14th Aug 2009 16:33
Financial summary
Income statement
|
Half-year to |
|||||
|
30 June 2009 |
30 June 2008 |
31 December 2008 |
|||
|
US$m |
US$m |
US$m |
|||
|
Interest income |
32,479 |
47,164 |
44,137 |
||
|
Interest expense |
(11,941) |
(25,986) |
(22,752) |
||
|
Net interest income |
20,538 |
21,178 |
21,385 |
||
|
Fee income |
10,191 |
13,381 |
11,383 |
||
|
Fee expense |
(1,763) |
(2,390) |
(2,350) |
||
|
Net fee income |
8,428 |
10,991 |
9,033 |
||
|
Trading income excluding net interest income |
4,301 |
639 |
208 |
||
|
Net interest income on trading activities |
1,954 |
3,195 |
2,518 |
||
|
Net trading income |
6,255 |
3,834 |
2,726 |
||
|
Changes in fair value of long-term debt issued and related derivatives1 |
(2,300) |
577 |
6,102 |
||
|
Net income/(expense) from other financial instruments designated at fair value |
777 |
(1,161) |
(1,666) |
||
|
Net income/(expense) from financial instruments designated at fair value |
(1,523) |
(584) |
4,436 |
||
|
Gains less losses from financial investments |
323 |
817 |
(620) |
||
|
Dividend income |
57 |
88 |
184 |
||
|
Net earned insurance premiums |
5,012 |
5,153 |
5,697 |
||
|
Gains on disposal of French regional banks |
- |
- |
2,445 |
||
|
Other operating income |
1,158 |
1,435 |
373 |
||
|
Total operating income |
40,248 |
42,912 |
45,659 |
||
|
Net insurance claims incurred and movement in liabilities to policyholders |
(5,507) |
(3,437) |
(3,452) |
||
|
Net operating income before loan impairment charges and other credit risk provisions |
34,741 |
39,475 |
42,207 |
||
|
Loan impairment charges and other credit risk provisions |
(13,931) |
(10,058) |
(14,879) |
||
|
Net operating income |
20,810 |
29,417 |
27,328 |
||
|
Employee compensation and benefits |
(9,207) |
(10,925) |
(9,867) |
||
|
General and administrative expenses |
(6,258) |
(7,479) |
(7,781) |
||
|
Depreciation and impairment of property, plant and equipment |
(814) |
(863) |
(887) |
||
|
Goodwill impairment |
- |
(527) |
(10,037) |
||
|
Amortisation and impairment of intangible assets |
(379) |
(346) |
(387) |
||
|
Total operating expenses |
(16,658) |
(20,140) |
(28,959) |
||
|
Operating profit/(loss) |
4,152 |
9,277 |
(1,631) |
||
|
Share of profit in associates and joint ventures |
867 |
970 |
691 |
||
|
Profit/(loss) before tax |
5,019 |
10,247 |
(940) |
||
|
Tax expense |
(1,286) |
(1,941) |
(868) |
||
|
Profit/(loss) for the period |
3,733 |
8,306 |
(1,808) |
||
|
Profit/(loss) attributable to shareholders of the parent company |
3,347 |
7,722 |
(1,994) |
||
|
Profit attributable to minority interests |
386 |
584 |
186 |
||
1 The change in fair value related to movements in the Group's credit spread on long-term debt resulted in an expense of US$2.5 billion in the first half of 2009 (first half of 2008: income of US$824 million; second half of 2008: income of US$5.7 billion).
Pre-tax profits in the first half of 2009 were US$5.0 billion, a fall of 51 per cent compared with the first half of 2008. On an underlying basis, profit before tax was 42 per cent lower than the first half of 2008.
This underlying movement can be attributed to a turnaround in the movement in the fair value of HSBC's own debt from changes in HSBC's credit spread, which the Group does not regard as part of managed performance. The credit spread on the Group's long-term debt narrowed during the period as market conditions improved for financial sector debt instruments, and HSBC incurred a US$2.5 billion loss due to movements in the fair value of that debt attributed to credit spread, compared with a US$0.8 billion gain in the first half of 2008. These adjustments were recorded in the 'Other' segment, were not allocated to customer groups and were not included within regulatory capital calculations.
Stripping out credit spread-related fair value movements on own debt from this underlying figure, profit before tax was 3 per cent lower than in the first half of 2008. The difference between reported and underlying results is explained on page 12. Except where otherwise stated, the commentaries in the Financial Summary are on an underlying basis.
Excluding the movement in fair value of own debt, HSBC's net revenues were driven by a record performance in Global Banking and Markets, and these revenues, together with a US$1.0 billion
reduction in expenses, largely offset a US$4.5 billion rise in loan impairment charges and other credit risk provisions.
A record performance in Global Banking and Markets underpinned a 10 per cent growth in Group revenue, excluding credit spread-related movements in fair value of own debt.
The rise in loan impairment charges, which reflected continuing weakness in the US consumer finance business and the effect of deteriorating global economic conditions, and the fall in interest rates globally, which reduced the value of the Group's strong deposit base, meant that pre-tax profit declined in all regions and customer groups compared with the first half of 2008, apart from Global Banking and Markets. Its record performance was driven by market share and margin improvements in core business areas such as foreign exchange, interest rate and credit products and financing, and substantially higher treasury earnings within Balance Sheet Management from deployment of other customer groups' surplus deposits and from positions taken during 2008 in anticipation of the reduction in short-term interest rates. HSBC also benefited from significantly lower write-downs on legacy structured credit positions and asset-backed securities.
Earnings per share declined to US$0.21 compared with US$0.57 in the first half of 2008, adjusted for the rights issue.
Group performance by income and expense item
Net interest income
|
Half-year to |
|||||
|
30 June 2009 |
30 June 2008 |
31 December 2008 |
|||
|
Net interest income9 (US$m) |
20,538 |
21,178 |
21,385 |
||
|
Average interest-earning assets (US$m) |
1,345,569 |
1,420,288 |
1,512,452 |
||
|
Gross interest yield10 (per cent) |
4.87 |
6.68 |
5.80 |
||
|
Net interest spread11 (per cent) |
3.05 |
3.03 |
2.73 |
||
|
Net interest margin12 (per cent) |
3.08 |
3.00 |
2.81 |
||
For footnotes, see page 94.
Reported net interest income of US$20.5 billion was 3 per cent lower than in the first half of 2008, 7 per cent higher on an underlying basis.
Growth in net interest income was driven by strong treasury earnings recorded in Balance Sheet Management, which benefited from the deployment of large and growing core deposit surpluses within the Group and from positions taken during 2008 in anticipation of the significant reduction in short-term
interest rates as central banks responded to the turmoil in markets. The fall in interest rates also reduced the cost of funding for the Group's trading assets, further boosting net interest income. By contrast, in Personal Financial Services and Commercial Banking, the unprecedentedly low short-term interest rates reduced the value of deposits which, in normal times, are a principal driver of revenues for HSBC.
