set of actions asserts liability against HSBC Institutional Trust Services (Bermuda) Limited in relation to claims for mistake, recovery of fees and damages for breach of contract. The third set of actions seeks return of fees from HBBM and HSBC Securities Services (Bermuda) Limited. The parties have agreed to a standstill in respect of all three sets of actions.
Cayman Islands litigation: In February 2013, Primeo Fund Limited ('Primeo') (in liquidation since April 2009) brought an action against HSBC Securities Services Luxembourg ('HSSL') and The Bank of Bermuda (Cayman), alleging breach of contract and breach of fiduciary duty, and claiming damages and equitable compensation. Trial began in November 2016 and is scheduled to run until the end of February 2017.
Luxembourg litigation: In April 2009, Herald Fund SPC ('Herald') (in liquidation since July 2013) brought an action against HSSL before the Luxembourg District Court, seeking restitution of cash and securities Herald purportedly lost because of Madoff Securities' fraud, or money damages. The Luxembourg District Court dismissed Herald's securities restitution claim, but reserved Herald's cash restitution claim and its claim for money damages. Herald has appealed this judgment to the Court of Appeal.
In March 2010, Herald (Lux) SICAV ('Herald (Lux)') (in liquidation since April 2009) brought an action against HSSL before the Luxembourg District Court seeking restitution of securities, or the cash equivalent, or money damages. Herald (Lux) has also requested the restitution of fees paid to HSSL.
In October 2009, Alpha Prime and, in December 2014, Senator, each brought an action against HSSL before the Luxembourg District Court, seeking the restitution of securities, or the cash equivalent, or money damages. The action initiated by Senator has been temporarily suspended at Senator's request. In April 2015, Senator commenced an action against the Luxembourg branch of HSBC Bank plc asserting identical claims before the Luxembourg District Court.
HSSL has also been named as a defendant in various actions by shareholders in Primeo Select Fund, Herald, Herald (Lux), and Hermes. Most of these actions have been dismissed, suspended or postponed.
Ireland litigation: In November 2013, Defender Limited brought an action against HSBC Institutional Trust Services (Ireland) Limited ('HTIE') and others, alleging breach of contract and claiming damages and indemnification for fund losses. A trial date has not yet been scheduled.
In May 2016, following a hearing on two preliminary issues, HTIE was successful in obtaining an order dismissing two remaining claims by purported shareholders in Thema International Fund plc.
SPV OSUS's action against HTIE and HSBC Securities Services (Ireland) Limited alleging breach of contract and claiming damages and indemnification for fund losses was dismissed in October 2015. SPV OSUS's appeal against this first instance decision was heard in January 2017.
There are many factors that may affect the range of possible outcomes, and the resulting financial impact, of the various Madoff-related proceedings described above, including but not limited to the multiple jurisdictions in which the proceedings have been brought. Based upon the information currently available, management's estimate of possible aggregate damages that might arise as a result of all claims in the various Madoff-related proceedings is up to or exceeding $800m, excluding costs and interest. Due to uncertainties and limitations of this estimate, the ultimate damages could differ significantly from this amount.
US mortgage-related investigations
In April 2011, HSBC Bank USA N.A. ('HSBC Bank USA') entered into a consent order (the 'OCC Servicing Consent Order') with the Office of the Comptroller of the Currency ('OCC'), and HSBC Finance Corporation ('HSBC Finance') and HSBC North America Holdings Inc. ('HNAH') entered into a similar consent order with the Federal Reserve Board ('FRB') (together with the OCC Servicing Consent Order, the 'Servicing Consent Orders').
The Servicing Consent Orders required prescribed actions to address certain foreclosure practice deficiencies. The Servicing Consent Orders also required an independent foreclosure review which, pursuant to amendments to the Servicing Consent Orders in February 2013, ceased and was replaced by a settlement under which HSBC and 12 other participating servicers agreed to provide cash payments and other assistance to eligible borrowers. In June 2015, the OCC issued an amended OCC Servicing Consent Order citing
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257
Notes on the Financial Statements
the failure of HSBC Bank USA to be in compliance with all requirements of the OCC Servicing Consent Order and stating that the failure to satisfy all requirements of the OCC Servicing Consent Order may result in a variety of regulatory consequences for HSBC Bank USA, including the imposition of civil money penalties. In January 2017, the OCC terminated the OCC Servicing Consent Order, together with its February 2013 and June 2015 amendments, after determining that HSBC Bank USA had satisfied the requirements thereunder. In connection with the termination of the Servicing Consent Order, the OCC also assessed a civil money penalty against HSBC Bank USA finding that HSBC Bank USA failed to correct deficiencies identified under the OCC Servicing Consent Order in a timely fashion.
In February 2016, HSBC Bank USA, HSBC Finance, HSBC Mortgage Services Inc. and HNAH entered into an agreement with the US Department of Justice (the 'DoJ'), the US Department of Housing and Urban Development, the Consumer Financial Protection Bureau, other federal agencies (the 'Federal Parties') and the Attorneys General of 49 states and the District of Columbia (the 'State Parties') to resolve civil claims related to past residential mortgage loan origination and servicing practices (the 'National Mortgage Settlement Agreement'). In addition, in February 2016, the FRB announced the imposition against HSBC Finance and HNAH of a $131m civil money penalty in connection with the FRB's consent order of April 2011. Pursuant to the terms of the FRB's civil money penalty order, the penalty will be satisfied through the cash payments made to the Federal Parties and the consumer relief provided under the National Mortgage Settlement Agreement.
The Servicing Consent Orders and the National Mortgage Settlement Agreement do not completely preclude other enforcement actions by regulatory, governmental or law enforcement agencies related to foreclosure and other mortgage servicing practices, including, but not limited to, matters relating to the securitisation of mortgages for investors, which could include the imposition of civil money penalties, criminal fines or other sanctions. In addition, these practices have in the past resulted in private litigation, and may result in further private litigation.
US mortgage securitisation activity and litigation
HSBC Bank USA was a sponsor or seller of loans used to facilitate whole loan securitisations underwritten by HSBC Securities (USA) Inc. ('HSI'). From 2005 to 2007, HSBC Bank USA purchased and sold approximately $24bn of such loans to HSI, which were subsequently securitised and sold by HSI to third parties. The outstanding principal balance was approximately $4.6bn as at 31 December 2016. HSBC notes that the scale of its mortgage securitisation activities was more limited in relation to a number of other banks in the industry. In addition, HSI served as an underwriter on securitisations issued by HSBC Finance or third parties, and HSBC Bank USA served as trustee on behalf of various mortgage securitisation trusts.
Mortgage foreclosure and trustee matters: As the industry's residential mortgage foreclosure issues continue, HSBC Bank USA has taken title to a number of foreclosed homes as trustee on behalf of various mortgage securitisation trusts. As nominal record owner of these properties, HSBC Bank USA has been sued by municipalities and tenants alleging various violations of law, including laws relating to property upkeep and tenants' rights. While HSBC believes and continues to maintain that these obligations and any related liabilities are those of the servicer of each trust, HSBC continues to receive significant adverse publicity in connection with these and similar matters, including foreclosures that are serviced by others in the name of 'HSBC, as trustee'.
Beginning in June 2014, a number of lawsuits were filed in state and federal court in New York and Ohio against HSBC Bank USA as trustee of over 320 mortgage securitisation trusts. These lawsuits are brought on behalf of the trusts by a putative class of investors including, among others, BlackRock and PIMCO funds. The complaints allege that the trusts have sustained losses in collateral value of approximately $38bn. The lawsuits seek unspecified damages resulting from alleged breaches of the US Trust Indenture Act, breach of fiduciary duty, negligence, breach of contract and breach of the common law duty of trust. HSBC's motions to dismiss in several of these lawsuits were, for the most part, denied.
It is not practicable to estimate the possible financial impact of these matters, as there are many factors that may affect the range of possible outcomes; however, the resulting financial impact could be significant.
Loan repurchase matters: HSBC Bank USA, HSBC Finance and Decision One Mortgage Company LLC (an indirect subsidiary of HSBC Finance) ('Decision One') have been named as defendants in various mortgage loan repurchase actions brought by trustees of mortgage securitisation trusts. In the aggregate, these actions seek to have the HSBC defendants repurchase mortgage loans, or pay compensatory damages, totalling at least $1bn. In August 2016, HSBC reached an agreement in principle to settle one of the matters and the other matters remain pending.
HSBC Mortgage Corporation (USA) Inc. and Decision One have also been named as defendants in two separate actions filed by Residential Funding Company LLC ('RFC'), a mortgage loan purchase counterparty, seeking unspecified damages in connection with approximately 25,000 mortgage loans.
It is not practicable to estimate the possible financial impact of these matters, as there are many factors that may affect the range of possible outcomes; however, the resulting financial impact could be significant.
FIRREA: Since 2010, various HSBC entities have received subpoenas and requests for information from the DoJ and the Massachusetts state Attorney General seeking the production of documents and information regarding HSBC's involvement in certain RMBS transactions as an issuer, sponsor, underwriter, depositor, trustee, custodian or servicer. In November 2014, HNAH, on behalf of itself and various subsidiaries including, but not limited to, HSBC Bank USA, HSI Asset Securitization Corp., HSI, HSBC Mortgage Corporation (USA), HSBC Finance and Decision One, received a subpoena from the US Attorney's Office for the District of Colorado, pursuant to the Financial Industry Reform, Recovery and Enforcement Act ('FIRREA'), concerning the origination, financing, purchase, securitisation and servicing of subprime and non-subprime residential mortgages.
HSBC continues to cooperate with the DoJ's investigation, which is at or nearing completion. In December 2016, HSBC had an initial discussion with the DoJ, wherein the DoJ stated its preliminary view that HSBC is subject to liability under FIRREA in connection with certain securitisations from 2005 to 2007 with respect to which HSBC Bank USA served as sponsor or seller of loans and HSI served as underwriter. HSBC disagrees with the DoJ's preliminary view, and the DoJ has offered HSBC an opportunity to respond. There can be no assurance as to how or when this matter will be resolved, or whether this matter will be resolved prior to the institution of formal legal proceedings by the DoJ. Moreover, it is possible that any such resolution could result in significant penalties and other costs. To date, at least one bank has been sued by the DoJ and at least eight other banks have reported settlements of mortgage-backed securities-related matters pursuant to FIRREA. The prior DoJ settlements provide no clear guidance as to how those individual settlement amounts were calculated, and due to the high degree of uncertainty involved, it is not practicable to estimate any possible financial effect of this matter, which could be significant.
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HSBC expects the focus on mortgage securitisations to continue and may be subject to additional claims, litigation and governmental or regulatory scrutiny relating to its participation in the US mortgage securitisation market.
Anti-money laundering and sanctions-related matters
In October 2010, HSBC Bank USA entered into a consent order with the OCC, and HNAH entered into a consent order with the FRB (each an 'Order' and together, the 'Orders'). These Orders required improvements to establish an effective compliance risk management programme across HSBC's US businesses, including risk management related to the Bank Secrecy Act ('BSA') and AML compliance. HSBC Bank USA is not currently in compliance with the OCC Order. Steps are being taken to address the requirements of the Orders.
In December 2012, HSBC Holdings, HNAH and HSBC Bank USA entered into agreements with US and UK government agencies regarding past inadequate compliance with the BSA, AML and sanctions laws. Among those agreements, HSBC Holdings and HSBC Bank USA entered into a five-year deferred prosecution agreement with, among others, the DoJ (the 'US DPA'); and HSBC Holdings consented to a cease-and-desist order, and HSBC Holdings and HNAH consented to a civil money penalty order with the FRB. HSBC Holdings also entered into an agreement with the Office of Foreign Assets Control ('OFAC') regarding historical transactions involving parties subject to OFAC sanctions, as well as an undertaking with the UK FCA to comply with certain forward-looking AML and sanctions-related obligations. In addition, HSBC Bank USA entered into civil money penalty orders with the Financial Crimes Enforcement Network of the US Treasury Department and the OCC.
Under these agreements, HSBC Holdings and HSBC Bank USA made payments totalling $1.9bn to US authorities and undertook various further obligations, including, among others, to continue to cooperate fully with the DoJ in any and all investigations, not to commit any crime under US federal law subsequent to the signing of the agreement, and to retain an independent compliance monitor (the 'Monitor'). In February 2017, the Monitor delivered his third annual follow-up review report.
Through his country-level reviews, the Monitor identified potential anti-money laundering and sanctions compliance issues that the DoJ and HSBC are reviewing further. Additionally, as discussed elsewhere in this Note, HSBC is the subject of other ongoing investigations and reviews by the DoJ. HSBC Bank plc is also the subject of an investigation by the FCA into its compliance with UK money laundering regulations and financial crime systems and controls requirements. The potential consequences of breaching the US DPA, as well as the role of the Monitor and his third annual review, are discussed on page 82.
HSBC Bank USA also entered into two consent orders with the OCC. These required HSBC Bank USA to correct the circumstances noted in the OCC's report and to adopt an enterprise-wide compliance programme, and imposed restrictions on acquiring control of, or holding an interest in, any new financial subsidiary, or commencing a new activity in its existing financial subsidiary, without the OCC's prior approval.
These settlements with US and UK authorities have led to private litigation, and do not preclude further private litigation related to HSBC's compliance with applicable BSA, AML and sanctions laws or other regulatory or law enforcement actions for BSA, AML, sanctions or other matters not covered by the various agreements.
In May 2014, a shareholder derivative action was filed by a shareholder of HSBC Holdings purportedly on behalf of HSBC Holdings, HSBC Bank USA, HNAH and HSBC USA Inc. (the 'Nominal Corporate Defendants') in New York state court against certain current and former directors and officers of those HSBC companies (the 'Individual Defendants'). The complaint alleges that the Individual Defendants breached their fiduciary duties to the Nominal Corporate Defendants and caused a waste of corporate assets by allegedly permitting and/or causing the conduct underlying the US DPA. In November 2015, the New York state court granted the Nominal Corporate Defendants' motion to dismiss. The plaintiff has appealed that decision.
In July 2014, a claim was filed in the Ontario Superior Court of Justice against HSBC Holdings and a former employee purportedly on behalf of a class of persons who purchased HSBC common shares and American Depositary Shares between July 2006 and July 2012. The complaint, which seeks monetary damages of up to CA$20bn, alleges that the defendants made statutory and common law misrepresentations in documents released by HSBC Holdings and its wholly owned indirect subsidiary, HSBC Bank Canada, relating to HSBC's compliance with BSA, AML, sanctions and other laws.
Since November 2014, four lawsuits have been filed in federal court in New York, Illinois and Texas, against various HSBC companies and others, on behalf of plaintiffs who are, or are related to, victims of terrorist attacks in Iraq, Jordan and Mexico. In each case, it is alleged that the defendants aided and abetted the unlawful conduct of various sanctioned parties in violation of the US Anti-Terrorism Act. These actions are at an early stage.
Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of these lawsuits, including the timing or any possible impact on HSBC, which could be significant.
Tax-related investigations
Various tax administration, regulatory and law enforcement authorities around the world, including in the US, France, Belgium, Argentina and India, are conducting investigations and reviews of HSBC Private Bank (Suisse) SA ('HSBC Swiss Private Bank') and other HSBC companies in connection with allegations of tax evasion or tax fraud, money laundering and unlawful cross-border banking solicitation.
HSBC continues to cooperate in ongoing investigations by the DoJ and the US Internal Revenue Service regarding whether certain HSBC companies and employees, including those associated with HSBC Swiss Private Bank and an HSBC company in India, acted appropriately in relation to certain customers who had US tax reporting obligations. In connection with these investigations, HSBC Swiss Private Bank, with due regard for Swiss law, has produced records and other documents to the DoJ. In August 2013, the DoJ informed HSBC Swiss Private Bank that it was not eligible for the 'Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks' since a formal investigation had previously been authorised.
In November 2014, HSBC Swiss Private Bank was placed under formal criminal examination in Belgium for alleged tax-related offences. In November 2014, HSBC Swiss Private Bank was also placed under formal criminal examination in France for alleged tax-related offences in 2006 and 2007 and required to pay bail of €50m. In April 2015, HSBC Holdings was informed that it had been placed under formal criminal examination in France in connection with the conduct of HSBC Swiss Private Bank, and a €1bn bail was imposed. HSBC Holdings appealed the bail decision and, in June 2015, bail was reduced to €100m. The ultimate financial impact of these matters could differ significantly, however, from the bail amounts of €150m. In March 2016, HSBC was informed that the
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Notes on the Financial Statements
French magistrates had completed their investigation with respect to HSBC Swiss Private Bank and HSBC Holdings, and have referred the matter to the French public prosecutor for a recommendation on any potential charges. In October 2016, HSBC Swiss Private Bank and HSBC Holdings received the French public prosecutor`s brief in which the prosecutor recommended the judge to refer the cases to trial, and HSBC Swiss Private Bank and HSBC Holdings have responded to the prosecutor's brief.
