3rd Mar 2008 08:20
HSBC Holdings PLC03 March 2008 Financial investments Figures in HK$m At 31Dec07 At 31Dec06 Available-for-sale at fair value:- debt securities 220,998 209,463- equity shares 4,299 2,110Held-to-maturity debt securities at amortised cost 18,997 16,137 244,294 227,710 Fair value of held-to-maturity debt securities 19,526 16,551 Treasury bills 3,089 1,088Certificates of deposit 30,247 25,020Other debt securities 206,659 199,492Debt securities 239,995 225,600Equity shares 4,299 2,110 244,294 227,710Debt securities:- listed in Hong Kong 5,234 6,672- listed outside Hong Kong 71,997 70,905 77,231 77,577- unlisted 162,764 148,023 239,995 225,600Equity shares:- listed in Hong Kong 3,449 1,702- listed outside Hong Kong 188 150 3,637 1,852- unlisted 662 258 4,299 2,110 244,294 227,710 Fair value of listed financial investments 80,898 79,442 Debt securities:Issued by public bodies:- central governments and central banks 8,526 8,321- other public sector entities 5,688 7,044 14,214 15,365Issued by other bodies:- banks and other financial institutions 211,568 192,751- corporate entities 14,213 17,484 225,781 210,235 239,995 225,600Equity shares:Issued by corporate entities 4,299 2,110 244,294 227,710 Available-for-sale investments include treasury bills, certificates of deposit,other debt securities and equity shares intended to be held for an indefiniteperiod of time, but which may be sold in response to needs for liquidity orchanges in the market environment. Available-for-sale investments are carried atfair value with the gains and losses from changes in fair value recognisedthrough equity reserves. Held-to-maturity debt securities are stated at amortised cost. Where debtsecurities have been purchased at a premium or discount, the carrying value ofthe security is adjusted to reflect the effective interest rate of the debtsecurity taking into account such premium or discount. Amounts due from/to immediate holding company and fellow subsidiary companies At balance sheet dates, the amounts due from/to the bank's immediate holdingcompany and fellow subsidiary companies included in the assets and liabilitiesbalances of the consolidated balance sheet are as follows: Figures in HK$m At 31Dec07 At 31Dec06 Amounts due from:Cash and balances with banks and other financial institutions 861 1,665Placings with and advances to banks and other financial institutions 5,777 4,573Financial assets designated at fair value 3,672 2,842Derivative financial instruments 386 194Financial investments 909 1,023Other assets 128 79 11,733 10,376 Amounts due to:Customer accounts 1,930 199Deposits from banks 3,471 5,724Derivative financial instruments 1,773 333Subordinated liabilities 2,028 2,022Other liabilities 316 473 9,518 8,751 Investments in associates Figures in HK$m At 31Dec07 At 31Dec06 Share of net assets 5,894 3,158Goodwill 283 330 6,177 3,488 On 5 February 2007, Industrial Bank issued 1,001 million new shares in an IPOfor a total consideration of RMB15,996 million. The bank did not subscribe forany additional shares and its interest in the equity of Industrial Banktherefore decreased from 15.98 per cent to 12.78 per cent. The dilution ofinvestment resulted in a gain of HK$1,465 million, as represented in theincrease in the bank's share of the net assets of Industrial Bank which hadrisen as a result of the issue of the new shares. The gain on dilution wasrecognised in the bank's income statement in 2007. The decrease of the bank's interest in the equity of Industrial Bank does notaffect the bank's influence over this associate, as there has been no change inthe composition of major shareholders in Industrial Bank or in the bank'srepresentation on its Board of Directors or Executive Committee. The bank willcontinue to have the power to participate in the financial and operating policydecisions of Industrial Bank, and will continue to account for its results usingthe equity method. Intangible assets Figures in HK$m At 31Dec07 At 31Dec06 Present value of in-force long-term insurance business 2,324 1,927Internally developed software 212 129Acquired software 24 14Goodwill 329 _ 2,889 2,070 Goodwill arising from the acquisition of the remaining 