Net interest income benefited from the deployment of large and growing commercial surpluses within the Group.
Average interest-earning assets increased due to a significant rise in financial investments as Balance Sheet Management increased HSBC's liquidity and deployed the Group's growing commercial deposit surpluses and the funds received from the rights issue. This was accompanied by an increase in loans and advances to customers in Europe which more than offset a decrease in North America as the consumer finance business continued to run off.
Average interest-bearing liabilities increased due to the sharp rise in savings accounts in the second half of 2008, when clients liquidated riskier investments and sought to deposit funds with stable financial institutions. This growth was partly reversed during the first half of 2009 as conditions stabilised.
As short-term interest rates fell to very low levels, liability spreads remained under pressure, particularly on savings accounts. Repricing led to a widening of asset spreads, despite the expansion in the lower yielding financial investments portfolio. The overall net interest spread remained stable.
Net fee income
|
Half-year to |
|||||
|
30 June 2009 US$m |
30 June 2008 US$m |
31 December 2008 US$m |
|||
|
Cards |
2,209 |
3,089 |
2,755 |
||
|
Account services |
1,771 |
2,260 |
2,093 |
||
|
Funds under management |
945 |
1,572 |
1,185 |
||
|
Broking income |
749 |
954 |
784 |
||
|
Credit facilities |
729 |
639 |
674 |
||
|
Insurance |
688 |
942 |
829 |
||
|
Global custody |
471 |
757 |
554 |
||
|
Imports/exports |
438 |
496 |
518 |
||
|
Underwriting |
348 |
204 |
121 |
||
|
Remittances |
281 |
307 |
303 |
||
|
Corporate finance |
164 |
232 |
149 |
||
|
Unit trusts |
137 |
337 |
165 |
||
|
Trust income |
134 |
164 |
161 |
||
|
Taxpayer financial services |
91 |
154 |
14 |
||
|
Mortgage servicing |
62 |
56 |
64 |
||
|
Maintenance income on operating leases |
55 |
70 |
60 |
||
|
Other |
919 |
1,148 |
954 |
||
|
Total fee income |
10,191 |
13,381 |
11,383 |
||
|
Less: fee expense |
(1,763) |
(2,390) |
(2,350) |
||
|
Net fee income |
8,428 |
10,991 |
9,033 |
||
Reported net fee income declined by US$2.6 billion to US$8.4 billion, 14 per cent lower on an underlying basis.
The reduction in fee income was driven by two principal causes: lower credit card origination and utilisation fees caused by the economic downturn and changes to charging practices, primarily in the US; and investor preference for the security of deposit products which reduced flows into, and the value of, equity products.
Credit card fee income fell significantly, primarily in the US and the UK. In the US, this resulted from lower volumes and changes in customer behaviour. In the UK, the decline was partly due to the disposal of the card-acquiring business to a joint venture in June 2008 and lower transaction volumes reflecting reduced customer demand.
Equity market-related revenues fell, primarily in Asia and Europe, driven by lower trading volumes in equity products, which was attributable to lower equity values and weakened investor sentiment. This reduced broking, global custody, funds under management and unit trust fee income.
Fees from Taxpayer Financial Services in the US fell due to a change in product mix towards lower revenue products and the termination of all partner relationships but one.
Partly offsetting the above, corporate credit facility and underwriting fees increased, reflecting strong performances in credit and lending due to higher syndication fees as a result of increased debt originations in Europe and North America.
Net trading income
|
Half-year to |
|||||
|
30 June 2009 US$m |
30 June 2008 US$m |
31 December 2008 US$m |
|||
|
Trading activities |
3,294 |
559 |
2,429 |
||
|
Net interest income on trading activities |
1,954 |
3,195 |
2,518 |
||
|
Other trading income - hedge ineffectiveness: |
|||||
|
- on cash flow hedges |
33 |
(15) |
(25) |
||
|
- on fair value hedges |
(3) |
(20) |
25 |
||
|
Non-qualifying hedges |
977 |
115 |
(1,237) |
||
|
Losses on collapse of Bernard L Madoff Investment Securities LLC |
- |
- |
(984) |
||
|
Net trading income13,14 |
6,255 |
3,834 |
2,726 |
||
For footnotes, see page 94.
Reported net trading income increased by 63 per cent to US$6.3 billion, 123 per cent higher on an underlying basis.
Net income from trading activities increased significantly, with a record performance in Rates, increased foreign exchange earnings and significantly lower write-downs on legacy structured credit positions and asset-backed securities portfolios. With greater liquidity in the market, credit spreads improved considerably, which favourably affected performance in the core Credit business as customer appetite for corporate bonds increased and the market diversified away from government bond holdings. HSBC's strong capital position and its strength in emerging markets remained key attributes in attracting customer business to the Group.
HSBC's strong capital position and strength in emerging markets remained key attributes in attracting customer business to the Group.
The increase in Rates income was driven by correct positioning against interest rate movements, an increase in customer demand for trading and hedging products and an improvement in bid-offer spreads. This was partly offset by fair value losses on structured liabilities as credit spreads narrowed compared with gains in the first half of 2008. Similarly, the increase in foreign exchange trading income was driven by market volatility and increased customer volumes.
Equities trading declined due to lower demand for structured equity products, compounded by the non-recurrence of gains in the first half of 2008.
The rise in income from trading activities was partly offset by a reduction in the net interest income earned on trading activities, as interest rates fell sharply. The internal funding cost of trading activities was also lower than in the first half of 2008. This compensating benefit is reported within 'Net interest income'.
Within net trading income the benefit from non-qualifying hedges increased, mainly due to fair value gains on currency swaps held against non-dollar denominated debt instruments.
During the second half of 2008, HSBC reclassified US$17.9 billion of assets from 'held for trading' to 'loans and receivables' and 'available for sale' following the IASB's amendment to IAS 39. Had these reclassifications not taken place and the reclassified assets had continued to be accounted for on a fair value basis, an additional net loss of US$0.3 billion would have been recorded in the first half of 2009. Further information on the effect of reclassifying these assets can be found in 'Impact of Market Turmoil' on pages 96 to 137.
Net income/(expense) from financial instruments designated at fair value
|
Half-year to |
|||||
|
30 June 2009 US$m |
30 June 2008 US$m |
31 December 2008 US$m |
|||
|
Net income/(expense) arising from: |
|||||
|
- financial assets held to meet liabilities under insurance and investment contracts |
956 |
(2,023) |
(3,041) |
||
|
- liabilities to customers under investment contracts |
(197) |
745 |
1,006 |
||
|
- HSBC's long-term debt issued and related derivatives |
(2,300) |
577 |
6,102 |
||
|
Change in own credit spread on long-term debt |
(2,457) |
824 |
5,746 |
||
|
Other changes in fair value15 |
157 |
(247) |
356 |
||
|
- other instruments designated at fair value and related derivatives |
18 |
117 |
369 |
||
|
Net income/(expense) from financial instruments designated at fair value |
(1,523) |
(584) |
4,436 |
||
|
Financial assets designated at fair value at period end |
33,361 |
40,786 |
28,533 |
||
|
Financial liabilities designated at fair value at period end |
77,314 |
89,758 |
74,587 |
||
For footnote, see page 94.