In November 2014, the Argentine tax authority initiated a criminal action against various individuals, including current and former HSBC employees. The criminal action includes allegations of tax evasion, conspiracy to launder undeclared funds and an unlawful association among HSBC Swiss Private Bank, HSBC Bank Argentina, HSBC Bank USA and certain HSBC employees, which allegedly enabled numerous HSBC customers to evade their Argentine tax obligations.
In February 2015, the Indian tax authority issued a summons and request for information to an HSBC company in India. In August 2015 and November 2015, HSBC companies received notices issued by two offices of the Indian tax authority, alleging that the Indian tax authority had sufficient evidence to initiate prosecution against HSBC Swiss Private Bank and an HSBC company in Dubai for allegedly abetting tax evasion of four different Indian individuals and/or families and requesting that the HSBC companies show why such prosecution should not be initiated. HSBC Swiss Private Bank and the HSBC company in Dubai have responded to the show cause notices.
HSBC is cooperating with the relevant authorities. As at 31 December 2016, HSBC has recognised a provision for these various matters in the amount of $773m. There are many factors that may affect the range of outcomes, and the resulting financial impact, of these investigations and reviews. Due to uncertainties and limitations of these estimates, the ultimate penalties could differ significantly from the amount provided.
In light of the media attention regarding these matters, it is possible that other tax administration, regulatory or law enforcement authorities will also initiate or enlarge similar investigations or regulatory proceedings.
Mossack Fonseca & Co.
HSBC has received requests for information from various regulatory and law enforcement authorities around the world concerning persons and entities believed to be linked to Mossack Fonseca & Co., a service provider of personal investment companies. HSBC is cooperating with the relevant authorities.
Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of this matter, including the timing or any possible impact on HSBC, which could be significant.
London interbank offered rates, European interbank offered rates and other benchmark interest rate investigations and litigation
Various regulators and competition and law enforcement authorities around the world, including in the UK, the US, the EU and Switzerland, are conducting investigations and reviews related to certain past submissions made by panel banks and the processes for making submissions in connection with the setting of Libor, Euribor and other benchmark interest rates. As certain HSBC companies are members of such panels, HSBC has been the subject of regulatory demands for information and is cooperating with those investigations and reviews.
In December 2016, the European Commission (the 'Commission') issued a decision finding that HSBC, among other banks, engaged in anti-competitive practices in connection with the pricing of euro interest rate derivatives in early 2007. The Commission determined that the duration of HSBC's infringement was 1 month and fined HSBC. HSBC has appealed the decision.
US dollar Libor: Beginning in 2011, HSBC and other panel banks have been named as defendants in a number of private lawsuits filed in the US with respect to the setting of US dollar Libor. The complaints assert claims under various US laws, including US antitrust and racketeering laws, the US Commodity Exchange Act ('US CEA'), and state law. The lawsuits include individual and putative class actions, most of which have been transferred and/or consolidated for pre-trial purposes before the New York District Court.
The New York District Court has issued decisions dismissing certain of the claims in response to motions filed by the defendants. Those decisions resulted in the dismissal of the plaintiffs' federal and state antitrust claims, racketeering claims, and unjust enrichment claims. Dismissal of certain of these claims was appealed to the US Court of Appeals for the Second Circuit, which reversed the New York District Court's dismissal of plaintiffs' antitrust claims in May 2016. In July 2016, defendants filed a joint motion to dismiss all antitrust claims and, in December 2016, the New York District Court granted in part and denied in part the motion, leaving only certain antitrust claims to be litigated. Separately, in October 2016, the New York District Court granted a motion to dismiss claims brought by an individual plaintiff for lack of personal jurisdiction, which dismissal is currently on appeal to the Second Circuit. Finally, in January 2017, the District Court granted defendants' motion to dismiss certain of the remaining antitrust claims against defendants that did not serve on the US dollar Libor submission panel.
Euroyen Tokyo interbank offered rate ('Tibor') and/or Japanese yen Libor: In April 2012 and July 2015, HSBC and other panel banks were named as defendants in putative class actions filed in the New York District Court on behalf of persons who transacted in financial instruments allegedly related to the euroyen Tibor and/or Japanese yen Libor. The complaints allege, among other things, misconduct related to euroyen Tibor, although HSBC is not a member of the Japanese Bankers Association's euroyen Tibor panel, as well as Japanese yen Libor, in violation of US antitrust laws, the US CEA, and state law. In May 2016, HSBC reached an agreement in principle with plaintiffs to resolve both of these actions, and the settlement was granted final court approval in November 2016.
Euribor: In November 2013, HSBC and other panel banks were named as defendants in a putative class action filed in the New York District Court on behalf of persons who transacted in euro futures contracts and other financial instruments allegedly related to Euribor. The complaint alleges, among other things, misconduct related to Euribor in violation of US antitrust laws, the US CEA and state law. In May 2016, HSBC reached an agreement in principle with plaintiffs to resolve this action, subject to court approval.
Singapore Interbank Offered Rate ('SIBOR'), Singapore Swap Offer Rate ('SOR') and Australia Bank Bill Swap Rate ('BBSW'): In July 2016 and August 2016, HSBC and other panel banks were named as defendants in two putative class actions filed in the New York District Court on behalf of persons who transacted in products related to the SIBOR, SOR and BBSW benchmark rates. The complaints allege, among other things, misconduct related to these benchmark rates in violation of US antitrust, commodities and racketeering laws, and state law. These matters are at an early stage.
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HSBC Holdings plc Annual Report and Accounts 2016
US dollar International Swaps and Derivatives Association fix ('ISDAfix'): In September 2014, HSBC and other panel banks were named as defendants in a number of putative class actions consolidated in the New York District Court on behalf of persons who transacted in interest rate derivatives or purchased or sold financial instruments that were either tied to ISDAfix rates or were executed shortly before, during, or after the time of the daily ISDAfix setting window. The consolidated complaint alleges, among other things, misconduct related to these activities in violation of US antitrust laws, the US CEA and state law. HSBC's motion to dismiss the complaint was denied in March 2016.
There are many factors that may affect the range of outcomes, and the resulting financial impact, of these matters, which could be significant.
Foreign exchange rate investigations and litigation
Various regulators and competition and law enforcement authorities around the world, including in the US, the EU, Switzerland, Brazil, South Korea and South Africa are conducting investigations and reviews into trading by HSBC and others on the foreign exchange markets. HSBC is cooperating with these investigations and reviews.
In May 2015, the DoJ resolved its investigations with respect to five non-HSBC financial institutions, four of whom agreed to plead guilty to criminal charges of conspiring to manipulate prices in the foreign exchange spot market, and resulting in the imposition of criminal fines in the aggregate of more than $2.5bn. Additional penalties were imposed at the same time by the FRB and other banking regulators. HSBC was not a party to these resolutions. In August 2016, the DoJ indicted one current and one former HSBC employee and charged them with wire fraud and conspiracy relating to a 2011 foreign exchange transaction. The trial is currently scheduled to begin in September 2017. HSBC was not named as a defendant in the indictment, and investigations into HSBC by the DoJ, FRB and others continue.
In December 2016, HSBC Bank plc entered into a settlement with Brazil's Administrative Council of Economic Defense ('CADE') in connection with its investigation into 15 banks, including HSBC Bank plc, as well as 30 individuals, relating to practices in the offshore foreign exchange market. Under the terms of the settlement, HSBC Bank plc agreed to pay a financial penalty to CADE.
In February 2017, the Competition Commission of South Africa referred a complaint for proceedings before the South African Competition Tribunal against 18 financial institutions, including HSBC Bank plc, for alleged misconduct related to the foreign exchange market in violation of South African antitrust laws. These proceedings are at an early stage.
In late 2013 and early 2014, HSBC and other banks were named as defendants in various putative class actions consolidated in the New York District Court. The consolidated complaint alleged, among other things, that the defendants conspired to manipulate the WM/Reuters foreign exchange benchmark rates. In September 2015, HSBC reached an agreement with plaintiffs to resolve the consolidated action, subject to court approval. In December 2015, the court granted preliminary approval of the settlement, and HSBC made payment of the agreed settlement amount into an escrow account. The final settlement approval hearing is scheduled for October 2017.
In June 2015, a putative class action was filed in the New York District Court making similar allegations on behalf of Employee Retirement Income Security Act of 1974 ('ERISA') plan participants, and another complaint was filed in the US District Court for the Northern District of California in May 2015. The court dismissed the claims in the ERISA action, and the plaintiffs have appealed to the US Court of Appeals for the Second Circuit. HSBC filed a motion to transfer the California action to New York, which was granted in November 2015. In September 2016, a putative class action making similar allegations on behalf of purported 'indirect' purchasers of foreign exchange products was filed in New York. This action is at an early stage.
In September 2015, two additional putative class actions making similar allegations under Canadian law were issued in Canada against various HSBC companies and other financial institutions.
As at 31 December 2016, HSBC has recognised a provision for these various matters in the amount of $1.2bn. There are many factors that may affect the range of outcomes, and the resulting financial impact, of these matters. Due to uncertainties and limitations of these estimates, the ultimate penalties could differ significantly from the amount provided.
Precious metals fix-related investigations and litigation
Various regulators and competition and law enforcement authorities, including in the US and the EU, are conducting investigations and reviews relating to HSBC's precious metals operations and trading. HSBC is cooperating with these investigations and reviews. In November 2014, the Antitrust Division and Criminal Fraud Section of the DoJ issued a document request to HSBC Holdings, seeking the voluntary production of certain documents in connection with a criminal investigation that the DoJ is conducting of alleged anti-competitive and manipulative conduct in precious metals trading. In January 2016, the Antitrust Division of the DoJ informed HSBC that it was closing its investigation; however, the Criminal Fraud Section's investigation remains ongoing.
Gold: Beginning in March 2014, numerous putative class actions were filed in the New York District Court and the US District Courts for the District of New Jersey and the Northern District of California, naming HSBC and other members of The London Gold Market Fixing Limited as defendants. The complaints allege that, from January 2004 to the present, defendants conspired to manipulate the price of gold and gold derivatives for their collective benefit in violation of US antitrust laws, the US CEA and New York state law. The actions were consolidated in the New York District Court. Defendants' motion to dismiss the consolidated action was granted in part and denied in part in October 2016.
In December 2015, a putative class action under Canadian law was filed in the Ontario Superior Court of Justice against various HSBC companies and other financial institutions. Plaintiffs allege that, among other things, from January 2004 to March 2014, defendants conspired to manipulate the price of gold and gold derivatives in violation of the Canadian Competition Act and common law. This action is at an early stage.
Silver: Beginning in July 2014, numerous putative class actions were filed in the US District Courts for the Southern and Eastern Districts of New York, naming HSBC and other members of The London Silver Market Fixing Ltd as defendants. The complaints allege that, from January 1999 to the present, defendants conspired to manipulate the price of silver and silver derivatives for their collective benefit in violation of US antitrust laws, the US CEA and New York state law. The actions were consolidated in the New York District Court. Defendants' motion to dismiss the consolidated action was granted in part and denied in part in October 2016.
In April 2016, two putative class actions under Canadian law were filed in the Ontario and Quebec Superior Courts of Justice against various HSBC companies and other financial institutions. Plaintiffs in both actions allege that, from January 1999 to August 2014,
HSBC Holdings plc Annual Report and Accounts 2016
261
Notes on the Financial Statements
defendants conspired to manipulate the price of silver and silver derivatives in violation of the Canadian Competition Act and common law. The Ontario action is at an early stage. The Quebec action has been temporarily stayed.
Platinum and palladium: Between late 2014 and early 2015, numerous putative class actions were filed in the New York District Court, naming HSBC and other members of The London Platinum and Palladium Fixing Company Limited as defendants. The complaints allege that, from January 2008 to the present, defendants conspired to manipulate the price of platinum group metals ('PGM') and PGM-based financial products for their collective benefit in violation of US antitrust laws and the US CEA. Defendants have moved to dismiss the action.
There are many factors that may affect the range of outcomes, and the resulting financial impact, of these matters, which could be significant.
Credit default swap litigation
Various HSBC companies, among other financial institutions, ISDA, and Markit, were named as defendants in numerous putative class actions filed in the New York District Court and the Illinois District Court. The actions alleged that the defendants violated US antitrust laws by, among other things, conspiring to restrict access to credit default swap pricing exchanges and block new entrants into the exchange market. The actions were subsequently consolidated in the New York District Court. In September 2015, the HSBC defendants reached an agreement with the plaintiffs to resolve the consolidated action, and final court approval of that settlement was granted in April 2016.
Treasury auctions
Beginning in July 2015, HSI, amongst other financial institutions, was named as a defendant in several putative class actions filed in the New York District Court. The complaints generally allege that the defendants violated US antitrust laws and the US CEA by colluding to manipulate prices of US Treasury securities sold at auction. The cases have been consolidated in the New York District Court. This matter is at an early stage.
The DoJ has requested information from HSBC and reportedly other banks regarding US Treasury securities trading practices. HSBC is cooperating with this ongoing investigation.
Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of these matters, including the timing or any possible impact on HSBC, which could be significant.
Interest rate swap litigation
In February 2016, various HSBC companies, among others, were named as defendants in a putative class action filed in the New York District Court. The complaint alleged that the defendants violated US antitrust laws by, among other things, conspiring to boycott and eliminate various entities and practices that would have brought exchange trading to buy‐side investors in the interest rate swaps marketplace. In June 2016, this action along with other complaints filed in the New York District Court and the Illinois District Court were consolidated in the New York District Court, and in January 2017, the defendants filed a motion to dismiss. This matter is at an early stage.
Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of this matter, including the timing or any possible impact on HSBC, which could be significant.
Fédération Internationale de Football Association ('FIFA') related investigations
HSBC has received inquiries from the DoJ regarding its banking relationships with certain individuals and entities that are or may be associated with FIFA. The DoJ is investigating whether multiple financial institutions, including HSBC, permitted the processing of suspicious or otherwise improper transactions, or failed to observe applicable AML laws and regulations. HSBC is cooperating with the DoJ's investigation.
Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of this matter, including the timing or any possible impact on HSBC, which could be significant.
Hiring practices investigation
The US Securities and Exchange Commission (the 'SEC') is investigating multiple financial institutions, including HSBC, in relation to hiring practices of candidates referred by or related to government officials or employees of state-owned enterprises in Asia-Pacific. HSBC has received various requests for information and is cooperating with the SEC's investigation.
Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of this matter, including the timing or any possible impact on HSBC, which could be significant.
36 Related party transactions
Related parties of the Group and HSBC Holdings include subsidiaries, associates, joint ventures, post-employment benefit plans for HSBC employees, Key Management Personnel ('KMP') as defined by IAS 24, close family members of KMP and entities which are controlled or jointly controlled by KMP or their close family members. KMP are defined as those persons having authority and responsibility for planning, directing and controlling the activities of HSBC Holdings. These individuals also constitute 'senior management' for the purposes of the Hong Kong Listing Rules. Following a review of the application of IAS 24, it was determined that the roles of Chief Legal Officer, Group Head of Internal Audit and Group Head of Human Resources did not meet the criteria for KMP as provided for in the standard.
Particulars of transactions with related parties are tabulated below. The disclosure of the year-end balance and the highest amounts outstanding during the year is considered to be the most meaningful information to represent the amount of the transactions and outstanding balances during the year.
Key Management Personnel
Details of Directors' remuneration and interest in shares are disclosed in the Directors' remuneration report on pages 153 to 170.IAS 24 'Related party disclosures' requires the following additional information for key management compensation.
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HSBC Holdings plc Annual Report and Accounts 2016
Compensation of Key Management Personnel
 
