Report of the Directors

12 Months Ended

Dec. 31, 2017

Report Of The Directors Strategic Report [Abstract]

Disclosure of audited information included in report of directors strategic report

Summary

The Group Chief Executive and the rest of the Group Management Board (‘GMB’) review operating activity on a number of bases, including by global business and geographical region. Global businesses are our reportable segments under IFRS 8 ‘Operating segments’.

Basis of preparation

The Group Chief Executive, supported by the rest of the GMB, is considered the Chief Operating Decision Maker (‘CODM’) for the purposes of identifying the Group’s reportable segments.

Analysis by global business is considered more prominent than the geographical region view in the way the CODM assesses performance and allocates resources. The global businesses are therefore considered our reportable segments under IFRS 8.

Global business results are assessed by the CODM on the basis of adjusted performance that removes the effects of significant items and currency translation from reported results. We therefore present these results on an adjusted basis as required by IFRSs. The 2016 and 2015 adjusted performance information is presented on a constant currency basis as described on page 32.

As required by IFRS 8, reconciliations of the total adjusted global business results to the Group reported results are presented on page 64. Supplementary reconciliations from reported to adjusted results by global business are presented on pages 67 to 69 for information purposes.

Our operations are closely integrated and, accordingly, the presentation of data includes internal allocations of certain items of income and expense. These allocations include the costs of certain support services and global functions to the extent that they can be meaningfully attributed to operational business lines and geographical regions. While such allocations have been made on a systematic and consistent basis, they necessarily involve a degree of subjectivity. Costs which are not allocated to global businesses are included in the Corporate Centre.

Where relevant, income and expense amounts presented include the results of inter-segment funding along with inter-company and inter-business line transactions. All such transactions are undertaken on arm’s length terms. The intra-Group elimination items for the global businesses are presented in the Corporate Centre.

The expense of the UK bank levy is included in the Europe geographical region as HSBC regards the levy as a cost of being headquartered in the UK. For the purposes of the presentation by global business, the cost of the levy is included in the Corporate Centre.

The results of geographical regions are presented on a reported basis.

Geographical information is classified by the location of the principal operations of the subsidiary or, for The Hongkong and Shanghai Banking Corporation, HSBC Bank plc, HSBC Bank Middle East and HSBC Bank USA, by the location of the branch responsible for reporting the results or providing funding.

A description of the global businesses is provided in the Strategic Report, pages 3 and 18 to 21.

Analysis of adjusted results by global business

HSBC adjusted profit before tax and balance sheet data
		2017
		Retail Banking and Wealth Management		Commercial Banking		Global Banking and Markets		Global Private Banking		Corporate Centre		Total
	Footnotes	$m		$m		$m		$m		$m		$m
Net interest income/(expense)		13,959		9,062		4,886		816		(439	)	28,284
Net fee income/(expense)		5,156		3,518		3,489		704		(56	)	12,811
Net trading income	31	453		539		5,995		170		807		7,964
Other income	33	719		104		721		13		908		2,465
Net operating income before loan impairment charges and other credit risk provisions	3	20,287		13,223		15,091		1,703		1,220		51,524
– external		17,040		13,383		16,378		1,438		3,285		51,524
– inter-segment		3,247		(160	)	(1,287	)	265		(2,065	)	—
Loan impairment (charges)/recoveries and other credit risk provisions		(980	)	(496	)	(459	)	(16	)	182		(1,769	)
Net operating income		19,307		12,727		14,632		1,687		1,402		49,755
Total operating expenses		(12,847	)	(5,947	)	(8,858	)	(1,391	)	(2,097	)	(31,140	)
Operating profit/(loss)		6,460		6,780		5,774		296		(695	)	18,615
Share of profit in associates and joint ventures		18		—		—		—		2,357		2,375
Adjusted profit before tax		6,478		6,780		5,774		296		1,662		20,990
		%		%		%		%		%		%
Share of HSBC’s adjusted profit before tax		30.9		32.3		27.5		1.4		7.9		100.0
Adjusted cost efficiency ratio		63.3		45.0		58.7		81.7		171.9		60.4
Adjusted balance sheet data		$m		$m		$m		$m		$m		$m
Loans and advances to customers (net)		346,148		316,533		252,474		40,326		7,483		962,964
Interests in associates and joint ventures		366		—		—		—		22,378		22,744
Total external assets		468,281		348,243		980,485		45,745		679,017		2,521,771
Customer accounts		639,592		362,908		283,943		66,512		11,507		1,364,462
Adjusted risk-weighted assets	34	121,466		300,995		299,272		16,036		130,848		868,617