HSBC designates certain financial instruments at fair value to remove or reduce accounting mismatches in measurement or recognition, or where financial instruments are managed and their performance is evaluated together on a fair value basis. All income and expense from financial instruments designated at fair value are included in this line except for interest arising from HSBC's issued debt securities and related derivatives managed in conjunction with those debt securities, which is recognised in 'Interest expense'.
HSBC principally uses the fair value designation in the following instances:
for certain fixed-rate long-term debt issues whose rate profile has been changed to floating through interest rate swaps as part of a documented interest rate management strategy. US$61 billion (31 December 2008: US$59 billion) of the Group's debt issues have been accounted for using the fair value option.
The movement in fair value of these debt issues includes the effect of own credit spread changes and any ineffectiveness in the economic relationship between the related swaps and own debt. As credit spreads widen or narrow, accounting profits or losses are booked, respectively. The size and direction of the accounting consequences of changes in own credit spread and ineffectiveness can be volatile from year to year, but do not alter the cash flows envisaged as part of the documented interest rate management strategy; as a consequence of this, gains and losses arising from changes in own credit spread on long-term debt are not regarded internally as part of managed performance. Similarly, such gains and losses are ignored in the calculation of regulatory capital;
for US$12 billion (31 December 2008: US$11 billion) of financial assets held to meet liabilities under insurance contracts, and certain liabilities under investment contracts with discretionary participation features; and
for US$7 billion (31 December 2008: US$7 billion) of financial assets held to meet liabilities under unit-linked and other investment contracts.
A net expense from financial instruments designated at fair value of US$1.5 billion was reported, compared with a net expense of US$584 million in the first half of 2008.
Credit spreads narrowed markedly during the second quarter of 2009, leading to a significant negative fair value movement on certain long-term debt in issue by the Group in the second quarter as positive movements booked in previous periods partially reversed. This more than offset the positive movement in respect of the first quarter, resulting in US$2.5 billion of negative fair value movement attributed to credit spread movement on HSBC's own debt for the first half of 2009. The cumulative fair value adjustment at 30 June 2009 amounted to a net reduction in the carrying value of the debt (gains recognised) of US$5.5 billion; this will fully reverse over the life of the debt.
A positive fair value movement of US$1.0 billion was recorded on assets held to back insurance and investment contracts, compared with a negative movement of US$2.0 billion in the first half of 2008. This reflected investment gains in the current year driven by improvement in investment market performance, predominantly affecting the value of assets held in unit-linked and participating funds in Hong Kong, the UK and France. The positive movement in fair value is partly offset by a corresponding increase in 'Net insurance claims and movement in liabilities to policyholders' to reflect the extent to which unit-linked policyholders, in particular, participate in the investment performance experienced on the linked investment portfolios.
For assets held to meet liabilities under investment contracts, a corresponding increase in the liability to customers is also reported within net income from financial instruments designated at fair value. The increase of US$197 million in the fair value of liabilities held under investment contracts reflected the improved performance of investment markets in the period and compared with a US$745 million reduction in the first half of 2008.
Gains less losses from financial investments
|
Half-year to |
|||||
|
30 June 2009 US$m |
30 June 2008 US$m |
31 December 2008 US$m |
|||
|
Net gains/(losses) from disposal of: |
|||||
|
- debt securities |
329 |
38 |
(19) |
||
|
- equity securities |
268 |
1,107 |
109 |
||
|
- other financial investments |
7 |
(11) |
15 |
||
|
604 |
1,134 |
105 |
|||
|
Impairment of available-for-sale equity securities |
(281) |
(317) |
(725) |
||
|
Gains less losses from financial investments |
323 |
817 |
(620) |
||
Reported net gains from financial investments of US$323 million were 60 per cent lower than in the first half of 2008, 47 per cent lower on an underlying basis. This was driven by a lower level of gains from disposals of equity investments compared with the first half of 2008, partly offset by gains on the disposal of debt securities in North America.
Net gains on the disposal of equity securities decreased significantly. A sale of Visa Inc. ('Visa') shares in the first half of 2009 generated a gain of US$225 million, lower than the gain of US$332 million earned from disposals in the first half of 2008. Certain gains recognised in the first half of 2008 were not repeated in 2009, including from the sale of MasterCard Inc. ('MasterCard') shares, four French mutual funds and HSBC's residual interest in the Hermitage Fund.
Net gains from the disposal of debt securities increased compared with the first half of 2008. This was primarily due to gains recorded on the sale of mortgage-backed securities in North America.
The level of impairments on equity investments fell slightly as the absence of impairments recognised in the first half of 2008 on strategic investments held in the available-for-sale portfolio in Asia was largely offset by impairments on certain Private Equity investments as the markets for unlisted investments remained illiquid.
Net earned insurance premiums
|
Half-year to |
|||||
|
30 June 2009 US$m |
30 June 2008 US$m |
31 December 2008 US$m |
|||
|
Gross insurance premium income |
5,255 |
6,591 |
5,956 |
||
|
Reinsurance premiums |
(243) |
(1,438) |
(259) |
||
|
Net earned insurance premiums |
5,012 |
5,153 |
5,697 |
||
Reported net earned insurance premiums amounted to US$5.0 billion, 3 per cent lower than in the first half of 2008. On an underlying basis, net earned insurance premiums increased by 10 per cent.
The growth in net earned insurance premiums was largely due to increased sales of traditional life products in Hong Kong, as a result of a strong focus on insurance sales within the branch network, and the non-recurrence of a large reinsurance transaction in France in June 2008, which passed insurance premiums to a third-party reinsurance provider. Adjusting for this, net earned insurance premiums in France were relatively unchanged despite a significant reduction in the distribution network following the disposal of the regional banks in July 2008.
Insurance sales also developed well in Singapore following the launch of a new individual life single premium product, and in Ireland due to higher inward reinsurance premiums.
Partially offsetting this growth was the withdrawal of the Guaranteed Income Bond from sale in the UK as the product was no longer commercially viable in the prevailing economic environment. Furthermore, sales of insurance products in North America, which are strongly linked to loan originations and volumes, were adversely affected by the decision to run-off the branch-based consumer finance business.