2016
2015
2014
 
$m
$m
$m
Short-term employee benefits
41
40
41
Post-employment benefits
-
1
1
Other long-term employee benefits
5
9
7
Share-based payments
37
51
54
Year ended 31 Dec
83
101
103
Shareholdings, options and other securities of Key Management Personnel
 
2016
2015
 
(000s)
(000s)
Number of options held over HSBC Holdings ordinary shares under employee share plans
18
29
Number of HSBC Holdings ordinary shares held beneficially and non-beneficially
22,283
18,961
At 31 Dec
22,301
18,990
Transactions and balances during the year with Key Management Personnel
 
 
2016
2015
 
 
Balance at 31 Dec
Highest amounts outstanding
during year
Balance
at 31 Dec
Highest amounts outstanding
during year
 
Footnote
$m
$m
$m
$m
Key Management Personnel
 
 
 
 
 
Advances and credits
1
215
220
218
411
Guarantees
 
55
63
67
91
Deposits
 
229
677
387
768
1
Advances and credits entered into by subsidiaries of HSBC Holdings during 2016 with Directors, disclosed pursuant to Section 413 of the Companies Act 2006, totalled $2m (2015: $4m).
Some of the transactions were connected transactions as defined by the Rules Governing The Listing of Securities on The Stock Exchange of Hong Kong Limited, but were exempt from any disclosure requirements under the provisions of those rules. The above transactions were made in the ordinary course of business and on substantially the same terms, including interest rates and security, as for comparable transactions with persons of a similar standing or, where applicable, with other employees. The transactions did not involve more than the normal risk of repayment or present other unfavourable features.
Associates and joint ventures
The Group provides certain banking and financial services to associates and joint ventures including loans, overdrafts, interest and non-interest bearing deposits and current accounts. Details of the interests in associates and joint ventures are given in Note 17.
Transactions and balances during the year with associates and joint ventures
 
2016
2015
 
Highest balance
during the year
Balance at
31 Dec
Highest balance
during the year
Balance at
31 Dec
 
$m
$m
$m
$m
Unsubordinated amounts due from joint ventures
126
113
195
151
Unsubordinated amounts due from associates
3,136
2,881
4,209
2,035
Amounts due to associates
1,112
576
1,047
92
Guarantees and commitments
776
594
905
904
The above outstanding balances arose in the ordinary course of business and on substantially the same terms, including interest rates and security, as for comparable transactions with third-party counterparties.
Post-employment benefit plans
At 31 December 2016, $4.4bn (2015: $4.3bn) of HSBC post-employment benefit plan assets were under management byHSBC companies, earning management fees of $6m in 2016 (2015: $8m). At 31 December 2016 HSBC's post-employmentbenefit plans had placed deposits of $710m (2015: $811m) with its banking subsidiaries, earning interest payable to the schemesof $1m (2015: nil). The above outstanding balances arose from the ordinary course of business and on substantially the same terms, including interest rates and security, as for comparable transactions with third-party counterparties.
The HSBC Bank (UK) Pension Scheme and International Staff Retirement Benefit Scheme enter into swap transactions with HSBC to manage inflation and interest rate sensitivity of its liabilities and selected assets. At 31 December 2016 the gross notional value of the swaps with HSBC Bank (UK) Pension Scheme was $10.5bn (2015: $13.3bn); these swaps had a positive fair value to the scheme of $0.9bn (2015: $0.5bn); and HSBC had delivered collateral of $0.9bn (2015: $1.1bn) to the scheme in respect of these arrangements.
At 31 December 2016, the gross notional value of the swaps with the International Staff Retirement Benefit Scheme was$1.2bn (2015: $1.7bn) and the swaps had a net negative fair value to the scheme of $85m (2015: $96m negative). All swaps were executed at prevailing market rates and within standard market bid/offer spreads.
HSBC Holdings
HSBC Holdings plc Annual Report and Accounts 2016
263
Notes on the Financial Statements
Details of HSBC Holdings' subsidiaries are shown in Note 38.
Transactions and balances during the year with subsidiaries
 
2016
2015
 
Highest balance
during the year
Balance at
31 Dec
Highest balance
during the year
Balance at
31 Dec
 
$m
$m
$m
$m
Assets
 
 
 
 
Cash at bank
997
247
620
242
Derivatives
4,494
2,148
3,409
2,466
Loans and advances
77,732
77,421
47,229
44,350
Financial investments
4,314
3,590
4,427
4,285
Investments in subsidiaries
97,827
95,850
97,770
97,770
Total related party assets at 31 Dec
185,364
179,256
153,455
149,113
Liabilities
Amounts owed to HSBC undertakings
3,823
2,157
2,892
2,152
Derivatives
5,025
5,025
2,459
2,277
Subordinated liabilities
1,749
891
2,652
1,746
Total related party liabilities at 31 Dec
10,597
8,073
8,003
6,175
Guarantees and commitments
63,719
7,619
68,349
68,333
The above outstanding balances arose in the ordinary course of business and on substantially the same terms, including interest rates and security, as for comparable transactions with third-party counterparties.
Some employees of HSBC Holdings are members of the HSBC Bank (UK) Pension Scheme, which is sponsored by a separate Group company. HSBC Holdings incurs a charge for these employees equal to the contributions paid into the scheme on their behalf. Disclosure in relation to the scheme is made in Note 5.
37 Events after the balance sheet date
A fourth interim dividend for 2016 of $0.21 per ordinary share (a distribution of approximately $4,172m) was declared by the Directors after 31 December 2016.
On 21 February 2017, the Board approved a share buy-back programme of up to $1.0bn.
These accounts were approved by the Board of Directors on 21 February 2017 and authorised for issue.
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38 HSBC Holdings' subsidiaries, joint ventures and associates
In accordance with Section 409 of the Companies Act 2006 a list of HSBC Holdings plc's subsidiaries, joint ventures and associates, the registered office address and the effective percentage of equity owned at 31 December 2016 is disclosed below.
Unless otherwise stated, the share capital comprises ordinary or common shares which are held by Group subsidiaries. The ownership percentage is provided for each undertaking. The undertakings below are consolidated by HSBC unless otherwise indicated.
Subsidiaries
Subsidiaries
Group interest %
Footnotes
 
Subsidiaries
Group interest %
Footnotes
ACN 087 652 113 Pty Limited
100.00
182
 
Card-Flo #1, Inc.
100.00
36
AEA Investors (Cayman) IA L.P.
100.00
1,19, 130
 
Card-Flo #3, Inc.
100.00
127
Allblack Investments Limited
100.00
16, 162
 
Cayman International Finance Limited
100.00
166
Almacenadora Banpacifico S.A.
99.99
201
 
Cayman Nominees Limited
100.00
228
AMP Client HSBC Custody Nominee (UK) Limited
100.00
1, 94
 
CBS/Holdings, Inc.
100.00
101
Assetfinance December (F) Limited
100.00
94
 
CC&H Holdings LLC
100.00
10, 133
Assetfinance December (H) Limited
100.00
94
 
CCF & Partners Asset Management Limited
100.00
94
Assetfinance December (M) Limited
100.00
94
 
CCF Charterhouse GmbH
100.00
4, 233
Assetfinance December (P) Limited
100.00
94
 
CCF Charterhouse GmbH & Co Asset Leasing KG
100.00
9, 233
Assetfinance December (R) Limited
100.00
94
 
CCF Holding (LIBAN) S.A.L. (in liquidation)
74.99
1, 220
Assetfinance December (W) Limited
100.00
94
 
Charterhouse Administrators ( D.T.) Limited
100.00
94
Assetfinance June (A) Limited
100.00
94
 
Charterhouse Development Limited
100.00
94
Assetfinance June (D) Limited
100.00
94
 
Charterhouse Management Services Limited
100.00
94
Assetfinance June (E) Limited
100.00
94
 
Charterhouse Pensions Limited
100.00
1, 94
Assetfinance Limited
100.00
94
 
Chongqing Dazu HSBC Rural Bank Company Limited
100.00
22, 190
Assetfinance March (B) Limited
100.00
84
 
Chongqing Fengdu HSBC Rural Bank Company Limited
100.00
22, 191
Assetfinance March (D) Limited
100.00
94
 