50 per cent of issuedcapital of Hang Seng Life Limited amounted to HK$329 million as at 31 December2007 and was recognised at group level. Other assets Figures in HK$m At 31Dec07 At 31Dec06 Items in the course of collection from other banks 6,193 6,036Prepayments and accrued income 4,433 3,520Deferred tax assets 1 1Assets held for sale 199 256Acceptances and endorsements 3,294 2,855Other accounts 1,346 2,218 15,466 14,886 Current, savings and other deposit accounts Figures in HK$m At 31Dec07 At 31Dec06 Current, savings and other deposit accounts:- as stated in consolidated balance sheet 546,653 482,821- structured deposits reported as trading liabilities 24,162 35,066 570,815 517,887By type:- demand and current accounts 34,130 29,594- savings accounts 254,976 223,255- time and other deposits 281,709 265,038 570,815 517,887 Certificates of deposit and other debt securities in issue Figures in HK$m At 31Dec07 At 31Dec06 Certificates of deposit and other debt securities in issue:- as stated in consolidated balance sheet 5,685 7,595- structured certificates of deposit and other debt securities in issue reported as trading liabilities 14,087 14,821 19,772 22,416 By type:- certificates of deposit in issue 9,212 18,075- other debt securities in issue 10,560 4,341 19,772 22,416 Customer deposits and certificates of deposit and other debt securities in issuerose by 9.3 per cent to HK$590.6 billion, notably in Hong Kong dollar currentand savings accounts and time deposits. In tandem with the expanding scope of renminbi banking services offered by HACN,deposits from mainland branches registered impressive growth of 188.6 per cent.HACN will continue to expand its number of outlets and provide premium customerservice and comprehensive renminbi services to grow its customer base. In orderto further grow our personal banking and wealth management business, a varietyof investment-linked deposit products are being offered to customers on theMainland. Trading liabilities Figures in HK$m At 31Dec07 At 31Dec06 Structured certificates of deposit and other debt securities in issue 14,087 14,821Structured deposits 24,162 35,066Short positions in securities and other 9,902 10,206 48,151 60,093 Trading liabilities include customer deposits and certificates of deposit withembedded options or other derivatives, the market risk of which is managed inthe trading book. Other liabilities Figures in HK$m At 31Dec07 At 31Dec06 Items in the course of transmission to other banks 8,407 6,469Accruals 3,836 2,641Acceptances and endorsements 3,294 2,855Other 2,313 4,158 17,850 16,123 Subordinated liabilities Figures in HK$m At 31Dec07 At 31Dec06 Nominal value Description Amount owed to third parties HK$1,500 million Callable floating rate subordinated notes due June 2015 1,497 1,496 HK$1,000 million 4.125 per cent callable fixed rate subordinated notes due June 2015 989 987 US$450 million Callable floating rate subordinated notes due July 2016 3,497 3,483 US$300 million Callable floating rate subordinated notes due July 2017 2,332 _ Amount owed to HSBC Group undertakings US$260 million Callable floating rate subordinated loan debt due December 2015 2,028 2,021 10,343 7,987 Representing:- measured at amortised cost 9,354 7,000- designated at fair value 989 987 10,343 7,987 During the year, the bank issued floating-rate subordinated notes amounting toUS$300 million that mature in July 2017 with a one-time call option exercisableby the bank in July 2012. The notes were issued at the price of 99.868 per cent,bearing interest at the rate of three-month US dollar LIBOR plus 0.25 per cent,payable quarterly from the issue date to the call option date. Thereafter, ifthe notes are not redeemed on the call option date, the interest rate will bereset to three-month US dollar LIBOR plus 0.75 per cent payable quarterly. Thenotes, which qualify as supplementary capital, serve to help the bank maintain amore balanced capital structure and support business growth. Shareholders' funds Figures in HK$m At 31Dec07 At 31Dec06 Share capital 9,559 9,559Retained profits 32,873 29,044Premises revaluation reserve 3,639 3,491Cash flow hedges reserve 144 (220)Available-for-sale