Other operating income
|
Half-year to |
|||||
|
30 June 2009 US$m |
30 June 2008 US$m |
31 December 2008 US$m |
|||
|
Rent received |
273 |
326 |
280 |
||
|
Losses recognised on assets held for sale |
(120) |
(16) |
(114) |
||
|
Valuation gains/(losses) on investment properties |
(43) |
27 |
(119) |
||
|
Gain on disposal of property, plant and equipment, intangible assets and non-financial investments |
305 |
412 |
53 |
||
|
Change in present value of in-force long-term insurance business |
290 |
324 |
(38) |
||
|
Gain on repurchase of 8 Canada Square |
- |
- |
416 |
||
|
Other |
453 |
362 |
(105) |
||
|
Other operating income |
1,158 |
1,435 |
373 |
||
Reported other operating income of US$1.2 billion was 19 per cent lower than in the first half of 2008. This included gains of US$425 million in the first half of 2008 and US$280 million in 2009 on the sale, in two tranches, of the card merchant-acquiring business in the UK. On an underlying basis, other operating income rose by 21 per cent, primarily driven by gains on the sale of prime residential mortgages and lower losses on foreclosed properties in the US due to a reduction in stock of unsold properties.
Net insurance claims incurred and movement in liabilities to policyholders
|
Half-year to |
|||||
|
30 June 2009 US$m |
30 June 2008 US$m |
31 December 2008 US$m |
|||
|
Insurance claims incurred and movement in liabilities to policyholders: |
|||||
|
- gross |
5,505 |
4,769 |
4,437 |
||
|
- reinsurers' share |
2 |
(1,332) |
(985) |
||
|
- net16 |
5,507 |
3,437 |
3,452 |
||
For footnote, see page 94.
Reported net insurance claims incurred and movement in liabilities to policyholders increased by 60 per cent to US$5.5 billion. On an underlying basis, they grew by 81 per cent.
The increase in net insurance claims incurred and movement in liabilities to policyholders primarily reflected an improvement in investment market performance compared with the first half of 2008. This led to investment gains and therefore a positive movement in liabilities to policyholders on unit-linked and, to a certain extent, participating policies where policyholders share in the investment performance of the assets supporting a policy. The gains experienced on the assets held to support insurance contract liabilities are reported in 'Net income from financial instruments designated at fair value'.
As well as market value movements, premium growth, particularly in Hong Kong, also contributed to the increase in policyholder liabilities, as did the non-recurrence of certain events which occurred in the first half of 2008, including the significant reinsurance transaction in France referred to above.
As a consequence of a rising incidence and severity of claims, there was a US$105 million strengthening of reserves in the UK motor book during the period.
Loan impairment charges and other credit risk provisions
|
|
Half-year to |
||||
|
30 June 2009 US$m |
30 June 2008 US$m |
31 December 2008 US$m |
|||
|
Loan impairment charges |
|||||
|
New allowances net of allowance releases |
13,710 |
10,436 |
14,529 |
||
|
Recoveries of amounts previously written off |
(377) |
(479) |
(355) |
||
|
13,333 |
9,957 |
14,174 |
|||
|
Individually assessed allowances |
2,250 |
332 |
1,732 |
||
|
Collectively assessed allowances |
11,083 |
9,625 |
12,442 |
||
|
Impairment of available-for-sale debt securities |
591 |
67 |
670 |
||
|
Other credit risk provisions |
7 |
34 |
35 |
||
|
Loan impairment charges and other credit risk provisions |
13,931 |
10,058 |
14,879 |
||
|
|
|||||
|
% |
% |
% |
|||
|
- as a percentage of net operating income before loan impairment charges and other credit risk provisions |
40.1 |
25.5 |
35.3 |
||
|
Impairment charges on loans and advances to customers as a percentage of gross average loans and advances to customers (annualised) |
3.1 |
2.0 |
2.9 |
||
|
US$m |
US$m |
US$m |
|||
|
Customer impaired loans |
31,826 |
20,702 |
25,352 |
||
|
Customer loan impairment allowances |
27,701 |
20,580 |
23,909 |
||
Reported loan impairment charges and other credit risk provisions were US$13.9 billion, an increase of 39 per cent compared with the first half of 2008. On an underlying basis, loan impairment charges and other credit risk provisions were 47 per cent higher than in the first half of 2008 and 3 per cent lower than in the second half of the year.
Compared with the first half of 2008, deterioration in credit quality was experienced across all customer groups and regions as the global economy weakened, with significant reductions in trade flows, falls in commodity prices and rising unemployment. In addition, stresses within many financial systems reduced the supply of credit to both personal and corporate customers, restricting refinancing options. This resulted in a rise in Group loan impairment charges and other credit risk provisions notwithstanding an underlying 5 per cent decline in lending to customers, primarily from the run-off within the US consumer finance business.
Loan impairment charges and other credit risk provisions rose significantly in Personal Financial Services, by 20 per cent to US$10.7 billion, due to a widespread deterioration in credit quality affecting all regions, most notably North America as the US economy weakened further and unemployment grew.
The continued rise in unemployment, higher levels of personal bankruptcy filings, portfolio seasoning, further declines in house prices and limited refinancing options adversely affected loan impairment charges in US Personal Financial Services. In HSBC Bank USA, N.A. ('HSBC Bank USA'), higher loan impairment charges were driven by an increase in delinquencies in the first lien prime residential mortgage portfolio. In the real-estate secured portfolios within HSBC Finance Corporation ('HSBC Finance'), which are in run-off, credit delinquency was most notable within first lien loans in Consumer Lending. Loan impairment charges in Mortgage Services, however, declined due to lower balances as the portfolio, which was put into run-off during 2007, further seasoned and continued to shrink.
Underlying loan impairment charges and other credit provisions were lower than in the second half of 2008.
In the Consumer Lending unsecured portfolio, loan impairment charges rose due to credit delinquency in the 2006 and 2007 vintages, the effect of which was uneven, being more pronounced in certain geographical regions. In US Card and Retail Services, loan impairment charges increased for the reasons explained above, partly offset by an extended seasonal effect as consumers experienced a higher availability of cash due to various government economic stimulus programmes, reduced expenditure on energy, and lower levels of consumption, as well as management action taken to tighten credit availability.
Notwithstanding the above, loan impairment charges in HSBC Finance were lower than in the second half of 2008 and were lower than might have been anticipated given the rise in unemployment.
To date, delinquency levels, which might have been affected by the closure of the Consumer Lending branches, continue to perform within expectations.
In the UK, a rise in loan impairment charges in Personal Financial Services reflected rising delinquency rates in the personal loan and credit card portfolios due to a weakening economy. This was partly mitigated by the early implementation of improved collection practices and previous decisions to curtail growth in unsecured lending, which resulted in a year-on-year decline in other personal lending. In the real estate secured portfolios, overall delinquencies rose only modestly despite higher unemployment and continued house price depreciation, and loan impairment charges were low, reflecting modest growth in 2006 and 2007 and HSBC's very limited participation in the buy-to-let and brokered segments of the market. HSBC's mortgage exposure remained well-secured with average loan to value ratios in the UK of below 60 per cent. Credit quality in the unsecured portfolios deteriorated slightly in the period as consumers were affected by higher unemployment and lower household incomes.