Assetfinance March (F) Limited
100.00
94
 
Chongqing Rongchang HSBC Rural Bank Company Limited
100.00
22, 195
Assetfinance September (F) Limited
100.00
94
 
Assetfinance September (G) Limited
100.00
94
 
CL Residential Limited
100.00
94
B&Q Financial Services Limited
100.00
131
 
COIF Nominees Limited
100.00
1, 8, 94
Banco Nominees (Guernsey) Limited
99.98
1, 108
 
Cordico Management AG
100.00
109
Banco Nominees 2 (Guernsey) Limited
100.00
108
 
Corhold Limited
100.00
151
Banco Nominees Limited
100.00
87
 
Dalian Pulandian HSBC Rural Bank Company Limited
100.00
22, 147
Bank of Bermuda (Cayman) Limited
100.00
166
 
Decision One Mortgage Company, LLC
100.00
10, 139
Beau Soleil Limited Partnership
99.99
19, 27
 
Dem 5
100.00
4, 74
Beijing Miyun HSBC Rural Bank Company Limited
100.00
22, 148
 
Dem 9
100.00
4, 74
Beneficial Company LLC
100.00
10, 127
 
Dempar 1
100.00
4, 29
Beneficial Consumer Discount Company
100.00
135
 
Dempar 4
100.00
4, 29
Beneficial Financial I Inc.
100.00
142
 
Desarrollo Turistico, S.A. de C.V.
100.00
201
Beneficial Florida Inc.
100.00
127
 
Eagle Rock Holdings, Inc.
100.00
101
Beneficial Homeowner Service Corporation
100.00
127
 
Ellenville Holdings, Inc.
100.00
101
Beneficial Kentucky Inc.
100.00
127
 
Elysees GmbH
100.00
6, 233
Beneficial Loan & Thrift Co.
100.00
127
 
Elysées Immo Invest
100.00
4, 89
Beneficial Louisiana Inc.
100.00
127
 
Emerging Growth Real Estate II GP Limited
100.00
108
Beneficial Maine Inc.
100.00
127
 
EMTT Limited
100.00
1, 94
Beneficial Massachusetts Inc.
100.00
127
 
Endeavour Personal Finance Limited
100.00
153
Beneficial Michigan Inc.
100.00
127
 
Equator Holdings Limited
100.00
94
Beneficial New Hampshire Inc.
100.00
127
 
Eton Corporate Services Limited
100.00
200
Beneficial Oregon Inc.
100.00
127
 
Far East Leasing SA
100.00
1, 189
Beneficial Rhode Island Inc.
100.00
127
 
Fdm 5 SAS
100.00
4, 74
Beneficial South Dakota Inc.
100.00
127
 
FEPC Leasing Ltd.
100.00
16, 234
Beneficial Tennessee Inc.
100.00
141
 
Finanpar 2
100.00
4, 89
Beneficial West Virginia, Inc.
100.00
143
 
Finanpar 7
100.00
4, 89
Beneficial Wyoming Inc.
100.00
136
 
First Corporate Director Inc.
100.00
151
BerCay Holdings Limited
100.00
166
 
First Direct Investments (UK) Limited
100.00
94
Bermuda International Securities Limited
100.00
87
 
Flandres Contentieux S.A.
100.00
1, 4, 44
BFC Insurance Agency of Nevada
100.00
61
 
Foncière Elysées
100.00
4, 29
Billingsgate City Securities Limited
100.00
94
 
Forward Trust Rail Services Limited
100.00
16, 94
Billingsgate Nominees Limited
100.00
94
 
Fujian Yongan HSBC Rural Bank Company Limited
100.00
22, 192
Cal-Pacific Services, Inc.
100.00
142
 
Fulcher Enterprises Company Limited
62.14
96
Canada Crescent Nominees (UK) Limited
100.00
1, 94
 
Fundacion HSBC, A.C.
60.00
1, 20, 201
Canada Square Nominees (UK) Limited
100.00
94
 
G.M. Gilt-Edged Nominees Limited
100.00
1, 94
Canada Square Property Participations Limited
100.00
1, 94
 
Gesellschaft fur Industrielle Beteiligungen und Finanzierung mbH
100.00
176
Canada Water Nominees (UK) Limited
100.00
1, 94
 
Capco/Cove, Inc.
100.00
101
 
Gesico International SA
100.00
113
HSBC Holdings plc Annual Report and Accounts 2016
265
Notes on the Financial Statements
Subsidiaries
Group interest %
Footnotes
 
Subsidiaries
Group interest %
Footnotes
Giller Ltd.
100.00
101
 
HSBC Administradora de Inversiones S.A.
100.00
111
GPIF Co-Investment, LLC
80.00
10, 127
 
HSBC AFS (USA) LLC
100.00
10, 101
GPIF-I Equity Co., Ltd.
100.00
1, 11, 118
 
HSBC Agency (India) Private Limited
100.00
85
GPIF-I Finance Co., Ltd
100.00
1, 11, 118
 
HSBC Alpha Funding (UK) Holdings
100.00
166
Griffin International Limited
100.00
94
 
HSBC Alternative Investments Limited
100.00
94
Grundstuecksgesellschaft Trinkausstrasse Kommanditgesellschaft
100.00
176
 
HSBC Amanah Malaysia Berhad
100.00
94
 
HSBC Americas Corporation (Delaware)
100.00
127
Grupo Financiero HSBC, S. A. de C. V.
100.00
201
 
HSBC Argentina Holdings S.A.
100.00
150
Guangdong Enping HSBC Rural Bank Company Limited
100.00
22, 196
 
HSBC Asia Holdings (UK) Limited
100.00
94
 
HSBC Asia Holdings B.V.
100.00
16,94
GZ Trust Corporation
100.00
151
 
HSBC Asia Pacific Holdings (UK) Limited
100.00
16,94
Hang Seng (Nominee) Limited
62.14
96
 
HSBC Asset Finance (UK) Limited
100.00
94
Hang Seng Bank (China) Limited
62.14
22, 71
 
HSBC Asset Finance Holdings Limited
100.00
94
Hang Seng Bank (Trustee) Limited
62.14
96
 
HSBC Asset Finance M.O.G. Holdings (UK) Limited
100.00
94
Hang Seng Bank Limited
62.14
96
 
HSBC Asset Management (India) Private Limited
100.00
76
Hang Seng Bullion Company Limited
62.14
96
 
HSBC Assurances Vie (France)
100.00
4, 44
Hang Seng Credit Limited
62.14
96
 
HSBC Australia Holdings Pty Limited
100.00
16, 182
Hang Seng Data Services Limited
62.14
96
 
HSBC Bank (Chile)
100.00
171
Hang Seng Finance Limited
62.14
96
 
HSBC Bank (China) Company Limited
100.00
22, 157
Hang Seng Financial Information Limited
62.14
96
 
HSBC Bank (General Partner) Limited
100.00
163
Hang Seng Futures Limited
62.14
96
 
HSBC Bank (Mauritius) Limited
72.96
91
Hang Seng Indexes Company Limited
62.14
96
 
HSBC Bank (RR) (Limited Liability Company)
100.00
23, 57
Hang Seng Insurance Company Limited
62.14
96
 
HSBC Bank (Singapore) Limited
100.00
58
Hang Seng Investment Management Limited
62.14
96
 
HSBC Bank (Taiwan) Limited
100.00
38
Hang Seng Investment Services Limited
62.14
96
 
HSBC Bank (Uruguay) S.A.
100.00
211
Hang Seng Life Limited
62.14
96
 
HSBC Bank (Vietnam) Ltd.
100.00
227
Hang Seng Real Estate Management Limited
62.14
96
 
HSBC Bank A.S.
100.00
146
Hang Seng Securities Limited
62.14
96
 
HSBC Bank Argentina S.A.
99.99
149
Hang Seng Security Management Limited
62.14
96
 
HSBC Bank Armenia cjsc
70.00
90
Haseba Investment Company Limited
62.14
96
 
HSBC Bank Australia Limited
100.00
182
HBL Nominees Limited
100.00
1, 94
 
HSBC Bank Bermuda Limited
100.00
87
HDSAP GP Limited
100.00
108
 
HSBC Bank Canada
100.00
16, 98
HFC Bank Limited
100.00
94
 
HSBC Bank Capital Funding (Sterling 1) LP
100.00
19, 163
HFC Company LLC
100.00
10, 127
 
HSBC Bank Capital Funding (Sterling 2) LP
100.00
19, 163
High Meadow Management, Inc.
100.00
101
 
HSBC Bank Egypt S.A.E
94.53
69
High Time Investments Limited
62.14
96
 
HSBC Bank International Limited
100.00
162
HITG Administration GmbH
100.00
34
 
HSBC Bank Malaysia Berhad
100.00
31
Honey Green Enterprises Ltd.
100.00
103
 
HSBC Bank Malta p.l.c.
70.03
35
Hongkong International Trade Finance (Holdings) Limited
100.00
94
 
HSBC Bank Middle East Limited
100.00
16, 177
 
HSBC Bank Middle East Limited, Representative Office Morocco SARL
100.00
229
Household Capital Markets LLC
100.00
10, 127
 
Household Commercial Financial Services, Inc.
100.00
127
 
HSBC Bank Nominee (Jersey) Limited
100.00
162
Household Finance Consumer Discount Company
100.00
127
 
HSBC Bank Oman S.A.O.G.
51.00
105
Household Finance Corporation II
100.00
127
 
HSBC Bank Pension Trust (UK) Limited
100.00
94
Household Finance Corporation III
100.00
127
 
HSBC Bank plc
100.00
2, 16, 94
Household Finance Corporation of Alabama
100.00
137
 
HSBC Bank Polska S.A.
100.00
16, 214
Household Finance Corporation of California
100.00
127
 
HSBC Bank USA, National Association
100.00
16, 52
Household Finance Corporation of West Virginia
100.00
143
 
HSBC Branch Nominee (UK) Limited
100.00
1, 94
Household Finance Industrial Loan Company of Iowa
100.00
138
 
HSBC Brasil Holding S.A.
100.00
216
Household Finance Realty Corporation of Nevada
100.00
127
 
HSBC BRASIL S.A. BANCO DE INVESTIMENTO
100.00
216
Household Finance Realty Corporation of New York
100.00
127
 
HSBC Broking Forex (Asia) Limited
100.00
27
Household Financial Center Inc.
100.00
141
 
HSBC Broking Futures (Asia) Limited
100.00
14, 27
Household Industrial Finance Company
100.00
126
 
HSBC Broking Futures (Hong Kong) Limited
100.00
27
Household Industrial Loan Company of Kentucky
100.00
140
 
HSBC Broking Nominees (Asia) Limited
100.00
27
Household Insurance Group Holding Company
100.00
86
 
HSBC Broking Securities (Asia) Limited
100.00
27
Household International Europe Limited
100.00
16, 94
 
HSBC Broking Securities (Hong Kong) Limited
100.00
27
Household Pooling Corporation
100.00
226
 
HSBC Broking Services (Asia) Limited
100.00
27
Household Realty Corporation
100.00
127
 
HSBC Canada Holdings (UK) Limited
100.00
94
HPUT A Limited
100.00
1,94
 
HSBC Capital (Canada) Inc.
100.00
68
HPUT B Limited
100.00
1,94
 
HSBC Capital (USA), Inc.
100.00
127
HRMG Nominees Limited
100.00
108
 
HSBC Capital Funding (Dollar 1) L.P.
100.00
19,163
HSBC (BGF) Investments Limited
100.00
94
 
HSBC Capital Limited
100.00
27
HSBC (General Partner) Limited
100.00
2, 163
 
HSBC Card Services Inc.
100.00
127
HSBC (Kuala Lumpur) Nominees Sdn Bhd
100.00
31
 
HSBC Casa de Bolsa, S.A. de C.V., Grupo Financiero HSBC
100.00
201
HSBC (Malaysia) Trustee Berhad
100.00
40
 
HSBC (Singapore) Nominees Pte Ltd
100.00
58
 
HSBC Cayman Services Limited
100.00
166
266
HSBC Holdings plc Annual Report and Accounts 2016
Subsidiaries
Group interest %
Footnotes
 
Subsidiaries
Group interest %
Footnotes
HSBC City Funding Holdings
100.00
94
 
HSBC Global Asset Management (Japan) K. K.
100.00
155
HSBC Client Holdings Nominee (UK) Limited
100.00
1, 94
 
HSBC Global Asset Management (Malta) Limited
70.03
95
HSBC Client Share Offer Nominee (UK) Limited
100.00
1, 94
 
HSBC Global Asset Management (México), S.A. de C.V., Sociedad Operadora de Fondos de Inversión, Grupo Financiero HSBC
100.00
201
HSBC Columbia Funding, LLC
100.00
10, 127
 
HSBC Consumer Lending (USA) Inc.
100.00
127
 
HSBC Corporate Advisory (Malaysia) Sdn Bhd
100.00
31
 
HSBC Global Asset Management (Oesterreich) GmbH
100.00
6, 152
HSBC Corporate Finance (Hong Kong) Limited
100.00
27
 
HSBC Global Asset Management (Singapore) Limited
100.00
58
HSBC Corporate Trustee Company (UK) Limited
100.00
94
 
HSBC Global Asset Management (Switzerland) AG
100.00
4, 109
HSBC Credit Center, Inc.
100.00
127
 
HSBC Global Asset Management (Taiwan) Limited
100.00
63
HSBC Custody Nominees (Australia) Limited
100.00
182
 
HSBC Global Asset Management (UK) Limited
100.00
94
HSBC Custody Services (Guernsey) Limited
100.00
108
 