HSBC adjusted profit before tax and balance sheet data (continued)
		2016
		Retail Banking and Wealth Management		Commercial Banking		Global Banking and Markets		Global Private Banking		Corporate Centre		Total
	Footnotes	$m		$m		$m		$m		$m		$m
Net interest income		12,919		8,491		4,798		801		1,170		28,179
Net fee income/(expense)		4,756		3,559		3,394		749		(63	)	12,395
Net trading income	31	426		442		6,231		183		2,426		9,708
Other income/(expense)	33	441		127		292		15		(1,867	)	(992	)
Net operating income before loan impairment charges and other credit risk provisions	3	18,542		12,619		14,715		1,748		1,666		49,290
– external		16,052		12,641		17,412		1,487		1,698		49,290
– inter-segment		2,490		(22	)	(2,697	)	261		(32	)	—
Loan impairment charges and other credit risk provisions		(1,142	)	(969	)	(461	)	—		(22	)	(2,594	)
Net operating income		17,400		11,650		14,254		1,748		1,644		46,696
Total operating expenses		(12,184	)	(5,746	)	(8,745	)	(1,476	)	(1,933	)	(30,084	)
Operating profit/(loss)		5,216		5,904		5,509		272		(289	)	16,612
Share of profit in associates and joint ventures		20		—		—		—		2,302		2,322
Adjusted profit before tax		5,236		5,904		5,509		272		2,013		18,934
		%		%		%		%		%		%
Share of HSBC’s adjusted profit before tax		27.7		31.2		29.1		1.4		10.6		100.0
Adjusted cost efficiency ratio		65.7		45.5		59.4		84.4		116.0		61.0
Adjusted balance sheet data		$m		$m		$m		$m		$m		$m
Loans and advances to customers (net)		323,986		294,952		237,655		36,972		12,494		906,059
Interests in associates and joint ventures		394		—		—		—		20,340		20,734
Total external assets		435,839		320,173		981,893		43,234		708,320		2,489,459
Customer accounts		611,846		356,885		272,159		72,730		15,037		1,328,657
Adjusted risk-weighted assets	34	114,683		286,912		307,736		15,649		153,324		878,304

		2015
Net interest income		12,299		8,287		4,422		819		2,167		27,994
Net fee income/(expense)		5,446		3,672		3,514		939		(121	)	13,450
Net trading income	31	427		460		5,960		206		721		7,774
Other income	33	666		88		382		2		66		1,204
Net operating income before loan impairment charges and other credit risk provisions	3	18,838		12,507		14,278		1,966		2,833		50,422
– external		16,451		12,585		16,633		1,689		3,064		50,422
– inter-segment		2,387		(78	)	(2,355	)	277		(231	)	—
Loan impairment charges and other credit risk provisions		(1,023	)	(1,447	)	(71	)	(11	)	(27	)	(2,579	)
Net operating income		17,815		11,060		14,207		1,955		2,806		47,843
Total operating expenses		(12,332	)	(5,826	)	(8,903	)	(1,582	)	(2,814	)	(31,457	)
Operating profit/(loss)		5,483		5,234		5,304		373		(8	)	16,386
Share of profit/(loss) in associates and joint ventures		23		—		(1	)	—		2,387		2,409
Adjusted profit before tax		5,506		5,234		5,303		373		2,379		18,795
		%		%		%		%		%		%
Share of HSBC’s adjusted profit before tax		29.3		27.8		28.2		2.0		12.7		100.0
Adjusted cost efficiency ratio		65.5		46.6		62.4		80.5		99.3		62.4
Adjusted balance sheet data		$m		$m		$m		$m		$m		$m
Loans and advances to customers (net)		313,927		281,826		243,662		42,592		23,690		905,697
Interests in associates and joint ventures		391		—		—		—		18,673		19,064
Total external assets		422,322		309,266		886,750		51,190		651,847		2,321,378
Customer accounts		569,183		341,717		256,374		80,442		13,956		1,261,672
Adjusted risk-weighted assets	34	116,047		282,149		318,818		17,661		313,100		1,047,775

For footnotes, see page 85.