In Brazil, loan impairment charges in Personal Financial Services rose as increased unemployment led to higher delinquencies across a range of products, in addition to the non-recurrence of a significant recovery in the first half of 2008 from the sale of a portfolio of written-down loans. In Mexico, higher loan impairment charges reflected higher delinquency rates, most notably in the credit cards business, as the deterioration in economic conditions was exacerbated by the impact of the H1N1 flu virus. Tighter credit origination policies have been put in place in Mexico to limit new issuance and the existing portfolio is being worked down. In the first half of 2009, credit card outstanding balances fell from US$2.4 billion to US$2.1 billion.
In Rest of Asia-Pacific, the rise in loan impairment charges in Personal Financial Services principally reflected a deterioration in the credit card and unsecured personal loan portfolios in India. HSBC took specific actions to mitigate loan losses there, including discontinuing origination in certain segments and tightening lending criteria, which resulted in a decline in balances.
In Personal Financial Services in Hong Kong, loan impairment charges rose from a low base, with increased delinquency in the credit card portfolio as economic conditions weakened.
In the Middle East, lower oil prices, a significant reduction in construction activity and the effect of falling equity and property prices on personal wealth contributed to the rise from a low base in loan impairment charges in the credit card and personal loan portfolios in Personal Financial Services, as economic activity in the region slowed and an increased numbers of expatriate workers departed leaving debts unpaid.
In Global Banking and Markets, loan impairment charges and other credit risk provisions rose by US$1.6 billion to US$1.7 billion, which reflected deterioration in the credit position of a small number of clients. Within this total, US$0.6 billion reflected impairments recognised in the available-for-sale debt securities portfolio, most notably on monoline-wrapped bonds where the monoline insurer's credit rating had been downgraded in the period; these impairments were in line with the stress test parameters described on page 149 of the Annual Report and Accounts 2008.
In Commercial Banking, loan impairment charges rose by US$1.0 billion to US$1.5 billion. Loan impairment charges in the UK grew as continued weakness in the economy led to higher impairment charges particularly against exposures to the real estate and construction sectors. Higher loan impairment charges in India were mainly on a small number of exposures to technology-related companies. They also rose in Hong Kong as exporters experienced a sharp downturn in business due to the contraction in global trade, and in Brazil, where they were driven by credit quality deterioration on exposures to firms in the small and mid-market sectors due to a general slowdown in economic activity.
Loan impairment charges in North America Commercial Banking rose from a relatively low base, driven by credit deterioration in business banking and commercial real estate exposures in the US, and among firms in the manufacturing, commercial real estate and export sectors in Canada which were affected by the continued weakness in the US economy.
HSBC's total outstanding customer loan impairment allowances at 30 June 2009 of US$28 billion represented 3.1 per cent of gross customer advances (net of reverse repos and settlement accounts), compared with 2.0 per cent at 30 June 2008.
Operating expenses
|
Half-year to |
|||||
|
30 June 2009 |
30 June 2008 |
31 December 2008 |
|||
|
US$m |
US$m |
US$m |
|||
|
By expense category |
|||||
|
Employee compensation and benefits |
9,207 |
10,925 |
9,867 |
||
|
Premises and equipment (excluding depreciation and impairment) |
2,048 |
2,137 |
2,168 |
||
|
General and administrative expenses |
4,210 |
5,342 |
5,613 |
||
|
Administrative expenses |
15,465 |
18,404 |
17,648 |
||
|
Depreciation and impairment of property, plant and equipment |
814 |
863 |
887 |
||
|
Amortisation and impairment of intangible assets |
379 |
346 |
387 |
||
|
Goodwill impairment |
- |
527 |
10,037 |
||
|
Operating expenses |
16,658 |
20,140 |
28,959 |
||
|
At 30 June 2009 |
At 30 June 2008 |
At 31 December 2008 |
|||
|
Staff numbers (full-time equivalent) |
|||||
|
Europe |
79,132 |
84,457 |
82,093 |
||
|
Hong Kong |
28,259 |
29,467 |
29,330 |
||
|
Rest of Asia-Pacific17 |
87,567 |
85,581 |
89,706 |
||
|
Middle East17 |
8,819 |
8,166 |
8,453 |
||
|
North America |
37,021 |
48,069 |
44,725 |
||
|
Latin America |
54,812 |
63,851 |
58,559 |
||
|
295,610 |
319,591 |
312,866 |
For footnote, see page 94.
Reported operating expenses fell by US$3.5 billion to US$16.7 billion. On an underlying basis, operating expenditure fell by 6 per cent, primarily from the non-recurrence of a goodwill impairment charge in the first half of 2008 and an accounting benefit in the first half of 2009 from a change in the way certain staff benefits are provided to employees in the UK, partly offset by restructuring costs, primarily in the US and the UK, in 2009.
Operating expenses fell by 6 per cent despite continuing business expansion in selected markets and growth in performance-related compensation in Global Banking and Markets.
Employee compensation and benefits fell by 4 per cent. The decrease in staff numbers in the US was primarily driven by the closure of the branch-based consumer finance business and lower volumes. In the UK, a reduction in costs reflected a change in the basis of delivering death-in-service, ill health and early retirement benefits for some UK employees, which generated an accounting gain of US$499 million partly offset by a change in actuarial valuation on the defined benefit pension scheme. Higher costs in Global Banking and Markets reflected a rise in performance-related pay.
Premises and equipment costs increased as one-off costs were incurred due to the closure of the Consumer Lending branch network in the US and HFC UK branches in the UK. Business expansion, primarily in the Rest of Asia-Pacific region and the Middle East, also resulted in higher infrastructure costs.
General and administrative expenses decreased as HSBC maintained its efforts to manage costs, increase efficiency and 'join up' the Group. The One HSBC programme continued to contribute to progress through better use of direct channels, increased automation of manual processes, enhanced utilisation of global service centres and elimination of redundant systems. Marketing and advertising costs fell in all regions, but most notably in North America as credit origination was heavily curtailed. There was an aggregate increase in deposit insurance costs of US$190 million in the US and in the UK as part of the bailout costs of failed banks. The recovery of transactional taxes in Brazil in 2008 also affected the period-on-period comparison.
A goodwill impairment charge amounting to US$527 million was booked in the first half of 2008 to reflect deterioration in economic and credit conditions in North America at that time.