HSBC Global Asset Management (USA) Inc.
100.00
80
HSBC Daisy Investments (Mauritius) Limited
100.00
123
 
HSBC Global Asset Management Holdings (Bahamas) Limited
100.00
187
HSBC Electronic Data Processing (Guangdong) Limited
100.00
22, 77
 
 
HSBC Global Asset Management Limited
100.00
94
HSBC Electronic Data Processing (Malaysia) Sdn Bhd
100.00
222
 
HSBC Global Custody Nominee (UK) Limited
100.00
1, 94
HSBC Electronic Data Processing (Philippines), Inc.
100.00
169
 
HSBC Global Custody Proprietary Nominee (UK) Limited
100.00
1, 94
HSBC Electronic Data Processing India Private Limited
100.00
165
 
 
HSBC Global Services (UK) Limited
100.00
94
HSBC Electronic Data Processing Lanka (Private) Limited
100.00
79
 
HSBC Global Services Limited
100.00
2, 94
 
HSBC Global Shared Services (India) Private Limited
100.00
1, 85
HSBC Electronic Data Service Delivery (Egypt) S.A.E.
100.00
219
 
HSBC Group Management Services Limited
100.00
94
HSBC Enterprise Investment Company (UK) Limited
100.00
94
 
HSBC Group Nominees UK Limited
100.00
1, 2, 94
HSBC Epargne Entreprise (France)
100.00
4,44
 
HSBC Guyerzeller Trust Company
100.00
82
HSBC Equator (UK) Limited
100.00
94
 
HSBC Holdings B.V.
100.00
16, 94
HSBC Equipment Finance (UK) Limited
100.00
94
 
HSBC Home Equity Loan Corporation II
100.00
127
HSBC Equities (Luxembourg) S.a r.l.
100.00
1,45
 
HSBC IM Pension Trust Limited
100.00
1, 94
HSBC Equity (UK) Limited
100.00
94
 
HSBC Infrastructure Limited
100.00
94
HSBC Europe B.V.
100.00
94
 
HSBC INKA Investment-AG TGV
100.00
24, 112
HSBC European Clients Depositary Receipts Nominee (UK) Limited
100.00
1, 94
 
HSBC Inmobiliaria (Mexico), S.A. de C.V.
99.96
201
 
HSBC Institutional Trust Services (Asia) Limited
100.00
27
HSBC Executor & Trustee Company (UK) Limited
100.00
94
 
HSBC Institutional Trust Services (Bermuda) Limited
100.00
87
HSBC Factoring (France)
100.00
4,29
 
HSBC Institutional Trust Services (Ireland) DAC
100.00
26
HSBC Finance (Brunei) Berhad
100.00
230
 
HSBC Institutional Trust Services (Mauritius) Limited
100.00
160
HSBC Finance (Netherlands)
100.00
2,94
 
HSBC Institutional Trust Services (Singapore) Limited
100.00
58
HSBC Finance Corporation
100.00
16, 127
 
HSBC Insurance (Asia) Limited
100.00
53
HSBC Finance Limited
100.00
94
 
HSBC Insurance (Asia-Pacific) Holdings Limited
100.00
16, 181
HSBC Finance Mortgages Inc.
100.00
224
 
HSBC Insurance (Bermuda) Limited
100.00
87
HSBC Finance Transformation (UK) Limited
100.00
2, 94
 
HSBC Insurance (Singapore) Pte. Limited
100.00
58
HSBC Financial Services (Middle East) Limited
100.00
158
 
HSBC Insurance Agency (USA) Inc.
100.00
80
HSBC Financial Services (Lebanon) s.a.l.
99.70
158
 
HSBC Insurance Brokers (Philippines) Inc
100.00
102
HSBC Financial Services (Uruguay) S.A.
100.00
237
 
HSBC Insurance Brokers (Taiwan) Limited
100.00
46
HSBC Fondo 1, S.A. de C.V., Sociedad de Inversion de Renta Variable
100.00
1, 201
 
HSBC Insurance Holdings Limited
100.00
2,94
 
HSBC Insurance Management Services Limited
100.00
94
HSBC Fondo 3, S.A. de C.V., Sociedad de Inversion de Renta Variable
100.00
1, 201
 
HSBC Insurance Services (Lebanon) S.A.L.
100.00
158
 
HSBC Insurance Services Holdings Limited
100.00
94
HSBC Fondo 4, S.A. de C.V., Sociedad de Inversion de Renta Variable
100.00
1, 201
 
HSBC International Finance Corporation (Delaware)
100.00
66
 
HSBC International Financial Services (UK) Limited
100.00
15, 94
HSBC Fondo 5, S.A. de C.V., Sociedad de Inversion de Renta Variable
100.00
1, 201
 
HSBC International Holdings (Jersey) Limited
100.00
162
 
HSBC International Nominees Limited
100.00
1, 208
HSBC Fondo 6, S.A. de C.V., Sociedad de Inversion de Renta Variable
100.00
1, 201
 
HSBC International Trade Finance Limited
100.00
94
 
HSBC International Trustee (BVI) Limited
100.00
17, 235
HSBC Fondo Global 1, S.A. de C.V., Sociedad de Inversion de Renta Variable
100.00
1, 201
 
HSBC International Trustee (Holdings) Pte. Limited
100.00
58
 
HSBC International Trustee Limited
100.00
208
HSBC France
99.99
24, 29
 
HSBC Inversiones S.A.
100.00
171
HSBC Fund Administration (Jersey) Limited
100.00
162
 
HSBC Inversiones y Servicios Financieros Limitada
100.00
171
HSBC Fund Services (Korea) Limited
92.96
1, 178
 
HSBC InvestDirect (India) Limited
99.54
100
HSBC Funding (UK) Holdings
100.00
94
 
HSBC InvestDirect Financial Services (India) Limited
100.00
100
HSBC Funds Nominee (Jersey) Limited
100.00
162
 
HSBC InvestDirect Sales & Marketing (India) Limited
99.00
85
HSBC Germany Holdings GmbH
100.00
176
 
HSBC InvestDirect Securities (India) Private Limited
100.00
16, 100
HSBC Gestion (Monaco) SA
99.80
48
 
HSBC Investment Asia Holdings Limited
100.00
27
HSBC Global Asset Management (Bermuda) Limited
100.00
16,87
 
HSBC Investment Bank Holdings B.V.
100.00
94
HSBC Global Asset Management (Canada) Limited
100.00
64
 
HSBC Investment Bank Holdings Limited
100.00
2, 94
HSBC Global Asset Management (Deutschland) GmbH
100.00
176
 
HSBC Investment Company (Egypt) S.A.E
100.00
1,65
HSBC Global Asset Management (France)
100.00
4,170
 
HSBC Investment Funds (Canada) Inc.
100.00
16, 64
HSBC Global Asset Management (Hong Kong) Limited
100.00
27
 
HSBC Investment Funds (Hong Kong) Limited
100.00
27
 
HSBC Investment Funds (Luxembourg) SA
100.00
45
HSBC Global Asset Management (International) Limited
100.00
168
 
HSBC Investment Holdings (Guernsey) Limited
100.00
200
 
HSBC Investment Services (Africa) (Pty) Limited
100.00
56
HSBC Holdings plc Annual Report and Accounts 2016
267
Notes on the Financial Statements
Subsidiaries
Group interest %
Footnotes
 
Subsidiaries
Group interest %
Footnotes
HSBC Investments (Bahamas) Limited
100.00
188
 
HSBC Provident Fund Trustee (Hong Kong) Limited
100.00
27
HSBC Invoice Finance (UK) Limited
100.00
59
 
HSBC Quest Trustee (UK) Limited
100.00
1, 2, 94
HSBC Iris Investments (Mauritius) Ltd
100.00
123
 
HSBC Rail (UK) Limited
100.00
94
HSBC Issuer Services Common Depositary Nominee (UK) Limited
100.00
1, 94
 
HSBC Real Estate Leasing (France)
100.00
4, 44
 
HSBC Realty Credit Corporation (USA)
100.00
16, 127
HSBC Issuer Services Depositary Nominee (UK) Limited
100.00
1, 94
 
HSBC REIM (France)
100.00
4, 44
 
HSBC Representative Office (Nigeria) Limited
100.00
221
HSBC Land Title Agency (USA) LLC
55.00
10, 70
 
HSBC Republic Management Services (Guernsey) Limited
100.00
200
HSBC Latin America B.V.
100.00
94
 
HSBC Latin America Holdings (UK) Limited
100.00
2, 94
 
HSBC Retail Services Inc.
100.00
127
HSBC Leasing (Asia) Limited
100.00
27
 
HSBC Retirement Benefits Trustee (UK) Limited
100.00
1, 2, 94
HSBC Leasing (France)
100.00
4, 74
 
HSBC Saudi Arabia Limited
69.40
1, 156
HSBC Life (International) Limited
100.00
87
 
HSBC Savings Bank (Philippines) Inc.
100.00
231
HSBC Life (UK) Limited
100.00
94
 
HSBC Securities (Asia) Limited
100.00
14, 27
HSBC Life Assurance (Malta) Limited
70.03
95
 
HSBC Securities (B) Berhad
100.00
1, 161
HSBC Life Insurance Company Limited
50.00
51
 
HSBC Securities (Canada) Inc.
100.00
93
HSBC Lodge Funding (UK) Holdings
100.00
94
 
HSBC Securities (Egypt) S.A.E.
94.53
69
HSBC London Holdings Limited
100.00
1, 2, 94
 
HSBC Securities (Japan) Limited
100.00
94
HSBC LU Nominees Limited
100.00
94
 
HSBC Securities (Philippines) Inc.
100.00
1, 12, 92
HSBC Management (Guernsey) Limited
100.00
108
 
HSBC Securities (Singapore) Pte Limited
100.00
12, 58
HSBC Markets (Asia) Limited (In Liquidation)
100.00
25
 
HSBC Securities (South Africa) (Pty) Limited
100.00
56
HSBC Markets (USA) Inc.
100.00
127
 
HSBC Securities (Taiwan) Corporation Limited
100.00
38
HSBC Marking Name Nominee (UK) Limited
100.00
1, 94
 
HSBC Securities (USA) Inc.
100.00
127
HSBC Mexico, S.A., Institucion de Banca Multiple, Grupo Financiero HSBC
99.99
201
 
HSBC Securities and Capital Markets (India) Private Limited
100.00
16, 85
 
HSBC Middle East Finance Company Limited
80.00
218
 
HSBC Securities Asia International Nominees Limited
100.00
199
HSBC Middle East Holdings B.V.
100.00
16, 94
 
HSBC Securities Asia Nominees Limited
100.00
27
HSBC Middle East Leasing Partnership
100.00
19, 183
 
HSBC Securities Brokers (Asia) Limited
100.00
27
HSBC Middle East Securities L.L.C
49.00
154
 
HSBC Securities Investments (Asia) Limited
100.00
27
HSBC Mortgage Corporation (Canada)
100.00
16, 98
 
HSBC Securities Services (Bermuda) Limited
100.00
87
HSBC Mortgage Corporation (USA)
100.00
127
 
HSBC Securities Services (Guernsey) Limited
100.00
108
HSBC Mortgage Services Inc.
100.00
127
 
HSBC Securities Services (Ireland) DAC
100.00
26
HSBC Nominees (Asing) Sdn Bhd
100.00
31
 
HSBC Securities Services (Luxembourg) S.A.
100.00
45
HSBC Nominees (Hong Kong) Limited
100.00
27
 
HSBC Securities Services (USA) Inc.
100.00
134
HSBC Nominees (New Zealand) Limited
100.00
164
 
HSBC Securities Services Holding Limited
100.00
208
HSBC Nominees (Tempatan) Sdn Bhd
100.00
31
 
HSBC Securities Services Holdings (Ireland) DAC
100.00
26
HSBC North America Holdings Inc.
100.00
16, 127
 
HSBC Seguros de Retiro (Argentina) S.A.
100.00
150
HSBC Odeme Sistemleri Bilgisayar Teknolojileri Basin Yayin Ve Musteri Hizmetleri
99.99
115
 
HSBC Seguros de Vida (Argentina) S.A.
100.00
150
 
HSBC Seguros, S.A de C.V., Grupo Financiero HSBC
100.00
202
HSBC Overseas Holdings (UK) Limited
100.00
2, 94
 
HSBC Service Delivery (Polska) Sp. z o.o.
100.00
174
HSBC Overseas Investments (UK) Limited
100.00
2, 94
 
HSBC Services (France)
100.00
4, 29
HSBC Overseas Investments Corporation (New York)
100.00
128
 
HSBC Services Japan Limited
100.00
188
HSBC Overseas Nominee (UK) Limited
100.00
1, 94
 
HSBC Servicios Financieros, S.A. de C.V
100.00
201
HSBC Participaciones (Argentina) S.A.
100.00
150
 
HSBC Servicios, S.A. DE C.V., Grupo Financiero HSBC
100.00
201
HSBC PB Corporate Services 1 Limited
100.00
167
 
HSBC SFH (France)
100.00
4,44
HSBC PB Services (Suisse) SA
100.00
210
 
HSBC Software Development (Canada) Inc
100.00
223
HSBC Pension Trust (Ireland) DAC
100.00
26
 
HSBC Software Development (Guangdong) Limited
100.00
22, 215
HSBC Pensiones, S.A.
100.00
202
 
HSBC Software Development (India) Private Limited
100.00
159
HSBC PI Holdings (Mauritius) Limited
100.00
160
 
HSBC Software Development (Malaysia) Sdn Bhd
100.00
222
HSBC Portfoy Yonetimi A.S.
100.00
114
 