investments reserve 1,892 923Capital redemption reserve 99 99Other reserves 2,514 452Total reserves 41,161 33,789 50,720 43,348Proposed dividends 5,736 3,633Shareholders' funds 56,456 46,981 Return on average shareholders' funds 35.4% 27.4% Shareholders' funds (excluding proposed dividends) grew by HK$7,372 million, or17.0 per cent, to HK$50,720 million at 31 December 2007. Retained profits roseby HK$3,829 million, reflecting the growth in attributable profit during theyear. The premises revaluation reserve increased by HK$148 million, attributableto the improved property market. The available-for-sale investments reserve roseby HK$969 million, reflecting the buoyant equity market. Other reserves rose byHK$2,062 million, due mainly to the gain on the dilution of investment inIndustrial Bank. The return on average shareholders' funds was 35.4 per cent, compared with 27.4per cent in 2006, reflecting the strong profit growth recorded for 2007. Save for the issuance of subordinated notes of US$300 million, there was nopurchase, sale or redemption by the bank, or any of its subsidiaries, of thebank's listed securities during 2007. Capital resources management Analysis of capital base and risk-weighted assets Figures in HK$m At 31Dec07 At 31Dec06 Capital baseCore capital:- Share capital 9,559 9,559- Retained profits 29,437 25,823- Classified as regulatory reserve (911) (518)- Less: goodwill (283) (330)- Less: 50 per cent of total unconsolidated investments and other deductions (5,875) _- Total core capital 31,927 34,534Supplementary capital:- Fair value gains on the revaluation of property 3,466 4,259- Fair value gains on the revaluation of available-for-sale investment and equity 823 542- Collective impairment allowances 636 518- Regulatory reserve 911 518- Term subordinated debt 10,354 7,988- Less: 50 per cent of total unconsolidated investments and other deductions (5,875) _- Total supplementary capital 10,315 13,825Unconsolidated investments and other deductions _ (4,242)Total capital base after deductions 42,242 44,117 Risk-weighted assets- Credit risk 342,798 321,677- Market risk 2,166 2,330- Operational risk 33,558 _ 378,522 324,007 Capital adequacy ratio 11.2% 13.6%Core capital ratio 8.4% 10.7% Capital ratios at 31 December 2007 were compiled in accordance with the Banking(Capital) Rules ('the Capital Rules') issued by the HKMA under section 98A ofthe Hong Kong Banking Ordinance for the implementation of the Basel II, whichbecame effective on 1 January 2007. In accordance with the Capital Rules, thebank has adopted the 'standardised approach' for the calculation of therisk-weighted assets for credit risk and operational risk and the 'internalmodels approach' for the calculation of market risk. The bank has also obtainedapproval from the HKMA to adopt the 'foundation internal ratings-based approach'to calculate the risk-weighted assets for credit risk effective 1 January 2008. The basis of consolidation for calculation of capital ratios under the CapitalRules follows the basis of consolidation for financial reporting with theexclusion of subsidiaries which are 'regulated financial entities' (e.g.insurance and securities companies) as defined by the Capital Rules.Accordingly, the investment costs of these unconsolidated regulated financialentities are deducted from the capital base. The capital ratios at 31 December 2006 were compiled in accordance with the nowrepealed Third Schedule of the Hong Kong Banking Ordinance ('the ThirdSchedule') under the Basel I capital accord. As there are significantdifferences between the Capital Rules and the Third Schedule on requirements inthe scope of consolidation and the calculation of capital base and risk weightedassets, the capital ratios are not directly comparable. In accordance with the HKMA guideline Impact of the New Hong Kong AccountingStandards on Authorised Institutions' Capital Base and Regulatory Reporting, thegroup has earmarked a 'regulatory reserve' of HK$911 million from retainedprofits. This regulatory reserve is included as supplementary capital togetherwith the group's collective impairment allowances. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
HSBC Holdings