Cost efficiency ratios
|
Half-year to |
|||||
|
30 June 2009 % |
30 June 2008 % |
31 December 2008 % |
|||
|
|
|||||
|
HSBC |
47.9 |
51.0 |
68.6 |
||
|
Personal Financial Services |
49.1 |
49.5 |
108.1 |
||
|
Europe |
65.7 |
57.3 |
69.4 |
||
|
Hong Kong |
34.6 |
29.1 |
36.1 |
||
|
Rest of Asia-Pacific17 |
79.9 |
75.0 |
88.2 |
||
|
Middle East17 |
48.7 |
51.4 |
54.8 |
||
|
North America |
36.9 |
44.6 |
181.9 |
||
|
Latin America |
62.9 |
57.4 |
62.1 |
||
|
Commercial Banking |
43.2 |
40.2 |
46.1 |
||
|
Europe |
40.7 |
39.4 |
50.6 |
||
|
Hong Kong |
33.4 |
23.7 |
28.9 |
||
|
Rest of Asia-Pacific17 |
45.4 |
44.9 |
46.7 |
||
|
Middle East17 |
32.1 |
31.9 |
32.2 |
||
|
North America |
49.3 |
44.7 |
47.6 |
||
|
Latin America |
54.4 |
55.2 |
54.7 |
||
For footnote, see page 94.
Share of profit in associates and joint ventures
|
Half-year to |
|||||
|
30 June 2009 US$m |
30 June 2008 US$m |
31 December 2008 US$m |
|||
|
Associates |
|||||
|
Bank of Communications Co., Limited |
358 |
349 |
392 |
||
|
Ping An Insurance (Group) Company of China, Limited |
235 |
297 |
27 |
||
|
Industrial Bank Co., Limited |
92 |
102 |
119 |
||
|
The Saudi British Bank |
136 |
146 |
105 |
||
|
Other |
19 |
47 |
16 |
||
|
Share of profit in associates |
840 |
941 |
659 |
||
|
Share of profit in joint ventures |
27 |
29 |
32 |
||
|
Share of profit in associates and joint ventures |
867 |
970 |
691 |
||
HSBC's share of profit from its associates and joint ventures was US$867 million, a decrease of 11 per cent compared with the first half of 2008, and 13 per cent lower on an underlying basis.
This decrease was principally driven by lower contributions from Ping An Insurance (Group) Company of China, Limited ('Ping An Insurance'), Industrial Bank Co., Limited ('Industrial Bank') and The Saudi British Bank.
HSBC accounts for its associates in mainland China one quarter in arrears in order to meet the Group reporting timetable, so in the current period the contributions reflect the fourth quarter of 2008 and the first quarter of 2009.
HSBC's share of profits from the Bank of Communications Co., Limited ('Bank of Communications') remained in line with the first half of 2008 as increased fee income from cards and advisory services and cost savings were offset by reduced income from narrower deposit spreads.
HSBC's share of profits from Ping An Insurance decreased by 25 per cent due to the non-recurrence of favourable changes in investment assumptions in the first half of 2008.
Profits from The Saudi British Bank were lower than in the first half of 2008 as an increase in net operating income due to strong foreign exchange and trade-related performance was offset by a rise in loan impairment charges and marginally higher operating expenses from business expansion.
Profits from Industrial Bank declined marginally, due to a fall in net interest income as deposit spreads narrowed.
The fall in share of profits from joint ventures reflected a decline in the profitability of HSBC Saudi Arabia Ltd ('IBSA') attributable to lower investment banking activity in 2009, offset in part by the inclusion in 2009 of profits from HSBC Merchant Services UK Ltd, which was created in June 2008. HSBC's 49 per cent share of the latter was sold in June 2009.
Economic profit
HSBC's internal performance measures include economic profit, a calculation which compares the return on financial capital invested in HSBC by its shareholders with the cost of that capital. HSBC prices its cost of capital internally and the difference between that cost and the post-tax profit attributable to ordinary shareholders represents the amount of economic profit generated. Economic profit generated is used by management as one input in deciding where to allocate capital and other resources.
In order to concentrate on external factors rather than measurement bases, HSBC emphasises the trend in economic profit ahead of absolute amounts within business units. The long-term cost of capital
is regularly benchmarked on a consolidated basis and for 2009 remains at 10 per cent.
Economic profit decreased by US$4.0 billion. A decline in profit attributable reflected a significant increase in loan impairment charges and other credit risk provisions, and fair value losses on own debt of US$2.5 billion as credit spreads tightened, compared with a gain of US$0.8 billion in the first half of 2008.
Average invested capital decreased by 7 per cent due to the impact on shareholders' equity of the effect of a stronger US dollar on foreign currency translation, partly offset by the additional equity raised through the rights issue. The benefit of the rights issue was not fully reflected in the average invested capital as the transaction was not completed until the second quarter of 2009.
The lower return on average invested capital led to a decrease in economic profit and an erosion in economic spread, which fell by 6.1 percentage points compared with the first half of 2008.
Economic profit
|
Half-year to |
|||||||||||
|
30 June 2009 |
30 June 200818 |
31 December 2008 |
|||||||||
|
US$m |
%19 |
US$m |
%19 |
US$m |
%19 |
||||||
|
Average total shareholders' equity |
105,734 |
128,409 |
116,241 |
||||||||
|
Adjusted by: |
|||||||||||
|
Goodwill previously amortised or written off |
8,123 |
8,172 |
8,132 |
||||||||
|
Property revaluation reserves |
(804) |
(847) |
(809) |
||||||||
|
Reserves representing unrealised losses on effective cash flow hedges |
582 |
1,069 |
926 |
||||||||
|
Reserves representing unrealised losses on available-for-sale securities |
19,456 |
3,989 |
14,281 |
||||||||
|
Preference shares and other equity instruments |
(3,538) |
(1,939) |
(3,423) |
||||||||
|
Average invested capital20 |
129,553 |
138,853 |
135,348 |
||||||||
|
Return on average invested capital21 |
3,213 |
5.0 |
7,677 |
11.1 |
(2,180) |
(3.2) |
|||||
|
, |
|||||||||||
|
Benchmark cost of capital |
(6,424) |
(10.0) |
(6,905) |
(10.0) |
(6,804) |
(10.0) |
|||||
|
Economic profit/(loss) and spread |
(3,211) |
(5.0) |
772 |
1.1 |
(8,984) |
(13.2) |
|||||
For footnotes, see page 94.
Ratios of earnings to combined fixed charges (and preference share dividends)
|
Half-year to 30 June |
Year ended 31 December |
||||||||||
|
2009 |
2008 |
2007 |
2006 |
2005 |
2004 |
||||||
|
Ratios of earnings to combined fixed charges and preference share dividends |
|||||||||||
|
Ratios in accordance with IFRSs: |
|||||||||||
|
- excluding interest on deposits |
3.46 |
2.97 |
6.96 |
7.22 |
9.16 |
8.64 |
|||||
|
- including interest on deposits |
1.28 |
1.13 |
1.34 |
1.40 |
1.59 |
1.86 |
|||||
|
Ratios in accordance with UK GAAP: |
|||||||||||
|
- excluding interest on deposits |
- |
- |
- |
- |
- |
8.07 |
|||||
|
- including interest on deposits |
- |
- |
- |
- |
- |
1.81 |
|||||
|
Ratios of earnings to combined fixed charges |
|||||||||||
|
Ratios in accordance with IFRSs: |
|||||||||||
|
- excluding interest on deposits |
3.89 |
3.17 |
7.52 |
7.93 |
9.60 |
8.64 |
|||||
|
- including interest on deposits |
1.30 |
1.14 |
1.34 |
1.41 |
1.59 |
1.86 |
|||||
|
Ratios in accordance with UK GAAP: |
|||||||||||
|
- excluding interest on deposits |
- |
- |
- |
- |
- |
8.07 |
|||||
|
- including interest on deposits |
- |
- |
- |
- |
- |
1.81 |
|||||
For the purpose of calculating the ratios, earnings consist of income from continuing operations before taxation and minority interests, plus fixed charges, and after deduction of the unremitted pre-tax income of associated undertakings. Fixed charges consist of total interest expense, including or excluding interest on deposits, as appropriate, preference share dividends, as applicable, and the proportion of rental expense deemed representative of the interest factor.