HSBC South Point Investments (Barbados) LLP
100.00
19, 42
HSBC Preferential LP (UK)
100.00
94
 
HSBC Specialist Investments Limited
100.00
16, 94
HSBC Private Bank (C.I.) Limited
100.00
200
 
HSBC Stockbroker Services (Client Assets) Nominees Limited
100.00
1, 94
HSBC Private Bank (Luxembourg) S.A.
100.00
45
 
HSBC Private Bank (Monaco) SA
100.00
4, 48
 
HSBC Stockbrokers Nominee (UK) Limited
100.00
1, 94
HSBC Private Bank (Suisse) SA
100.00
210
 
HSBC Structured Funds (Asia) Limited
100.00
27
HSBC Private Bank (UK) Limited
100.00
94
 
HSBC Taxpayer Financial Services Inc.
100.00
127
HSBC Private Bank International
100.00
41
 
HSBC Technology & Services (China) Limited
100.00
22, 179
HSBC Private Banking Holdings (Suisse) SA
100.00
210
 
HSBC Technology & Services (USA) Inc.
100.00
127
HSBC Private Banking Nominee 3 (Jersey) Limited
100.00
167
 
HSBC TFS I 2005 LLC
100.00
10, 36
HSBC Private Equity Advisors LLC
100.00
10, 127
 
HSBC TKM Limited
100.00
1, 94
HSBC Private Equity Investments (UK) Limited
100.00
94
 
HSBC Transaction Services GmbH
80.65
6, 238
HSBC Private Trustee (Hong Kong) Limited
100.00
27
 
HSBC Trinkaus & Burkhardt (International) S.A.
80.65
1, 45
HSBC Private Wealth Services (Canada) Inc.
100.00
16, 64
 
HSBC Trinkaus & Burkhardt AG
80.65
24, 176
HSBC Professional Services (India) Private Limited
100.00
85
 
HSBC Trinkaus & Burkhardt Gesellschaft fur Bankbeteiligungen mbH
80.65
176
HSBC Property (UK) Limited
100.00
94
 
HSBC Property Funds (Holding) Limited
100.00
94
 
HSBC Trinkaus Consult GmbH
80.65
176
HSBC Property Funds Investment Limited
100.00
153
 
HSBC Trinkaus Europa Immobilien-Fonds Nr. 5 GmbH
80.65
176
268
HSBC Holdings plc Annual Report and Accounts 2016
Subsidiaries
Group interest %
Footnotes
 
Subsidiaries
Group interest %
Footnotes
HSBC Trinkaus Family Office GmbH
80.65
6, 176
 
James Capel (Custodian) Nominees Limited
100.00
94
HSBC Trinkaus Immobilien Beteiligungs KG
80.65
176
 
James Capel (Nominees) Limited
100.00
94
HSBC Trinkaus Real Estate GmbH
80.65
6, 176
 
James Capel (Second Nominees) Limited
100.00
94
HSBC Trust Company (BVI) Limited
100.00
151
 
James Capel (Taiwan) Nominees Limited
100.00
94
HSBC Trust Company (Canada)
100.00
98
 
James Capel (Third Nominees) Limited
100.00
94
HSBC Trust Company (Delaware), National Association
100.00
1,67
 
John Lewis Financial Services Limited
100.00
94
 
Katonah Close Corp.
100.00
101
HSBC Trust Company (UK) Limited
100.00
94
 
Keyser Ullmann Limited
100.00
94
HSBC Trust Company AG
100.00
109
 
Kings Meadow Nominees Limited
100.00
175
HSBC Trustee (C.I.) Limited
100.00
167
 
Legend Estates Limited
100.00
94
HSBC Trustee (Cayman) Limited
100.00
207
 
Lemasco Nominees Limited
100.00
168
HSBC Trustee (Guernsey) Limited
100.00
200
 
Lion Corporate Services Limited
100.00
1, 27
HSBC Trustee (Hong Kong) Limited
100.00
27
 
Lion International Corporate Services Limited
100.00
208
HSBC Trustee (Mauritius) Limited
100.00
122
 
Lion International Management Limited
100.00
208
HSBC Trustee (Singapore) Limited
100.00
58
 
Lion Management (Hong Kong) Limited
100.00
1, 27
HSBC UK RFB Limited
100.00
1, 2, 94
 
Lyndholme Limited
100.00
27
HSBC USA Inc.
100.00
16, 119
 
MAGIM Client HSBC GIS Nominee (UK) Limited
100.00
1, 94
HSBC Valores S.A.
100.00
110
 
Marks and Spencer Financial Services plc
100.00
175
HSBC Violet Investments (Mauritius) Limited
100.00
123
 
Marks and Spencer Retail Financial Services Holdings Limited
100.00
175
HSBC Wealth Advisory Israel Ltd
100.00
1, 107
 
HSBC Wealth Client Nominee Limited
100.00
1, 94
 
Marks and Spencer Savings and Investments Limited
100.00
175
HSBC Yatirim Menkul Degerler A.S.
100.00
114
 
Marks and Spencer Unit Trust Management Limited
100.00
175
HSBC-D1, S.A. de C.V., Sociedad de Inversion en Instrumentos de Deuda
100.00
1, 201
 
Maxima S.A. AFJP
100.00
150
 
Mercantile Company Limited
100.00
14, 94
HSBCD10, S. A. de C. V., Sociedad de Inversion en Instrumentos de Deuda
100.00
1, 201
 
Mexicana de Fomento, S.A. de C.V.
99.99
201
 
Midcorp Limited
100.00
2, 16, 94
HSBC-D2, S.A. de C.V., Sociedad de Inversion en Instrumentos de Deuda
100.00
1, 201
 
Midland Australia Pty Limited
100.00
182
 
Midland Bank (Branch Nominees) Limited
100.00
1, 94
HSBC-D7, S.A. de C.V., Sociedad de Inversion en Instrumentos de Deuda
100.00
1, 201
 
Midland Nominees Limited
100.00
1, 94
 
MIL (Cayman) Limited
100.00
166
HSBC-D9, S.A. de C.V., Sociedad de Inversion en Instrumentos de Deuda
100.00
1, 201
 
MM Mooring #2 Corp.
100.00
101
 
MW Gestion SA
100.00
150
HSBC-DE, S.A. de C.V., Sociedad de Inversion en Instrumentos de Deuda
100.00
1, 201
 
Oakwood Holdings, Inc.
100.00
101
 
Promocion en Bienes Raices, S.A. de C.V.
100.00
16, 201
HSBC-DG, S. A. de C. V., Sociedad de Inversion en Instrumentos de Deuda
100.00
1, 201
 
ProServe Bermuda Limited
50.00
125
 
Prudential Client HSBC GIS Nominee (UK) Limited
100.00
1, 94
HSBC-DH, S. A. de C. V., Sociedad de Inversion en Instrumentos de Deuda
100.00
1, 201
 
PT Bank HSBC Indonesia
98.94
236
 
PT HSBC Securities Indonesia
85.00
83
HSBC-DL, S. A. de C. V., Sociedad de Inversion en Instrumentos de Deuda
100.00
1, 201
 
PTC New LLC
100.00
10, 127
 
R/CLIP Corp.
100.00
127
HSBC-E2, S.A. de C. V., Sociedad de Inversion de Renta Variable
100.00
1, 201
 
Real Estate Collateral Management Company
100.00
127
 
Republic Nominees Limited
100.00
200
HSBC-E3, S.A. de C.V., Sociedad de Inversion en Instrumentos de Deuda
100.00
1, 201
 
Republic Overseas Capital Corporation
100.00
80
 
S.A.P.C. - Ufipro Recouvrement
99.98
20, 74
HSBC-FF, S.A. de C.V., Sociedad de Inversion de Renta Variable
100.00
1, 201
 
Saf Baiyun
100.00
4, 89
 
Saf Chang Jiang
100.00
4, 89
HSBC-V2, S.A. de C.V., Sociedad de Inversion de Renta Variable
100.00
1, 201
 
Saf Chang Jiang Shi Liu
100.00
4, 89
 
Saf Chang Jiang Shi Wu
100.00
1, 4, 89
HSBC-V3, S.A. de C.V., Sociedad de Inversion de Renta Variable
100.00
1, 201
 
Saf Chang Jiang Shi'Er
100.00
4, 89
 
Saf Chang Jiang Shiyi
100.00
1, 4, 89
HSI Asset Securitization Corporation
100.00
127
 
Saf Guangzhou
100.00
4, 89
HSI International Limited
62.14
96
 
Saf Zhu Jiang
100.00
4, 89
HSIL Investments Limited
100.00
94
 
Saf Zhu Jiang Yi
100.00
4, 89
Hubei Macheng HSBC Rural Bank Company Limited
100.00
22, 197
 
Saf Zhu Jiang Ba
100.00
4, 89
Hubei Suizhou Cengdu HSBC Rural Bank Company Limited
100.00
22, 194
 
Saf Zhu Jiang Er
100.00
4, 89
 
Saf Zhu Jiang Jiu
100.00
4, 89
Hubei Tianmen HSBC Rural Bank Company Limited
100.00
22, 99
 
Saf Zhu Jiang Liu
100.00
4, 89
Hunan Pingjiang HSBC Rural Bank Company Limited
100.00
22, 213
 
Saf Zhu Jiang Qi
100.00
4, 89
Imenson Limited
62.14
96
 
Saf Zhu Jiang San
100.00
4, 89
INKA Internationale Kapitalanlagegesellschaft mbH
80.65
238
 
Saf Zhu Jiang Shi
100.00
4, 89
Inmobiliaria Banci, S.A. de C.V.
99.99
201
 
Saf Zhu Jiang Shi Ba
100.00
4, 89
Inmobiliaria Bisa, S.A. de C.V.
99.99
201
 
Saf Zhu Jiang Shi Er
100.00
4, 89
Inmobiliaria Grufin, S.A. de C.V.
99.99
201
 
Saf Zhu Jiang Shi Jiu
100.00
4, 89
Inmobiliaria Guatusi, S.A. de C.V.
99.99
201
 
Saf Zhu Jiang Shi Liu
100.00
4, 89
IRERE Property Investments (French Offices) Sarl
100.00
1, 88
 
Saf Zhu Jiang Shi Qi
100.00
4, 89
James Capel & Co. Limited
100.00
94
 
Saf Zhu Jiang Shi Wu
100.00
4, 89
James Capel (Channel Islands) Nominees Limited
100.00
168
 
Saf Zhu Jiang Shiyi
100.00
4, 89
HSBC Holdings plc Annual Report and Accounts 2016
269
Notes on the Financial Statements
Subsidiaries
Group interest %
Footnotes
 
Subsidiaries
Group interest %
Footnotes
Saf Zhu Jiang Wu
100.00
4, 89
 
Tempus Management AG
100.00
109
Samada Limited
100.00
167
 
Thasosfin
100.00
4, 44
Samuel Montagu & Co. Limited
100.00
1, 94
 
The Hongkong and Shanghai Banking Corporation Limited
100.00
13, 27
SAS Bosquet -Audrain
94.90
1, 4, 43
 
SAS Cyatheas Pasteur
94.93
1, 4, 74
 
The Venture Catalysts Limited
100.00
94
SAS Orona
94.93
1,4,28
 
Timberlink Settlement Services (USA) Inc.
100.00
127
SCI Hervet Mathurins
100.00
20,89
 
TKM International Limited
100.00
94
SCI HSBC Assurances Immo
100.00
1, 20, 44
 
Tooley Street View Limited
100.00
1, 94
Secondary Club Deal I GP Limited
100.00
108
 
Tower Investment Management
100.00
32
Secondary Club Deal II GP Limited
100.00
108
 
Trinkaus Australien Immobilien Fonds Nr. 1 Brisbane GmbH & Co. KG
80.65
176
SFSS Nominees (Pty) Limited
100.00
56
 
Shandong Rongcheng HSBC Rural Bank Company Limited
100.00
22, 198
 
Trinkaus Australien Immobilien-Fonds Nr. 1 Treuhand-GmbH
80.65
6, 176
 
Shenfield Nominees Limited
100.00
1, 94
 
Trinkaus Canada Immobilien-Fonds Nr. 1 Verwaltungs-GmbH
80.65
176
Sico Limited
100.00
235
 
SNC Dorique
100.00
1, 20, 78
 
Trinkaus Europa Immobilien-Fonds Nr.3 Objekt Utrecht Verwaltungs-GmbH
80.65
176
SNC Kerouan
100.00
1, 20, 89
 
SNC Les Mercuriales
100.00
1, 20, 89
 
Trinkaus Immobilien-Fonds Geschaeftsfuehrungs-GmbH
80.65
6, 176
SNC Les Oliviers D'Antibes
60.00
20, 89
 
SNC Makala
100.00
1, 20, 89
 
Trinkaus Immobilien-Fonds Verwaltungs-GmbH
80.65
6, 176
SNC Nuku-Hiva Bail
100.00
1, 20, 89
 
Trinkaus Private Equity Management GmbH
80.65
176
SNCB/M6 - 2008 A
100.00
1, 4, 89
 
Trinkaus Private Equity Verwaltungs GmbH
80.65
6, 176
SNCB/M6-2007 A
100.00
1, 4, 89
 
Tropical Nominees Limited
100.00
166
SNCB/M6-2007 B
100.00
1, 4, 89
 
Trumball Management, Inc.
100.00
101
Societe CCF Finance Moyen-Orient S.A.L. (in liquidation)
99.90
1, 220
 