Reconciliation of reported and adjusted items

(Audited)

Adjusted results reconciliation
		2017						2016								2015
		Adjusted		Significant items		Reported		Adjusted		Currency translation		Significant items		Reported		Adjusted		Currency translation		Significant items		Reported
	Footnote	$m		$m		$m		$m		$m		$m		$m		$m		$m		$m		$m
Revenue	3	51,524		(79	)	51,445		49,290		736		(2,060	)	47,966		50,422		3,727		5,651		59,800
LICs		(1,769	)	—		(1,769	)	(2,594	)	61		(867	)	(3,400	)	(2,579	)	(127	)	(1,015	)	(3,721	)
Operating expenses		(31,140	)	(3,744	)	(34,884	)	(30,084	)	(331	)	(9,393	)	(39,808	)	(31,457	)	(2,434	)	(5,877	)	(39,768	)
Share of profit in associates and joint ventures		2,375		—		2,375		2,322		33		(1	)	2,354		2,409		149		(2	)	2,556
Profit/(loss) before tax		20,990		(3,823	)	17,167		18,934		499		(12,321	)	7,112		18,795		1,315		(1,243	)	18,867

Adjusted balance sheet reconciliation
	2017	2016				2015
	Reported and Adjusted	Adjusted	Currency translation		Reported	Adjusted	Currency translation	Brazil operations1	Reported
	$m	$m	$m		$m	$m	$m	$m	$m
Loans and advances to customers (net)	962,964	906,059	(44,555	)	861,504	905,697	18,757	—	924,454
Interests in associates and joint ventures	22,744	20,734	(705	)	20,029	19,064	75	—	19,139
Total external assets	2,521,771	2,489,459	(114,473	)	2,374,986	2,321,378	39,164	49,114	2,409,656
Customer accounts	1,364,462	1,328,657	(56,271	)	1,272,386	1,261,672	27,914	—	1,289,586

1 Includes effects of foreign currency translation.

Adjusted profit reconciliation
		2017		2016		2015
	Footnotes	$m		$m		$m
For the year ended 31 Dec
Adjusted profit before tax		20,990		18,934		18,795
Significant items		(3,823	)	(12,321	)	(1,243	)
– customer redress programmes (revenue)		(108	)	2		(10	)
– DVA on derivative contracts		(373	)	26		230
– fair value movements on non-qualifying hedges	32	128		(687	)	(327	)
– gain on disposal of our investment in Vietnam Technological and Commercial Joint Stock Bank		126		—		—
– gain on disposal of our membership interest in Visa – Europe		—		584		—
– gain on disposal of our membership interest in Visa – US		308		116		—
– gain on the partial sale of shareholding in Industrial Bank		—		—		1,372
– gain/(loss) and trading results from disposed-of operations in Brazil		19		(2,081	)	(13	)
– investment in new businesses		(99	)	—		—
– other acquisitions, disposals and dilutions		78		—		—
– own credit spread	25	—		(1,792	)	1,002
– portfolio disposals		(158	)	(163	)	(214	)
– costs associated with portfolio disposals		(53	)	(28	)	—
– costs associated with the UK’s exit from the EU		(28	)	—		—
– costs to achieve		(3,002	)	(3,118	)	(908	)
– costs to establish UK ring-fenced bank		(392	)	(223	)	(89	)
– customer redress programmes (operating expenses)		(655	)	(559	)	(541	)
– gain on partial settlement of pension obligation		188		—		—
– impairment of GPB – Europe goodwill		—		(3,240	)	—
– regulatory provisions in GPB		(164	)	(344	)	(172	)
– restructuring and other related costs		—		—		(117	)
– settlements and provisions in connection with legal matters		362		(681	)	(1,649	)
– currency translation on significant items				(133	)	193
Currency translation				499		1,315
Reported profit before tax		17,167		7,112		18,867

For footnotes, see page 85.