The above table contains ratios based on UK GAAP, HSBC's previous primary GAAP, which is not comparable to financial information based upon IFRSs, as explained in HSBC's 2004 IFRSs Comparative Financial Information published on 5 July 2004.
Balance sheet
|
At 30 June 2009 US$m |
At 30 June 2008 US$m |
At 31 December 2008 US$m |
|||
|
ASSETS |
|
||||
|
Cash and balances at central banks |
56,368 |
13,473 |
52,396 |
||
|
Trading assets |
414,358 |
473,537 |
427,329 |
||
|
Financial assets designated at fair value |
33,361 |
40,786 |
28,533 |
||
|
Derivatives |
310,796 |
260,664 |
494,876 |
||
|
Loans and advances to banks |
182,266 |
256,981 |
153,766 |
||
|
Loans and advances to customers |
924,683 |
1,049,200 |
932,868 |
||
|
Financial investments |
353,444 |
274,750 |
300,235 |
||
|
Other assets |
146,567 |
177,287 |
137,462 |
||
|
Total assets |
2,421,843 |
2,546,678 |
2,527,465 |
||
|
LIABILITIES AND EQUITY |
|||||
|
Liabilities |
|||||
|
Deposits by banks |
129,151 |
154,152 |
130,084 |
||
|
Customer accounts |
1,163,343 |
1,161,923 |
1,115,327 |
||
|
Trading liabilities |
264,562 |
340,611 |
247,652 |
||
|
Financial liabilities designated at fair value |
77,314 |
89,758 |
74,587 |
||
|
Derivatives |
298,876 |
251,357 |
487,060 |
||
|
Debt securities in issue |
156,199 |
230,267 |
179,693 |
||
|
Liabilities under insurance contracts |
48,184 |
46,851 |
43,683 |
||
|
Other liabilities |
158,916 |
137,748 |
149,150 |
||
|
Total liabilities |
2,296,545 |
2,412,667 |
2,427,236 |
||
|
Equity |
|||||
|
Total shareholders' equity |
118,355 |
126,785 |
93,591 |
||
|
Minority interests |
6,943 |
7,226 |
6,638 |
||
|
Total equity |
125,298 |
134,011 |
100,229 |
||
|
Total equity and liabilities |
2,421,843 |
2,546,678 |
2,527,465 |
A more detailed consolidated balance sheet is contained in the Financial Statements on page 201.
Movement between 31 December 2008 and 30 June 2009
Total assets amounted to US$2.4 trillion, 4 per cent lower than at 31 December 2008. On an underlying basis total assets fell by 9 per cent. A reconciliation of the reported to the underlying movement in the balance sheet is provided in the table on page 28. The following commentary is on an underlying basis.
The reduction in the size of the Group's balance sheet was largely attributable to a decline in the value of both derivative asset and liability positions as market volatility, credit spreads and interest rates all fell.
The Group's reported tier 1 ratio increased from 8.3 per cent to 10.1 per cent mainly due to additional equity of US$17.8 billion raised through the rights issue. For details of regulatory capital and risk-weighted assets, see pages 187 to 192.
Assets
Cash and balances at central banks increased by 5 per cent due to an increase in short-term funds held with central banks in Europe. This was partly offset by a redeployment of cash placements to treasury repos and government agency securities. Furthermore, additional liquidity was held in the US at 31 December 2008 to cover the pending card portfolio and vehicle finance asset transfers from HSBC Finance to HSBC Bank USA which were completed in January 2009.
Trading assets fell by 8 per cent. In Hong Kong, reductions in both government debt securities and debt securities held for trading were reported. Funds were redeployed to interbank placements and available-for-sale debt securities, supporting a trend towards secured and government-guaranteed investments. In Europe, the decrease was led by a reduction in reverse repo balances as liquidity improved following government intervention.
Financial assets designated at fair value increased by 8 per cent, primarily due to the purchase of UK government debt securities as part of Balance Sheet Management activities.
Derivative assets decreased by 41 per cent with reductions across all asset classes, notably foreign exchange, interest rate and credit derivatives. Lower volatility within the financial markets, steepening yield curves in major currencies and narrowing credit spreads led to a fall in the fair value of outstanding derivative contracts.
Loans and advances to banks grew by 15 per cent, mainly in Asia, as funds were redeployed from maturing debt securities to interbank placements.
HSBC's published advances-to-deposits ratio remained conservative at 79.5 per cent at the end of the period.
Loans and advances to customers fell by 6 per cent, driven by the run-off of the US Consumer Lending business, the sale of selected portfolios and lower credit origination as risk appetite was reduced in certain segments and customer demand declined. These factors were compounded by customer deleveraging in certain businesses and a decline in customer overdraft balances that are managed on a net basis but reported gross under IFRSs. By contrast, mortgage balances increased strongly in Europe and Hong Kong as HSBC targeted growth in these markets.
Financial investments grew by 13 per cent due to the continued investment of surplus deposits in government-guaranteed, agency, supra-national and government debt securities. These were partly offset by maturing available-for-sale treasury bills in the UK and a lower level of available-for-sale asset-backed securities within the Group's securities investment conduits ('SIC's) due to both disposal and maturity of securities.
Other assets increased by 5 per cent, driven by growth in items in the course of transmission from other banks in Hong Kong as improved market sentiment led to a rise in equity-related transactions.
Liabilities
Deposits by banks fell by 6 per cent, mainly from lower Fed funds and maturing positions being settled and not replaced.
Customer accounts decreased by 1 per cent, driven by an outflow of deposits in Europe as the economic situation improved and investor risk appetite increased. There was also a fall in deposits from customers whose accounts are managed net but reported gross under IFRSs, as referred to under Loans and advances to customers above. These factors were partly offset by an increase in deposits in Hong Kong.
Trading liabilities increased by 1 per cent, driven by a seasonal rise in trading settlement account balances. This was partly offset by a reduction in repo balances in line with the decision to manage down reverse repo exposure described under Trading assets above.
Derivatives are managed within market risk limits and, as a consequence, the movement in the value of derivative liabilities broadly matched that of derivative assets.