Turnsonic (Nominees) Limited
100.00
1, 94
 
Vadep Holding AG
100.00
203
Société Financière et Mobilière
100.00
4, 29
 
Valeurs Mobilières Elysées
100.00
4, 30
Société Française et Suisse
100.00
4, 89
 
Vintage 2016 HV GP Limited
100.00
108
Societe Immobiliere Atlas S.A.
100.00
210
 
Vintage 2016 KKR GP Limited
100.00
108
Somers & Co
100.00
19, 121
 
Vintage 2017 Athyrium GP Limited
100.00
1, 108
Somers Dublin DAC
100.00
26
 
Vintage I Secondary GP Limited
100.00
108
Somers Nominees (Far East) Limited
100.00
87
 
Vintage III Special Situations GP Limited
100.00
108
Sopingest
100.00
4, 89
 
Wardley Limited
100.00
27
South Yorkshire Light Rail Limited
100.00
1, 94
 
Wayfoong Credit Limited
100.00
27
SPE 1 2005 Manager Inc.
100.00
36
 
Wayfoong Finance Limited
100.00
27
St Cross Trustees Limited
100.00
1, 94
 
Wayfoong Nominees Limited
100.00
27
Sterling Credit Limited
100.00
131
 
Wayhong (Bahamas) Limited
100.00
187
Sun Hung Kai Development (Lujiazui III) Limited
100.00
22, 212
 
Westminster House, LLC
100.00
10, 127
Swan National Leasing (Commercials) Limited
100.00
94
 
Woodex Limited
100.00
87
Swan National Limited
100.00
94
 
Yan Nin Development Company Limited
62.14
96
Tasfiye Halinde HSBC Internet ve Telekomunikasyon Hizmetleri Anonim Sirketi
96.00
12, 116
 
 
 
 
Tayside Holdings Limited (In liquidation)
100.00
1, 12, 187
 
 
270
HSBC Holdings plc Annual Report and Accounts 2016
Joint Ventures
The undertakings below are Joint Ventures and equity accounted.
Joint Ventures
Group interest %
Footnotes
GSI Retail Property Holdings Limited
50.00
1, 217
HCM Holdings Limited
51.00
153
HOUSe Network Sdn Bhd
25.00
1, 225
HSBC Jintrust Fund Management Company Limited
49.00
1, 22, 50
HSBC Kingdom Africa Investments (Cayman) Limited
50.00
1, 186
Vaultex UK Limited
50.00
60
Vaultex Isle of Man Insurance Limited
50.00
55
 
Associates
The undertakings below are associates and equity accounted.
Associates
Group interest %
Footnotes
AREIT Management Ltd
41.90
1, 206
Ashwood Energy Limited
25.00
1, 129
Bank of Communications Co., Ltd.
19.03
193
Barrowgate Limited
15.31
81
Business Growth Fund plc
24.31
37
Canara HSBC Oriental Bank of Commerce Life Insurance Company Limited
26.00
232
CFAC Payment Scheme Limited
33.33
1, 21, 47
Chemi & Cotex (Rwanda) Limited
33.33
173
Chemi & Cotex Kenya Limited
34.00
185
Chemi and Cotex Industries Limited
34.00
1, 204
Electronic Payment Services Company
(Hong Kong) Limited
19.33
1, 27
EPS Company (Hong Kong) Limited
38.66
1, 27
GIE GNIFI
25.00
1, 7, 73
GZHS Research Co Ltd
20.51
1, 10, 33
Hang Seng Qianhai Fund Management Company Limited
43.50
22, 62
HSBC Amanah Takaful (Malaysia) Berhad
49.00
31
HSBC Middle East Securities L.L.C
49.00
154
HSBC Mortgage LLP
33.30
1, 19, 72
HSBC TFS II 2005 LLC
20.00
10, 36
Icon Brickell LLC
24.90
1, 10, 117
Intercede Holdco Limited
29.92
1, 106
Jeppe Star Limited
34.00
1, 129
MENA Infrastructure Fund (GP) Ltd
33.33
1, 180
NAS Holding Limited
22.13
1, 129
NAS United Healthcare Services LLC
22.13
1, 10, 39
Northstar Trade Finance Inc.
17.89
97
Novo Star Limited
34.00
1, 172
SABB Takaful
45.50
209
SCI Karuvefa
33.33
1, 20, 184
sino AG
20.16
5, 145
The Headland Asian Ventures Fund 3 Limited
32.59
1, 16, 166
The London Gold Market Fixing Limited
25.00
1, 8, 120
The Saudi British Bank
40.00
104
Trinkaus Europa Immobilien-Fonds Nr. 7 Frankfurt Mertonviertel KG
33.22
1, 9, 176
HSBC Holdings plc Annual Report and Accounts 2016
271
Notes on the Financial Statements
Footnotes for Note 38
1
Management has determined that these undertakings are excluded from consolidation in the Group accounts as these entities do not meet the definition of subsidiaries in accordance with IFRSs. HSBC's consolidation policy is described in Note 1.2(a).
2
Directly held by HSBC Holdings plc
3
Entity is incorporated in The Netherlands
Description of shares
4
Actions shares
5
Aktiengesellschaft (AG) shares
6
GmbH Anteil
7
Groupement D'intérêt Economique shares
8
Guarantee shares
9
Kommanditgesellschaft (KG) shares
10
Limited Liability Company - no shares
11
Liquidating shares
12
Nominal shares
13
Ordinary and Cumulative Irredeemable and Non-cumulative Irredeemable Preference shares
14
Ordinary and Deferred shares
15
Ordinary and Non-Voting Redeemable shares
16
Ordinary and Preference shares
17
Ordinary Non-Participating, Non Voting shares
18
Ordinary Redeemable Non Participating shares
19
Partnership shares
20
Parts shares
21
Preference shares
22
Registered Capital shares
23
Russian limited liability company shares
24
Stückaktien
Registered Offices
25
(Liquidator's address) 62/F One Island East 18 Westlands Road, Island East Hong Kong
26
1 Grand Canal Square, Grand Canal Harbour, Dublin 2, D02 P820, Ireland
27
1 Queen's Road Central, Hong Kong
28
10, Rue Jean Jaurès BP Q5 Noumea 98845 Nouvelle Calédonie
29
103, Avenue des Champs-Elysées, 75008, Paris, France
30
109, Avenue des Champs-Elysees, 75008, Paris, France
31
10th Floor, North Tower 2, Leboh Ampang 50100, Kuala Lumpur, Malaysia
32
11 Dr. Roy's Drive PO Box 694GT Grand Cayman KY1-1107 Cayman Islands
33
1101-J46, 11/F, Nansha Financial Building 171 Haibin Road, Nansha District Guangzhou China
34
11-17, Ludwig-Erhard-Str., 20459, Hamburg, Germany
35
116 Archbishop Street Valletta Malta
36
1209 Orange Street, Wilmington, Delaware 19899, United States
37
13-15 York Buildings, London, Great Britain, WC2N 6JU, United Kingdom
38
13F-14F, 333 Keelung Road, Sec.1 Taipei 110 Taiwan, Province of China
39
13th Floor, Lulu Center Building, Salam Street, PO Box 44505, Abu Dhabi, United Arab Emirates
40
13th Floor, South Tower 2, Leboh Ampang, 50100 Kuala Lumpur, Malaysia
41
1441 Brickell Avenue, Miami FL 33131, United States
42
15 Canada Square, London E14 5GL, United Kingdom
43
15 Rue Guynemer BP 412 Noumea 98845 Nouvelle Calédonie
44
15, Rue Vernet, 75008, Paris France
45
16 Boulevard d'Avranches, L-1160, Luxembourg
46
16F, 369 Zhongxiao East Road, Section 7 Nangang District, Taipei 115, Taiwan
47
17 Rochester Row, London SW1P 1QT, United Kingdom
48
17, Avenue d'Ostende, 98000, Monaco
49
171, Old Bakery Street, Valletta VLT 1455, Malta
50
17F, HSBC Building, Shanghai IFC, 8 Century Avenue, Pudong, Shanghai, China
51
18/F, HSBC Building, 8 Century Avenue, China (Shanghai) Pilot Free Trade Zone, 200120, China
52
1800 Tysons Boulevard, Suite 50, McLean, Virginia 22102, United States
53
18th Floor, Tower 1, HSBC Centre, 1 Sham Mong Road, Kowloon, Hong Kong
54
192 Old Bakery Street, Valletta, Malta
55
1st Floor Rose House, 51-59 Circular Road, Douglas IM1 1RE, Isle of Man
56
2 Exchange Square, 85 Maude Street, Sandown, Sandton 2196, South Africa
57
2 Paveletskaya square, building 2, 115054 Moscow, Russia
58
21 Collyer Quay, #13-02, HSBC Building, 49320, Singapore
59
21 Farncombe Road, Worthing, Sussex BN11 2BW, England
60
21, Garlick Hill, London, EC4V 2AU, United Kingdom
61
2156 Horse Prairie Drive, Henderson, NV 89052, United States
 
62
2-3/F, Unit 21A, Qianhai Enterprise Dream Park, No. 63 Qian Wan Yi Road, Qianhai Shenzhen-Hongkong Cooperation Zone, Shenzhen China
63
24th Fl., 99, Sec.2, Tunhwa S. Rd., Taipei, Taiwan, R.O.C.
64
2910 Virtual Way, Vancouver BC, V5M 0B2, Canada
65
3, Aboul Feda Street, Zamalek, Cairo Egypt
66
300 Delaware Avenue, Suite 1400, Wilmington, DE 19801, United States
67
300 Delaware Avenue, Suite 1401, Wilmington, DE 19801, United States
68
300, 885 West Georgia Street Vancouver BC V6C 3E9 Canada
69
306 Corniche El Nil Maadi, Cairo 11728, Egypt
70
3303 Express Drive North Islandia NY 11749 United States
71
34/F and 36/F, Hang Seng Bank Tower, 1000 Lujiazui Ring Road 27/F, Shanghai Stock Exchange Bldg, 528 Pudong South Road Shanghai 200120 China
72
35 Great St Helens, London EC3A 6AP, United Kingdom
73
37 Avenue Henri Lafleur Nouméa, BP K3 98849, New Caledonia
74
39, Rue de Bassano, 75008, Paris, France
75
3rd Floor, HSBC Bank Middle East Limited Building Al Souq Road, Bur Dubai PO Box 4604, Dubai United Arab Emirates
76
3rd Floor, Merchantile Bank Chamber 16, Veer Nariman Road Fort Mumbai Maharashtra 400001 India
77
4-17/F, Office Tower 2 TaiKoo Hui, No. 381 Tian He Road, Tian He District Guangzhou Guangdong China
78
43, Rue de Paris, Saint Denis 97400, Reunion
79
439, Sri Jayawardenapura Mawatha Welikada, Rajagiriya, Colombo, Sri Lanka
80
452 Fifth Avenue, New York, NY10018, United States
81
49/F, The Lee Gardens, 33 Hysan Avenue Hong Kong
82
4th Floor, Harbour Place 103 South Church Street George Town Grand Cayman KY1-1002 Cayman Islands
83
4th Floor, World Trade Center, J1, Jend. Sudirman Kav. 29-31 Jakarta 12920 Indonesia
84
5 Donegal Square South Belfast BT1 5JP Northern Ireland
85
52/60, M G Road Fort, Mumbai, Maharashtra 400 001 India
86
545 Washington Blvd., 11th Floor Jersey City NJ 07310 United States
87
6 Front Street, Hamilton HM 11, Bermuda
88
6, Rue Adolphe Grand-Duchy of Luxembourg L-1116 Luxembourg
89
64, Rue Galilée, 75008, Paris, France
90
66 Teryan street Yerevan 9 Armenia
91
6th Floor, HSBC Centre, 18, Cybercity, Ebene Mauritius
92
7/F The Enterprise Centre - Tower I, 6766 Ayala Avenue corner Paseo De Roxas, Makati City, Philippines
93
70 York Street, 7th Floor, Toronto ON, M5J 1S9 Canada
94
8 Canada Square, London E14 5HQ, United Kingdom
95
80, Mill Street, Qormi, QRM 3101, Malta
96
83 Des Voeux Road, Central, Hong Kong SAR
97
833 Three Bentall Centre, 595 Burrard Street, Vancouver BC V7X 1C4, Canada
98
885 West Georgia Street, Suite 300, Vancouver BC, V6C 3E9, Canada
99
89 Jingling Hongjian Avenue Tianmen Hubei Province 431700 China
100
9-11 Floors, NESCO IT Park Building No. 3, Western Express Highway, Goregaon (East), Mumbai, Maharashtra 400063, India
101
95 Washington Street, Buffalo NY, 14203, United States
102
9th Floor, HSBC Centre 3058 Fifth Avenue West, Bonifacio Global City Taguig City Philippines
103
Akara Bldg. 24 De Castro Street Wickhams Cay I, Road Town Tortola Virgin Islands, British
104
Al Amir Abdulaziz Ibn Mossaad Ibn Jalawi Street Riyadh Saudi Arabia
105
Al Khuwair Office PO Box 1727 PC111 CPO Seeb Muscat Oman
106
Alderflat Drive, Newstead Industrial Estate, Trentham Stoke on Trent, ST4 8HX, United Kingdom
107
Amot Atrium Tower, 30th Floor, 2 Jabotinsky St,. Ramat Gan 5250501, Israel
108
Arnold House, St Julians Avenue, St Peter Port, GY1 3NF, Guernsey
109
Bederstrasse 49, CH-8002, Zurich, Switzerland
110
Bouchard 680, 11° Ciudad de Buenos Aires 1106 Argentina
111
Bouchard 680, 9° Ciudad de Buenos Aires 1106 Argentina
112
Breite Str. 29/31 40213 Düsseldorf Germany
113
Bufete Tapia, PO Box 7412 Panama 5 Panama
114
Büyükdere Cad. No.128 D Blok Esentepe, Sisli Istanbul, Turkey
115
Büyükdere Cad. No:124 B Blok Kat 9 Oda:1, Esentepe, Sisli, I Turkey
116
Buyukdere Cad. No:124 B Blok Kat 9 Oda:2 34394 , Sisli / Ese Turkey
117
C T Corporation System 1200 South Pine Island Road Plantation FL 33324 United States
118
C/O Bank of Bermuda (Cayman) Limited, PO Box 513, HSBC House, 68 West Bay Road, Grand Cayman KY1-1106, Cayman Islands
119
C/O Corporation Trust Incorporated, 351 West Camden Street, Baltimore MD 21201, United States
120
C/O Hackwood Secretaries Limited, One Silk Street, London EC2Y 8HQ, United Kingdom
121
C/O HSBC AFS (USA) LLC, 452 Fifth Avenue, New York, NY 10018, United States
122
C/O HSBC Bank (Mauritius) Limited 6th Floor, HSBC Centre, 18 Cyber City, Ebene, Mauritius
123
C/O Kross Border Trust Services Limited, St. Louis Business Centre, Cnr Desroches & St Louis Streets, Port Louis, Mauritius
272
HSBC Holdings plc Annual Report and Accounts 2016
124
C/O Morrison & Foerster (UK) LLP, City Point, 1 Ropemake Street, London EC2Y 9AW, United Kingdom
125
C/O MUFG Fund Services (Bermuda) Limited The Belvedere Building 69 Pitts Bay Road Pembroke HM08 Bermuda
126
C/O The Corporation Trust Company 100 S. 5th Street-Suite 1075 Minneapolis MN 55401 United States
127
C/O The Corporation Trust Company, 1209 Orange Street, Wilmington DE 19801, United States
128
C/O The Corporation Trust Incorporated 351 West Camden Street Baltimore MD 21201 United States
129
C/O Trident Trust Company, Trident Chambers, PO Box 146, Tortola, British Virgin Islands
130
C/O Walkers SPV Limited, Walker House 87 Mary Street, PO Box 908GT George Town Grand Cayman Cayman Islands
131
Camden House West, The Parade, Birmingham, B1 3PY, United Kingdom
132
City Gate House 22 Southwark Bridge Road London SE1 9HB
133
Corporation Service Company 2711 Centerville Road Suite 400 Wilmington DE 19808 United States
134
Corporation Service Company 830 Bear Tavern Road West Trenton NJ 08628 United States
135
CT Corporation System 1515 Market Street Registered Office Philadelphia PA 19102 United States
136
CT Corporation System 1720 Carey Avenue Cheyenne WY 82001 United States
137
CT Corporation System 2 North Jackson Street Suite 605 Montgomery AL 36104 United States
138
CT Corporation System 2222 Grand Avenue Des Moines IA 50312 United States
139
CT Corporation System 225 Hillsborough Street Raleigh NC 27603 United States
140
CT Corporation System Kentucky Home Life Building Louisville KY 40202 United States
141
CT Corporation System, 530 Gay Street, Knoxville, TN 37902, United States
142
CT Corporation System, 800 S. Figueroa, Los Angeles, California 90017, United States
143
CT Corporation System, Secretary of State, 707 Virginia Street, East Charleston, WV 25301, United States
144
Drake House, Three Rivers Court, Homestead Road, Rickmansworth, Hertfordshire, WD3 1FX, United Kingdom
145
Ernst-Schneider-Platz 1 40212 Duesseldorf Germany
146
Esentepe Mah. Büyükdere Caddesi No.128 Istanbul 34394 Turkey
147
First & Second Floor, No.3 Nanshan Road, Pulandian Dalian Liaoning Province China
148
First Floor, Xinhua Bookstore Xindong Road (SE of roundabout) Miyun District Beijing China
149
Florida 201 10°, Ciudad de Buenos Aires C1005AAE Argentina
150
Florida 229, 10° Ciudad de Buenos Aires, C1005AAE, Argentina
151
Harneys Corporate Services Limited, Craigmuir Chambers, PO Box 71, Road Town, Tortola, British Virgin Islands
152
Herrengasse 1-3 1010 Wien Austria
153
Hill House, 1 Little New Street, London EC4A 3TR, United Kingdom
154
HSBC Bank Middle East Building - level 5, building 5, Emaar Dubai 502601 United Arab Emirates
155
HSBC Building 11-1, Nihonbashi 3-Chome Chuo-ku Tokyo 103-0027 Japan
156
HSBC Building 7267 Olaya - Al Murrooj Riyadh 12283 - 2255 Saudi Arabia
157
HSBC Building Shanghai IFC 8 Century Avenue, Pudong Shanghai 200120 China
158
HSBC Building, Minet El Hosn, Riad el Solh Beirut 1107-2080, PO Box 11-1380, Lebanon
159
HSBC Centre River Side, West Avenue, 25B Raheja woods Kalyaninagar Pune Maharashtra 411006 India
160
HSBC Centre, Eighteen Cybercity Ebene, Mauritius
161
HSBC Chambers, Corner of Jalan Sultan and Jalan Pemancha Bandar Seri Begawan BS8811 Brunei Darussalam
162
HSBC House Esplanade, St. Helier, JE1 1HS, Jersey
163
HSBC House Esplanade, St. Helier, JE4 8UB, Jersey
164
HSBC House, Level 9, One Queen Street, Auckland 1010, New Zealand
165
HSBC House Plot No.8, Survey No.64 (Part) Hightec City Layout Madhapur Hyderabad Andhra Pradesh 500081 India
166
HSBC House, 68 West Bay Road, PO Box 1109, George Town, Grand Cayman KY1-1102, Cayman Islands
167
HSBC House, Esplanade, St. Helier, JE1 1GT, Jersey
168
HSBC House, Esplanade, St. Helier, JE4 8WP, Jersey
169
HSBC, Filinvest One Bldg, Northgate Cyberzone, Filinvest Corporate City Alabang, Muntinlupa City Philippines
170
Immeuble Coeur Défense 110, Esplanade du Général de Gaulle- La Défense 4 92400 Courbevoie France
171
Isidora Goyenechea 2800, 23rd Floor, Las Condes, Santiago 7550647, Chile
172
Jayla Place Wickhams Cay I PO Box 3190 Road Town Tortola British Virgin Islands
173
Kacyiru BP 3094 Kigali Rwanda
174
Kapelanka 42A 30-347 Krakow Poland
175
Kings Meadow, Chester Business Park, Chester, Cheshire CH99 9FB, United Kingdom
176
Königsallee 21/23, 40212, Düsseldorf Germany
177
Level 1, Building No. 8, Gate Village Dubai International Financial Centre PO Box 502601 United Arab Emirates
178
Level 12, HSBC Building 37, Chilpae-ro Jung-gu Seoul Korea, Republic of
179
Level 19, HSBC Building, Shanghai IFC 8 Century Avenue Pudong Shanghai China
180
Level 3 Building 4, Gate District Dubai International Financial Centre Dubai MENA United Arab Emirates
181
Level 32, HSBC Main Building 1 Queen's Road Central Hong Kong SAR Hong Kong
 
182
Level 36, Tower 1, International Towers Sydney, 100 Barangaroo Avenue, Sydney, NSW 2000, Australia
183
Level 4, Building 4, The Gate Dubai International Financial Centre PO Box 506553 Dubai United Arab Emirates
184
Lot n°5, la Rocade , Grand Camp LES ABYMES 97142 Guadeloupe
185
LR No. 1758/13 Grevella Grove Road Kalamu House PO Box 47323-00100 Nairobi Kenya
186
Maples Corporate Services Limited, PO Box 309, Ugland House, South Church Street, George Town, Grand Cayaman, KY1-1104, Cayman Islands
187
Mareva House, 4 George Street, Nassau, Bahamas
188
MB&H Corporate Services Ltd, Mareva House, 4 George Street, Nassau, New Providence, Bahamas
189
MMG Tower, 23 Floor Ave. Paseo del Mar Urbanizacion Costa del Este Panama
190
No 1, Bei Huan East Road Dazu County Chongqing China
191
No 107, Ping Du Avenue (E), Sanhe Town, Fengdu County Chongqing China
192
No. 1 1211 Yanjiang Zhong Road Yongan Fujian China
193
No. 188 Yincheng Zhong Lu, Pudong New District Shanghai 200120 China
194
No. 205, Lie Shan Road Suizhou Hubei China
195
No. 3, 5, 7, Haitang Erzhi Road Changyuan, Rongchang Chongqing 402460 China
196
No. 44, Xin Ping Road Central, Encheng, Enping Guangdong 529400 China
197
No. 56, Yu Rong Street Macheng Hubei Province 438300 China
198
No.198-2, Chengshan Avenue (E) Rongcheng Shangdong 264300 China
199
Palm Grove House PO Box 438 Road Town Tortola British Virgin Islands
200
Park Place, Park Street, St Peter Port, GY1 1EE, Guernsey
201
Paseo de la Reforma 347, Col. Cuauhtemoc, 6500, Mexico
202
Paseo de la Reforma 359, 6th Floor, D.F. 6500, Mexico
203
Philippe Kaiser Baarerstrasse 8 6300 Zug Switzerland
204
Plot No. 89-90 Mbezi Industrial Area Box 347 Dar es Salaam City United Republic of Tanzania
205
PO Box 1109, HSBC House 68 West Bay Road Grand Cayman KY1-1102 Cayman Islands
206
PO Box 309 Ugland House, South Church Street George Town Grand Cayman KY1 - 1104 Cayman Islands
207
PO Box 484, Ground Floor, HSBC House 68 West Bay Road Grand Cayman, KY1-1106 Cayman Islands
208
PO Box 71, Craigmuir Chambers, Road Town, Tortola, British Virgin Islands
209
PO Box 9086 Riyadh 11413 Saudi Arabia
210
Quai des Bergues 9-17, 1201, Geneva, Switzerland
211
Rincon 391 Montevideo 11000 Uruguay
212
RM 2112, HSBC Building, Shanghai IFC No. 8 Century Road, Pudong Shanghai 200120 China
213
RM101, 102 & 106 Sunshine Fairview, Sunshine Garden Pedestrian Walkway Pingjiang Hunan China
214
Rondo ONZ 1 00-124 Warsaw Poland
215
Room 305 No.886 Tianhe Bei Road, Tianhe District, Guangzhou Guangdong China
216
Rua Funchal, nº 160, SP Corporate Towers, Torre Norte, 19° Andar, cj 191A - Parte, São Paulo 04551-060, Brazil
217
Second Floor, St Peters House, Le Bordage, St Peter Port, GY1 1B, Guernsey
218
Shop 4 & 5 Ground Floor & Mezzanine, Bldg. of Hilal Salim Bin Tarraf Al Wasel Area, Sheikh Zayed Road PO Box 1956 Dubai United Arab Emirates
219
Smart Village 28th Km Cairo- Alexandria Desert Road Building Cairo Egypt
220
Solidere - Rue Saad Zaghloul Immeuble - 170 Marfaa, PO Box 17, 5476 Mar Michael, 11042040 Beyrouth, Lebanon
221
St Nicholas House, 10th Floor Catholic Mission St Lagos Nigeria
222
Suite 1005, 10th Floor, Wisma Hamzah Kwong Hing No. 1, Leboh Ampang 50100, Kuala Lumpur, Malaysia
223
Suite 2400, 745 Thurlow Street, Vancouver BC V6E 0C5 Canada
224
Suite 300, 3381 Steeles Avenue East Toronto ON M2H 3S7 Canada
225
Suite 8-3A, Menara RA, No. 18, Jalan Dataran SD2, Dataran SD, PJU 9, Bandar Sri Damansara 52200 Wilayah Persekutuan Malaysia
226
The Corporation Trust Company of Nevada 311 S. Division Street Carson City NV 89703 United States
227
The Metropolitan 235 Dong Khoi Street District 1, Ho Chi Minh City Viet Nam
228
The R&H Trust Co. Ltd. Windward 1, Regatta Office Park PO Box 897 Grand Cayman KY1-1103 Cayman Islands
229
Tour Crystal 1 10EME Etage BD Al Mohades 20000 Casablanca, ANFA Morocco
230
Unit 04A-04B, 1F, Bangunan Gadong Properties Jalan Gadong Bandar Seri Begawan BE4119 Brunei Darussalam
231
Unit 1 GF The Commercial Complex Madrigal Avenue Ayala Alabang Village Muntinlupa City 1770 Philippines
232
Unit No. 208, 2nd Floor, Kanchenjunga Building, 18 Barakhamba Road, New Delhi - 110001, India
233
Unsoeldstrasse 2, 80538, Munich, Germany
234
Walkers Corporate Services Limited, Walker House, 87 Mary Street, George Town, Grand Cayman KY1-9005, Cayman Islands
235
Woodbourne Hall, Road Town, PO Box 916, Tortola, British Virgin Islands
236
World Trade Center 1, Floor 8-9 Jalan Jenderal Sudirman Kavling 29 - 31 Jakarta 12920 Indonesia
237
World Trade Center Montevideo Avenida Luis Alberto de Herrera 1248 Torre 1, Piso 15, Oficina 1502 Montevideo CP 11300 Uruguay
238
Yorckstraße 21 - 23, 40476, Duesseldorf, Germany
HSBC Holdings plc Annual Report and Accounts 2016
273
This information is provided by RNS
The company news service from the London Stock Exchange
 
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