Debt securities in issue decreased by 16 per cent, primarily driven by a reduction in the North American funding requirements in line with the run-off of the consumer finance business.
Liabilities under insurance contracts increased by 8 per cent, with higher insurance sales, particularly of traditional life products in Asia following the launch of several new products, and gains recorded on unit-linked funds due to an improvement in investment market performance.
Other liabilities grew by 4 per cent, largely due to an increase in items in the course of transmission to other banks in Hong Kong as improved market conditions led to a rise in equity-related transactions.
Equity
Total shareholders' equity increased by 23 per cent, mainly due to the additional equity raised through the rights issue.
Reconciliation of reported and underlying assets and liabilities
|
30 June 2009 compared with 31 December 2008 |
||||||||||||||
|
HSBC |
31 Dec 08 as reported US$m |
Currency translation US$m |
31 Dec 08 at 30 Jun 09 exchange rates US$m |
Underlying change US$m |
|
30 Jun 09 as reported US$m |
Reported change % |
|
Under- lying change % |
|||||
|
Cash and balances at central banks |
52,396 |
1,543 |
53,939 |
2,429 |
56,368 |
8 |
5 |
|||||||
|
Trading assets |
427,329 |
20,655 |
447,984 |
(33,626) |
414,358 |
(3) |
(8) |
|||||||
|
Financial assets designated at fair value |
28,533 |
2,353 |
30,886 |
2,475 |
33,361 |
17 |
8 |
|||||||
|
Derivative assets |
494,876 |
30,237 |
525,113 |
(214,317) |
310,796 |
(37) |
(41) |
|||||||
|
Loans and advances to customers |
932,868 |
50,260 |
983,128 |
(58,445) |
924,683 |
(1) |
(6) |
|||||||
|
Loans and advances to banks |
153,766 |
4,347 |
158,113 |
24,153 |
182,266 |
19 |
15 |
|||||||
|
Financial investments |
300,235 |
12,937 |
313,172 |
40,272 |
353,444 |
18 |
13 |
|||||||
|
Other assets |
137,462 |
1,879 |
139,341 |
7,226 |
146,567 |
7 |
5 |
|||||||
|
Total assets |
2,527,465 |
124,211 |
2,651,676 |
(229,833) |
2,421,843 |
(4) |
(9) |
|||||||
|
Deposits by banks |
130,084 |
7,205 |
137,289 |
(8,138) |
129,151 |
(1) |
(6) |
|||||||
|
Customer accounts |
1,115,327 |
57,629 |
1,172,956 |
(9,613) |
1,163,343 |
4 |
(1) |
|||||||
|
Trading liabilities |
247,652 |
13,104 |
260,756 |
3,806 |
264,562 |
7 |
1 |
|||||||
|
Financial liabilities designated at fair value |
74,587 |
2,773 |
77,360 |
(46) |
77,314 |
4 |
- |
|||||||
|
Derivative liabilities |
487,060 |
29,862 |
516,922 |
(218,046) |
298,876 |
(39) |
(42) |
|||||||
|
Debt securities in issue |
179,693 |
5,597 |
185,290 |
(29,091) |
156,199 |
(13) |
(16) |
|||||||
|
Liabilities under insurance contracts |
43,683 |
1,097 |
44,780 |
3,404 |
48,184 |
10 |
8 |
|||||||
|
Other liabilities |
149,150 |
3,903 |
153,053 |
5,863 |
158,916 |
7 |
4 |
|||||||
|
Total liabilities |
2,427,236 |
121,170 |
2,548,406 |
(251,861) |
2,296,545 |
(5) |
(10) |
|||||||
|
Total shareholders' equity |
93,591 |
2,862 |
96,453 |
21,902 |
118,355 |
26 |
23 |
|||||||
|
Minority interests |
6,638 |
179 |
6,817 |
126 |
6,943 |
5 |
2 |
|||||||
|
Total equity |
100,229 |
3,041 |
103,270 |
22,028 |
125,298 |
25 |
21 |
|||||||
|
Total equity and liabilities |
2,527,465 |
124,211 |
2,651,676 |
(229,833) |
2,421,843 |
(4) |
(9) |
|||||||
In 2009, the effect of acquisitions was not material.
Other information
Funds under management
|
Half-year to |
|||||
|
30 June 2009 |
30 June 2008 |
31 December 2008 |
|||
|
US$bn |
US$bn |
US$bn |
|||
|
Funds under management |
|||||
|
At beginning of period |
735 |
844 |
857 |
||
|
Net new money |
1 |
23 |
(24) |
||
|
Value change |
21 |
(49) |
(110) |
||
|
Exchange and other |
6 |
39 |
12 |
||
|
At end of period |
763 |
857 |
735 |
||
|
Funds under management by business |
|||||
|
HSBC Global Asset Management |
387 |
389 |
370 |
||
|
Private Banking |
223 |
289 |
219 |
||
|
Affiliates |
3 |
5 |
2 |
||
|
Other |
150 |
174 |
144 |
||
|
763 |
857 |
735 |
|||
Funds under management at 30 June 2009 were US$763 billion, an increase of 4 per cent when compared with 31 December 2008. Both Global Asset Management and Private Banking fund holdings increased, primarily as a result of the improved performance of global equity markets in the first half of the year.
Global Asset Management funds increased to US$387 billion as a result of positive net flows into retail investment products, favourable foreign exchange movements and market performance.
Emerging markets funds increased during the first half of 2009, driven by performance gains. HSBC remains one of the world's largest emerging market asset managers with funds under management of US$69 billion.
Private Banking funds increased by 2 per cent to US$223 billion, driven by equity market performance.
Client assets, which provide an indicator of overall Private Banking volumes and include funds under management, were US$345 billion, broadly in line with 31 December 2008.
Other funds under management, which are mainly held by a corporate trust business in Asia, increased to US$150 billion.
Assets held in custody and under administration
Custody is the safekeeping and servicing of securities and other financial assets on behalf of clients. At 30 June 2009, assets held by HSBC as custodian amounted to US$4.5 trillion, 25 per cent higher than the US$3.6 trillion held at 31 December 2008. This increase was largely a result of increased asset values.
HSBC's assets under administration business, which includes the provision of various support function activities including the valuation of portfolios of securities and other financial assets on behalf of clients, complements the custody business. At 30 June 2009, the value of assets held under administration by the Group amounted to US$2.8 trillion, compared with US$3.3 trillion at 31 December 2008.
Review of transactions with related parties
As required by the Financial Services Authority's ('FSA's) Disclosure and Transparency Rules, a fair review of related party transactions that have taken place in the first six months of the current financial year and any changes in the related parties transactions described in the Annual Report and Accounts 2008 has been undertaken. Pursuant to this review, where transactions and balances with related parties have a material effect on the financial position or performance of HSBC they have been disclosed in the Notes on the Financial Statements.
Related Shares:
HSBC Holdings